Entrepreneurship Gives Life Meaning Part1
Without further ado, David.
Thank you. Hi. Thanks for coming in the rain. You know the weather can have an impact on how things turn out and I'm glad that we had a great turnout here today. I start it out with a picture of the greatest entrepreneur that never lived, Willy Wonka, so we have a fond appreciation for him. When I was asked to give a talk about entrepreneurism, it sort of got me thinking along the lines of, you know, well, I've never thought of myself as an entrepreneur. People sort of use that term a lot and it's bandied about that entrepreneurism is like a career. It's like something you decide you're going to do. And a lot of people say, I'm a serial entrepreneur, I'm going to go do entrepreneurial stuff and so it got me thinking about, well, why do I not feel that way and what is it about what I do that makes me say I'm not an entrepreneur. So I tried to sort of put together some of those thoughts and put together some of the things that I feel I've learnt in starting this company and I hope that it helps frame things. So just by way of - important to have an agenda - I've learnt over the last couple of years, it's important to be organized.
So I've tried to - Greg works with me, so he knows it's something I've had to work on. So I'm going to talk a little bit about my background, a little bit about the company that we started about five years ago called WeatherBill, and then there are sort of some learnings about entrepreneurism and some ways that I like to think about entrepreneurism now that I thought I'd share with you. So I was born in South Africa and Cape Town is where I spent my youth.
When I was six years old, my parents and my sister and I moved to United States. At the time in 1986 when we moved, a partite was ending in South Africa and for those who aren't familiar with the history, a lot of folks left the country. My parents' family, all - both sides of the family, everyone seemed to move to London. It's a popular place to find oneself after South Africa. And my parents set out on what I would call sort of their entrepreneurial conquest, which was to become big filmmakers in Hollywood. So they were filmmakers in South Africa, work for the public television station there. And they wanted to go in and have a shot at making it big. So they took my sister and I, and we moved to Los Angeles when I was six years old. When we moved, in 1984, my - the first Macintosh computer came out and my dad had bought one of the first Macs made available in South Africa and he used MacPaint and old ImageWriter printer to print up a sign that said 'Go for Gold'. And he took the sign and he put it up in my mom's editing room where she edited her films and that sign is out there as sort of a reminder that they made this big change in their life when they were young with two young kids in tow, and no money to make it happen to come to LA and try and go for their dreams, and try and make a new life for themselves. And I'm assuming I haven't really delved too much into it, but I'm assuming there was some sort of relationship between my parents' attitude towards making life decisions and what I ended up doing in my life later on. So when I grow up in Hollywood, you know I went to the school with all the Hollywood kids, but we didn't have a lot of money and there is a lot of unemployment and my parents struggled in Hollywood as a lot of independent filmmakers do over the years.
And I was always sort of the kid at school who didn't really have the ability to afford all the things that the other kids could. I always thought a little bit constrained, a little bit as an outsider and not very socially well adjusted. And it was sort of when I was 16 years old that I got my first opportunity to leave and get out of there and try and change my life. I've realized looking back that was sort of why I ended up leaving. I went to Upstate New York to a school for a year where I actually got a job working in a pool hall and the owner of of the pool hall was really big into playing poker and I started playing poker with him and a local bookie that ran the books for all the sports betting in Upstate New York, it was a really funny experience at 16 years old to go through with this. I ended up coming back to California and starting a program at Cal, I majored in astrophysics. And since I was a young kid I always said when I was a young kid, I want to understand the secrets of the universe. I want to unlock and understand why things work the way they do? And I know there is a lot of engineering students in here and I've got to imagine there is a hint of a motivation in each one of you that says why are things the way they are? What makes them work? And for me the biggest problems, the biggest questions that had never been answered are found in cosmology and in astrophysics and this is what sort of drove me to go get my degree in astrophysics. And while I was at school, I got a job as an undergrad doing some work at Lawrence Berkeley Labs and it's sort of like getting inside the sausage factory.
When you work at these Department of Energy labs, you really see sort of what is it about the scientific breakthroughs that people win Nobel prizes for, how does it all work? And I know that there is probably some folks here who might work at SLACK or might have some experience similarly. But I always thought as a kid fantastically like Albert Einstein sat in a room and with a piece of paper and a pencil he solved the secrets of universe and wrote the general theory of relativity. That's how it works, right? No, there is a machine and it takes forever and there is thousands of people involved and the degree of impact at which and the pace at which things progressed, I found frustrating and I realized it's not the life I wanted to live. While I was an undergrad in 1998 to 2000 there was this dotcom bubble going on and it might be read about in the history books nowadays, I'm really surprised because I walk in I feel old.
And so like this was 10 years ago when I graduated, but - so at the time the dotcom bubble was going on and I'd start to read the Wall Street Journal. I thought it was really interesting, like these crazy ideas coming out of Silicon Valley and people are doing crazy stuff and they're seemingly changing the world. The world is changing before my very eyes and around the world in which I live and I read these stories in the Wall Street Journal, I remember I love the marketplace section because it was like profiles of people doing cool stuff. And I thought this is want I want to do. Rather than sit in the dark room and just be part of a cog in a machine that was going to take forever to output some theory that may or may not be disproven 50 years later, I wanted to be able to go out and do something that was impactful and would have lasting change in the world and I could control my own destiny, I could make that happen in the time that I live on this earth. And it was really exciting to me. Towards the end of my undergrad career, so I said I want to go and do technology stuff and I want to go do the Silicon Valley stuff. So towards the end of my career, it became clear this dotcom bubble was blowing up and there were all sorts of problems in Silicon Valley and around that time I got a job in investment banking when I graduated.
Because that was like the one thing that seem like oh, it's a good job, you can actually make a - that's The Secret of My Success, Michael J. Fox. The - that's the one job that everyone sort of say that's a good profile job, you will learn a lot about how technology works, so I was doing technology investment banking, we basically advice companies on acquisitions and when I started there was 11 people in my investment banking analyst class, and two years later there were only two of us left. It was like the great contraction, I'd call it, of Silicon Valley that I got to sit through and watch dozens of companies and I worked on about 20 acquisitions at the time, and I got to feel these companies and sort of the CEO that started these things and the failures that they went through and the challenges and they are selling these companies off because it's a frenzy and it's a disaster and so on and so forth. Then I did a little work in private equity and during the time I was focused on finding investments to make an online advertising company.
So it was really cool, I got to see all these different businesses and how they worked and how they operated and I learnt a lot about Google at the time and how Google was doing when it was a growing-up company. There's about less than 1,000 people there at the time. There was clearly a future in front of it, it was still a private company, very secretive, but there is a good understanding of sort of what was going on there. And they were forming a corporate development team, and so I took advantage of the opportunity and joined because let's see how a business works. This is something that's interesting and exciting and I've never actually worked at a company and see how these companies work. And the exciting part about private equity was you could invest in these businesses and see them grow. Well now you could actually be a part of it, so that's why I made the move to Google and I learnt more in Google than I did at any other point in my career, in my life for that matter because there was so much going on, by the time I left Google there was over 10,000 people. And I left Google to start WeatherBill. So let me tell you the story.
In 2002 I used to drive past the - down the Embarcadero to get on the 280 to go to work. Sorry, to get on the 280 then 101 to go to work in Foster City. I mean it's a drive past this place called The Bike Hut, it's right next to AT&T Park on the Embarcadero. And they rent bicycles to tourists and they ride them around on the waterfront. And at the time when I was doing investment banking, you know, I was learning about finance and I was learning about business and how managers think about their P&L, and their operating and their income statements and so on. And every day it was raining, The Bike Hut would be closed. So the guy wouldn't even come in and open up shop because tourists aren't renting bikes and riding around in the rain. So the dude didn't even show up to work. And I thought that's a pretty crappy business, like whether or not this guy is going to make money in a given month it's based on how many days it rains. And so you start to think well that's actually a big problem. Do you ever go to the movie theater on a Sunday when it's raining? There's like so many people in the movie theatre and the coffee shops are packed when it's raining. No one goes to the ski resorts when it's warm and it hasn't snowed. So like you start to think about it and it turns out that - and I love the statistic, this is our big number, the 70% of businesses are affected by the weather every year. So years later when I was at Google, I came back to this idea about sort of all the world's businesses affected by the weather, maybe there is something they can do about it.
And we can sell coverage to pay them if bad weather happens, making it easier for them to run and manage their businesses. 70% of the world's businesses, you know, $4 trillion of the GDP in the United States each year and at the time I was working at Google, working on AdWords and this idea of sort of taking lots of data and being able to extract signal from it and determine some sort of fee or charge that one would make to a customer in the case of Google advertisers could apply here. We could analyze weather data, we could determine the probability of future weather events occurring and we could sell you coverage that would pay you if bad weather were to happen to your business. And so if you know that the bad weather is going to cause a loss of $100, well then you want to get paid $100 when that bad weather happens. And so we will give you a price to cover that because we will be able to figure out the probable - the probability of that event occurring and we will charge you an appropriate charge to cover you. And there's no claims process or proof of loss because we can monitor the weather, there is all these data feeds available now. So choose a weather station where we have a data feed and we will monitor the weather automatically and we will trigger a check to you if it happens. So big problem, huge global market opportunity.
The first step was building a basic sort of prototype. So this was our first prototype, can you see that okay? Yeah, cool. It's pretty good looking website. So I wrote a prototype - the first thing I did was buy some weather data. So you got to - we bought some weather data for about 200 stations and we got availability on feeds into those 200 weather stations. So we can now monitor 200 weather stations and we knew what the history was going back 30 years. And so the first pricing engine was written in R. Everyone here are familiar with R, right, so it's like open source, you can thread a Java Connector and then you can write a front-end app, now you've got a website that uses R to price stuff. And so we were able to use the data that we had bought and so when you typed in the dates of coverage you wanted and choose your weather station and say what do you want to get paid for? I want to get paid $1,000 every day it rains more than a quarter inch as measured at the Stanford Campus. So we would take the appropriate weather data, look at the last 30 years of history, get a distribution, fit a distribution model to the empirical data and we will be able to use that to calculate the expected loss on that product and be able to figure out what we should charge you to cover you against that occurring. So that was the very simplistic prototype and we could use that to then go and ask people for money to start this business. So the first guy to give us money was a guy named Danny Rimer who works at a venture fund called Index Ventures.
He wrote us a check for $300,000 which I then was able to quit Google and go and say comfortable enough to do this. And when I quit Google I left a lot of stock on the table and a lot of money behind and I didn't have a lot of money at the time and it was kind of like, well, you know, why not, like let's just take advantage of this opportunity we have in life and when you're presented with opportunities where you feel you can make a really big impact, it's worth doing it in light of the sort of comfort of not doing it. So the first step was to raise more money because $300,000 was enough to get things going, but to hire folks to work for us and try and recruit them we needed to raise a Series A round or a seed round of funding from angel investors. So we went across the Silicon Valley, Sand Hill Road and all the VCs that we met with said no, including some who are now investors in the company many years later. You can never hold a grudge in Silicon Valley. There is always smile and say I will take your check, thank you very much. So we completely failed at raising money.
Because when we went to these VCs they were like, we are going to start this business that pays people for bad weather and they can choose the weather they want to get paid for and we will figure out the probability and we will cover them. Like that is not an X for Y business. I call them X for Y, it's like Groupon for moms, like it's a lot easier for people to understand something in the context of how they're already operating when the context of other business models are in the context of how things operate today. So to sort of come at this from a fundamental problem with what we think is a good technology solution was sort of a little bit challenging to sell. And granted, we probably weren't doing a good job selling at the time and over time we refined the pitch and we refined the story and this is a completely greenfield, no one knows what's going to happen with what we're doing. So luckily I knew a lot of people that had a lot of money because I had worked at Google and company had gone public and people had done well. So I raised money from them. And so we raised about $2 million from what I would call angel investor friends and we started this thing and later on Index Ventures and NEA gave us another $2 million note and we sort of - we are able to start hiring people. So this was our launch.
We launched in January of 2007, this is the best picture I could find. I did a Google image search for phone booth in the middle of a field because that sort of what it felt like, right. We did this great big build, right. We were like 24x7, no sleep for months before we launched in January of 2007. And the idea was we would put that great website you just saw, made it available to the world and the 70% of businesses that had problems with the weather or were exposed to the weather would all show up and they would finally say, finally I'm a lemonade stand owner, I've always wanted to buy this product, I'm still glad you put the WeatherBill website up. Let me pull out my credit card. And they would start buying stuff. So no one bought. At the time we also had to do a lot of learning about regulatory stuff. So we met with the CFTC and lawyers and we're like we didn't have insurance paper, that's a whole another multi day lecture about how insurance works. And it's a painful lesson we have all had to learn, but we wrote these products as derivative contracts. Over the counter derivatives, the thing that blew up the economy, that sort of what everyone calls it now. But at the time it was like efficient stuff. So we used these over the counter derivatives, and we had to figure out how to make all this stuff work. So there was a lot of plumbing involved in pulling this whole business together with a big sort of launch out to the world. We moved from 200 stations to 400 stations. So, now you could measure the weather at 400 different places, it's amazing. We went to industry conferences and learnt about what was going on in the weather-derivatives market, which is used by energy companies and so on and so forth. So, in that first year, after no one came to the website to buy coverage, I was sort of along with the rest of our early team of endeavourers, pioneers, cold calling businesses in all these different industries, like why aren't you buying, so, hey, Mr. Construction Company, doesn't it cause delays in your operations when it rains or hey, Mr. Farmer like if there is a freeze, you're going to lose your entire citrus crop, right?
And you start to end up in these consultative dialogs with these potential customers. And cold calling was something that I would say is sort of a critical, something you shouldn't be afraid to do if you're dealing with customers because you're going to have to do it to understand what your customers want. So, through this process we realized, well, there are people that want this and we're able to close some sales, but every single one of them we're having to say, well, tell me the weather that affects you, and then they'll give you whole story, then you do an analysis for them and then you run the price. So, we were using our own website to sell products to people that wouldn't go to our website because there was a whole bunch of handholding and positioning and the technology work, but at the end of the day we hadn't productized yet. We clearly just had a proof-of-technology. So, the next year we ended up being - what was the guy, that Yahoo!
Peanut Butter - we were like spread very thin. So, we were trying to sell into all these different markets, travel companies, energy companies, how do we make this thing work, like can we get travel companies to give rain free guarantees to all their customers you know, negotiations getting on planes flying back and forth, meeting with all the online travel agencies. We almost got a deal. We're almost there. That's not really going to work. So, we've got to back off of that market. Ski resorts, you know, can we get all those ski resorts to buy, well, we make snow and people will show up, we'll make money other way as well. So, we learnt a lot about customers in different markets, but we didn't get deep enough to provide a solution to a customer at any given market. So, in 2009, we made the decision to focus the entire business around agriculture.
And we're really lucky that we raised a ton of money in our first year of business. After that first year, where I was cold calling all those businesses, we were able to close a couple of million dollars of sales. And so for a startup during the Web 2.0 heyday to actually make a couple of million dollars in their first year of business was a big deal, despite the fact that a lot of people didn't fully understand or comprehend or care about what we were doing, just you made money and you are a Web 2.0 company, you can get a big check. So, we raised money. And that money afforded us the ability to make a lot of mistakes. And a lot of mistakes were really required for us to figure out what could work as a business. 2009, we were seeing our cash go down.
And we hadn't yet built a model in any market where we could scale the business. So, we said, let's make a bet, the bet is we're going to focus on agriculture. We're going on focus on farmers, because if we do this the right way, we'll be able to build a product that we can sell to farmers over and over again. And this is the market that we felt at the time provided the best opportunity for us to build a scalable business. And Greg Smirin, our Chief Revenue Officer, joined us around this time and helped lead this effort for us. Big learning was when Greg came onboard and really made us diligent about this approach, just how little we knew and how little focus we had at the time in solving the right problems. And so, in 2009, we started selling the specific products to farmers. We moved to 14,000 grids as opposed to 400 stations because we realized no one cares about the rainfall 150 miles away, they want the rainfall to be measured at their location. That was a big reason a lot of people weren't buying. And so that's really where we understood at that point the focus of the technology that we build as a company. Measure the weather more and more locally. And today, we measure the weather using Doppler radar and satellite imagery and all sorts of things that can pinpoint the weather to your exact location and the technology scale at which we operate has become pretty substantial, but at the time that was a big move for us. And so, the ag products started to work and we realized that we needed to provide full season protection to farmers. So, none of us came from an agricultural background, none of us came from an insurance background, but it turns out, farmers won't buy your product unless it's written on insurance papers. So, we had to figure out how do we build an insurance company. And that was a lot of fun. Like I said, I'm going to leave that conversation off for another day, but we had to get all the regulatory approvals in all 51 jurisdictions in the United States for doing this, where you're not actually sending an adjuster out to measure what happens to your farm we're actually just writing your policy that says if this weather occurs, I'll send you a check and how do we get that approved and how do we get an A rating on the product and how do we get the money and the reinsurance to back us and this all became a big hustle, but it worked. And last year, we launched a program called Total Weather Insurance and we figured out a sales model that works, that scales, where people will buy the product every season and we can go out and close sale after sale after sale in a given day.
And so, we raised a bunch of money earlier this year based on the fact that our business was growing very quickly and we had a product that every farmer wanted to buy. There is 160 million acres of corn and soybeans planted just in the Midwest of the United States. Our product costs $40 an acre. There's $6 billion of revenue we're going after and our close rate is very, very high. More than half of the farmers that are offered our product actually buy it because it's something that we finally figured out to make a lot of value and makes a lot of sense for them and we can scale this business pretty substantially. So, we're less than 30 people in Q1 of this year, and we're now over 100 people, Eli our recent addition to the team, Stanford undergrad, joining in a couple of months. And we've a revenue number now that's in the tens of million of dollars per quarter. And the business is growing very quickly and the technology that we're building is exciting. We've probably one of the largest - we're probably the largest user of the Elastic MapReduce service at Amazon, which is basically Hadoop in the cloud. We're simulating the weather on a two-by-two mile basis for the next 730 days, 10,000 times, covering the entire United States and then similarly on a grid basis covering the entire globe. So, the scale of the data, which we operate, we monitor that weather and we update the simulations twice a day as new simulation models come out, has become pretty substantial and it gives us the ability to better service our clients and there is a whole sort of product mission around what we do. We're renaming the company.
I was going to say it, but Greg has asked me not to. We are doing the renaming announcement next Tuesday. Five years later, we're renaming the company, it's crazy. So, I was perfectly happy doing this. This is one point because I think it speaks to how nimble one needs to be and how sort of brutally self-honest and self-aware you need to be as you go through this process. We've had to change what we are doing and how we are doing it many times over in the course of this - the development of this business. And it came to a point recently that the company may or may not be appropriate for what we are doing and the scope of the things that we'd like to do as an organization. And so, let's change the company name. Well, okay, that's not off the table and we've found a great URL and we're going to launch it on Tuesday next week with this great new company name. So, we didn't hold any sort of personal, sort of, you know, I'm stuck on this name because it's what I always wanted to build, it's my business, it's my baby, I can't let go of it, you know, like every day is a new challenge and everyday there is a new solution to that problem. And as long as you keep living every day like that you're going to progress and at some point you're going to have success in your mission, but you cannot hold on to the things in the past and I tell my VCs and so on, you know, they introduced me as sort of the founder of the company. I'm like, founder isn't really a role, it's not really a title I like, I'm the CEO of the company today and I may not necessarily be the best CEO of the company tomorrow, and a lot of founders it's for them, it's very much like they cling on to that title because it's what they're doing, but it's important to avoid it. So I want to talk a little bit about some of the learnings of the last couple of - I'm just checking your clock here, the last couple of years.
So first one, doing a startup, I might alienate the - I don't know, but I might alienate people with some of the things I'm going to say, but I'm just going to speak from the heart. The first one is, I hear a lot of people in Silicon Valley say, I'm going to go do a startup and similar in the vein of, I'm a serial entrepreneur, doing a startup has about as much meaning as saying I'm going to jump out off a plane. What I mean by this is that doing a startup is really an activity or a way of organizing a group of people around a problem that they are trying to solve. You don't get a bunch of people together and say, hey, let's all grab a couple of guns and maybe we'll go find a dictator to kill. If there is a dictator to kill, you put together a team that's most appropriate for taking that dictator out. Okay? It's a terrible analogy, but I wanted to wake everyone up. Okay? And be controversial. So, the process of starting up a company to solve a problem is exactly that, I'm starting up a company to solve this specific problem. So, the way I'm going to go back doing it, the people that are going to help me do it, is really dependent on the problem. It's not an exercise in an activity stream that I'd like to undertake of getting my ass-kicked every day, not getting paid enough, suffering through years of misery and maybe you all find a problem to solve. And that's why I say it's a candid thing, I'm going to go jump out of the plane. The second one is that I hear or there is a sense in my limited exposure to the sort of - what I call the rock star motif of what entrepreneurism is, in - especially in Silicon Valley, and it's good.
I mean there is a culture of taking leaps and doing big exciting things here and you're an important person if you do that. But just being an entrepreneur does not make one a rock star. The odds of the guy - or being the guy on the left are according to a study and I put the URL up there, 0.0006%, that's the odds of - I'm starting up a company and having the company be worth more than a billion dollars. However, all of the press coverage and all of the attention at Silicon Valley goes to the guy on the left. The person on the right is the status quo, your typical entrepreneur, your typical Silicon Valley startup team looks like the person on the right. There is a reason I look like I'm 50, and I'm only 31 years old, okay? The probability of being the person on the right is greater than 99%. And so, I would say, don't do a startup and don't try and solve a problem via a startup, if your goal is to have the status of the rock star entrepreneur because it is a false premise. The financial reward or the opportunity cost of doing a startup is very high. This is from that same study that I just used. There are a lot of engineers here, I'm assuming 100% of you will have the ability to interview for a job at Google when you graduate, and if you were to get a job at Google when you graduate, the anecdotal evidence suggests that your first year salary would be about $105,000 this year. If you were to start a company and raise money from a venture capitalist and you were then able to sell that company or take that company public, your median time to doing that will be 49 months. And assuming three founders, your median expected payoff to the founders will be about $300,000 each, which works out to an annualized salary equivalent of $73,000. And the probability that you actually make no money is 67%.
