A few thoughts on knowledge. Knowing or understanding how something works increases the chances of achieving a goal. A knowledge gap decreases the likelihood of achieving it. I recently listened to close friends share how they were caught off guard when their child was rejected for admission to a private school. They learned after the fact that an acceptance decision by some private schools is multifactorial—a child’s intelligence tests scores is just one factor. For better or worse, parents who understand the admissions process and act based on their knowledge increase their probability of success. This is just one recent example. Knowledge can have an outsize impact on outcomes in various aspects of life (e.g., entrepreneurship).

I like to think of it like this. Imagine you’re in a room trying to get out. Not knowing is the room being pitch black. You’re simultaneously trying to figure out (1) where you are in the room, (2) where the exit is, (3) where any obstacles are, and (4) how to move toward the exit. Knowing is the room having all its lights turned on and someone in it pointing to the exit door. All you have to do is move toward the exit. You can succeed either way, but in darkness it will take you longer.

The bad thing about knowledge is that it’s not universal. Some people have more knowledge than others about specific topics. They understand the edge it provides and the compounding impact it can have over time. They can accomplish more at a faster rate. Their knowledge is the result of the large amounts of time and energy they’ve put toward acquiring it—firsthand or by studying the knowledge of others before them. It’s their competitive advantage, and it’s unlikely they’ll readily share their competitive advantage until they’ve achieved their goals. Doing so prematurely could boost their competition and decrease the likelihood that they’ll achieve their goals. Regardless of how we feel about this, it’s a reality we should accept. It’s just how life works.

The good thing about knowledge is that it’s not static. Because augmenting our knowledge is within our control, we can increase our chances of achieving a particular goal. Adding to our store of knowledge isn’t easy; it requires time and energy. But the payoff from combining knowledge with execution can be enormous. Many who have achieved outsize success consider themselves lifelong learners. They’ve committed to learning throughout their life. The knowledge they gain is a significant contributor to their success, and they’re happy to put the time and energy into continuously acquiring more knowledge.

If you’re looking to achieve a goal, consider thinking about how big your knowledge gap is and what you can do to fill that gap and increase your chances of success.

This is my one-hundred-fifty-eighth weekly reflection. Here are my takeaways from this week:

• Knowledge – Knowledge is power. If you understand complex dynamics, you can make informed decisions and take appropriate action. But obtaining knowledge isn’t easy. You shouldn’t expect people who have it to give it to you freely. It took them lots of time and energy to acquire it or to arrive at the insights that preceded it. If you want to acquire knowledge, be ready to put in time and effort.
• The frequency of little things – I just started reading a new book about relationships. The most important thing the author says is that the frequency of little things matters a lot—it sets the tone in a relationship.
• History – I’ve been digging into financial markets’ past to better understand the present. History may not repeat itself, but it appears to be rhyming.

Week one hundred fifty-eight was a productive one. Looking forward to next week!

I’m a big fan of people who share their thoughts publicly. I enjoy reading how others think about certain topics. I’m an even bigger fan of investors who do this. I recently read a memo by Howard Marks, founder of Oaktree Capital, titled “bubble.com.”

The piece is just as you would expect, given the title: Howard shared his thoughts about what he viewed as a market bubble. I’ll describe my takeaways from it in another post, but I want to highlight something else today. Reading the memo, you’d think it was written recently (if you ignore the company names he references). Howard’s insights are accurate and help explain some of the things we’ve seen in the markets over the last three years. The interesting thing is that this isn’t a recent memo. Howard wrote it over two decades ago in 1999 and released it publicly on January 2, 2000.

Howard did a great job of explaining why he viewed the market as a bubble. He clearly had great comprehension of what was happening during a frenzied period in history, and his insights appear to have stood the test of time.

Earlier this week I shared my thoughts on people being less inclined to fit their lives into their work. Here’s a little more on that. I recently spoke with a venture capital investor at a prominent West Coast fund. She shared that she’d reevaluated where she worked. She concluded that the West Coast, with no support system and her aging parents thousands of miles away, wasn’t conducive to a good life with a young family. She ended up moving back to her hometown and working remotely, with the firm’s support.

I’m glad she was able to make a move that works for her family without limiting her options professionally. It’s encouraging to hear that her firm embraces this for her and other team members. I’m curious to see how venture firms react once they realize founders are making similar evaluations. Founders are likely to want to build companies in locations that suit their personal lives rather than relocate to be closer to Sand Hill Road.

I read a quote that stuck with me:

It had long since come to my attention that people of accomplishment rarely sat back and let things happen to them. They went out and happened to things.

                                                          – Leonardo da Vinci

Are you driving what’s happening or being driven?

I was debating the importance of culture with friends recently. Specifically, I said it’s a big competitive advantage in recruiting and retaining top talent. A good culture can be as or more important than salary. Not just in start-ups, but all organizations. An example I gave was that star athletes will sometimes take less money to stay with or join a team with a great culture.

During this debate, one friend asked me to define “culture” in one sentence. I told him it’s how people act when nobody’s looking.

If people are doing the right thing when nobody’s looking, you’ve got a good culture. If not, you’ve got a bad and possibly toxic culture. Guess which environment talented people with good values want to be in.

I caught up recently with a friend, an accomplished executive who’s worked for several Fortune 500 companies. He and his family have had to move a few times for these opportunities. He and his wife have always loved Atlanta, and they made their way back a few years ago. A new opportunity is bringing change to their lives again. He just accepted a leadership position for a company headquartered in a western state, where the job requires him to work. For now, he’ll live and work out west, his wife and children will stay in Atlanta, and he’ll come back every few weeks. They’ll make more definitive plans after he settles into the new role and the children finish the school year.

My friend has built an amazing life in Atlanta for his family and himself. He’s hesitant to uproot his family and take them away from the community and city they’ve come to love. I don’t know what my friend and his wife will decide, but I’m sure they’ll make the decision that’s best for their family.

Talking to him highlighted a change I’ve noticed. Companies used to attract talent to a location convenient to the company, which could have a big impact on the personal lives of the employee and their family. It was accepted that sometimes you must move for professional opportunities. In other words, people accepted making their personal lives fit into parameters set by their professions.

How people evaluate opportunities is changing. This is anecdotal, but I’m hearing more people evaluate opportunities differently. They’re looking at how a professional opportunity fits into their personal life, not the other way around. People are more hesitant to move or agree to opportunities that don’t align with their personal lives.

I’m wondering if this is just among the people I know or if it’s happening more broadly (as I suspect). I’m also curious about whether this is a trend that will endure regardless of the economic environment.

A founder told me about a deal he’s considering doing. It’s a deal for equity investment in a company. This start-up has runway and is executing, but it’s open to extending runway for more cushion, so this deal is appealing to the founder. I listened to everything and asked about the person presenting the deal.

The founder told me the person is known for using aggressive tactics to tilt things in his favor. His reputation among people he’s worked with isn’t great. Knowing this, the founder told me, he negotiated a deal that limited this person’s ability to exert control over the business or to influence it. As he put it, he’d negotiated a good deal.

There’s no such thing as a good deal with a bad person—even if the terms on paper are fair or in your favor. A bad person doesn’t comply with what’s written on paper. They play by their own rules (if they follow any rules). They will do unscrupulous things to get the outcomes they want. You can enforce what’s written on paper, but that usually requires involving courts, which is expensive, time consuming, and inherently risky (and bad people in business know that and take advantage of it).

I’ve learned from my experience as a founder and investor that working with bad people never ends well. So before I start negotiating terms, I focus on figuring out what type of person I’m dealing with. If they’re a bad actor, there’s no need to negotiate terms. Because I think it’s impossible to do a good deal with a bad person, I don’t do deals with bad people.

This is my one-hundred-fifty-seventh weekly reflection. Here are my takeaways from this week:

• 1st Quarter – Q1 2023 is officially in the record books. Full of unexpected developments, it’s a quarter to remember. I’m wondering if 2023 will be the years of twists and turns.
• Zoom out – This week was a reminder that sometimes it’s helpful to zoom out and look at things over a longer period. Doing so gives context to where you are today.
• The past won’t predict the future – Many people are assuming we’ll get to a norm that looks like the past few years. That belief ignores the fact that today is materially different from the past in many ways, which decreases the chances of the future looking anything like the past. A new norm is more likely, in my opinion.

Week one hundred fifty-seven was a productive week. Looking forward to next week!

In 2019 I shared an idea with a few venture investors. Slow- or no-growth venture-backed technology companies weren’t all bad solutions or operating in bad markets. Some solved painful problems that had big potential. Some struggled because of poor execution, team dynamics, or other factors that I thought could be fixed. Surely some of these companies were worth fixing and could be grown into profitable companies—or so my thinking went.

The investors didn’t think the idea was viable. They made some points I hadn’t considered. Some I agreed with, and some I didn’t. In hindsight, I see that the low-interest-rate environment meant these companies probably could raise capital and stay alive, and the capital raises likely could happen at (sometimes modestly) increased valuations, meaning the company value was technically going up.

At that time, it was hard to acquire these companies at valuations that reflected their true state because the founders and investors had options. They could raise capital and keep going, likely at a higher valuation. The prospect of an acquisition wasn’t appealing unless it came with a material premium, which was less appealing to the acquirer. The cost to acquire these companies and the effort required to get stakeholders on board with a deal just wasn’t worth it. In many cases, starting a new company was easier.

I revisited this idea recently. Higher interest rates have reduced valuations on publicly traded technology companies. For context, Bessemer’s Cloud Index says bottom-quartile SaaS companies were trading ~6x forward revenue in 2019. Today they’re trading at ~3x. I suspect late-stage private companies are trading at a discount relative to public companies. Some of these private companies raised capital at historically high multiples in 2020–2022, which makes raising capital at today’s multiples challenging. Translation: challenged, unprofitable technology companies have limited options. Raising capital to extend runway isn’t easy, and it’s unlikely to occur at an increased valuation.

Timing matters a lot, and 2019 wasn’t the right time for what I was thinking. But I’m wondering if the time is right now. Will we see a sharp increase in unprofitable and struggling technology companies being acquired as turnarounds in the next year or two?