Saturday, March 29, 2014

Inside Sequoia Capital: Silicon Valley's Innovation Factory



The Sequoia team (clockwise from top left): Michael Goguen, Doug Leone, Scott Carter, Michael Moritz, Bryan Schreier, Jim Goetz, Roelof Botha, Alfred Lin, Patrick Grady.

When Doug Leone arrived in Mount Vernon, N.Y. in 1968, the 11-year-old Italian immigrant didn’t have a clue. He flunked a math quiz in school because the terms “true” and “false” bewildered him. He wore unsightly slacks from Sears that invited classmates’ teasing. After school he watched McHale’s Navy alone on a black-and-white television, hoping to learn colloquial phrases that would help him fit in.
A few years later Leone began to get his bearings. “I was working on boats as a teenager, sweating like a pig during a summer job,” Leone recalls. “I could look across and see all the kids at the country club’s swimming pool. The young guys were talking to the girls. And I was saying to myself: ‘I can’t wait until I meet you in the business world. You just made your big mistake, letting me in.’ ”
Ambition. Vulnerability. Vindication. Lots of successful immigrants bottle up those feelings as they rise to prominence. They hide old slights and do their best to blend into America’s aristocracy. Not Leone. Even in his perch as a managing partner at venture firm Sequoia Capital, Leone still carries himself like a hard-luck striver, scrambling for his first decent break. “
A lot of what keeps me going is fear,” he confides.
Step inside Sequoia’s spartan offices at Silicon Valley’s capital of capital, Sand Hill Road, and see what happens when a handful of hungry perfectionists like Leone band together. Start at the entryway, packed with framed copies of financing documents for 98 companies. The hit parade begins with Apple’s initial public offering in 1980; it includes the likes of Oracle, Cisco, Yahoo, Google and LinkedIn. These are Sequoia’s children. Since its founding in 1972 Sequoia has backed startups that now command a staggering $1.4 trillion of combined stock market value, equivalent to 22% of Nasdaq.
Yet Sequoia doesn’t display its heritage with the well-heeled pride you might find at other top-tier venture firms, let alone the likes of JPMorgan or KKR. At Sequoia the historic IPO filings are crammed into drab, drugstore-quality frames. Sequoia partners don’t enjoy luxurious private offices; instead they toil at stand-up desks in a big open hall. Conference rooms are adorned with cheap plastic wastebaskets. It’s as if Sequoia’s partners haven’t fully realized that they might be rich.
The past year Sequoia’s scrappy methods have produced the firm’s biggest gains ever. A record nine Sequoia partners appear on the FORBES Midas List of the most successful venture capitalists, thanks to the firm’s lucrative investment in companies such as Airbnb, Dropbox, FireEye, Palo Alto Networks, Stripe, Square and WhatsApp. At the No. 1 spot is Sequoia partner Jim Goetz, who backed WhatsApp in 2011, well before Facebook agreed to buy the mobile-messaging company for $19 billion. Leone ranks No. 6, followed by colleagues Michael Moritz, Alfred Lin, Roelof Botha, Neil Shen, Michael Goguen, Bryan Schreier and Kui Zhou.
Base pay at Sequoia isn’t meant to be dazzling. While the salaries of the firm’s nine general partners can top $1 million, Sequoia doesn’t bother with Wall Street-style guaranteed bonuses, and some of Sequoia’s more junior partners have taken pay cuts to join. That’s an easy sacrifice to make. The capital gains vastly exceed base pay.
Consider Sequoia Venture XI Fund, which in 2003 raised $387 million from about 40 limited partners, chiefly universities and foundations. Eleven years later Venture XI has booked $3.6 billion in gains, or 41% a year, net of fees. Sequoia’s partners stand to collect 30%, or $1.1 billion, while limited partners get 70%, or another $2.5 billion. Look for even more outsize returns from Venture XIII (2010), which is up 88% a year so far, and Venture XIV (2012). The latter two will split the $3 billion or so Sequoia takes home from the WhatsApp deal. Add it up and Sequoia is turning its own partners into billionaires while keeping outside investors purring.
“We’ve hired more than 200 outside money managers since I came here in 1989,” says Notre Dame’s investment chief, Scott Malpass. “Sequoia has been our number one performer by far.”
Sequoia opened for business in 1972, when Don Valentine, a gruff sales and marketing executive in Silicon Valley’s chip industry, decided to try his hand at venture capital. The son of a Yonkers, N.Y. truck driver (a few miles from where Leone grew up), Valentine was blessed with an eye for mavericks who could launch great companies. You’ll find him in the history books as the fellow who bankrolled Steve Jobs in 1978, even though the 22-year-old Apple founder, by Valentine’s later account, smelled odd and “looked like Ho Chi Minh.”
When Valentine ceded managerial control of Sequoia in the mid-1990s, Moritz and Leone jointly took over. Superficially they are nothing alike. Moritz started out as a staff writer for Time magazine; he is an Oxford graduate who coins clever phrases all the time. Leone earned a mechanical engineering degree from Cornell and then sold computers for Hewlett-Packard, Prime Computer and Sun Microsystems; he curses to get his point across. Moritz won a full partnership at Sequoia after barely two years; Leone needed five.
Yet both fit the Sequoia mold: feisty, decisive–and ready to back the “dentmakers” of the world.  “Every time we invest in a little company, it’s a battle against the odds,” Moritz explains. “We’re always outgunned by companies that are far larger than us, who have threatened us and the founders with extinction. It’s incredibly thrilling to prove everyone wrong. You can’t get a bigger rush than that.”
These days Leone serves as senior partner. Moritz remains an active investing partner but shed his administrative duties in 2012 after being diagnosed with an unspecified illness that, he said, could dim his quality of life in the next five to ten years. In a recent interview with FORBES Moritz said that “staying as fit as possible is the key to everything,” adding that he had been swimming for 90 minutes early that morning. Asked if there was any change in his health outlook, Moritz added: “Who knows what fate will deliver?”
Sequoia’s partners hear 200 or more pitches a month, while typically funding only two . Regardless of whether a meeting ends with “yes” or “no,” founders describe their hour with Sequoia as one of life’s most intense experiences. Moritz is the detective, listening to each detail of a founder’s story and asking a few eerily perceptive questions. Botha, Lin and Schreier are the growth hackers, looking for ways consumer-oriented startups can rocket ahead even faster. Goguen and Goetz are the mechanics, drawing on 25 years apiece of experience with enterprise technology companies to gauge a startup’s chances of prevailing.
Then there’s Leone. The boy from Genoa likes to challenge founders right away to find out who is tough enough to succeed. Tony Zingale, a seasoned Silicon Valley executive, recalls a 1990s meeting in which Leone grabbed Zingale’s resume, flipped it across the desk and snarled: “What do you know about running a startup?” They bickered for ten minutes before Leone declared: “Okay, now we know you are a smart m-effer. Now we can have the meeting.”
Today Zingale is CEO of Jive Software, a Sequoia-backed provider of enterprise/social software. It doesn’t matter that Leone can deal out rejections that feel like a punch in the mouth, Zingale says. Slights are forgotten fast; Leone regularly speaks of Zingale as part of the Sequoia family. “He’s another fiery Italian, so we get along well,” says Zingale.

Borge Hald, the CEO and cofounder of Medallia, encountered Leone’s sharp tongue in 2012, when the customer service software company was looking for its first outside capital infusion. Most other venture firms “were sucking up to us and saying we were so good that they wouldn’t change a thing,” Hald recalls. “Doug challenged us. He said that we needed to build our sales efforts in a big way. He said that in a world that’s full of a struggle between energy and chaos, all we amounted to was entropy.” In this case Leone’s harsh critique paid off; Medallia signed with Leone even though passive competitors offered richer terms.
Part of Sequoia’s edge with entrepreneurs comes from a willingness to move fast on the best prospects. Pitch to Sequoia partners on Monday morning and, if everything goes well, you can have a handshake agreement on funding that afternoon. Ask for a term sheet and you’ll get the essentials on a single page, rather than a long lawyers’ memo. Among the fans of Sequoia’s speed is Elon Musk, the CEO of Tesla Motors. Musk remembers that in 1999, when he was building what became PayPal, Sequoia wired him $5 million to get started, even though lawyers hadn’t finished all their paperwork.
“Don’t complicate our lives,” explains Adi Tatarko, the CEO of Houzz, a home remodeling platform. She and her husband, Alon Cohen, cofounded the site in 2009 and have been racing to build it ever since. When Houzz raised money in 2011, another venture firm might have offered a higher valuation. But Sequoia won their loyalty, she says, by being “very direct and really fast.”
Tatarko and Cohen grew up in Israel, Musk in South Africa, Hald in Norway. A FORBES analysis shows that a whopping 59% of the startups underlying Sequoia’s Midas List calculations were built by at least one foreign-born cofounder . Put flags in a world map and you will see Sequoia connecting with entrepreneurs born in Ukraine, Ireland, Finland, Greece, India, Pakistan, Venezuela and a dozen other countries. (By contrast, Kauffman Foundation data show that barely a quarter of all U.S. startups have at least one immigrant cofounder.)
Sequoia’s ties to Silicon Valley’s brightest immigrants are hardly an accident. Italian-born Leone rubs shoulders with fellow partners from Wales (Moritz), South Africa (Botha), Taipei (Lin) and old-line parts of the northeastern U.S. who think of themselves as immigrants, too. Native Californians are rare at the firm. Everyone is an outsider, still trying to win acceptance–and success–in a new land.
As a result Sequoia’s partners don’t mind hunting for great new startups in the ratty coffee shops and low-rent offices where such companies often are born. Other venture capitalists let success draw them into Pebble Beach golf tournaments or the rarefied venues of Davos and Aspen gabfests. “We don’t go there,” Leone says. “That’s not where the next founders are.”
The venture capital business often seems as strife-torn as a Kardashian marriage. Ambitious younger partners feud with old-timers. Battles rage within firms about who is good versus lucky, who deserves a bigger share of the profits and who should be booted out. Throw in some personal feuds or indiscreet conduct and pretty soon VCs’ quarrels become a feast for lawyers.
Sequoia is the long-running exception. Thanks to some unusual quirks in the firm’s hiring habits, everyday work practices–and pay–Sequoia has been able to stay harmonious and rejuvenate its leadership as needed, without any fuss. Older partners cash out. New ones take their place. The firm runs in line with Leone’s idea of a big Italian family: lots of personalities, plenty of back-and-forth but a determination to stick together no matter what. Women? Sequoia has none in top U.S. investment roles but says it hopes to hire one someday.
“We want people who come from humble backgrounds and have a need to win ,” Leone says. “And we want a culture where people continuously share credit.” Sequoia does hire some recent business school graduates to serve as nonvoting junior partners. But the firm’s bigger partnership slots go to seasoned tech executives like Alfred Lin (Zappos), Bryan Schreier (Google) or Omar Hamoui (AdMob). These men are known quantities; they have worked for years at one of Sequoia’s portfolio companies.
Schreier, for example, pitched three of his own startup ideas to Sequoia in 2008. Moritz didn’t like any of them–particularly a hastily conceived idea about making phones with big buttons so that elderly people could use them. But, as Moritz now recalls, “the best thing about Bryan was Bryan.” The big-button phones could wait. Sequoia regarded Schreier’s earnest, self-effacing personality as just right for the firm itself.
Sequoia’s partners gather each Monday at 8 a.m. to debate investment prospects and review existing portfolio companies. Unwritten house rules reward the humble. “It’s about getting to the right decision, rather than being right yourself,” says Jim Goetz. “If you talk for more than 90 seconds at a time,” adds Aaref Hilaly, a new partner (ex-Clearwell), “you’ve probably gone on too long.”
Unlike Wall Street’s activist investors–who agitate for big shakeups that might rocket stock prices upward in a single day–Sequoia’s partners help companies relentlessly with the little stuff that will never warrant a press release. When WhatsApp was having trouble hiring engineers, Goetz met at least half a dozen candidates and their spouses for dinner, where he reassured them that this low-key startup really did have a bright future. When Stripe’s 23-year-old cofounder, John Collison, wanted help pitching his company’s payment services to a big East Coast financial company, Sequoia’s Moritz walked him through two rehearsals, sharing ideas about how to sharpen up the story.
When Sequoia partners sweat the details with startup founders, much of the conversation involves tidbits of “tribal knowledge” picked up during the 42 years of firm history. Dropbox, for example, regularly invites Sequoia partner Bill Coughran–a former head of engineering at Google–to share thoughts about how to keep expanding without creating hair balls of complexity.
On a recent visit Coughran leaned back in a plastic chair and reminisced about the four big engineering needs of Google’s search division, at a time when “ranking” seemed thrilling and “indexing” seemed dreary. Didn’t anyone want to index? Yes, Coughran said: The moment he talked about Google’s desire to crank up its indexing capabilities 30-fold over the next several years, indexing suddenly became exciting, too. Dropbox’s head of engineering, Aditya Agarwal, smiled. Now he had a new tactic to get people excited about Dropbox’s quests, too.
Founders push back if Sequoia tries to offer too much advice. Nir Zuk, the founder of Palo Alto Networks, a computer security company, says he’s told Goetz: “If you want to work for me as a product manager, I’d hire you in a heartbeat. But you can’t come to board meetings every six weeks and tell me you know more than our full-time product managers do. It just doesn’t work that way.” Overall, though, Zuk says that what he likes most about Sequoia is that its partners are fellow entrepreneurs who “have gone through what we’re going through. They understand us.”
Sequoia doesn’t always get it right. In the dot-com bust of 2000 the firm suffered big losses from duds such as eToys and Webvan, an online grocer. More recently it sank $25 million into failed photo app Color, which ended up selling at a loss to Apple. Even in Venture XI, the fabulously successful 2003 fund, Sequoia rang up more than $100 million of losses on startups that turned out to be, um, shutdowns.
Periodic losing investments come with the territory. What vexes Sequoia much more are the meetings with tomorrow’s legendary founders, when, at the end of the pitch, the firm somehow ends up saying no instead of yes. Pinterest slipped away–and so did Twitter. In 2007 Sequoia had a chance to take a 10% stake in Twitter when the fledgling site was valued at just $20 million. (Twitter’s market cap today is more than 1,000-fold higher.)
Live and learn. Sequoia investors put on their hair shirts in 2011 and tried to identify a fixable mistake in their Twitter analysis. Their conclusion: They had been too stubborn about seeking their ideal target of a 20% to 30% stake in startups. Twitter CEO Jack Dorsey had wanted to sell only a smaller amount. In hindsight, says Botha, Sequoia should have agreed. Going forward, partners now are willing to take smaller stakes–at higher than usual prices–when an extraordinary startup is in play.
The worst misstep happened in 2006, when Facebook founder Mark Zuckerberg taunted Sequoia by showing up late at a meeting, wearing pajama bottoms, to discuss an eccentric side business called Wirehog. The farcical presentation was a way of “sticking it to Sequoia,” author David Kirkpatrick later reported. (Zuckerberg at the time was taking advice from fellow entrepreneur Sean Parker, who had his own gripes with Sequoia.) Snub accomplished, Zuckerberg won funding from Accel Partners instead, in a deal that eventually produced about a 300-to-1 payoff for that venture firm.
Today relations with Facebook have been mended; since 2012 the big social network has paid top dollar for two Sequoia-funded companies, Instagram and WhatsApp. Even Moritz, who suffered through the pajama presentation, insists that it only deepened his appreciation of Zuckerberg’s pluck. “At the end of his slide show,” Moritz recalls, “he had this slide saying: ‘A Mark Zuckerberg Production.’ I remember privately admiring the bravado and self-confidence to insert that line. I would never have had the courage to do that at his age.”
Other venture capitalists salute Sequoia’s results, though they can’t resist the temptation to quibble a bit with its style. “There’s a ton of respect,” says David Sze of Greylock Partners. “We are both completely dedicated to creating huge successful outcomes to change the world. They are a little more acerbic; we are a little more collaborative.”
Years ago, when Kayak cofounders Steve Hafner and Paul English were pitching their travel search engine, Hafner asked Sequoia’s partners to help him test the service by offering up airport codes (such as JFK or SFO). When Leone hesitated, some wag interjected: “Doug doesn’t know any. He flies private.” The comment was a sly dig at superthrifty Leone, who did most of his flying on United at the time and had just agreed, with some trepidation, to rent a few hours of private jet service annually, via NetJets. But Hafner didn’t know this. He was “put off his game,” and the presentation sputtered. The two were initially turned down before English returned uninvited a day later and convinced the firm to give Kayak a second look.
There’s a stereotype in Silicon Valley that venture capitalists become unhelpfully harsh when companies are stumbling and are in too much of a hurry to cash out when things are going well. Sequoia, however, turns those tenets upside down. CEOs such as Brad Peters of Birst, a business-intelligence software company, say Sequoia gives them time and guidance to sort out snags. But Sequoia becomes insatiable when it sees a company doing well and believes that it could be doing even better.
At a recent San Francisco dinner with a dozen CEOs of portfolio companies, for example, Sequoia’s Lin asked how many attendees used a technique called net promoter scores to gauge customer enthusiasm. Just about everyone’s hands shot up.
“Now, how many of you look at why your ratings come in the way they do?” he asked.
“Only if the numbers are bad,” one CEO replied.
“Why don’t you look at them when something goes right?” Lin shot back. That was a key part of the winning formula at Zappos during his time there as chief operating officer. Do more of what dazzles your happiest customers, and CEOs can turn strong expansion into hellacious growth.
Sequoia is equally stubborn about maximizing gains from its top-performing companies. (Back in 1979 Sequoia sold its Apple stock after holding it for just 18 months, and Sequoia partners aren’t about to make that mistake again.) Unlike other venture firms, which run their limited partners’ investment funds for 10 years, Sequoia often looks for ways to extend its partnerships’ lives for as much as 16 or 17 years. Sequoia held its Google stock for nearly 2 years after that company went public; it held onto Yahoo even longer in the 1990s.
An especially intense test of Sequoia’s willingness to buy and hold involves ServiceNow, a software company providing help-desk services to corporate customers. In July 2011 an unexpected suitor offered to buy the company for $2.5 billion. Sequoia had become a significant investor in late 2009, leading a $41 million investment round, with Leone joining the board. Cashing out at that point would have brought Sequoia about a 10-to-1 return on its investment.
Most of ServiceNow’s directors thought the offer was intriguing. Only Leone regarded it as insulting. Rallying some of his colleagues, he worked up a 12-page analysis arguing that directors would be “giving away the company,” even at a $4 billion valuation. To his eye, even though ServiceNow was early in its growth curve, its participation in the fast-growing software-as-a-service sector made it a company with vastly better potential than outsiders could see.
After some debate ServiceNow’s directors turned down the offer. A year later ServiceNow went public and attracted a $2 billion valuation. Leone’s disdain looked a bit off, until ServiceNow shares took off post-IPO. Current market value: $8.3 billion.
Simple math says that Leone’s stubbornness made nearly $6 billion more for ServiceNow’s shareholders, including company founder Fred Luddy. But it’s more primal than that: People like Leone still remember those rich kids at the swimming pool, enjoying the easy life. There’s no reason to slow down until old rivals are left far in the dust.
forbes.com

Thursday, December 19, 2013

PHARRELL WILLIAM'S PRODUCTIVITY SECRETS



Pharrell Williams is on a Gravity high. "Whew! Whew!" he says. "Listen to me, it is crazy." The 40-year-old musician, producer, and mini mogul is seated on a rolling chair in the tranquil recording studio at the top of Miami's Setai Hotel; he's small and delicate, like an Egyptian cat, with ropes of delicate gold necklaces and bracelets encircling his neck and wrists. The windows behind him look out on the Atlantic Ocean, and, sitting with his back to the brilliant sun, his silhouette flickers as if a mirage. Naturally, Williams has a home theater, but he couldn't wait and saw Gravitysoon after it opened, in 3-D. "I was so happy with the pix­elation," he says. We talk about the scene where George Clooney drifts off into space. "I woulda ruined that moment," he says, picturing himself in Clooney's place. "I woulda cried like a baby." I wonder if the idea of a black void, of being completely alone, scares him. "I don't fear any-thing; I know what to avoid." Williams laughs. "I like looking at space, but I don't need to go there myself."

He's adding Gravity to a list of favorite films that includes Close Encounters of the Third Kind, Contact, and Cloud Atlas--metaphysical explorations of the nature of being and how we grapple with the obstacles placed before us. Dreams, in each, are achieved by rejecting commonplace conceptions of what's possible, an ethos that guides everything he does. His personal bible is Paulo Coelho's The Alchemist, the best-selling fable about following your destiny or "personal legend"--the enthusiasms that get buried as we grow up, by prejudice, guilt, and fear. "That book confirmed what I always thought in my heart and felt in my mind," says Williams, who is building a small empire, brick by idiosyncratic brick.
He aspires to something like Andy Warhol's Factory: a hive of creativity that is also profitable, with a heavy dose of altruism. But though he designs clothes and chairs, dabbles in sculpture and architecture, and mentors kids, he will tell you that he is "a musician and not much more than that. Sometimes musicians say things like, 'I'm so happy they see beyond the music.' I've said it too. But people aren't seeing beyond the music; they're seeing something in it. I'm always thinking I'm so eclectic, but the truth is that everything boils down to music for me. That's the key to my success."
Certainly, it all started with music. His two decades in the business have yielded 17 top 10 hits, a No. 1 album, and three Grammy Awards. Williams's career started with his performing-producing partner, Chad Hugo, aka the Neptunes (ranked No. 1 on Billboard's list of the top 10 producers of the '00s). Eventually, he and Hugo formed N.E.R.D., a group that, with its deft fusion of rock, R&B, funk, and hip-hop, remade pop music in its image. Last year, in addition to his Neptunes work, Williams began to write and produce on his own. Since then, he has, among other things, produced tracks for blockbuster albums by Miley Cyrus andJay-Z, cranked out the soundtrack for the hit movie Despicable Me 2 and, at one point in June, had the rare distinction of occupying both the No. 1 and No. 2 slots on Billboard's Hot 100, with Robin Thicke's "Blurred Lines," which he produced and cowrote, and Daft Punk's "Get Lucky," which he cowrote. He is currently worth around $80 million and takes in roughly $10 million a year, after taxes.
But even Williams will acknowledge that at this point his production work is "just one pixel in the screen" of i am OTHER, his media and philanthropic company--a sort of creative cardiovascular system with Williams at its heart. Included at the moment are fashion labels Billionaire Boys Club and Ice Cream, the cloud-based music-creation platform UJAM, a YouTube channel (also called i am OTHER), andFrom One Hand to Another, a not-for-profit empowering kids in underserved communities. His partnerships include the enviro-friendly textile firm Bionic Yarn andCollaborative Fund, financier of outside-the-box creative endeavors such asKickstarter. More tangentially, he's flexing his tastemaker muscle as a guest curator on eBay.
The name i am OTHER speaks not only to the mythology Williams has created for himself; it's a clue to how he innovates so effectively. "I've always been the kid who didn't fit in the box," he says. The one who grew up in the projects of Virginia Beach wearing Led Zeppelin T-shirts and playing drums in a hip-hop band. The year-old company is headquartered in New York, with satellite offices in Miami and Los Angeles, all cities that, like his hometown, are close to water, an element Williams finds both inspiring and calming.
He surrounds himself with people who "recognize that they are different, and they're unafraid of that and don't mind shaking hands with the next different person. Most anything I do I do because it involves someone I can learn from," he adds. "Sometimes you just gotta put your pride aside and be quiet so that you can absorb not only what a person is saying but how they are saying it--their energy, their body language. It's all for a reason."
Though he says he has no idea how many people now work for him (for the record, it's 10), he's very clear that only two of them are men. "Oh, I would go crazy with an office full of dudes," he says. "What am I going to talk about? Football? I don't know anything about sports." I am OTHER's vice president, Mimi Valdés, who has been tapping away on her iPad, looks up to mouth the wordnothing. Williams laughs. "Women have always been my motivation, and equality is quite naturally a theme for me. So it's all estrogen: estrogenic--I'm going to create a term--intelligence. I wouldn't trade it for anything, and everyone works way, way, wayharder than me."

Williams's lodestar--the secret, he says, behind all of his disparate ventures--is collaboration. Whether it's partnering with film composer Hans Zimmer to create UJAM or working with the artist Takashi Murakami (their sculpture, The Simple Things, fetched $2 million at the 2009 Art Basel) or running i am OTHER with his staff, "you are only as good as your team," he says. "When you envisage success, you should see all the people you work with, in addition to yourself. When I look at that picture, I see giant angels who are much smarter than me, who can oversee the things that I don't know shit about. I used to hire 21-year-old monsters with a twinkle in their eye," he adds. "I saw potential, but it was what I thought they could do, not what they couldactually do. But you know what happens when you surround yourself with people with experience, who've seen everything a million times? A lot of them are gonna be older than you. When they vet people, they need to see more than twinkles; they need sparks."

Williams's productivity is remarkable, but perhaps more impressive is his humility. In the two hours we are together, he takes credit for . . . nothing. "He has every right to an inflated ego, but he's extra humble," says Tyson Toussant, cofounder of Bionic Yarn. "It has to do with the way he was raised. He's a very amenable Southern gentleman. He calls everyone sir or ma'am. I grew up in Manhattan, and there are friends of mine, you'd think they had invented Twitter. He's not like that. He'll treat a doorman and Bill Gates the same way." The sentiment is genuine, Toussant adds, but also smart. "If you want people to have your back, you need to appreciate them."
Craig Shapiro, founder of Collaborative Fund, agrees. Because of Williams's clear appreciation for his staff, "P really doesn't get stressed, which allows him to be more productive." In addition to Kickstarter, Collaborative Fund and i am OTHER have invested in Quarterly Co., an online site that curates "packages" from artists to their fans, and, more recently, the website Rap Genius. "P's energy is endless," says Shapiro, "and his thirst for knowledge is unparalleled. He truly enjoys learning new things and meeting new people--something most people are overwhelmed by."
Williams is a fan of what he calls tapping in: being open to the kinds of peripheral ideas that lead to innovation. It requires an environment that permits fixation--the antithesis of multitasking--so that you have the ability to, as he puts it, "be quiet and absorb." And walking into the hushed lounge on the floor below the Miami recording studio is not unlike entering a Zendo. Pleasant people--some plugged into laptops, some bustling about--work in near silence. It appears to be, as Williams
describes it, "an extremely well-disciplined environment," and his preternatural calm trickles down. Shapiro says that the i am OTHER team makes it possible for "P to focus on the big picture and thought-provoking ideas. They fill in the blanks. They prioritize and get shit done."
That dynamic is clearly working. Williams's four-year partnership with Bionic Yarn, which manufactures fabric out of discarded-plastic-bottle fibers, has been profitable for the past year, in part because Williams encouraged the brands he designs for--including Moncler, Timberland, Topshop, and Gap--to use the fabric. (Williams, who grew up in an area with a big military presence, is now courting the army to make uniforms.) "Pharrell's decisions are emotion based," says Toussant. "If he were reading spreadsheets, he wouldn't have joined our company when he did because it wasn't close to making money. The ideal of it took a lot of work, but that's the beauty of visionaries like P, who can see what's possible. He's not a celebrity who simply attaches his name to an already thriving franchise."
Yes, emotions are a big part of Williams's decision-making process, "but I use my mind just as much," he says. His "legends," or role models, include architect Zaha Hadid, with whom he's collaborating on a prefab house, Vogue editor-in-chief Anna Wintour, and artist Jeff Koons--visionaries who understand instinctively how to protect creativity within a business. "They are 100% decisive," he says. "Snap, no. Snap, yes. It's right there with them." He singles out the apparel companies Supreme, Adidas, andOpening Ceremony; the advertising agency Wieden + Kennedy; and London's Dover Street Market for operating outside established methods for attracting customers. Each is profitable, he believes, because they put "taste first. The aesthetic matches the acumen."
Shapiro and Toussant each describe a similar process of collaborating with Williams: meetings once or twice a month, where big decisions are made; assistants taking it from there, with emails flowing back and forth. Williams recently designed a line of Bionic Yarn snowboarding parkas and coats forBurton. "He doesn't do the tech specs," says Toussant, "but he gives very specific direction and references--where a cut line is, how to use a color, or where to put texture. The executors will give their best interpretation of his notes, and a few drafts will go back and forth until they meet his vision." How would he describe that vision? "It's hard to put your finger on," Toussant says. "P's interested in so many things, and whatever he's working on at the time, he brings inspiration from that." I ask Toussant if Williams is responsive to input from others; he knows what I'm really asking. "You mean, is he open to hearing that he's wrong?" he asks with a laugh. "Yeah, definitely."
Williams invested in Bionic Yarn in part because Rush Limbaugh shamed him. In 2007, he and a few other celebrities went to Rio to announce a benefit concert for Live Earth, created to increase environmental awareness. "I'm thinking, Okay, cool, we get to do something sustainable, the ecosystem, blah, blah, and I don't have to wear Birkenstocks or be seen with trail mix in my hand," he says. "Limbaugh sees the announcement and immediately identifies me. 'Here's a guy who probably has 40 cars and flew down on a private jet. It doesn't make sense.' And I'm like, Whoa, why me? What did I do?"
It made Williams think that if he had been better educated about sustainability, or more passionate about it, or had an organization committed to it, he could have fought back. Not long after, opportunity knocked; a friend introduced him to Toussant. "I realized that, yeah, it checked the box of getting involved," says Williams. "But I really do love the technology."
Growing up, Williams had no interest in how the world was presented to him, as hard rules or lines. As long as he can remember, he's wanted to blur them. The few times he had a boss, including a stint at McDonald's when he was a teenager, "I got fired--every time. I had good managers, I was just lazy." It wasn't laziness so much as boredom, and his fuel is enthusiasm. Williams describes himself as a visual person, a kind of intelligence that isn't celebrated in most schools. "The school system isn't spending a lot of time looking for specific potential. We are bred to be worker bees; to grow up, get married, have a kid, drive a Volvo, do our taxes, invest in something, find a hobby," says the man who did finally marry Helen Lasichanh--his girlfriend of five years and the mother of his son, Rocket--in October. "I spent a lot of time in school not paying attention."
Luckily, someone couldn't help noticing him: Teddy Riley, the Grammy-winning R&B producer, serendipitously opened a recording studio near Princess Anne High School in Virginia Beach, in 1991. Riley happened to catch a pre-Neptunes performance by Williams and Hugo at their high school talent show and signed them when they graduated. Before long, they were producing as well. Williams, in turn, has mentored countless young artists. He asks them--and anyone he collaborates with--two questions: "What do you want?" and "What haven't you done?" Capabilities come into play, of course, but his chief mission, he says, is "actualizing potential." There is no failure, "only lessons."
And, as with everything he does, he puts their creativity first. Williams remains deeply affected by the implosion of the music business. "It's the only industry where the artists have historically been considered to be at the bottom of the totem pole they built," he says. "And when lawyers started running the labels, you saw the best groups and producers get dropped or turned away. But that's true of any art-dependent company run by venture capitalists who don't respect the content, who put their money behind accountants, not creatives." His various collaborations--with UJAM, YouTube,Quarterly Co., and now Rap Genius--are all about empowering and protecting artists. "We never go backward. That's the plight of the human species, but also our privilege. So as always, a new equation will emerge, and that will be led by the artists and likely powered by them as well."
Williams used to believe in luck, but not anymore. "I'd say, 'Me? Really? Okay, cool!' But then when I looked over my shoulder, I could see that there was a clear path. Someone might say that Teddy Riley building his studio five minutes from my high school was luck. I mean, why leave New York and go there? But I don't see that now." For Williams, there is always judgment and choice. "Existence is all mathematics, and I see it as me listening to the math that is right in front of me. There's a key for every door," he adds, "and if you can't find it, you can make one. That's always an option."

MARY KAYE SCHILLING
fastcompany.com

Monday, December 16, 2013

THE BOOKS THAT HELPED JEFF BEZOS CREATE AMAZON

Jeff Bezos, the warrior-king of Amazon, is known for the way he bursts into a room, hates cohesion, and dresses down his employees.
But when he's not on the battlefield, the dude who built an empire selling books actually reads the things, as shared in an appendix to The Everything Store, Brad Stone's new book on Amazon (which at least one reviewer has taken issue with). Shane Parrish, the purveyor of Farnham Street, recently shared the bibliography on hisblog. As we'll see below, certain of books have shaped certain aspects of Amazon's rapid and multi-pronged growth.

THE INNOVATOR'S DILEMMA BY CLAYTON CHRISTENSEN

One book is central to the canon of startup-land: The Innovator's Dilemma by Clay Christensen. In it, Christensen, who last year helped us to measure our lives and find work we love, explains his theory of distruption--the way in which new firms, like say Netflix, displace incumbents, like Blockbuster.
Dilemma, Stone says, helped spur on the creation of the Kindle and Amazon Web Services--two product lines that are quite far from Amazon's original business. Why would they do such a thing? "Some companies are reluctant to embrace disruptive technology because it might alienate customers and undermine their core business," Stone says, "but Christensen argues that ignoring potential disruption is even costlier."
So with the Kindle and AWS, Amazon did some disruptive, potentially alienating things--and thus ensured they'd actually stay relevant.

THE MYTHICAL MAN-MONTH BY FREDERICK P. BROOKS JR.

Amazon is ruled by slices: that is, there's a Two Pizza Rule that governs the size of teams--none should be bigger than what could be fed by two pizzas.
This lunch-sized heuristic draws from the work of National Medal of Technology-winning software engineer Frederick P. Brooks Jr. His Mythical Man-Month, now nearly four decades old, is a technical book that still sells 10,000 copies a year. Why? Because he makes the counterintuitive argument that small teams of programmers work better than large ones: after a while, bringing more people on just adds noise.

CREATION: LIFE AND HOW TO MAKE IT BY STEVE GRAND

Steve Grand is the dude behind Creatures, a computer game from back in 1996 that simulated life. (Yes, really.)
Grand then reflected on his neo-Frankensteinian quest to create artificial life inCreation. One of the central theories of the book is that intelligent systems can be built from the bottom up if you start with the right set of building blocks. Which, Stone says, inspired Amazon Web Services.
So if even world-conquering CEOs find the time to read, maybe us normals can read way more books, too--and thus know way more stuff.

BY DRAKE BAER
fastcompany.com