The Top 10 Mistakes of Entrepreneurs with Guy Kawasaki

So, first of all, it's great to see this room filled and to see everybody here tonight. So thank you all for coming this evening. I'm Mark Coopersmith. I teach innovation and entrepreneurship here at UC Berkeley, and it's my pleasure to introduce my longtime friend and colleague, Guy So. Guy Kawasaki is, first of all, he's an executive fellow at the Haas School of Business, and we appreciate all of the time and attention and expertise that you bring to us here at Haas. So thank you for that. In addition to all of the time that you spend doing that, you're an author and a speaker, and Guy's also the chief evangelist of Canva, which is a great graphic design online service. Extremely cool, lots of free trials. So I would say check it out, especially for presentations. He formerly was an advisor and an evangelist for the Motorola business unit at Google. And prior to that, of course, he was an evangelist for Apple Computer, which is a role that we know him for quite a bit. He is the author of APE, which stands for author, publisher, and entrepreneur, what the plus enchantment, and nine other books. Is that right? Nine other books. That would be 12, total of 12. He is working to update Art of the Start, which is a classic and we use in a lot of our classes, certainly I do here at Berkeley. I've gotten a sneak peek at that book I know that's due out in early 2015, so look forward for that one as well. Guy graduated undergrad, BA from Stanford University. He has an MBA from UCLA and an honorary doctorate from Babson. Now, for those of you that might have given a little hiss at Stanford, Guy's son Nick is a junior here at Cal Berkeley. So go Bears. And as we gave my first son, you gave your first son, and you gave Thursday night tonight to us here. So we appreciate that. And finally, I would just say one of the reasons why it's such a pleasure for me is that many years ago, when I was launching a business, Guy was an investor in that business and a board member for me. And we successfully built the business and had a very nice exit. Unfortunately, I saw what the topic was tonight, which is the top 10 mistakes of entrepreneurs. And. And I can only hope that I wasn't the inspiration for too many of those. Please join me in welcoming Guy Kawasaki.

Thank you. Thank you. By the way, my firstborn is up there watching football on it. Don't think he's studying or watching a YouTube of me. He's watching some football game probably, and he's up there with his friends who. Who are players at the UC Berkeley ice hockey team, we happen to be a very ice hockey centric family. And another of our friends, Ian Murren, is here. So we have Ian Murren over there on the right side, Nick Kawasaki, PC and Bryce. Where's Bryce? So that's your Cal hockey team. I'll tell you a funny story. I get asked to review pitches every day, like multiple times a day. And to review a pitch, if you do it right, you guys notice because I just did this to you. It takes, I would say, a good hour to review it and a good hour to explain it. So it takes two hours. And so I don't have two hours times three or four requests per day. So I figured out a very good filter. And the filter is, if you want me to review your pitch, you have to donate $500 to the Cal ice hockey team, okay? And you'd be amazed at how many people are willing to take two hours of my time but not donate the money to Cal. So that is the fence I put in front of people, and lots of people have taken it up. Probably Cal's ice hockey team is the best funded PAC 8 club hockey team. And so I do that. And I don't want the money to come to me because I don't want people to say, well, guy Kawasaki, he's such an asshole. He charges $500 to review my business plan. What are people gonna say? He charges $500 to give to a not for profit? Like, who's the schmuck in that, right? So it's not me anymore. So that's the plan. All right, So I tell you that in case you're gonna rush up here after the thing and ask me to review your business plan now, you know what the cost is? There's a cost of everything. So my presentation here tonight is the top 10 mistakes of ENT. As you go through your careers, you'll probably see a lot of high tech speakers. And I'll tell you, there'll be two things you notice about them. First, most high tech speakers suck. And second, they go long. And that is a very dubious, ironic, and kind of heinous combination. Because if you think about it.

If.

You suck and your speech is short, it's okay, right? Like, not that much pain inflicted on the universe, but if you suck and you go long, that's the worst possible combination, right? It's like being stupid and arrogant. It's like, you know, going to USC for undergraduate and mba. I mean, it's just the worst possible combination. And so what I do is I use a top 10 format so that in case you think I suck, you know approximately how much longer I'll suck. So that's why I always use the top 10 format. I hope you don't think I suck, but in case you do, I have 10 key points. I assure you that I am a much better speaker than a hockey player for those of you who have seen me play hockey. And so I'm going to give you this top 10 and then we'll have lots of time for questions. So my background, I was an evangelist for Apple. I started several software companies. I became a venture capitalist, writer, and a speaker entrepreneur again. Now I'm working for a startup out of Sydney. It has about 40 employees and it's in the online graphics business. So I've been on sort of all sides of this. I've been on the investment side, I've been on the entrepreneur side. I've been on the study of it side. I've been on the do it of it side. And so these are the lessons that I've noticed that most entrepreneurs make. And the format of this presentation is, I'm going to tell you the mistake and I'm going to tell you how to avoid the mistake. Okay, Version one of this speech was I just tell you the mistake, but I figured version two, I need to improve it. So that's why there's different. There's another YouTube of me doing this same presentation in this same room that doesn't have the solution. It only has the problem. And that has been viewed like half a million times, right? Yeah. So half. So this should be much better than that. Okay, so I mean, I won't say that this is the iPhone6 of this presentation because you can put this presentation in your pocket and it won't bend. But how many of you use iPhones in this room? Oh, my God. And how many of you use Android? Some people raise their hands twice. That's all the Asians. I want to tell you. I use iPhone. No, I don't. I use Android. I love Android. I think Android is better. So real men use Android. Seriously? Seriously? Seriously. Okay, so where was I? You know, the mark of a good speaker is you never get off topic. The mark of a great speaker is you can go off topic and come back. I'll show you that right now. So mistake number one, mistake number one, that entrepreneurs do all the time. And if you're going to pitch me, you better avoid this mistake, which is to take this big number and multiply by a mere 1%. So this is how the pitch goes. Pretend you go back in time 15 years ago and you're pitching pets.com. so pets.com was a dot com startup that sold dog food online. Okay? So this is the pitch. There are 300 million Americans. These Americans, roughly one in four or own a dog, 75 million dogs. Each dog eats two cans of dog food per day. 150 million cans of dog food per day. And this is not B2B. This is B2C. Or more accurately, B2D. Because dogs, dogs do not take the weekend off. Dogs eat every day. Right? So total addressable market is one and a half million cans of dog food per day. Excuse me, 150 million cans of dog food per day times 365. Now, let's be conservative, because that's a favorite word of entrepreneurs. Let's be conservative. Let's pretend that we can get a mere 1% of this market. You know, how hard could that possibly be to get a mere 1,1% of 150 million cans of dog food per day? So 1% of 150 million cans of dog food per day. You don't need to go to Stanford to figure out that's one and a half million cans of dog food per day. One and a half million cans of dog food per day. Let's say you conservatively make a buck per can. That's a million and a half dollars per day. One and a half million dollars a day of gross revenue times 365 equals 500 million dollar business, conservatively speaking. Worst case. Okay? Do you not hear this kind of pitch every freaking day of the year? Right? Right. So that's what people do. And you know what? It's total bullshit. It's total bullshit because you cannot address that kind of market. This is saying, you know, how hard could it be to get 1% of the people in China to drink my soda? Well, that's not so easy to get 1% of people in China to drink your soda. So the solution for this is that you calculate from the bottom up, okay? So if you use the mistaken way, you calculate one and a half million cans per day, conservatively speaking. Let's go from the bottom. So from the bottom, using your rock star roommate, who happened to be with you the weekend you got drunk and decided to start this pet food company. And because you have no technical skills and he has one class in programming, he's the CTO now, okay? I can tell you, you're familiar with this practice, right? Okay. So CTO and CEO. And so this is how you do a bottom up analysis. You say, all right, so with my rock star PHP Ruby, expert roommate, he's going to write this great or she's going to write this great website. But let's just think like so website is selling pet food online. Let's figure that we can get 50,000 unique visitors a month. Be a little conservative. 50,000. And of those 50,000 people, let's say that using the same conservative number, you know, 1% of the people buy dog food. They actually buy dog food. Right? So 1% of 50,000 is 500, right? Yeah. So 500. So 500 people buy these 500 people, they buy a case. So it's 500 times 30. So now we're at 15,000. So like okay, so we have 15,000 cans of dog food per day. Let's, you know, let's round it up a little. So maybe we get to 15, maybe we get to 20,000. But 15 or 20,000 is a long way from one and a half million. Right? So using the top down analysis, you come up with a conservative one and a half million per day. Using the more conservative bottom up analysis, you come up with 15,000 per day. Let me tell you something, you are going to be much closer to 15,000 per day than one and a half million. And that's how you prevent this mistake. You have to be realistic. You can't just go from this big old number and try to scrunch it down using conservative estimates. You need to start from the bottom. Can you get 50,000 people to visit your website a day? Will 1% actually buy the dog food? That's a much more relevant way. So that's how you avoid this mistake. And the results will always be closer to the bottom up analysis than the top down. In all my years of working with entrepreneurs, I have never seen a company meet their financial projection. Never. It never happens. And I think a very good rule of thumb is that whatever the entrepreneur says in terms of volume, in terms of ship date, whatever the entrepreneur says, you add one year because software is always a year later than you think and you multiply by 0.01. So I'm saying your forecast is off by a factor of 100 and you're going to be a year later than you say. No matter what you tell me, that's what I'm even if you tell me I came to this thing, so I've already factored that in, I'm still going to do that. Okay, number two. Number two is you scale too Fast. The foundation of this mistake is the previous slide. So this is how scaling too fast works. So we have now calculated, conservatively speaking, we're going to do one and a half million cans of dog food per day. Oh, my God. We need to really put in a service infrastructure. We need to have multiple warehouses because we need the dog food shipping out a million and a half cans of dog food per day. You know, we should have a headquarters, we should have a shipping facility in Northern California, Southern California. We need one in Texas, we need Chicago. We need one in Boston. We need one in Miami. We need one in Burlington, North Carolina. We need one everywhere because, damn it, we are going to have great service. And so we need these multiple warehouses. We need support 24 by 7, because people are going to be buying dog food all over time, all the places. One and a half million cans a day, conservatively speaking. And so what happens? You make your burn rate come out half a million dollars, and guess what? Your rockstar CTO roommate is late on the software. And so you're burning half a million dollars because you have all this infrastructure, you have people, you have buildings, you have all these systems and all these things in place, and the software is late. This goes on for a year, right? And so during that year, your investors are now getting a little antsy. But you say to your investors, you know, we've invested so much training these people how to sell and support dog food, and these are rock star support people. And our CTO says that we're going to ship next month, so it would be really stupid to fire these rock star support people because in 30 days, we're going to have to hire back same kind of people, and then we'll have to train them because it's so hard to sell dog food online. We. We have so much invested in them, so let's keep these people on. And for the first three or four board meetings, your board, because they're mostly looking at their BlackBerries, are not going to even hear this, and they're going to sort of not do anything. But by about the sixth, seventh, eighth board meeting, when you're burning half a million dollars, your board is going to wake up and they're going to say, you know something? We're starting to not believe you. Right? And so the key here is dull, scale too fast. I have never seen a company die because it could not scale too fast. For once in my life, God willing, I would like to have a problem where a company I'm affiliated with has such demand, it cannot Keep up with the demand. God, please give me that problem just once in my life. Okay, so the solution to this problem is my philosophy that you eat what you kill. In other words, you don't build the kitchen, you don't build the chef, you don't get the waiters, you don't get the restaurant. You don't get anything until you actually kill something. And then once you kill somebody, once you get the sale, then you build the infrastructure, then you build the support. Now you're going to say, well, Guy, you know, if you do this and you're actually on time, then you might have a bad reputation. You can't fulfill orders fast enough. You can't do something like that. But again, I've never seen it happen. So a very good discipline is, you know, if you think that you're going to get 25 million page views a month, so you need to have two sets of buildings, and you need two sets of it, and all this customer service. I'll tell you what, when you approach 25 million, let's just worry about it then. But until then, because odds are you will be late. Odds are you will be late. So eat what you kill. Third thing is to form partnerships. Partnership is a very, very overused word in many circumstances. The word partnership means lack of sales. Okay? So since you don't have any revenue, you say, but we have very promising partnerships. In other words, it's total bullshit. Most partnerships are total bullshit. There's only one thing that you care about. It's sales. Remember, this is the most important thing I could tell you tonight. Sales fixes everything, okay? No bullshit partnership, nothing strategic. You're either selling or you're not selling. Partnerships are bullshit. If you want to apply a more sophisticated test to a partnership, when you form a partnership, did you boot Excel and either lower costs or increase sales? That's it. Because if you form a partnership and it doesn't force you to recalculate your financials, it's total bullshit. Okay? That's the test. It is a spreadsheet test for partnerships. Most partnerships, you announce something to egomaniac CEOs who don't know anything about the business. Go to a press conference, you announce this great thing, and then nothing happens. The middles and the bottoms of your organization can't stand each other. Nothing happens. Okay? So use the spreadsheet test. Don't form partnership. Instead of focus on sales, focus on sales. I swear to you that most entrepreneurs use the P word in order to blow smoke because they cannot use the s Word sales. The ideal number of times you word partnership in a presentation is one, like, just say it once you have one partnership, but if you start spitting it out like it's the key strategic strength for your company, oh my God, you are in deep trouble. Okay? But generally speaking, unless it changes your spreadsheet, partnerships are bullshit. Number four. Number four is that entrepreneurs tend to focus on the pitch. They want to make this perfect pitch, this perfect pitch that proves that there's one and a half million cans of dog food, conservatively speaking, per day, big total addressable market. They want to prove that they have a proven team, world class team, right? And they want to prove that they have a world class, patent pending, curve jumping, paradigm shifting technology. And so they spend days and days perfecting their pitch. That's absolutely wrong. The first thing you need to do as an entrepreneur, the top priority for you is to not make a pitch. It is to make a prototype. You want to build something, you want to get that into the marketplace. You want to see, no pun intended, if the dogs will eat the food. If you do a good enough prototype, you will never have to do a pitch. Okay? Pitches are something that is necessary. I would say it's a necessary evil. But you know, the goal of your company is not to have a great pitch. The goal of your company is to have a great product. So if you have these cycles in your brain, you should spend 80% of the cycles making a prototype and 20% making the pitch. Because at some level, all pitches are equal. Every one of your pitch is going to say you have a proven team, you have proven technology, you know, you have proven marketplace. Every one of that, every one of you is going to have an Excel spreadsheet that says in year five you're going to be doing 75 to $100 million. That number is not random. That's the number that everybody has figured out. It's high enough to make it look interesting, but low enough so we don't look like we're on hallucinogenics. Okay? That's the number. And this could be for shrimp farming software, it could be be for dog food, it could be for semiconductors, it could be for a new kind of compression algorithm. Everything is. You guys all got the same Excel spreadsheet. It all comes out 75 million in year five. Right? Right. Is that right?

Yeah.

So don't focus on the pitch, focus on the protocol. The best pitch for a sophisticated investor is. Let me show you what it does. You just want to suck the eyeballs out of their heads. That's what you want to do. If you do that, you don't have to worry about a pitch. It's all about the prototype and the demo. Number five. Number five is most entrepreneurs use far too many slides. Really, the number of slides you should use roughly 10, 10. So this is the Guy Kawasaki 10, 20, 30 rule of PowerPoint. The 10 20, 30 rule of PowerPoint says the optimal number of slides you should use is 10. You should give those 10 slides in 20 minutes. You might wonder why you have to give it in 20 minutes when you have an hour meeting. It's because other than in academic institutions, roughly 90% of the world uses Windows laptops. And my experience is that that a Windows laptop takes approximately 40 minutes to make it work with the projector. So if everybody in the world used the Macintosh, this would be the 10, 60, 30 rule. But unfortunately, 95% of the world uses Windows, so I have to dumb it down for the rest of the world. Okay, so 10 slides, give it in 20 minutes. And then the ideal font size is 30 points. 30 points. A very good rule of thumb. Rule of thumb is to figure out who the oldest person is in the audience. Divide his or her age by two. So if you're presenting to 60 year old VC, 30 points, 50 year old VC, 25 points. Someday you may be pitching to some 16 year old punk VC. Okay, that day I give you permission. Use the eight point font. But until that day, 10 slides, 20 minutes, 30 point font. A very good exercise for you when you enter these business plan contests is select all the text in your pitch, turn it to 30 points and see what's still left. That would be a very good test because if you force yourself to do this, you will contain just the essence of what you need to say. Another good exercise is pretend somebody offered you $100 per word to remove words. What would your pitch contain? That is a huge test. And now I have to tell you that of all the recommendations I give to entrepreneurs, this is the one that is most ignored. Because every one of you is sitting there saying, yeah, that makes sense for the great unwashed masses, for the hoi polloi, for the clueless people, right? But I have patent pending curve jumping, paradigm shifting, scalable carrier class, easy to use, revolutionary software. So Guy is not talking to me. Guy is talking to all the other bozos in the audience, okay? And there are people, I am on their advisory board. They swear they have read the art of the start. They swear they know the 10, 20, 30 rule, and they show me their PowerPoint and is 60 slides, 8 point font and I start having out of body experiences. Oh my God. You tell me you're my greatest fan. You adore what I write. How is it that you can show up at this meeting with a 60 point 60 slide presentation written in 8 points and it's because they believe that they are the exception. You are not the Exception. The ideal PowerPoint pitch is like one slide, really. It's the prototype, it's the demo. More power tips for you about pitching. I'll give you an aircraft analogy. Lots of people in the world and entrepreneurs are convinced that investors want teams. They want world class teams. Team is, is the most important thing and I completely disagree. I think it's your product and if your product is good enough, you can always change the team, quite frankly. And if the product is good enough, it'll open new markets. I'm a product oriented person. Many people however, believe that it's the team. So many entrepreneurs have heard that it's the team. So they open up their presentation and they spend the first 15 minutes explaining and trying to prove that their crappy team is world class. Okay? So in order to do this, you start off and you say, well, my ancestors came across in the Mayflower, they landed in, I don't know, wherever. The Mayflower, Massachusetts. They started the first, you know, outdoor gear set store in Massachusetts. And three generations later, you know, my family is a bunch of billionaires. They've endowed chairs at Dartmouth and there's a building named after us in Boston and all that. And so I went to Philip Exeter and then I went to Harvard, and during my senior year, I spent the year in like Ethiopia building houses for poor people. And then the next year I got a fellowship for Fulbright and I went over to Europe and I studied econometric models with Stephen Hawking. And then the following year I interned at Google. And while I was interning at Google, I took Net classes just in case Google was failing and Microsoft took over the world. And then I go through this with every freaking founder, right? And at the end you're supposed to be thinking, oh my God, these people are so smart. I mean, they look make Larry and Sergey look like idiots, right? And the thing is that, you know, almost by definition, if you're an entrepreneur, if you're a young entrepreneur and you have to pitch, you have to get money, you don't have a world class team, it's okay, right? Because if you think about it, think of all the truly fantastic companies that exist today in Technology and then put yourself back to when they started. So do you think that Steve Jobs and Steve Wozniak, when they started Apple, were a world class, proven team? I don't think so. Right. How about Jerry Yang and David Filo of Yahoo? They're like, you know, two computer science students at Stanford, maybe they worked at the bookstore. You know, that's how they understand commerce. Right. And if you go down the line, the founders of YouTube, they didn't come from Sony Pictures, they didn't come from international creative management. There's like two guys that said, wouldn't it be cool if people could upload stolen video? Right? And then, you know, I mean, continuing the YouTube, I mean, imagine the YouTube pitch. So yeah, you know, the two of us, like, I don't know, we work in a Blockbuster store on the weekend, we saw a lot of people like video. What a breakthrough. So we think, well, why don't we enable people to upload stolen video? But for that we need infinite bandwidth, infinite space. So we need funding. And what we think is going to make us tip is when people start dropping Mentos into Diet Cokes, well, let's all rush out and sign a check for YouTube. Right? But that's the nature. I mean, truly, that's the nature. So you know what? You've got to avoid the October 2030 rule. And so I'm telling you, don't lead off with your team. Don't lead off with your team because your team is probably not world class if you just say, okay, so if you can say something like, well, we are computer science students at Cal and we are 17 years old and we're in the PhD program. Okay, okay, I understand that, I understand that. That's fine. But that's what it takes. So instead, the analogy I want you to keep in mind is from the airplane business. So two kinds of airplanes, 747. 747, where he's half a million tons, I guess, I don't know. It's a big plane. Half a million tons, something like that. Right? Okay, so 747. How does a 747 take off? So this thing pulls it to the Runway, it sits there, it revs its engine and like two miles later, it just barely takes off. And you thank the Lord that, you know, you've defied gravity once more. That's a 747 takeoff. That's what most pitches are like. My ancestors came over in the Mayflower. We started in Boston. I took net classes, I interned at Google. Right. I took Mark's class at Cal, okay? That's a 747 approach. I want you to think like an F16. I want you to think like a F15, F16, you know, an A10 warthog, whatever it is. I want you to think of an airplane taking off an aircraft carrier. So I've taken off on an aircraft carrier. So the way it works is there's this freaking big steam catapult, and it's connected to this cable, and this cable is about this thick, and if you were in the way of it, it would cut you in half, okay? And from 0 to 120 knots is 1 1/2 seconds. 1 1/2 seconds. And so your takeoff is like that. You're sitting in this thing and you're thinking, oh, my God, my life is flashing before my eyes. When is this going to happen? And a second and a half. You're in the air. You don't even have time to be scared, okay? And then that thing just shoots straight up. That's how you should take off. So when you do this pitch, I want you to be thinking F15, F16, not 7:47. So what is a carrier takeoff? It is. We make this. Explain what you do. I don't want to know your family history. I don't give a shit if you're from France, if you went to polytechnic. I don't care if you went to Cal. I don't care if you went to Stanford. I just want to know what the hell do you do? Because I'm sitting there while you're telling me your whole ancestry and family history, wondering, what the hell does this company do? And until you tell me what you do, I don't care if you came over in the Mayflower or I don't care if you went to Carnegie Mellon. Just tell me what you just tell me me. You're in the enterprise software business. We make gadgets. We make an iPhone, Case. I don't care what it is. Just give me. Just relieve my curiosity. Just tell me, what the hell do you do? Okay. We sell dog food online. Okay, I get it, all right? Now you don't have to prove to me that you worked at Petco. Okay, take off. Take off, number six. Number six is.

Is.

Many entrepreneurs believe that they should proceed serially. So serially means, first I'm going to raise seed money, then I'm going to get the prototype, then I'm going to ship the prototype, then I'm going to find the customer, then I'm going to sell to the Customer, then I'm going to support the customer, then I'll get another round and then I'll get employees. Okay, so it's a completely serial process. A, B, C, D leads to success. I think that an entrepreneur's life is not serial at all. I made up a world, it's parallel. So in a parallel world, you have to raise money, you have to recruit, you have to finish your prototype, you have to sell, you have to support, you have to market, you have to social media, you have to do all these things at once. You're pushing about 10 variables down the track at the same time. It is not a serial world. You have to come to grips with the fact that, you know, yes, life would be much better if all you did was raise money, got the money right away. All you did was prototype, finish the prototype, all you did was sell. All you did was recruit. That is not your life. Your life is sell, support, recruit, raise money all at once. You have to time slice. That's life. You have to accept that as the reality of the lifestyle you're embracing. If you're going to be an entrepreneur, number seven. Number seven is that the goal of finance and the goal of funding and the goal of your efforts is to retain control of your company because, dammit, you are the entrepreneurs and you're going to own at least 51% so that if there's ever a vote, you will win. Okay, so on a mathematical basis, I understand that 51% is the majority, I understand that. But in reality, it doesn't work like that. I have never been to a board meeting where there was a big decision and everybody said, okay, let's vote. And they tallied up the vote and it came out 51, 49. Okay, we're going to form this partnership, okay? It just never happens like that. It's always consensus building, it's always unanimous. I've never. Have you ever seen where it came down to a vote in a board meeting? Never. Right? And so you think, well, this person represents 10%, 15%, let's add up the percentage and then let's make this decision on this key hire. It never happens like that. Basically, the moment that you take outside money, you are working for the outside. You have a fiduciary responsibility to take care of that money and return more money than you got in. It doesn't matter if it's 10% of the company or 51% of the company, you are working for somebody else. Now, that has a lot of ramifications, a lot of fiduciary ramifications, a lot of psychic ramifications, honestly. And so luckily I don't advise that you take money unless you absolutely have to. Now luckily, we live in a great time for this because now almost everything you need for a tech startup is cheap or free. Seriously, this is a great time, right? So before if you wanted to have dog food online, you'd have to buy a whole bunch of servers and put them in rooms with IT staff. Now what do you do? You call up Rackspace or you call up Amazon and all of a sudden you have to terabytes in the sky for a few thousand dollars, right? And if you ever like really spike, they automatically deploy more servers and you never have, you know, out of service, right? So this is a beautiful thing. So now infrastructure is free or cheap. Marketing. You don't have to buy ads in the Wall Street Journal, they're not going to work for you anyway. You're not going to buy TV ads. What are you going to do? You're going to use social media. Social media is fast and free and ubiquitous. So Facebook, Twitter, Pinterest, Google, all that stuff. Fast, free and ubiquitous. So marketing is free or cheap. Now do you need as much commercial real estate? I don't think so. You can have virtual teams, right? So we're running down the line and like, okay, marketing is free or cheap. Commercial real estate is not necessary. Tools, all tools are open source or free, right? I mean, you know who goes to Oracle and buys a million dollar server now to run your back end on your E Commerce? That's absolutely ridiculous. That's an IQ test. If you did that, you'll never get funny because you're too stupid. So everything is free or cheap. So now if you want to retain control, don't take outside money, don't take outside money because the moment you take a penny, you're working for them. That's just the reality. So the thing is that rather than trying to say, okay, so we're going to take this pie and we're going to control 51%, the better attitude is let's bake a bigger pie, let's bake a bigger pie. So that if you had a Choice between owning 51% of a 10 million dollar company or 2% of a 5 billion dollar company, let's do the math, which would you rather have? So the key here is to make a bigger pie. It is not to get and preserve 51% of a little shit pie. Okay, you want a bigger pie, you want to own. You should be so lucky to say I own a mere half percent of Google. Oh, my God. If you own half a percent of Google, this school would be named after you. Not this room, not that chair. This school would be named after you. Okay? So always be thinking, make a bigger pie. Make, roughly speaking, you know, some numbers for you. You should figure that you should, if you took 100% of your equity, you should figure that, you know, 25 or 30% are for other employees, 25 or 30% is for the investors, and whatever is left is for all the founders. So if there's, you know, two founders, what did I just add up? Did I add up to about 65% or something? Right. So 65% just went for the investors and for the other employees. So we're left with about 35%. So that 35% is going to be split among the first founders. 35% divided by, I don't know, 3 or 4, 10, 12%. Okay, that's the order of magnitude of what you're going to get. Don't think that me and my buddy, we're starting a company, we're going to get 50% each. It doesn't work like that. You know, you have to allocate these big blocks for outside investors and for future employees. You're not going to end up with 50%. Next thing, number eight is that you use patents for defensibility because you filed a patent and you are going to take on and defeat in a timely manner anybody who infringes on your patent. Okay? You are on crack if you believe that this is how the world works. So you file a provisional patent, doesn't cost very much. What the hell, you know, in America it's first to file, not first to ship, right? So you file the patent, then you have about a year and you can kind of decide if to take it to the next step. So it might take four or five years to, to get the final patent. But let's say you do that. So in an acquisition, it might make sense to have lots of patents because people like to buy stuff when they buy a company. I understand that. But truly, will a patent protect your business? Hard to imagine. Because litigation is so expensive and takes so long that you will die long before the litigation ends. So in the worst case, if Microsoft or Apple or Google infringes on your patent and you think, okay, yeah, I got them by the balls now I'm going to sue Google or Microsoft or Apple. Yeah, good thinking. It's going to take five or 10 years and you're going to spend $25 million now. $25 million. Do you have $25 million in legal fees? And you have five years to fight the patent. I don't know. Now, every once in a while, I admit, you hear a story. Microsoft loses a case, they have to pay $50 million for infringing on this file compression patent, right? Every once in a while you hear a story like that. The reason why that story is news is because it hardly ever happens. If it happened every day and it was a viable exit strategy, believe me, you would not hear about it. Alright? So don't ever think that, you know, your business model is we're gonna invent cool stuff, patent it and then beat all infringers. That is not a fundable path. So the ideal number of patent, the times you use the word patent in your presentation, just like partnership is one one of those places in there, you say, yes, we filed a patent. Investors check that box off. Okay? But if an investor. Here's a trick question. Investors may ask you what makes your business defensible? And the worst answer is, we have a patent exception of biotech. Biotech is meaningful. But any other business. If you say that, if you say we have filed a patent, that's what makes us defensible, you have flunked the IQ test. That is a trap. That is a trick question. Because any entrepreneur who knows what's happening knows that even if you filed a patent, you don't have the time and the money to win the litigation. So when somebody asks you what makes your company defensible, you say something along the lines of, we are going to be in a very attractive market, otherwise we wouldn't do this, otherwise you wouldn't invest. So there will be lots of competition. The investor says, aha, this guy is smart, this gal is smart. Okay? So there's realism there. Okay. However, you know, we have, we think maybe a 9 to 12 month lead because we went to Cal. We have, you know, computer science degree, we work for the professor who invented file compression or, you know, whatever it is. And so we have, this professor verifies that these are the two smartest computer science students he's ever had in the history of Cal. And so all of that is good stuff. And so you say, well, so it's going to be a big market, it's going to be a lot of competition. And frankly, you know, the way we're going to have to defend this company is we're going to have to implement and scale better than anybody else. We're going to have to reach critical mass, and it's going to be a dog fight. And that's why we need sophisticated investors like you, who understand the real world of entrepreneurship. We're not looking for idiot dentists who want to write a check thinking they're investing in the next Google. We're not people who are realistic. We want investors who are sophisticated, who understand the battle we're about to go into. We're not going to tell you some stupid thing like, yeah, our patent are going to make us defensible. We know what's going to happen. It's going to take a buttload of work, a lot of luck, and some brilliant vision. That's what's going to make us defensible. Then you pass the IQ test. That's the answer for what makes us defensible. Number nine. Number nine is that you hire in your own image. Big mistake. That, you know, if you are a white millennial male, you hire other white, white millennial males. Okay, that's a big mistake. You want to have a lot of diversity because you want to have a lot of different. You want to have people who are not your race, not your color, not your creed, not your age, not your whatever. You want to have, like, a lot of diversity. So you get a lot of different perspectives and a lot of different backgrounds. If you are all from the same frat at time, the same same age, drinking the same beer or Kool Aid, as the case may be, it leads to weakness. You want diversity. You want someone like, you know, someone from China to tell you that this just doesn't work this way in China. You cannot get 1% of the people in China to drink this soda because they don't like soda in China. You know, I don't know what it is, but you need people to tell you this kind of stuff. So you should get diversity. Don't just hire people in your own image. Next thing, number 10. Number 10 is the concept that you will be buddies with your investors. You'll play golf with them. You're going to see eye to eye, you're going to swap spit, you know, all this kind of stuff. So this is how this fairy tale works. So you get around the financing and you say to your friends and your family, we just closed on our round of financing and wow, you know, these venture capitalists said they're investing in people, they're investing in us, and they're going to keep us there and they're going to. They share our vision and we like them. I've heard Other horror stories about people not liking their investors and their investors throwing them out. But these venture capitalists are different. They understand where we're coming from. They're investing in us. So why would they fire us when that's what they're investing in? Okay? That's the honeymoon. And you think, and you're on and you're thinking, oh man, yeah, this. I found the ideal VCs, you know, Kumbaya. And that is such a bad perspective. It's just naive. Venture capitalists are in the business of making money. You are a means to an end. Okay? I hate to be so harsh, but you are a means to an end. This doesn't mean they're going to be your friend. This doesn't mean you want them to be your friend. Ideally, you get their money, they help you, you build a great company, everybody goes home happy and rich, okay? That's what you want. You don't need friends. VCs don't need friends. They play golf with their friends, okay? They drive each other's Mercedes, okay? You don't need that. You just want to make a kick ass company. So the solution is rather than trying to be friends with your venture capitalist, you should just always exceed expectations. So if you tell them that you're gonna get so many users by a certain date, you should sandbag that number. A very good rule of thumb is take the number whether it's revenue, registered users, whatever it is, take the number that you are 80% certain of. You're 80% certain that you're going to do $5 million in that month, or you're 80% certain you'll have an install base of 2 million people by that month. That's the number. Don't give the 150% stretch goal. Give the 80% number. Okay? Be conservative because it is so much better to come back and say, well, we told you we're going to get 5 million and we got 5.1 million. You beat the number. If you said we're going to get 7 million and you get 6 million, you're still better than 5.1 million. Arguably you're 900,000 better than this other case. I'm telling you. But when you say you're going to do seven and you do six, you're a loser. When you say you're going to do 5 and you do 5.1, you are a winner. You always want to be a winner. So I'm telling you, sandbag the numbers. The lower limit of sandbagging the number is you could give a number that's so low that people aren't interested. That is a danger. But I'm telling you, between the two things, it's much more dangerous to give a high number and miss it than to give a low number and exceed it, but not be interesting. And going back to what I said before, so much of what you need as an entrepreneur is cheap or free now that you're less dependent on having to lie, you may not even know you're lying. That's the worst form of lying. But you are lying. And so now you don't have to lie as much because you don't need them as much. And a very good model is think of venture capitalists as drug dealers. Okay? I don't know anybody who says, yeah, my drug dealer is my friend.

Right?

Your drug dealer provides something that you think you need that makes you very happy for a short period of time. Sounds like a venture capital to me. So a very good orientation for venture capitalists is they are your crack dealer. Okay? Just remember that they are your crack dealer. Now, I honestly can't remember if this is the last one and we are running out of time, so. Oh, I know. Okay, this is a pitch. So I am the chief evangelist, this company called Canva. How many of you already heard of Canva? Please? Okay. Wow. Yeah, baby. I knew I liked Cal. So Canva is an online graphics editor. Think of it as Photoshop. For the rest of us. Think of it as fast, free, easy Photoshop. Think of it with all these designs pre done for you for social media, for book covers, flyers, if you wanted to make Facebook cover photos, all this kind of stuff, all done fast, free and online. I want to encourage you to try Canva. My close associate, Peg Fitzpatrick and I, we wrote a book called the Art of Social Media, which I promise you is the best book ever written about social media. It's going to come out in December and we will give you a copy if you just try Canva. That's all you have to do. And the way you prove you tried Canva is of course you register at Canva. You create a graphic with Canva. We can tell it was created with Canva and you just email it to that address inbound 2014. Actually, inbound 2014 at Canva or promo P R O M oanva.com and then we'll record your email and then we'll send you the code in December when this book ships. So that's an incentive. So for those of you who need graphics and do not Use Canva? Does any. Anybody. Lots of you use Canva, right? So tell the audience, is Canva great or not? Okay. Okay. So, yeah, so there. Trust me. So we have a few minutes for questions. What questions do you have for me?

So we have a question here. As an undergrad business major, I often feel I have nothing to offer a startup.

First of all, I'm not your psychiatrist. Okay? Okay.

Did I choose the wrong path? You're not a minister either, are you?

Yeah. No.

Okay. But that's okay. Let's keep going. But this is the good. Okay, I like this question. What would you say to undergraduates or aspiring entrepreneurs who are not majoring in the STEM products, who are not engineers?

Well, fundamentally, in every startup, you need two people. You need someone who can make it and someone who can sell it. So if you can't make it, sell it. It's that simple. I mean, you know, Steve Jobs was not a computer scientist, right? Steve Wozniak was. So you need Woz and Steve. You always need someone who can make it and someone who can sell it. So I can't make it. I can sell it. So, you know, focus on sales. It's okay, because sales is just as important as making it. Because if you have someone who can make it, but nobody can sell it, you won't have revenue. On the other hand, if you have people who can sell it, but no one can make anything, you have nothing to sell. So you just need two people. It's okay. I don't have a computer science degree. I never took a computer science class. I'm living proof that you can fool most of the people most of the time, so don't sweat it. I'm also living proof that if you do one thing really well in your life, like Macintosh Evangelist, you can coast on your reputation for 30 years. Have I told you about Canva yet, you guys. Okay, hold up your hand. Hold up your hand. Everybody hold up your hand. Okay? You promised to try Canva tonight. Okay, thank you. Thank you. Always be closing.

I actually can't read this one. All right, so, Guy, here's a question. So kind of building on the last question. If you were to say, we've got the hackers and the hustlers in the world, right? The folks that can code and the folks that can sell.

Okay.

If you were to provide just general advice to somebody who wants to be an entrepreneur early in their career.

Yeah.

What advice might you give them? You've given us 10. You've already given us.

Yeah. How much more can I Give you. My God. Well, you know, I would just come back to. Well, if you've already decided you want to be an entrepreneur and you've already, you know, kind of decided on the product and the direction, the most important advice I can give you is starting prototyping. Prototypes are the key. This is. You know, Eric Greece has a concept of mvp, Minimum viable product. I love that concept. I wish I came up with that concept. It's a great acronym. I came up with this 10 years ago. And what I said was, instead of minimal viable product, my concept is don't worry, be crappy. Which is essentially the same thing, right? I was way ahead of Eric. So don't worry, be crappy. Which means that. Well, I'm gonna finish with one story, okay? But before I tell you this story, I have to explain something. So I often go to people's lectures and speeches and I find it very distasteful that when people end and they rush out like they got, you know, they're so important that they cannot stick around and answer questions and press flesh and, you know, like whatever, take pictures and all that. And I would truly love to do that for you, but tonight I cannot. And I cannot because my son, my other son, the one with all the athletic ability, my other son, my other son, my firstborn, my other son, my second born, he's moving into UCLA tomorrow. And so there's one flight left tonight and I have to catch that flight, okay? So I am going to to be very rude. I'm going to pick up my stuff and I'm going to leave. I'm not going to stop, I'm not going to say hello. I'm not going to be engaging. I'm not going to be open and transparent. I'm not going to be all the bullshit you heard about social media, okay? Because I am going to be a father tonight. All right? So just with that caveat, I forgot what story I was going to tell. Oh, my God. What was the question?

What? Advice?

Oh, advice. So obviously I said said about. I'm sorry, don't worry, be crappy. Oh, okay. So that too. So again I say prototype, minimum viable product. I would add a couple more V's to mvp. I think you should have a minimum viable valuable. In other words, you can have a product that's viable but not necessarily valuable. You want to change the world. You want to tilt the earth's axis, right? And then the next VI would add is validating. Because if you have a vision, let's say going back to Apple, if you have a vision that computers should not be only for big companies and universities and the military, your vision is that every person should have a computer. So then when you make a product, you should have a product that validates that vision. So you want a product that is minimal in terms of viability. You know, you can make a buck on it. That is valuable, that will change the world. And also validating that validates your vision, because you could create a product that doesn't validate your vision, and then you'll never know. So you really want to have an mvvp?

Okay.

MVVP is my my alteration of Eric Ries's mvp. So with that guy, do you have more?

No, I'm just going to say thank you very much.

I really thank. Thank you very much. It's a real pleasure. Thank you. Thank you.