Entrepreneurship Gives Life Meaning Part2
Okay? So, the reason for being entrepreneurial and the reason for forming a startup to solve a problem should not be for the financial rewards because the financial rewards, if that's your motivation would indicate that you are better off going to Google, going to a hedge fund, going to some other career that has stable income potential. If you were to get a job at an existing company, you would have the ability to make an impact. There would be lots of people there. There would be lots of resources there. There would be a platform upon which you could build something that could affect a lot of people. If you were to get a job at Google, they have 100 million users, if you launch the products to their 100 million users, you would have 100 million users. If you were to try and launch that product on your own, you would have zero users and there would be a big, big, big challenge trying to get to 100 million users. So, my point here is that it's not necessarily a bad thing to go work at a big company. You can still have the potential like growing companies and succeeding companies and successful companies to make a big impact on the world, to make a big impact and have a large number of customers use something that you build or do something that's a result of your effort. However, you need to be forewarned that at a big company, there can be a problem with misalignment. So, the big company has to make money by doing X or Y or Z and you want them to do A or B or C because you think that would be a good idea. And so the big company's decision will be to continue doing X or Y or Z and say, sorry, you can't do A or B or C. That's misalignment. And so your personal ambitions, your personal interest or your personal product idea or solution idea for a problem is not an alignment with the big company. Scale can constrain a big company's ability to do things. So, big companies might have several people involved in the decision-making process and that can make it that much more difficult for you to get a decision made that what you're trying to do is worthy of resources and worthy of showing to the 100 million users and so on and so forth. And finally resources can't be recruited within a big company. You don't own your destiny. Resources are granted to you. You were told, here is how many people can work on your team and here is how much money you're going to have and here is how long you are allowed to apply your time for which we're paying you to do X or Y or Z. And so, there are challenges to doing things in a big company and they all need to be sort of taken into consideration. And I wanted to highlight some of these points because I don't want to say, be entrepreneurial, I want to make sure that everyone in this room walks away from this discussion today and is completely reflective about what it is you want out of life and then making a choice that's based on some of the things that I'm trying to tell you about today. And that you think and are self-aware about whether or not the decision that you're going to make is going to best help you achieve what it is you want from life. This is my L. Ron Hubbard Dianetics cover slide. So, actually, what was that movie, The Tree of Life, it's a great film. In 40 years, none of your failures will matter. And none of the small things that you succeeded doing will matter, what's going to matter are the big things that you achieve in life. And for some people that's about having a family, for some people it's about leaving kids behind, for some people it's about writing a great book, for some people it's about changing the lives of a few people. For me, I want to know that I affect the world in an impactful way and in a meaningful way that lasts, and that it is going to last once I'm gone. So, the only way I'm going to be able to do that is through entrepreneurism and that's why I call it existential entrepreneurism because for me, I find meaning in life by doing what I'm doing, because for me, my life is - when I look and say, what is it I want from my life, I want to leave a lasting impression on the world, I want to leave a mark on the world. And the only way I can think about doing that and having a big enough impact is to be entrepreneurial. And so, I want to be able to look back at every day and say that I made the effort to do that, even if I fail, that's the decision that I'm making every day to live an entrepreneurial life. So that's sort of some discussion about the premise, why one should be an entrepreneur. And I want to talk a little bit about the process. So, the first process - the first thing, I'm going to talk about is called getting rid of luck, this is sort of the strategy of entrepreneurism in my mind. And the second one is grinding. It's like a poker term, if anyone plays poker here, I used to play a lot of poker before it was big and I only played limit holdem. And the difference between limit holdem and no limit is you got to grind to make money at limit, you cannot get lucky when you go all in and make a bunch of money on a pot. You actually have to sit there for hours and days to make money. It's a very painful undergraduate lesson. And so, the second piece is what I call, the grind is the tactics of entrepreneurism. So, I equate these things to be the same, luck, risk and the unknown. When you say I got lucky, you got lucky because you didn't know what was going to happen. So, the corollary is if you know what's going to happen, there is no luck, there is no risk and there is no uncertainty in what it is you're doing. Therefore, shouldn't your objective be to know what is going to happen and your pursuit should always be to remove the unknown from the equation. And that's sort of the fundamental premise of how I think about building the business. Figure out what you don't know and then know it. And at the end of the day, you'll be left with truth or facts and you know exactly what's going to happen and your business will achieve what it is you are setting out to achieve. I had to throw a formula in. This is sort of a very basic, like this kind of cash flow analysis, the value of a company. So the value of the company is their near-term cash flows, plus what's known as this terminal value, this perpetuity value. And the perpetuity value is the cash flow in the out year, divided by the expected risk, minus the long-term growth rate. And so if there is no risk or if the risk approximates the growth rate, the value of the company is infinity. So if you know exactly what's going to happen, your business should be worth infinity. Every business has some degree of inherent risk, so I'm sort of taking this to the extreme, right? If you understand all the risks, and you know all of the risks and you take them out of the business, then the business is worth infinity dollars. It's the greatest business ever. It's effectively the universe. If, however, you are constrained by a lack of knowledge about where the markets are headed, a lack of knowledge about what competitors might do, a lack of knowledge about whether a product will succeed, a lack of knowledge about whether you can get the product sold at a particular price point or about whether you can keep your operating costs low enough to sustain your profit margins. These are the many uncertainties that exist in later-stage businesses and there are similarly many uncertainties that exist in early-stage businesses. Will people buy my product? It's a good first question. Do users find my value proposition valuable? Is this something that's engaging? Do people - people come back? Can I build the product? Can I recruit the engineers to help me build the product? These are the risks and uncertainties in the early-stage business and the more of those you can identify, the easier it's going to be for you to take them off the table. So identify the unknown, mitigate the unknown, and then you are enabling certain outcomes. And that's how you increase the value of your company and that's how you move yourself towards achieving the mission. And it requires - this one, tell me if you heard this before, you don't know what you don't know, anyone heard that before? Couple of people. I heard this all the time when I was starting up a business. And I didn't listen. This was the biggest thing that I missed out on when I was starting a company and it's basically become the premise of how I think about the strategy of entrepreneurism and the strategy of what we are trying to do, because it's not until you get hit in the back of the head with something that you weren't thinking about that you wake up to the fact that that should be what you focus on, what do I not know? Because the rest is tactics. So this is how I think about the general strategy approach to running the business. You try and put as much stuff as you can in the left column and then you try and move it to the right column and then the rest is just tactics. Figure out all the things you don't know about the business, know them or solve them or ask the questions or build things to test them in a scientific way and you can move them into the known column. Will people buy my product? Is there a positive ROI marketing model for what I am trying to do? You can build a test for that, you can build a product for that and see if it works. There is a lot of different approaches for the tactics and that's all nuanced around the kind of business you are building, but in general, if you focus on knowing what it is you don't know, you are taking the risk out of the equation and you make it known, you've figured out what to do next. This is one of my early slides from when I raised a Series A for WeatherBill in August 2007 this slide is from. So when we first raised money, we said here is all the stuff we don't know and then we started to know it, and then it's like oh-oh now there's all these other things. And we added those to the list. And the more you are transparent about this, the more your team will believe in your mission, the more everyone in the company will be aligned with what it is you are trying to achieve and the more investors will believe in you being the right kind of person to execute on the opportunity you have in front of you. Because this is total transparency about what's working and what's not, and it makes it very clear to everyone about how you are going to succeed. How do you succeed? You got to grind. This is the Wright brothers' example, I have a couple of slides on this. I got to visit Kitty Hawk in July. Was it July? July 4, pretty cool. Anyone ever been? Really awesome. I was inspired. I spent the day walking around by myself. And they had their shack there, I will show a picture of the shack in a second. This guy Otto Lilienthal - aviation at the time was sort of like the cool engineering thing to be thinking about in the late 19th century and Otto Lilienthal was one of the early sort of aviation pioneers and he wrote this in the aviation - in the Aeronautical Journal, it said: "While theoretically no difficulty of any considerable importance precludes flight, the problem cannot be considered solved until the act of flying has been accomplished by man, duh. In its application, however, unforeseen difficulties arise of which the theorist can have no conception." And this is really highlights the fact that it's the grind that's going to end up making the difference. He died a few months before this was published, because he got on a plane or a glider that wasn't built right and crashed, irony. Around the same time, the Wright brothers, who had a background working in the printing industry, they saw this cool new thing. The Internet of the day was transportation. And so the Wright brothers saw that all consumers rather than getting on Facebook and doing social sharing stuff, consumers at the time were riding bicycles, that was like the cool new thing to do. So they bought a bicycle shop in Dayton, Ohio, and they started building bikes and they've started building better bikes and they started to engineering them. And then they read this Aeronautical Journal and they wrote to Smithsonian and the first step was learning. So when there is something you don't know, the first thing you can do is, is you can start researching and learning. I didn't know anything about weather, I still know very little about weather. I didn't know anything about insurance; I'd had to learn a little about insurance. And along the way the needs of the mission, the problem we were trying to solve mandated that we learn stuff that we didn't already know. And so the first step was these guys sort of writing to the Smithsonian and they got, they requested - equivalent to a FOIA Act Request nowadays, government request, send me all the information you guys have on aeronautical research has been done. And they started reading through all these documents, they started learning the engineering of the day. They then came up with an idea for a flexible wing and they built a prototype and this was the prototype kite/glider that they had and they tested a couple of them. So this was the first step. And they figured out, what do we not know? Why are these gliders failing? And they said well now we've got to tactically implement a solution that can allow us to very quickly identify all the things we don't know and know them. So they invented something called a wind tunnel - actually I think it was invented before, but they implemented a new sort of wind tunnel, I don't know what the nuance was, but it was some sort of more advanced wind tunnel. And it allowed them to test over 200 wing designs and they recorded the coefficients associated with each wing design in a very detailed way that no one had done before. And that gave them the ability to systematically go out and build a better wing that they were then able to use to build a plane and eventually fly.
And it was that grinding process, it wasn't a breakthrough. There wasn't some sort of moment of genius with the Wright brothers. There wasn't some discovery or penicillin thing that, whatever, mythology, these are, what I call, the sort of black swan outlier, rock star motif equivalent events that occurred. These guys literally just took the principle of we need to get into the sky, that's a problem, we need to solve it. They found the thing they didn't know. We don't know the drag coefficient, we don't know the optimum wing design and they solved it. And to do that who knows who's on the right, this is the Oracle from the Matrix because she tells Neo you got to know thyself. And the one on my left is from Ray Dalio, if you haven't read Ray Dalio's, The Principles, it's an interesting read. I am not going to critique it, but it's on Bridgewater Associates website. But he says there is two Yous. There is the You, the designer. And then there is the You, that's effectively the actor. So the designer is the one who gets the people together to accomplish a task of X or Y or Z and You as an actor are good at something, you're either good at writing code, you're good at selling, you're good at operations, who knows. But in order for you to succeed, you're going to have to recruit people to help you do these sorts of things that you're not going to be able to do on your own. And in order to do that you have to be self-aware about what are the things you are going to be good at and do you have the right people helping you to accomplish them. There is a lot more that could be said about this grinding notion and I don't want to - I know we have limited time now, but I know there's plenty of books written. Steve Blank's book is a great book. There are a lot of books out there about - how do you optimize that process of figuring out what you don't know and then knowing it. Innovation is the only sustainable competitive advantage any company can have. I think we can probably spend an entire hour talking about all the companies that have failed for lack of following an innovative path. And you can say, well, RIM didn't innovate because Apple innovated with a better OS and so, the iOS is a better OS than RIM and therefore it beat the BlackBerry. Okay? Easy to say that, but innovation at scale as the company gets bigger - and this is a later-stage problem that I think is probably appropriate for thinking about early-stage stuff, but innovation at scale is challenging for couple of reasons, it requires perpetual change. So the concept of taking risks all the time on new things and having them not work out is sort of counterintuitive to what successful people considered to be success, because when you take risks, odds are you're going to fail. When you're trying to do something new, odds are you're going to fail. And successful people don't like to fail. They like to be successful. And so, the challenge with innovating at scale is that you have to get people on the mindset that failure is a process, it is part of that iterative process of grinding. The Wright brothers didn't consider themselves failures when the first 199 wing designs didn't work. They considered themselves successful at the end of the day because they accomplished their mission and failing is part of the mission. It's part of the process of getting to that mission. So people tell me all the time, well, you're running an insurance company in San Francisco, you're running an agricultural insurance company, yeah, you're running an agricultural company. We're not an insurance company or not a company, we're an innovation company. This is how we think about our business, is that we're focused on solving a big problem that doesn't change. Our mission is what it is.
And then you don't listen to that how is this done? What's the model for doing that? Someone still has got an interesting model, why don't we tweak it a little bit? Solve the problem that you're setting out to solve and be smart about how you're solving it. That's it. A lot of people nowadays are trying to use the business model mould, think about innovation, it's the opposite. You should be innovating to come up with the new business model mould. And so, when people say you're an X company, you're a Y company, you're doing X for Y, or Groupon for kids, or whatever it is? You're probably going down a path that's very likely going to result in you being upset, at the end of day and not having a lot of money. So people say, well, where are all these problems? That wasn't the line, but I adjusted it because I love this - this theme. The - I think it goes without saying that a lot of people are doing a lot of similar things in Silicon Valley nowadays. And there's a lot of people - outspoken people talking about, there needs to be more innovation in Silicon Valley. Trying to be like, well you know, I can do photo sharing for students at Stanford and we can do photo sharing on our iPhone for students at Stanford, like X for Y for Z. There are problems in the world today that are more substantial than we've ever faced in the history of humanity, you can look around. And it's not just in software and it's not just in California and it's not just to your peers. If you look at all the markets in the world today, you can probably break it apart market-by-market and say, here's something fundamentally flawed with the way businesses in this market are operating. You can probably break it apart by saying, what are businesses in general doing wrong today? You can probably say, how are governments not operating efficiently today? There's 100,000 different ways that one could break apart the opportunity set that exists for you with big problems to solve today. I'm the kind of guy that when I drive up - when I drive through traffic, I'm highly stressed. I'm highly stressed because every time I'm driving on the freeway or I get through a traffic light, I know someone is driving inefficiently and it drives me nuts. And I see the way that anyone else have this problem - there's got to be engineers in this room. Right? So you see how people are driving and you're like, they could be driving better. This isn't a tough thing, just look around. I mean, there are so many opportunities. And so, to the point of like, what should I be doing? Where are the opportunities to innovate? I don't think it takes more than a weekend in the library or on the Internet or whatever to see the global opportunities that exist in the world today. And it's actually a critical time to do this, I think one of the most exciting times to do this ever, because there is sort of a global stagnation in economic development and innovation is the only way out. And I know you've heard this from other folks and I know Aneesh Chopra goes on about this all the time and I think it's really important for people in this room to take heed. If you're thinking about doing something entrepreneurial, think about solving a really big problem, because it's going to be great not just for you, it's going to be great for everyone. And it's really needed now. And there's really a lot of problems out there that can be solved, that can result in lasting meaningful impact in the world. So in summary I would say, having a premise, know what it is you're trying to do and whether it's the right thing, the strategy is to know what you don't know, the tactic is to grind and there's a plenty of places for you to innovate. And to wrap up, again, it's this pursuit of entrepreneurism that gives me meaning in life. It's why I wake up every day and I have a smile on my face about what it is I'm doing. I don't always have a smile on my face by the end of the day. But it is for me what I've decided is going to give me the most meaning, when I look back 40 years from now. And I'd say, did I try make the biggest impact I possibly could in the time that I was on this earth? And the answer is, yes. There is an op-ed piece in The New York Times by Neal Gabler and I can't read all my notes. He said, we live in the vaunted Age of Information - this was in August, 2011. We live in the vaunted Age of Information, courtesy of the Internet. We seem to have immediate access to anything that anyone could ever want to know. We are certainly the most informed generation in history and he goes on. If information was once grist for ideas, over the last decade it has become competition for them. We prefer knowing to thinking because knowing has more immediate value. It keeps us in the loop. It keeps us connected to our friends and our cohort. And the implication of a society that no longer thinks big are enormous. And I would encourage everyone here that is considering entrepreneurism as an activity to think big because now is the time to do it and there's never been a better time in the history of humanity and that's all I have. Thank you.
That was a fabulous way to kick off the year and we can open up for questions. We've got 10 minutes. This isn't really a question but you aren't going to hear this until later. Ironically, and unfortunately, while you're talking about rock stars, one of the biggest rock stars in Silicon Valley history passed away, Steve Jobs died. You're kidding. Wow. Wow. That's incredibly sad. I'm sure we'll have lots of opportunities to remember him and everything he... Everyone's seen his commencement speech, right? It's a must watch, right? If you haven't seen it, you got to watch it. Right. That is your homework to watch Steve Jobs' commencement address. In 2005, it was totally... And so - look, I mean it's not the right time but that is - Steve Jobs said I want to leave a dent in the universe. Who here doesn't use an Apple device? I mean there is literally no human being in our lives that has made more of an impact on more of the world than that man. And that's what he always said he wanted to do, and he set out to do it and his achievements speak for themselves. Wow. Certainly, it's a sad day. And does anyone have any questions that are actually related to this talk? Here.
For your business, what's the competitive advantage and why can't other insurance companies analyze the weather, are they then offering...? Yeah, so insurance companies are generally not... Can you repeat the question? Yeah. So the question was what's our competitive advantage and why can't other insurance companies do what we do? It's a little bit nuanced. Insurance companies generally aren't technologically-savvy, insurance companies like to underwrite risks in a static way and go out with a static what's called rate sheet and so there is a pre-underwriting process. The customizability of our products is what really gives us the ability to sell them because people need to customize them to their - in my farm, I plant between May 1st and May 15th. And so the dates, when you change the dates for weather coverage, the risk changes pretty dramatically and so the risk profile changes pretty dramatically and you have to re-rate it in real-time, is how we do it. Secondly, the automated sort of processing of claims of understanding what weather took place and then sending a check, it's sort of a data feed, right? You're taking it and you're processing it. But insurance companies - there are very few insurance companies who have the bureaucratic ability to enable an automated payout program. They have a claims adjustment process and a loss adjustment team that does every sort of analysis of every claim that's filed. And so automated payouts based solely on data, is not in the lifeblood of how insurance companies operate. And to the point about innovation, it is very hard to get them to change how they operate and so for them to do this automated payout, 40% of our customers, our farmers that buy our products, get some sort of money back. So sometimes they get small amounts because we cover this sort of very little variations in weather that cause little variations in your profit as a farmer. Those small variations occur to 40% of farmers. So 40% of our farmers are getting some money back at the end of the season or getting some deduction on the premium that they owe us. And that's called a 40% claims frequency. The typical claims frequency for insurance companies is like less than 3%. So for them to then scale up their loss adjustment program by 10 X would be untenable. So there is a bureaucratic and then there is a couple of sort of - what I would call sort of core technology IP pieces that we have built that are - we would go head-to-head with a technology company and feel comfortable, so.
I'd imagine the accuracy of your weather prediction algorithm is critical and something you guys are constantly trying to increase for your benefit and for your, the farmers and stuff. Where do you guys see the trajectory from your company providing insurance for farmers switching over to creating the best weather prediction algorithm or software that's out there? Yeah. So next week, when we announce our name change, I hope it will frame sort of the direction that the company's headed, which is a broader scope. We focus on farmers but there is more that we can do with the platform that we've built and the technology that we've built where we're predicting the weather on a micro-scale basis, 10,000 times for the next two years than we're doing today. Right now, we're underwriting insurance policies with that data. And in the future, we hope to use that data to build interesting new products that can enable new ways that people interact with the weather, plan their businesses, think about what they are doing, get an alert if it's going to rain and you should wear a raincoat or something. Right? I mean - like there is a whole slew of products and services that we could eventually build on this platform that we've already built the infrastructure for. And so, that's sort of where I think we're headed. Agriculture is such a huge opportunity. We can scale into different crops. We're selling three crops today, it's an unusual talk but for us a product is a crop, corn and wheat and soybeans. We're going to launch sorghum and cotton and rice. So these are the products that we're launching. And then we can launch that in Australia, and in Canada and Brazil and in Asia and then India and so there is ways for us to expand our business in agriculture and then into different verticals. And then into data services and so there is lots of ways that we think about building on the platform that we've built today. Back there. So one of the things I took from your talk is this ability to be fearless or you know disregard the risks involved somewhat or at least think that you can go out there and take the risks. In China, however, where most of what I do is based, the idea of failure is so - like it will just totally take out your whole family, your whole community. You're not allowed to fail in other words. So how would you help inspire those that are in places like China where failure is not an option? Okay. The question was how would one help folks in China to be more entrepreneurial, where failure is not an option? I don't know enough about that market or the cultural dynamics there or the economic incentives that exist. In the U.S., there are economic incentives. If you build a good business there is a flow of capital that will give you more money to grow the business and eventually you can make money by selling the business or taking it public or selling some of your shares or paying yourself a good salary. If the economic incentives are there and the bureaucracy frees one to innovate, I believe this should be natural human behavior to solve big problems and it will happen. So I would say like let's just identify what the bureaucratic problems are and what economic incentives aren't there and identify ways that maybe they could be implemented but I don't know enough about the market specifically to opine on to your point. How are you modeling climate change into your weather models? Climate change - how do we model climate change is the question. Climate change has a number of different factors. So there are changes in temperature over time, which global warming is a big sort of thing that people hear about all the time. Yes, there are trends in the average temperature everywhere and the temperature, on average, is going up almost everywhere. More importantly, the trends in how much storm events are occurring or how frequently we're seeing droughts or how bad those droughts are getting. There are trends in those indices. And those are the indices that we care most about because that's what we're focused. And yes, there are trends across the board. The climate is changing. Whether or not the climate is changing as a result of manmade effects or we're going through a natural multi-decade or multi-century or multi-millennial cycle, I don't know. But there are changes underway and we model those changes and incorporate them in all of our simulation models.
You mentioned the fact that you said you didn't know much about either insurance or about farming, like how did you get around that when you were starting up your business? Yeah - sorry, the question was, how did I learn about insurance and farming, given that I didn't have any background when we started the business? I mean we had to learn about a lot of different industries. So we learnt about our customers' problems and then along the way you learn about the customers. So we talk to a lot of farmers. And then we hired people that know farmers and we hired people that were farmers. And those are the folks that gave us the insight that we needed to help us think about our business. And so, we didn't say there is no way we can do this because we don't know farming. And there is no way we can do this because we don't know insurance. I hired lawyers and asked them about insurance. We hired people with an insurance background to the company that help advise us. And so, along the way, you have to make the decisions to be - this goes back to the sort of two Yous, the designer me has to say, me the person with knowledge doesn't know shit about insurance. I need to find someone who does. And so you need to be self-aware and you need to be able to say like we don't have the right people on board. I didn't know how to scale a sales team, Greg does. Greg is our Chief Revenue Officer and without him, we wouldn't have succeeded at what we're doing right now as a company. And so along the way, you have to make those decisions to recruit and incorporate advice and people that are going to be useful to you, and that's where you have to be smart about those decisions. We have one more question, right in front.
How does WeatherBill hedge itself against drastic events like Katrina? Yeah. The question is how does WeatherBill hedge against drastic events, like catastrophic weather events, I am assuming you mean. We actually have 100% quota share reinsurance arrangements. So we take no balance sheet risk on the stuff that we write. So when we sell insurance and there is exposure, there is a reinsurer that stands behind us and at the end of a season if we make a profit we keep some of that profit, we also take some money off the top. If we have a loss, the reinsurer covers 100% of the loss. And so, we've transferred all of the risk that we have into the guys that have billions and trillions of dollars and there is a big reinsurance market out there. I mean venture capitalists don't want to be betting on the weather. They want to bet on a team that can help other people's capital bet on the weather. And so that's sort of what we're doing. I'm sure you'll agree this is an absolutely fascinating talk and I want to thank you for joining us today. Thank you.
