You said that business is not a zero sum game. But the reality is that if your competitor gains market share, you can lose the market share and at last you can die. How can you explain it?
I think it is important to make a distinction between the competition and the zero-sum competition. Of course there is competition but the question is what should you do about it. How should you approach competition? I prefer to think of a think of being a business is much more like a playing music than playing baseball. So if you are a musician, there is a lot of competition. Sometimes your musical career may fail because there are some musicians are better than you. But the Interaction is not zero-sum. Not just because of somebody else is also really good means you fail. You work together in a competition to help create an eco system, where multiple people can benefit at the same time. Of course it is imperfect analogy, but I think it is closer than what is like to be business.
For example, I think all of our best partner in Evernote also compete with us in some ways. Pocket, Awesome note in Korea , Apple, Microsoft, Facebook, Google Amazon, These are companies whom we do a lot of work with. But all of them also do something that is competitive. And any of these company could be a threats to us or damage us but we don’t focus on that, but we focus on what can we do better together than what exists now. And so far, we have had a very positive relationship with these companies even though in some way they are competitive.
This philosophy is something that I had just in Evernote. Evernote is my third start up, and in my life I worked for 10 companies in total and at each of the companies I worked in the past, in our mind, there was always ‘who was the enemy?’ ‘who was the main competitor’ ‘ we always thought ‘that company is the what we need to crush.” However 10 times out of 10 the company who focused on the main enemy, the main reason for the success and failure of what we were doing didn’t matter with the enemy. It was something else. It could be another competitor that we didn’t know about, most significant some other problem in product, market change, Lost change. Having an enemy, focusing on the enemy, we did it 10 times and it didn’t work 10 times. So we thought, next time let’s not think about it. It’s not effective. Let’s focus on zero-sum. While it is always possible, that you go out of business because of something your competitor does, I still don’t think you should focus on the competitor, because you could use that time to make your product better. You know focusing on the competitor doesn’t make your own product better.
Lastly on this, when I advise other entrepreneurs and people with smaller startups like this: ‘Look! try to make a list of all of the reasons why your company may fail. Just make a list of everything. And try to roughly calculate the probability.’ And if you make that list, let’s say, and that list changes as the company grows bigger. If you are just two person startup , make a list of most likely reason why your two person company may fail. And how many of those problems you actually are going to worry about. Are you going to worry about hundred problems, or just the top five? And I think for small company, if you make that list, some competitor killing you is not on the top five. And I don’t think it would even be on top ten. I think the most likely thing would be ‘you run out of money’ ‘you can’t get financing’ ‘big disagreement with you co-founder and you split up’ ‘Your parents tell you to go back to school’ The top reasons have nothing to do with some competitor killing you. The competitor may kill you could be on the reason number 15, but you only have the resources to focus on top 2 or 3. When you got a little bit bigger, then you get little bit more room to focus on it. But even in Evernote, we still don’t think the point where focusing on the competition is the best use of our resources.
But every venture capitalist asks entrepreneurs what are their competitors.
That is a good question. But you have to understand why they ask that question. They don’t ask that question to find out who your competitors are. They want to ask that question to see if you know about the industry. So if you say, we don’t have any competition. They would just think that you don’t understand the industry. So there are many question that Venture Capitalist ask, because they want to know certain things not necessary the actual answer to the question. For example, When they ask what is the market size? It’s not that they would actually want to know what the market size is, it’s not that they would want to know if you have ever thought about it. When they ask you what is your 5 years revenue projection? It’s not that they would need the direction to whatever projection you give them, no one is going to believe that. So they are not serious questions, they ask those questions to test you.
Couple of things, how to answer the question to investors in general, like a really good answer that an entrepreneur almost never use but is a really good answer that works the most of the time, even to the generalist. That really good answer is ‘I don’t know’
You can say I don’t know a lot, and you rarely get in trouble saying I don’t know.
So if a generalist asks you ‘who is your competition?’ you say ‘I don’t know’
If an investor asks you, and you say ‘ I don’t know’ but maybe you shouldn’t just say I don’t know but you should say something like, ‘Look I think there is a lot of competition that would focus on it yet so I am not an expert in the other companies, so it isn’t something that we have been investigate.” That is not a bad answer, it is much better than saying there is none. In general just say I don’t know. This is one tip to entrepreneurs that I can give.
Do you think that your philosophy about business can be adapted to the competition between Apple, Samsung, Google, and Amazon?
I think the big companies already know this. I mean I think, Let’s say Apple and Samsung, they are probably the biggest competitors in the world, but they are also a huge partners. Apple and Samsung do tremendous amount of business together. Samsung supplies a lot of equipments. There is an interaction between Apple and Samsung and it is absolutely not zero-sum. Very none zero sum interaction. Both directly, because apple buys a lot of things from Samsung. But also indirectly, because they took the other works to expand the industry to create demand to elevate the competition. For example, the smart phones industry is not primary defined by how companies like Apple and Samsung have fought each other but is by how they interact. And that interaction is not very much in zero-sum. It is not something proxy it is much more complicated thing.
If you take an example in an orchestra, there are a lot of rivalries. The first violin and the second violin, they may hate each other. And they try to undermine each other, wants each other to fail. Sure there could be a lot of very personal conflict, but they are still playing together. Likewise, with Apple and Samsung particularly, I have been lucky enough to be in places where there were high level executives from both Apple and Samsung talking together, and I know when they get together and talk, it’s not like they punch each other.
Usually in business history, great innovation was given by zero-sum based competition. So, you can create better product when you are going to beat other companies. What do you think of that?
I think there are certainly some examples on this, but I think a lot of economist has this backwards. Think of innovation leads to destruction? Not necessary. Some destruction is innovation but really think it forces to work in both directions. For example, I think the goal of success in entrepreneurship is creation and destruction is more like a side effect. It’s not a goal.
For example, You could basically say that the Facebook destroyed the Myspace. But Mark Zuckerberg did not set out to destroy the Myspace. That was not the motivation. He didn’t care about Myspace, when he created Facebook. Myspace was destroyed as a side effect of Facebook being really successful. But it was not that the value that was transferred. It was what I mean by zero-sum. The value that the Facebook created was not equal to the value that was lost by the Myspace. It is not like Myspace’s value that Facebook took it. It is that Facebook created a tremendous amount of value and as a result that the Myspace fell apart. But it was disproportional.
When the Henry Ford the early car company was made, their motivation was not to destroy the horse industry. And the horse was destroyed. But the value created by car does not equal to the value destroyed from horse industry. Value created by cars in the world has million times more than the value taken away.
So I think focusing on the destructive part of it is done because it is more dramatic. Dramatic to talk about fighting and destruction, it is more to do with what the way people like to write, story telling than with reality. And the reality is that if you describe a baseball game, it makes a better writing than if you describe an orchestra performance. It is not interesting to talk about how people work together but it is more triggered to talk about how people fight. The economist doesn’t think that the conflict is the central enemy of force.
But in the business history is always the winner’s history, for example the blackberry and the iPhone
It’s interesting. No one is going to forget Blackberry. Blackberry is placed in history. It is secure even if the company, 20 years from now people will still remember, it will still be there in the history. I do think it is an interesting question about what should be the life span of a company. And there are times the life span of the company shouldn’t be as it is what it is.
Nokia, absolutely changed the world. This planet is better planet because Nokia existed in it. But very soon it became no longer existed. But it is not to say that Nokia’s accomplishment was failed, No this maybe is just the Nokia’s life span. However long it was and maybe it was time for them to do something else.
Maybe it is the same thing with Blackberry. The world was a much better place because Blackberry was in it. And just because it is not in and out doesn’t mean that it is a failure. It just means its life span is over. One of the things that we really try to do in Evernote is we explicitly, that’s why we say we want to do 100 year startup. The specific thing that we want to do is, we want company to live for 100 years, because that is what majority of the companies don’t. The life span of the companies is much shorter than life span of employees who work for the company. Most companies disappear very quickly. And we thought that it was a very interesting and specifically say that what it would take to make a 100 year company.
But I think the examples of Nokia and Blackbarry are the examples of the companies that created a lot of value for themselves, created even more value of the world through the eco system. And you could say that Apple wouldn’t even be a business if it weren’t the Blackberry. I mean there is a very direct connection there. And they changed the world for the better and they had positive impact in history and they achieved their mission that doesn’t necessary give them the automatic right to continue operating as a business.
So why is that 100 year old startup not 100 company?
So there are 3,000 companies exist today and there are more than a hundred years old. And most of those companies, actually most of them are in Japan. But most of those companies are not necessary the company that you would like to work for. So it was very interesting for me to say what makes a company to survive for 100 years? To make something durable? But just to make it durable doesn’t make it great. Most of the companies that are 100 years old right now is not the companies that you would want to be at. So we say how do we combine the best of this, what I think is Asian idea of building something that last for a long time, there is almost no American company that lasted 100years, very few, but it is how do we combine this idea of lasting a long time with sort of a Silicon Valley idea of being a startup that is always innovating. That’s the combination most interesting to me.
I looked for a long time for a good definition of an entrepreneurship. And I found one that I really like. It’s by Harvard Business School Professor, Stevenson, (confirmed) He said, “Entrepreneurship is the pursuit of opportunity without regard to resources currently controlled.”, which I think really fundamentally interesting idea. It is unique idea to think about. I think the definition of being a startup is that you have this vision and you say I want to accomplish this and it doesn’t matter what you currently have, you are not limited by your current position, you just pursuit what you want to go to.
So, the Uber, their vision was just that ‘we want to make this greatest experience of getting cars.’ And they didn’t know anything about cars, they work straight with what they had. Or Tesla, Elon Musk said I want to build the world greatest car and I want to build an electric car. He is not saying that ‘Currently I make the third best selling car in the world, I am going to leverage my position to make top selling car.” But instead ‘I just want to make the best car in the world from nothing.” So it is really easy for the Startup to innovate because by that definition the startups don’t have any of the current resources. Anything you do doesn’t contrast to the limitation of the resources.
But as you become an older company, as you get bigger you become trapped by your current resources by your current success. So that is why I think it is so difficult for the large company to be really innovated because everything is about thinking about the lost, where we are currently at and to protect the current thing.
So when I say 100 year startup I want to be a 100 year company which told by very big and successful but that is still able to function this way when we see opportunity and we have the opportunity without worrying about protecting the current thing. That is very difficult.
You are creating a product what you love. Is it base on your philosophy?
I think the world is very different now than it was in even 5 years ago in business particularly. I think there was a big change. So, if I was an entrepreneur 5 years ago, I think it would be a bad advice to say, ‘Just build what you love.’ This is because back then you had to define the market fit, define what customer wants and so. Likewise all of the advice was focused not on you but the customer. Find something what customer likes. All about the customer.
But I think the world has really changed in past 5 years. What is happening now is the barriers to actually do something, which the cost is smaller. What I mean by that is smart phone, app store and social media made has made the world completely flat. It could create a big opportunity but it could also be a big challenge. The opportunity is if you love something there will be many more people who would love it as well. So if you find something you love, there will probably be 100 million more people who love the same thing. And because of the social media, those people would know about your product, and be able to buy it. So you don’t need to think about what does the market want, it is okay to think what you want, because there will be enough people to like you to make a market, that you will be able to get to them. You couldn't 5 years ago, but you can now. That is the opportunity.
The challenge is so many more people doing such things so the expected quality is much higher. A mediocre product might able to success with better marketing strategy, sales or logistics 5 years ago, but it won’t succeed now. You can’t have mediocre product to succeed. Because the good product would get far more leverage and exposure and people will talk about it more.
So the penalty of being average is very harsh right now. You have to be excellent. You have to be great. So you compel these two things, this opportunity that you can make opportunity for yourself, and you make the product for yourself, you can be at a higher quality than somebody else because you can evaluate it. So that is an opportunity. But it is also kind of a thing that you have to do, because if you are not making for yourself, you are going to have to spend much more time achieving the level of quality, which not even necessarily to succeed in current market place. So I think that is the right strategy in current market place.
How do you define competition in business? Do you think that competition and collaboration can coexist in business?
Yes, definitely, I think the competition and collaboration coexist all the time. There are many examples of the companies who compete and collaborate at the same time. I think there is two ways to look at that question. Let’s say there are only zero-sum competition exist in this world, no collaboration only competition. Not in our industry, but some industry probably still is the case. However, even if this is the case the question would still be what would you do about it? If all competition is negative, all competition is zero-sum, what would you do about it? How do we minimize the damage from competition? And I think the only way to address this question is to make your own product better. You can’t make somebody else to fail. I mean it is hard to throw a row blocks behind you, that takes time and energy, so mind as well just use that resources to make your product better. So, even if the competition is zero-sum, you still shouldn’t react to the competition. On top of that I don’t think competition is zero-sum, most of the time it has positive aspects as well.
And all of this could change in different scales. For example, let’s look at Apple and Microsoft. They have had very rich and complicated history together. In many ways, it wasn’t zero-sum, because Apple wouldn’t have much business many years ago if it wasn’t Microsoft. It was Microsoft saved Apple by investing them. A lot of what they did really built up on each other. However, it is obvious that they also have very direct and very intense competition, including the Apple’s announcement yesterday about the Skinny Ipad. (By the way, I don’t care about the Skinny Ipad, I mean they are great and I am going to buy them) But I don’t think the real story was the Skinny Ipad, but the real story was that Apple is now attacking Microsoft ‘s two most important profit centers, which are operating system of IOS and the Office. So by saying, operating upgrades are free and the Office is free, that is a direct attack!
So you know, they are still fighting. But over the history of two companies, their interaction has been more than issues like this, which is kind of directly competitive.
So the best strategy to face the rival is not to compete?
I think the best strategy for those who I am qualify to talk to, I mean I can’t give advise to Microsoft, Apple and companies who have achieve far more than we achieved, so. But if I could give advice to the smaller companies and entrepreneurs, then yes, I think the best advice to deal with the competition is not to compete.
You said, “we don’t want to be acquired”. Why? Youtube and Instagram have been making greater product after they were acquired.
I mean, yes there are many incidents where an acquisition improves the product. I mean even in Evernote, we have acquired 5 companies and I hopefully we will make them better. So I certainly don’t think my advice is ‘Never sell your company.” I think what I said was, “Your goal should never be to sell your company.” That shouldn’t be what you are building for, shouldn’t be the desire. The desire of the outcome should be to make something great. If you are presented in the situation, where selling the company is the best opportunity to make something great, that’s fine. But the first two companies I started, we specifically started the company to sell them. And I think many companies start it with the same goal, maybe most of the young entrepreneurs, 90% of them, not just in Silicon Valley but from everywhere thinking about who is going to buy my company. Think about the exit. And I strongly encourages that shouldn’t be the goal. Right from the first day, you are thinking of how to get out? It’s just the wrong way to think about it. I mean you shouldn’t be thinking about how to get out, but you should be thinking about doing something where you never want to get out. So selling your company should at least be one of the sad days. I could be right thing to do, but at least it should be something sad to do. But I mean, I think Instagram and Youtube had made a great decision. But I am talking about the most of the cases. Most of the time the acquisition may result in company falling apart. But there is nothing wrong selling your company, it just shouldn’t be what you want. If when that day comes, if this is the best way you think to reach your goal, then it’s fine, but if you start your company thinking about whom I should sell it to, I think it would be very measurable.
But since your philosophy isn’t very common in Silicon Valley, there could be many critics upon your idea.
I am not trying to convince anyone. My goal isn’t to get hundreds of people or even fifty people to say yes to it. I am only saying this, base on my own experience. If I had heard this when I was starting my first company, I think I would have paid attention. So if some people change their minds, it is good, but if not, then it is still fine.
What do you think of a serial entrepreneur?
People call me serial entrepreneur. I could have gotten the image accidently, but I am not motivated by starting the company. I don’t really care about the company part. It is just how it happened. There are people really enjoy building companies and making something, that is fine. But I don’t. And I know there are many great entrepreneurs worldwide, I don’t think they were motivated by having the company by selling them, but motivated by changing the world a little bit, and the way to do that actually drove them to make things through their own companies. There are many examples in here and in Korea, where people were motivated to make something specific. I think it ultimately comes down to what do you want in life? What is your life goal? and many people just may not have the life time goal. And it would be a good half hour to think about what their goal is, and try to structure their life with the goal.
Korea is a typical competition oriented country. There is competition everywhere, amongst the companies and even individuals. How should you give your advice to them?
First of all obviously I am not qualify to give advice to Korean companies. I do think there is difference in cultural excellence. And the culture of zero-sum competition. In order to make the competition not to result in zero-sum competition, the motivation has to be really great. The motivation shouldn’t be to see other people fail. I have only been to Korea maybe around 10 times, and I don’t see ‘You want to destroy other people’ type of motives in Korea, rather they just have a very high standard, which is fine. It is kind of like a music theory. For example, professional classical orchestra is extremely competitive, because their standard is so high. But it is not zero-sum. And I think business in Korea could be the same way. And yes I do see some negotiation with big Korean companies, we do see a lot of zero-sums, which is a little harder for us to deal with. But that is cultural and there have been signs of change as they get more and more globalized.
You seem like a visionary in technology, do you feel any difference in capitalism in wall street and here?
I am not a visionary (laugh). I think it really depends on what the primary motivation is. So I think a lot of people who are my personal hero, entrepreneurs, aren’t motivated by money. I personally am kind of indifferent to money. Not to say there is something wrong with money, but money by itself is not very interesting. It is not a central motivation. To me, money is a way to let me do interesting things. I want to change in the world, in order to let the Universe allow me to make changes to it, I kind of have to be set in the money part. And in a lot of people I admire have similar philosophy. I don’t think Bill Gates was really motivated by money, I don’t think Steve Jobs was motivated by money. I think a lot of best people here what they were motivated by was having a big impact and sort of doing big things, which is a type of capitalism. Capitalism as the most pure definition. I mean capital isn’t just money, but it is resources that you get to build up and create, and you create something from nothing and you build it up and you use those resources to move mountains to accomplish the world. It’s much more about building. And I think that is the Silicon Valley.
For Wall street, I can’t speak to everyone in Wall street , but it seems more about the financial aspects. More about money, less about building. More about accumulating wealth.
But both are necessary, because you need the finance to build a thing.
But I mean there are probably more people in New York or Wall Street care more about the profit and how much money they have and that could be their motivation. Whereas people here in Silicon Valley care more about doing big things.
However again, this is a very general statement. There could be people live in Wall Street care more about changing the world and people in Silicon Valley care more about money.
If Evernote shows ads, or uses data mining, you can make even more money. Why do you adhere to direct business model?
Personal reason is because we only make Evernote for us. I don’t enjoy the experience of being data mined, I don’t like seeing ads, I don’t like to knowing and thinking about people are using my data for something. I don’t like it. So the product that I make for myself, don’t need to have the things that I don’t like.
The more sustainable reason is, we set up a business to have what we call a long term reading. We want to make a lot of money, we want to optimize the amount of money we make and make it long term. When we look at the Evernote users, we say as long as we keep you coming back, we have the rest of your life to make money from you. And it works for us because of the way the Evernote works, we have very high long attention rate. Because we are not hit driven. If for example we were a video game company, if I made a video game and just saw somebody who just downloaded the game, I would think I have only got a day to a week to make money from you. Because then you might lose interest and do something else. So I would only have you for short amount of time. So that is a short term reading strategy. There is nothing wrong with it, that is just business. For us since we have long term strategy, it is important for you to keep coming back so then I can make a lot of money from you in next 40 years. And I don’t want to do anything that you may get annoyed of. And anything that eliminates trust, it’s going to stop you from coming back. So if anything that affect’s company’s trust, even if it might bring you lots revenue in short amount of time, it won’t be helpful in long term.
What’s your secret of enabling Evernote to maintain startup culture even if the company gets bigger?
That is a very difficult question. I think there are a couple of insights. I used to worry a lot regarding how to maintain the culture. Then I realized this is wrong, you can’t maintain the culture. If I focus on preventing the change in culture, then the culture becomes brittle and breaks, which would not work. The first thing was to realize that the culture will change. But my job as a CEO is not to let it change accidentally, but to decide how it would change. So to direct the change. So many companies started by startups to big companies, they let the culture change accidentally. They don’t plan it but they just say “well, it changes, and all of a sudden become stupider, what can you do.” But it does not necessary be accidental. The culture has to change it is the matter of how it should be changing. Your job as a founder, your job as a CEO is to direct the change, knowing how I want the culture to improve. To drive that change specifically. And I think that is something possible to do.
So the fist few years, again I thought about how to keep it from changing, then I realize that is stupid, I need to think about how I want to drive it and reinforce it.
For example, one of the main changes in culturally that we need to improve on is we need to be more data driven analytical about dozens of decisions we make. In the past, we put out features, we do a lot of things that feels like and that is a great way to move things forward. However now I feel like for many of our important decisions, we need to have much more specific years of data and measurement. I feel like we are not quite analytical enough in making decisions. So I am pushing very hard on a lot of different people to get a lot more analytical data. So we hired new people, we put together a new process. That is a change, change that is directed. So instead of keep it as it is, we need to figure out weakness and address it with strategy.
It could be very hard to make people do the things more analytical way. But at least they understand it is happening for a reason, not just accidental.
So this is the main thing. The other way to think about it is, since I am thinking of 100 year old startup, I have been thinking about what defines the end of the startup? When does that happen? The size of the company may influence it but it isn’t all about the sizes. And it is not just about the age. And in fact is not even a one directional thing, the company who go back to become more of a startup. It is matter of how innovative is it. Many companies go very innovative as they start and gradually decrease. But that is not universally true. There could be companies who decline and go flat and go back up. Like Apple, clearly it went to a phase where it was very innovative in the beginning. But they weren’t doing much in the middle. However, recent years, they have become innovative again.
And sometimes it could happen in very unexpected companies, such as Coca Cola. The Coca Cola is 120 years old and they were very innovative in the beginning. But 30 years ago if you say Coca Cola, was Coca Cola innovating in 1980s? probably not, they probably had decades where they weren’t doing much. But until the most recently, in the past 5 years, Coca Cola are doing pretty amazing things. I think Coca Cola is at their peak of innovation in 120 year of the history of the company. It has never been so innovative as it is right now, which is great.
So when we try to find out what is that thing that changes you. I don’t know for sure, but the closest thing that I could figured out was, as soon as people who working at your company doing something and don’t understand why they are doing it, to me that is the trigger. It starts if there is one person, somewhere in the mail room doing something that he doesn’t understand why he has to do it, just doing it because he was told to but think it is dumb, as long as you have that, you are no longer a startup. So no matter how big you are, you have to make sure every single person in the company, every time they do something, they understand why. And if they don’t understand why, you need to find them. You find them and find out, if the person is too stupid the understand, which mean you should fire that person. Or the person does not understand because we didn’t explain it well enough, in that case we can explain well enough. Or is it really that we are stupid, is this really a dumb procedure. And you know it could only be those three options and each of them has solutions.
What is the most powerful policy for your startup culture?
Two concept, one all of this only works when you have the right people. So the hardest thing is to find the right people and keep them. And in particular, the people whom Evernote want are those who wanted to be really productive. People who are here needs to be someone who want to
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