The Exchanges

Q So let's do your favorite book and why. What must I be reading?

A One of my favorites that's an oldie that I've read a couple of times this year is called The Code Book by Simon Singh. It was written, I think, in 99. It's a popular history account Of the birth of cryptography. So from simple substitution ciphers to World War II and, you know, Turing, and now to encryption and kind of this computational arms race that you see today. It's just a really kind of fun, interesting account that connects innovation to like real world political intrigue and warfare and, you know, necessity, which I think is a really great reminder of why we even innovate in the first place. And so it's a very fun read that you should look at if you haven't already.

AI assessment note: “called The Code Book by Simon Singh. It was written, I think, in 99.”

Q So let's do your favorite book and why. What must I be reading?

A One of my favorites that's an oldie that I've read a couple of times this year is called The Code Book by Simon Singh. It was written, I think, in 99. It's a popular history account Of the birth of cryptography. So from simple substitution ciphers to World War II and, you know, Turing, and now to encryption and kind of this computational arms race that you see today. It's just a really kind of fun, interesting account that connects innovation to like real world political intrigue and warfare and, you know, necessity, which I think is a really great reminder of why we even innovate in the first place. And so it's a very fun read that you should look at if you haven't already.

AI assessment note: “One of my favorites... is called The Code Book by Simon Singh.”

Q Can I ask, how does that heavy upfront touch points, how does that change the internal org structure of the company, obviously requiring much deeper levels of personnel?

A Yeah, exactly. So again, you know, I think comparing the two geographies, increasingly there's the popularity in the U.S. of self-service models, right? Small deal sizes, high velocity and bound demand generation. You can nurture people through your funnel and not even have to talk to them on the phone until almost the very end, right? And this is the model exemplified by Shopify or by Zendesk. And even relatively larger deal sizes in the 50 to a hundred K can be closer to the phone or with not that many touches. And so you can have much larger inside sales team than you do field sales. And then you could have deploy your field sales people only for the very, very big whale type customers, right? And so that's how you're able to run a sales work in the U S today. In China, you have to be very reliant on field sales. There's still the expectation that you would go see them in person, that you have to build trust that way. They still expect that you're going to do some level of customization for them, because they're just used to it, right? This is, this is how they've been sold software for a very long time, historically. And so, you're going to have way more people in the field meeting customers live. Some inside salespeople, growing number, because that model is getting more popular, but still lean. And then in terms of pure demand gen, not very many, because that model hasn't…

AI assessment note: “you're going to have way more people in the field meeting customers live”

Q And before we move into the globalization of tech, so to speak, I'm very interested. Pat Grady at Sequoia stated on the show that with regards to operating versus non-operating backgrounds and experiences in their utility, he said, never before have we seen a faster rate of decay on operating experiences. Experience. I'm interested. What's your take on this and the kind of perceived value?

A Yeah, definitely. So this is a question about the value of operating versus non-operating and investing, right? People have talked a lot about the counter examples and examples that, you know, are good cases for both, right? And people always bring up Mike Morse having been a journalist and Bill Gurley having been a public markets analyst, um, and obviously non-operating, but both really successful. So I'd largely agree with Pat's point, you know, cycles of innovation are accelerating, which in turn makes operating successful. At any point in time, more likely to become, you know, outdated. So I'd actually reference a couple of articles I read, but recently, you know, Richard Foster, professor at Yale, found some research that said that the average lifespan of a public company used to be, you know, over 60 years in the 19 fifties, and now it's about 15 years. So companies, you know, get acquired or close shop much faster. They get disrupted much faster. Technologies that used to be dominant have much more precarious positions today. And so it's very hard to maintain this competitive edge, especially because You know, lean startups could have heralded this age of really fast iteration, deploying dozens of builds every day, always changing up your stack. So even if you were a successful founder operator, 10 years ago, the sort of arsenal of tools that you were really familiar wit…

AI assessment note: “So I'd largely agree with Pat's point, you know, cycles of innovation are accelerating”

Q rise of enterprise technology in China, and what US-based companies must consider and assess before making the move, I want to start when analyzing the two differing markets. It's kind of important to understand to what extent they differ. So with that in mind, you've said there before that there are three key differences between the markets, but you left me hanging there. So what are the three key differences?

A Sure. So in no particular order, I would first say, you know, I've had the chance to travel to China a bit as a part of my role and, you know, meet enterprise companies there, and I actually was just there last week. So some of these points are really fresh in my head. The first I'd flag is, There's a difference in deal sizes and as well as, you know, enterprise willingness to pay for software, especially SaaS, as well as, you know, open source developer tool type products, which we should talk about a little bit more. There's a difference in delivery models in that, you know, in the U S the transition to the cloud and to SaaS applications is pretty mature, right. And started in the early 2000. So there's a retirement now, the perpetual license, right. And even upon premises that I think is still much, much earlier in China. And so that's something we can discuss as well. And then the third is just business models. Somewhat tied to lower willingness to pay is the reality that you have to price things differently, and you have to grow to a hundred million dollar revenue business without just relying on pure recurring SaaS, right? And so it could be a combination of transactional models. It could be advertising. It could be value-added services. But the way that you monetize also has to be different because you can't really necessarily become a public company on just license alon…

AI assessment note: “The first I'd flag is... difference in delivery models... third is just business models.”

Q Can I ask, how does that heavy upfront touch points, how does that change the internal org structure of the company, obviously requiring much deeper levels of personnel?

A Yeah, exactly. So again, you know, I think comparing the two geographies, increasingly there's the popularity in the U.S. of self-service models, right? Small deal sizes, high velocity and bound demand generation. You can nurture people through your funnel and not even have to talk to them on the phone until almost the very end, right? And this is the model exemplified by Shopify or by Zendesk. And even relatively larger deal sizes in the 50 to a hundred K can be closer to the phone or with not that many touches. And so you can have much larger inside sales team than you do field sales. And then you could have deploy your field sales people only for the very, very big whale type customers, right? And so that's how you're able to run a sales work in the U S today. In China, you have to be very reliant on field sales. There's still the expectation that you would go see them in person, that you have to build trust that way. They still expect that you're going to do some level of customization for them, because they're just used to it, right? This is, this is how they've been sold software for a very long time, historically. And so, you're going to have way more people in the field meeting customers live. Some inside salespeople, growing number, because that model is getting more popular, but still lean. And then in terms of pure demand gen, not very many, because that model hasn't…

AI assessment note: “you're going to have way more people in the field meeting customers live.”

Q need to adapt? Is one going to conform to the other perspective? What, what's your kind of preference towards confirmation or actually adaptation? If you've got a US company, do they have to conform to, to Asian org structures and, and Asian styles of play in terms of upfront touch service? And then likewise, do Asians have to kind of conform to the preference to self-service Models in the US.

A I think over time, they're going to converge. You know, I think China is going to go through the same evolution that the US did, right, 10 years ago in moving from field sales and person sales to inside sales to lightweight demand gen. I think it's as people become more tech savvy and as, you know, engineering and IT organizations, even in traditional industries, learn more, try more things, get pitched by more vendors, it's almost inevitable that you're going to move toward a lighter weight model, in my opinion. So I'm sure that there's going to be a convergence. But today, if you're an American company trying to break into China, you definitely have to play by their rules. I think that, you know, maybe in the past, you know, the Valley was more of a model that they believe they should emulate, not just in terms of technology, but in terms of business model, how things are sold, how you deal with customers. But now the whole Chinese startup and tech ecosystem is incredibly vibrant and incredibly strong, and in some ways, even out innovating the U S right. And so it's kind of hard to capture the sense of pride that the whole sort of ecosystem feels over Our way is not necessarily the wrong way, and it might be the better way, and so if you want to deal with them today in this kind of environment, you, you really have to try to do it their way or compromise, because there's no n…

AI assessment note: “today, if you're an American company trying to break into China, you definitely have to”

Q And before we move into the globalization of tech, so to speak, I'm very interested. Pat Grady at Sequoia stated on the show that with regards to operating versus non-operating backgrounds and experiences in their utility, he said, never before have we seen a faster rate of decay on operating experiences. Experience. I'm interested. What's your take on this and the kind of perceived value?

A Yeah, definitely. So this is a question about the value of operating versus non-operating and investing, right? People have talked a lot about the counter examples and examples that, you know, are good cases for both, right? And people always bring up Mike Morse having been a journalist and Bill Gurley having been a public markets analyst, um, and obviously non-operating, but both really successful. So I'd largely agree with Pat's point, you know, cycles of innovation are accelerating, which in turn makes operating successful. At any point in time, more likely to become, you know, outdated. So I'd actually reference a couple of articles I read, but recently, you know, Richard Foster, professor at Yale, found some research that said that the average lifespan of a public company used to be, you know, over 60 years in the 19 fifties, and now it's about 15 years. So companies, you know, get acquired or close shop much faster. They get disrupted much faster. Technologies that used to be dominant have much more precarious positions today. And so it's very hard to maintain this competitive edge, especially because You know, lean startups could have heralded this age of really fast iteration, deploying dozens of builds every day, always changing up your stack. So even if you were a successful founder operator, 10 years ago, the sort of arsenal of tools that you were really familiar wit…

AI assessment note: “So I'd largely agree with Pat's point, you know, cycles of innovation are accelerating”

Q rise of enterprise technology in China, and what US-based companies must consider and assess before making the move, I want to start when analyzing the two differing markets. It's kind of important to understand to what extent they differ. So with that in mind, you've said there before that there are three key differences between the markets, but you left me hanging there. So what are the three key differences?

A Sure. So in no particular order, I would first say, you know, I've had the chance to travel to China a bit as a part of my role and, you know, meet enterprise companies there, and I actually was just there last week. So some of these points are really fresh in my head. The first I'd flag is, There's a difference in deal sizes and as well as, you know, enterprise willingness to pay for software, especially SaaS, as well as, you know, open source developer tool type products, which we should talk about a little bit more. There's a difference in delivery models in that, you know, in the U S the transition to the cloud and to SaaS applications is pretty mature, right. And started in the early 2000. So there's a retirement now, the perpetual license, right. And even upon premises that I think is still much, much earlier in China. And so that's something we can discuss as well. And then the third is just business models. Somewhat tied to lower willingness to pay is the reality that you have to price things differently, and you have to grow to a hundred million dollar revenue business without just relying on pure recurring SaaS, right? And so it could be a combination of transactional models. It could be advertising. It could be value-added services. But the way that you monetize also has to be different because you can't really necessarily become a public company on just license alon…

AI assessment note: “The first I'd flag is, There's a difference in deal sizes”

Q What would you most like to change in the world of startups and Silicon Valley? As you said, you're in the ecosystem, you drink the Kool-Aid. What would you most like to change?

A I find that people oftentimes like to belong to certain camps of thought and advocate kind of relentlessly for those to the exception of other trends of thought. So as an example, there are people following the camp of every startup must be a lean startup. And believe that there's no other way to create a product, right? Like fast iteration, get product out as soon as possible, even if it's semi-finished. And then there are people who think, oh, it has to be fully baked. You have to dedicate a lot of engineering resources to have real innovation. And oftentimes they'll get into these like spats, right? And I think either model can work just like how I think a high burn, high growth, high risk growth model can be just as good as a very lean cashflow positive model. I mean, maybe the outcomes can differ, but both of those models work as well. And so if people even have Predefined rules about how to fundraise, right? I mean, sometimes entrepreneurs will ask me for advice and say, hey, if I want to keep the VC excited, do I stay in touch with them over a couple of months before I fundraise, or do I kind of just dump the idea that I'm going to fundraise over the next week and create a process and create all this competition and get the best terms, right? And so people are always trying to apply rules to how they should be doing things, and then unfortunately are not people in their …

AI assessment note: “I find that people oftentimes like to belong to certain camps of thought”

Q need to adapt? Is one going to conform to the other perspective? What, what's your kind of preference towards confirmation or actually adaptation? If you've got a US company, do they have to conform to, to Asian org structures and, and Asian styles of play in terms of upfront touch service? And then likewise, do Asians have to kind of conform to the preference to self-service Models in the US.

A I think over time, they're going to converge. You know, I think China is going to go through the same evolution that the US did, right, 10 years ago in moving from field sales and person sales to inside sales to lightweight demand gen. I think it's as people become more tech savvy and as, you know, engineering and IT organizations, even in traditional industries, learn more, try more things, get pitched by more vendors, it's almost inevitable that you're going to move toward a lighter weight model, in my opinion. So I'm sure that there's going to be a convergence. But today, if you're an American company trying to break into China, you definitely have to play by their rules. I think that, you know, maybe in the past, you know, the Valley was more of a model that they believe they should emulate, not just in terms of technology, but in terms of business model, how things are sold, how you deal with customers. But now the whole Chinese startup and tech ecosystem is incredibly vibrant and incredibly strong, and in some ways, even out innovating the U S right. And so it's kind of hard to capture the sense of pride that the whole sort of ecosystem feels over Our way is not necessarily the wrong way, and it might be the better way, and so if you want to deal with them today in this kind of environment, you, you really have to try to do it their way or compromise, because there's no n…

AI assessment note: “if you're an American company trying to break into China, you definitely have to”

Q I would love to. Naturally, inquisitive, you've set me up with so many questions. You mentioned the element of deal sizes there. How does that affect unit economics, the ability for people to get cash flow positive with kind of large upfront checks, and kind of how does that affect the core unit economics of the business?

A Today, there's, you know, two trains of thought here, right? If you sell just pure software, and you're not able to provide a very heavy-duty professional services element to it, you're not going to be able to get a very big deal size. If you want to get to ever larger deal sizes, a large proportion Proportion of that will be training, consulting, professional services, deployment type work. And so you have to basically commit to a certain type of model, right? Either you have a pretty high cost of sales, high cost of deployment model where you justify bigger deals, or you have to realize that if you sell pure software and it's relatively lightweight and it has minimal customization, that the deal sizes will be, you know, much smaller than in the U S. And so you have to sell way more of them, which means that your acquisition model has to be way more efficient. And you have to potentially monetize with other things beyond license. So those are the kind of two paths that you can pick from, right? Both of which are relatively different from how companies might sell in the U.S. today.

AI assessment note: “Either you have a pretty high cost of sales, high cost of deployment model”

Q Can I ask then, is there really a market for VC then with this either copycat or acquire or acquire large percentages with the future thought process of acquiring longer term? Is there really a market for VC with billion-dollar outcomes, especially with these companies having such rich data sources where they can acquire and get in so early, picking up on the kind of increased traction points?

A That's a fair question. And it's definitely not easy, right, to be an enterprise investor in China. I think that there's a lot of interest, but a lot of recognition that the competitive dynamics are pretty challenging. But as I said, case three, where you build something novel, you gain enough traction, and maybe you have enough revenue that you just don't need their money. That's a possibility still, right? And that's still worth investing in. And that's what people in the Valley do as well, right? I mean, every pitch that I hear about infrastructure is ostensibly something that Amazon could do one day, right? Or Microsoft or Google, but you've got to bet That the incumbent never moves as quickly as a startup. So that's just the bet that you have to make maybe with even a little more risk. But I think even for companies that maybe get aligned right with one of these tribes or get acquired down the road, if you're early enough investor, you can still make a lot of money because if a company gets the point where they raise a hundred or two hundred million dollars from one of these giants, they're very valuable. And so you're going to have a return regardless. It just might not be if you were the series investor, you have to be earlier and you have to pick good teams. But there's still a lot of opportunity.

AI assessment note: “if you're early enough investor, you can still make a lot of money”

Q What would you most like to change in the world of startups and Silicon Valley? As you said, you're in the ecosystem, you drink the Kool-Aid. What would you most like to change?

A I find that people oftentimes like to belong to certain camps of thought and advocate kind of relentlessly for those to the exception of other trends of thought. So as an example, there are people following the camp of every startup must be a lean startup. And believe that there's no other way to create a product, right? Like fast iteration, get product out as soon as possible, even if it's semi-finished. And then there are people who think, oh, it has to be fully baked. You have to dedicate a lot of engineering resources to have real innovation. And oftentimes they'll get into these like spats, right? And I think either model can work just like how I think a high burn, high growth, high risk growth model can be just as good as a very lean cashflow positive model. I mean, maybe the outcomes can differ, but both of those models work as well. And so if people even have Predefined rules about how to fundraise, right? I mean, sometimes entrepreneurs will ask me for advice and say, hey, if I want to keep the VC excited, do I stay in touch with them over a couple of months before I fundraise, or do I kind of just dump the idea that I'm going to fundraise over the next week and create a process and create all this competition and get the best terms, right? And so people are always trying to apply rules to how they should be doing things, and then unfortunately are not people in their …

AI assessment note: “people oftentimes like to belong to certain camps of thought and advocate kind of relentlessly”

Q I would love to. Naturally, inquisitive, you've set me up with so many questions. You mentioned the element of deal sizes there. How does that affect unit economics, the ability for people to get cash flow positive with kind of large upfront checks, and kind of how does that affect the core unit economics of the business?

A Today, there's, you know, two trains of thought here, right? If you sell just pure software, and you're not able to provide a very heavy-duty professional services element to it, you're not going to be able to get a very big deal size. If you want to get to ever larger deal sizes, a large proportion Proportion of that will be training, consulting, professional services, deployment type work. And so you have to basically commit to a certain type of model, right? Either you have a pretty high cost of sales, high cost of deployment model where you justify bigger deals, or you have to realize that if you sell pure software and it's relatively lightweight and it has minimal customization, that the deal sizes will be, you know, much smaller than in the U S. And so you have to sell way more of them, which means that your acquisition model has to be way more efficient. And you have to potentially monetize with other things beyond license. So those are the kind of two paths that you can pick from, right? Both of which are relatively different from how companies might sell in the U.S. today.

AI assessment note: “Either you have a pretty high cost of sales, high cost of deployment model”

Q Can I ask then, is there really a market for VC then with this either copycat or acquire or acquire large percentages with the future thought process of acquiring longer term? Is there really a market for VC with billion-dollar outcomes, especially with these companies having such rich data sources where they can acquire and get in so early, picking up on the kind of increased traction points?

A That's a fair question. And it's definitely not easy, right, to be an enterprise investor in China. I think that there's a lot of interest, but a lot of recognition that the competitive dynamics are pretty challenging. But as I said, case three, where you build something novel, you gain enough traction, and maybe you have enough revenue that you just don't need their money. That's a possibility still, right? And that's still worth investing in. And that's what people in the Valley do as well, right? I mean, every pitch that I hear about infrastructure is ostensibly something that Amazon could do one day, right? Or Microsoft or Google, but you've got to bet That the incumbent never moves as quickly as a startup. So that's just the bet that you have to make maybe with even a little more risk. But I think even for companies that maybe get aligned right with one of these tribes or get acquired down the road, if you're early enough investor, you can still make a lot of money because if a company gets the point where they raise a hundred or two hundred million dollars from one of these giants, they're very valuable. And so you're going to have a return regardless. It just might not be if you were the series investor, you have to be earlier and you have to pick good teams. But there's still a lot of opportunity.

AI assessment note: “if you're early enough investor, you can still make a lot of money”