Sequoia, Y Combinator, AZ16 Under Scrutiny in Congress over ‘Tech Bro’ Culture
When you have a tech startup, you&#x27;re building two things.  First, you&#x27;re building the product (or service) you&#x27;re trying to sell the market.  In the old days when things made sense, you got money from customers to buy or use the thing you built.  Secondly, and perhaps more importantly, you&#x27;re building a company.  In the olden times you would use your startup capital to get to the point where you could survive by retained earnings (i.e. - you made more money than you spent.)  Assuming you did this correct, you had a company banking coin and you could sell all or portions of that company for cash and pay off your original investors.  The price your company would fetch depended on how much profit you were making. Companies like Intel, HP and Apple all started more or less this way.  Grove, Hewlett, Packard, Markkula, Faggin, Hurd, Peddle, etc. would all grok this model.<p>But then the tech-bros came and sold everyone on the idea that the intarwebs are so new that no one really knows how they&#x27;ll make money, but they will make money and it will be great.  Ads.  Turns out it was ads.  That&#x27;s how they make money.  Tech companies are really a bit more like media networks; they&#x27;re just channels for ads.  You&#x27;ve probably heard people say things like &quot;eyeballs&quot; and &quot;CPM&quot; and &quot;subscriber growth.&quot;  It&#x27;s all related to how many people you can put an ad in front of.  The market isn&#x27;t yet saturated and you&#x27;re pouring all your income into growing the business, so you make the argument the company&#x27;s present value is related to its future value discounted by very murky projections of how many more people you can eventually convince to watch your ads.  And that&#x27;s not entirely crazy.  GeoCities, Yahoo!, Broadcast.Com are companies familiar with this model.  Mark Cuban, Jerry Yang, Marc Andreessen and Sean Fanning rode this business model to glory in the late 1990s.<p>[stick with me here... i&#x27;ll eventually get to the point]<p>But now think about the landscape if you&#x27;re a VC.  You have a bazillion recent Stanford grads wanting you to give them some cash.  There are PLENTY of new apps and it&#x27;s hard to figure out which of these crazy ideas will eventually make money.  But there is a metric you can use to start to make sense of it all: Subscriber Growth.  If Company A is growing it&#x27;s subscribers faster than Company B, then Company A has an advantage.  If it&#x27;s product is &quot;sticky&quot; it will benefit from word of mouth and your investment capital will grow faster if you invest it in Company A (all other things being equal.)  Somewhere around Y2K people began figuring this out and companies like Six Degrees, Friendster and MySpace were trying to be &quot;sticky.&quot;<p>So it&#x27;s now the mid-2000s and the value of a company is related to the first derivative of it&#x27;s subscriber count.  Google is getting into &quot;more than just search&quot; to expand it&#x27;s customer growth numbers.  Twitter and Facebook are just now launching, weaving a story for investors about near unlimited subscriber growth.  Union Square plunked down a metric boatload of cash for pieces of Twitter, Tumblr, Kickstarter and Etsy.<p>There&#x27;s now only one mandate from the investors: grow.  The faster you grow, the more valuable you are.  Every decision your company makes is viewed through the lens of rapid growth.  Subtle UX changes suddenly become important as companies realize subscribers are fickle and won&#x27;t waste time on a janky site that looks like it&#x27;s from 1996.  Horizontal scaling (and every bit of instrumentation that follows from it) become critical to your company&#x27;s tech stack.  Why do you use Docker and&#x2F;or AWS?  Because it allows you to scale to meet subscriber growth.  You can&#x27;t ignore horizontal scaling and expect people to give you money.<p>In the old days the idea was to grow the business and IPO (or get bought by a public company) so you can exchange your stock tokens for real cash.  But it turns out it takes a long time for a company to run out of new subscribers.  It sure would be nice if there were a way to cash out of your startup before going public.  And there is.  Google the phrase &quot;post-money valuation.&quot;  If you&#x27;re a VC and you plunked down $1,000,000 for 20% of a hot startup, it implies the whole company is worth $5,000,000.  But the value of the company is always growing as its subscriber base grows.  If it&#x27;s growing super-fast, there may be a LOT of people who want to get in on the investment.  And this demand raises the per-share price of the next round of investment.  Lets say the company you just invested in becomes SUPER-HOT.  Everyone wants a piece.  You talk with the financial people at the company and say &quot;hey, your subscriber growth rate is twice what it was in January when we gave you $1M for 20% of the company.  So the next 20% you sell should be at least $2,000,000.  But there&#x27;s so many people who want in, why not raise it to $10,000,000 and see who bites.&quot;  Assuming you can sell 20% of your company for this much, it&#x27;s valuation is now $50,000,000.  As the VC, your previous $1M &#x2F; 20% investment is now demonstrably worth $10,000,000.  Things are worth as much as people will pay for them.  And if you do it right, a bit of cash from the next round might flow into your pocket.<p>And now things get a little complex.  There&#x27;s so much money flowing around because of VC&#x27;s deep pockets, any half-way reasonable startup is bidded up to stratospheric levels.  And if someone pays a bazillion dollars, that&#x27;s what defines it&#x27;s present value.  But as Yogi Berra once said, &quot;it&#x27;s tough to make predictions, especially about the future.&quot;  What is the FUTURE VALUE of that investment?  You have to keep growing the company&#x27;s earnings (or it&#x27;s subscriber count proxy) so you can cash out at the next round.<p>Everything is now about growth.  Should you spend engineers&#x27; time refactoring that janky old code?  No.  Absolutely Not.  Get them working on the new feature that will drive more subscribers.  Is there any advantage to hiring a CEO who groks the tech?  No.  The only thing you care about is how well the CEO sells the company to the next round of investors.  In fact, it might be a disadvantage if your CEO starts asking questions about the tech and timing feature releases based on rational development schedules.<p>What we&#x27;ve learned in the last 25 years is increasing your company&#x27;s growth rate (whether measured in subscribers, eyeballs or revenue) is the only thing that matters.  &quot;Tech Bro&quot; CEOs who only worry about sales are not replaced because investors want to see someone who cares about such things in charge.  &quot;Engineering&quot; CEOs may still survive, but only to the degree they learn how to be good Tech Bros.<p>What looks good on a startup CEO&#x27;s resume?  The Haas School.  GSB (Stanford&#x27;s Graduate School of Business).  Maybe Sloan if your investors are from Boston.  And CEOs bring their bro&#x27;s with them. VP&#x2F;ENG is a bro who took a database class once.  CTO is a bro who has a WIRED subscription.  VP&#x2F;SALES is a guy your VCs introduced you to, but is still pretty bro-ish.<p>Tech-bros persist at tech companies because there is not benefit to selecting non-tech-bros.  They&#x27;re not all tech-illiterate, but they&#x27;re familiar only with the tech bits that lead to subscriber growth.  &quot;Technical Debt&quot; is a meaningless concept because by the time they&#x27;ve cashed out, the velocity slow-down it introduces hasn&#x27;t yet surfaced.  &quot;SCRUM&quot; is the preferred method of organizing small teams because there&#x27;s nothing in the methodology that values &quot;easier to maintain&quot; or &quot;easier to extend&quot; solutions.  (Not that you CAN&#x27;T do it, it&#x27;s just that it&#x27;s not part of any SCRUM training I&#x27;ve ever seen.  Engineers ONLY rate stories based on how long they think it&#x27;ll take to implement.  &quot;Easy to maintain&quot; is not a feature of T-Shirts but &quot;size&quot; is.)<p>What kind of fool would hire a Tech Bro CEO?  The kind of fool who knows there&#x27;s a greater fool right around the corner.  It&#x27;s not so much that Idiocracy is a documentary, it&#x27;s that understanding the fundamentals of the market your company sells products into is over-rated.  Your CEO really should be focused on selling the company to investors, and understanding that market or understanding the engineering used to build the company is secondary.<p>Think of the CEO role as being surrounded by a semi-permiable membrane.  The membrane lets Tech-Bros move in and out, but thoughtful engineering leaders who ask too many questions or have any concern other than growth are blocked.  Thermodynamics tells you that even if there were non-tech-bros inside the membrane originally, they&#x27;ve eventually migrate away.