October 14, 2015 – Venky Harinarayan, is an e-commerce veteran who co-founded comparison shopping engine Junglee (acquired by Amazon in 1998), worked closely with Jeff Bezos to create Amazon Marketplace, created topical guide to the Web Kosmix (now known as Walmart Labs), and served as angel investor in companies such as Facebook & Lyft. He has just launched Rocketship Ventures, a seed-stage firm which uses data science to analyze promising investment opportunities in consumer Internet companies.
In this podcast, Venky talks with Mayfield’s Navin Chaddha about learning first principles about customer feedback from Bezos, lessons from the 2008 recession, trends in ecommerce today, and the importance of focus for entrepreneurs.
The full transcript is below.
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Venky on Jeff Bezos and the early days of Amazon:
I think the clarity of thought and the purity of vision in Jeff’s case was really around wanting to be the place where people went to buy anything. It was always that. Everything was judged against that and that was it. And the second piece which I would also say which is super important is being able to understand that in e-commerce, unlike in media, there was not any difference between consumer experience and monetization, right? Because a delighted consumer would be one who spends a lot of money with you.
Venky on culture and leadership:
Culture comes down to the founders, CEO, whoever’s the one who’s driving the ship. And it comes down to not what they say but what they do. And what they do on a consistent basis and the values that they operate on is finally what ends up percolating down the entire organization. It is less about having nice presentations, less about having words that you repeat. It’s about what you do on a consistent basis, how you treat people, how you treat customers, how you think about things. That I think, it has to come from the top
Venky on doing one thing well:
I believe that there are a lot of things you can do as an entrepreneur, but there is maybe one thing that you can actually get into as a DNA of your company. So a lot of times I see entrepreneurs trying to do five, six things. All these things are great to do as a start-up, but what I realized is it’s so hard to get people to do something consistently, regularly, daily and think about it all the time, but I’m almost always like, “You’re lucky if you get one thing in.” Right? Amazon’s case, what Amazon got was the fact that everybody should think like the customer. Right? Just that one piece you just keep hitting, hitting, hitting again, you have a shot in hell of making that part of your culture, your DNA, however you think about the world.
Venky on taking advice as an entrepreneur:
I see a lot of articles, there’s so much more information, including this podcast about advice to entrepreneurs. There’s so much data, so much advice, and feedback, and books being written, right? So what I would say is the following, every business, every start-up, every opportunity you’re going after is slightly different than everything else that existed before, which is why it is so much fun and that’s why this thing is such a great thing to do, to be an entrepreneur. So keep in mind that the advice you get doesn’t always reflect that nuance, that notion that everything is slightly different and everything has to be thought through from ground up.
Navin: Hi, welcome back to Chat with Champions. Today I have the pleasure of hosting Venky Harinarayan who’s a friend, a serial entrepreneur, and a seed stage investor in many companies including Facebook. He was one of the earliest investors in Facebook before it became Facebook in 2005. Venky has co-founded two companies. The first one was Junglee in 1996, the earliest comparison shopping company, which was acquired by Amazon.com where he worked for Jeff Bezos to help create the marketplace business. His second company, Kosmix, was acquired by Wal-Mart after which he became the Head of Wal-Mart Labs. He’s also co-founder of Cambrian Ventures, a seed stage fund and has just founded Rocketship Ventures, a seed stage venture fund with a data science approach. Venky, welcome to the podcast.
Venky: Thanks, Navin, for having me.
Navin: So let me start by asking you a question on what your story of your journey has been to today. So it would be great for entrepreneurs to get background on how you started and what your experiences have been over the last 15 to 20 years in Silicon Valley.
Venky: If you ask me what the highlight is, I think the highlight is actually being in the tech start-up space for the last 20 years. So I’ve had the good fortune of being, as you said, of helping create a couple of start-ups but also having been around start-ups that really became sort of legendary companies. So when I was at Stanford and just before I started Junglee, I was in the same office as Sergey Brin, one of the founders at Google. Like you mentioned, I was one of the earlier investors in Facebook. I worked with Jeff Bezos at Amazon, so it’s been fascinating to watch small start-ups really mushroom into global enterprises. And so I would say the biggest learning I have taken out of all my time here: it’s the one place in the world where an idea can really become something huge very, very quickly, and so it’s the power of the idea, it’s the power of the conviction of the founder. These things are so important, and when I see it now, it’s really exciting to see it in other people, it’s really exciting to invest in it, and it’s really exciting when you have it yourself.
And so that for me is the basis of the last 20 years is really the power of ideas and the power of the values in ecosystem in making those ideas come to life and become huge institutions.
Navin: So the companies you have been involved with either yourself or having invested in other things have become like iconic leaders or become foundations for big businesses like Amazon. My understanding is the marketplace business you guys helped start is like roughly 25% of their business today so congrats on helping them achieve that.
Venky: The numbers I’ve seen is like marketplace accounts is something like 40% of all unit orders and now it’s people don’t even question the notion of marketplaces. And When I started at Amazon, Amazon was really books and they just branched into video, so the notion of selling third party products on Amazon was actually quite controversial. And to get the model right, took us a few iterations, and it was extremely non-trivial to pull off, there was a fair degree of controversy around actually having third party products listed on our detail pages. But now everybody takes it for granted and it has been a big engine of growth for Amazon.
Navin: That’s great. So given that you’ve been in and around the e-commerce market, right? For roughly 20 years and you were early on with Junglee and you were early at Amazon, how has the world changed today? And you also had the experience of working at Wal-Mart, the biggest retailer in the world, so what’s your view on e-commerce and market places today versus what they were 15 to 20 years back?
Venky: I think you have to look at e-commerce very broadly, right? And so what you saw with Amazon, what Amazon really accomplished was…e-commerce or commerce retail, all of retail comes down to three variables. It is the set of products you carry, the price at which you sell those products and how convenient it is for the user. That’s it. You have to win on one of those three things to start and if you do you can become a very, very large company. So it is selection, price and convenience. What Amazon did, in the genius of Amazon was realizing that they could change the game in terms of selection. Because they were not constrained by shelf space, they could carry pretty much every product in the universe. And that could not be done by a physical retailer and they basically changed the game with just that one piece, and price came in much later.
So if you play it out to today and you start looking at e-commerce, I think you’ve got to look at it very broadly. With Internet, Amazon really captured the notion of shelf space. I think if you look at e-commerce today and you say what was the disruptive force around e-commerce, it really is around mobile. Mobile is the disruptive medium today and I would say that the company that has most captured the mobile e-commerce experience are the companies like Uber and Lyft, right? Because that is where transactions are happening, that’s what’s exploding today, and that is what mobile commerce looks like, and that is the iconic companies around that piece, right? So I think it’s important to realize that, I think, playing the Internet e-commerce game right now is much harder, especially in the categories that, within reason, the pains have been determined and which Amazon has captured.
I think you’ve got to look at disruptive technologies like mobile and understand how that world is going to evolve. I think there are a couple of really interesting areas that I can look at as I look out in terms of opportunities. One is, if you look at physical retail today, physical retail has two purposes right now. It is both a way to give you inventory as well as a way to be a showroom. And so you make a lot of compromises because you have to satisfy both these goals of being a showroom as well as also having inventory. I would imagine that as we go forward, you could actually decouple these two where you could actually have physical retail just be about show rooming where you can just go in, explore products. Think of the Apple store. More and more of the world is going to look like that and where when you want the product delivered, you just click a button and it shows up in two days in your house. Right? So you don’t need to actually get the product right there. I think that is going to be very interesting to see how that trend plays out and it is going to play out.
And the other piece which is also I think pretty early right now is if you look at all the categories that Amazon’s really good at, Amazon’s really good at categories that don’t belong in the mall, right? So any sort of shop you go to the mall for today is not a great experience online, like fashion, beauty, that sort of stuff. Right? So how we do that well online I think is still a very, very interesting open problem, and that’s where I see another space for innovation. So basically rethinking physical retail, decoupling inventory from show-rooming I think is one big area, and the second big area is really around fashion, basically stores that you see in the mall, how do I provide the browse experience? [Well], the Amazon experience is totally a search experience today. Right? I don’t think anybody has really cracked that experience.
Navin: Got it. Got it. So let’s shift gears and talk a little bit about what you’re doing currently at Rocketship and how you’re taking a data science approach to figure out how do you pick a winning company. Can you talk a little bit about what you’re learning over the last 15 to 20 years have been and why did you start Rocketship?
Venky: At the end of the day, having spent my time at Amazon, having done Wal-Mart Labs, and also having been an early investor in Facebook and to be upfront also in Lyft, we’re very passionate about the consumer experience. That is something that if you ask me what I’m most passionate about, it is about the consumer experience and consumer products. The challenge is investing in consumer companies early on is in our mind felt very random. I think we were very lucky to get into Facebook, Lyft, so on. As we were thinking about investing in these companies that we really felt comfortable committing a lot of money to a process that felt inherently so random. So given our background in data sciences, given the fact that we’ve actually built real models that work or data science organizations that work in large companies, Wal-Mart Labs is one of them, it just felt like, hey, could we bring that same discipline to this problem because this has a lot of characteristics that make it amenable to being looked at as a data science problem.
It’s been a process, it’s been a part and we feel like we’re at a point right now where we’re starting to see some signals that are very encouraging in terms of identifying opportunities that we believe can become big companies and being able to identify them earlier than a lot of people can. So it’s something that we’re excited about but I still think it’s early and we have to prove that we can actually do this on a consistent basis. But one thing that we’re seeing with our data, and this is not super surprising, is we see a lot more noise outside the Silicon Valley ecosystem. But we’re also seeing some very valuable signal there so there is opportunity but there is also a lot of noise, and so we’re really excited about investing both inside and outside the valley. We have around a million plus companies in our database that we track, and it’s really around building models, getting good data, just like any data science operation is and also making sure that you have a very tight loop between the decision making and the modeling so feedback, what works, what doesn’t work so your models get better and better and better.
Navin: That’s pretty helpful and I’m pretty sure some of the entrepreneurs like who are listening to this would love to get in touch with you guys. So let’s switch gears to leadership. Right? You’ve had the pleasure of working with Jeff at Amazon and you’ve gotten to know Mark over the years, and these people are seen as iconic leaders in our industry today, what do you think their drive is and what defines them?
Venky: I can talk about Jeff at least in the early days. The number one thing that just stands out is the clarity of thought and the purity of vision. Right? Knowing exactly what you want, where you want to be, and then having the ability to communicate that and making sure that you get there. And I think the clarity of thought and the purity of vision in Jeff’s case was really around wanting to be the place where people went to buy anything. Right? It was always that. Everything was judged against that and that was it. Right? And the second piece which I would also say which is super important is being able to understand that in e-commerce, unlike in media, there was not any difference between consumer experience and monetization, right? Because a delighted consumer would be one who spends a lot of money with you. And so really drilling into the DNA of the company, that it was all about the consumer. In fact we used to have this saying at Amazon which was, “The only person who’s not in any meeting is the one who’s most important which is the consumer.” And so everyone should be a consumer advocate. The notion of doing what is right by the consumer, not talking about the business, not what was right by the business, I think that was crucial.
So just the purity of vision. The purity of the vision I think is super important and you could in just one meeting with Jeff you’d understand that that was something which was just very central to how he looked at the work. And I don’t think any different with any of the other leaders that you have mentioned here.
Navin: Got it. So you’ve been involved in building companies yourself as a serial entrepreneur and have also invested in other companies. What would you say is the importance of culture in these companies? How fundamental it is to building a sustainable organization?
Venky: Culture is very, very important. How would I define it? It is a very fuzzy concept and you say, “Yeah, you have a great culture, you don’t have a great culture.” But it’s like nobody knows why. And how do I influence it? So I’ve thought about it a little bit and what I would say is finally culture comes down to the founders, CEO, whoever’s the one who’s driving the ship. And it comes down to not what they say but what they do. And what they do on a consistent basis and the values that they operate on is finally what ends up percolating down the entire organization. It is less about having nice presentations, less about having words that you repeat. It’s about what you do on a consistent basis, how you treat people, how you treat customers, how you think about things. That I think, it has to come from the top. So the hard thing, to be honest, is really having cultures which as a start-up environment we don’t worry about having cultures that within reason are portable across leaderships, right? And that’s something we don’t worry that much about in our world but that’s a much different question. Once the founder leaves, how do you still maintain the culture? Or once the CEO leaves, how do you still maintain the culture, how do you have people true to a certain way of doing things?
But in the early stages that we live in, it’s all about the actions of people, and the actions of people at the top and being extremely consistent and the values that they’ve set. Because you can say whatever you want if you want, if you act differently that is the culture that you have. Right?
Navin: Mm-hmm. I agree completely.
Venky: And so I think that is crucial. But one other thing I would just say which I’ve always struggled with is I believe that there are a lot of things you can do as an entrepreneur, but there is maybe one thing that you can actually get into as a DNA of your company. So a lot of times I see entrepreneurs trying to do five, six things. All these things are great to do as a start-up, but what I realized is it’s so hard to get people to do something consistently, regularly, daily and think about it all the time, but I’m almost always like, “You’re lucky if you get one thing in.” Right? Amazon’s case, what Amazon got was the fact that everybody should think like the customer. Right? Just that one piece you just keep hitting, hitting, hitting again, you have a shot in hell of making that part of your culture, your DNA, however you think about the world. So that’s something which is very important which is don’t try to take four or five things and make that who you are, you have the opportunity of maybe picking one and really going after it.
Navin: Yes, I think what I’m hearing is customer is king or queen in whatever one tries to do, and the second thing I strongly believe is all about focus for start-ups because they die of indigestion not starvation. And that’s what is the critical thing, right? Entrepreneurs need to figure out which hill they’re going to climb and how they’re going to be the king of that hill.
Venky: And my point is, all I’m saying, I think you’ve said it very nicely and what I’m saying is that same thing applies to internal processes, internal structures and so on. You get to climb one hill, okay? So just pick the right hill that you want to climb because it’s very hard to get people motivated to do something consistently, and repeatedly, and believe in something. I’ll give you a simple example. Right? So one of the things we tried to do at Kosmix was we tried to get the entire company to do status reports using blogs that were accessible to everybody, right? And it works well for two months, three months and then people stop doing it and then you insist that you do it, it works again well for three months and people stop doing it. It takes so much effort just to get that one simple thing done on a consistent regular basis that you have to really question is it really worth that effort or not. So pick something very wisely which you think is worth a lot and you’re lucky if you get that into being part of your core DNA.
Navin: Yep, completely agree. So switching gears, we’re all lucky when things work out, but along our journeys, there’s always some struggle, so as you look at your journey over the last 20 years, can you share any learnings you have had from a difficult experience that has shaped your journey where things took longer than what you thought they would or didn’t work out the first time and you had to change course, pivot from what you did?
Venky: Yeah, that always happens, right? Part of the challenge is when you’re doing a start-up, your every day is a new adventure. You get highs, you get lows but it’s a part of the journey that at some level it’s very hard to say, “Man, this was really hard,” because once the really hard goes away, you’ve forgotten about it, you’re on to your next thing, right? Facing the next really hard thing. So some of the things you get are more, in retrospect when you think back and say, “What did I do here, what was I doing right, what was I doing wrong?” Right? And so it’s very hard in the heat of battle to really, in my mind, to think about things that I felt like I was…because I just did the best I could and I moved on and however it played out it played out. Right? Sometimes you did the right thing, a lot of times you did the wrong thing. If you did the wrong thing, and you realized quickly it was the wrong thing you just made sure you never repeated that and you tried something else.
But I would say that definitely, and it’s maybe pretty relevant given where we are today, the time where I felt like I had the hardest time was the 2008, 2009 crash, right? Because what happened was the environment changed very suddenly around you. Everybody expected you to change on a dime. We were all in growth more in 2008 and then 2009, end of 2008, everybody was like, “You have to cut burn immediately.” Right? And what I realized then was doing that would just kill your company if you just went so quickly and killed it. You had to just believe in the future, the future there was going to be funding again and so managing that process was maybe the hardest period of time I had with Kosmix which was the last company I had. And it taught me a lot in terms of how you thought about the world, and I think we might be coming up on one other period like that so it is going to test every entrepreneur out there when the market changes around you.
You’ve laid some tracks in your business, making certain assumptions of the market and that suddenly one day is no longer true. How you change directions, how you manage, you go from extreme and the world around you goes from euphoria to extreme gloom and you cannot just turn your company on a dime to fit where the world is, right? And sometimes even the VCs don’t fully understand that, and so it’s just how you manage that process is maybe the hardest one I’ve had to manage because I had investors, team members, everybody. Right? Everybody realizes things are not working the way they should and there’s very little you control in that process.
Navin: And I think sometimes my belief is people who survive in the toughest time come out as the leaders of the next generation, and it’s important for all of us to go through that dip because it makes you a stronger person and a stronger company.
Venky: Absolutely, and I think the one thing you want to make sure is you have the flexibility to make the changes, at the same time, if you just follow the market, it will kill you, right? Because the market will bounce back and you’re like, “What am I doing? I’ve cut all my burn, I’ve got no growth, I’m just dead.” Right? So you have to somehow hope that the world stays reasonably sane but it is very hard. It is very, very hard to manage that transition.
Navin: So what are your thoughts on the current climate for start-ups and entrepreneurs? There is talk about unicorns, there’s like a hundred plus private companies, over a billion dollars in market cap, not only that, now there are deccacorns, not one but many. So do you think this is sustainable or this is just something which is happening today? Right? So what’s your take on the environment that we are in today and how does it differ from what we all went through back in the ’90s, late ’90s especially?
Venky: So it’s really hard to sit here and say I know how the world is going to be or if this is the right configuration. If I knew that, I should be sitting in Wall Street making a ton of money, right? It’s very hard to predict the future. Let’s start with that. Right? I think you can at least explain why you’re seeing these valuations and my reason is fairly simple. I think with the emergence of companies like Facebook, Alibaba, Uber, Twitter, LinkedIn, what you’re seeing is you can now look at consumer companies getting to tens of billions of dollars, maybe hundreds of billions of dollars in market cap, right? And so I would say in the early 2000s, a billion dollars was the outcome of a lottery game. If you got a billion dollar valuation you were really happy there was a lottery win, right? I think today a billion dollar valuation is the price of a lottery ticket because you can actually pay a billion dollar valuation for a company and still hope that the company goes up 10 to 100 X, right? And so you’re seeing people actually play that game which is not very dissimilar from venture capitalist is, but playing it at a much different scale all together. So I can explain why it’s happening. I don’t know if it is sustainable or if it is something that is going to go away very, very quickly, but you can see why this phenomenon is happening at this point.
I just think, the one other thing I would just say, as an entrepreneur you don’t want to look at the market as much as you can because it doesn’t help you, you don’t control it, it’s not something you can do anything about. The one thing I would say is if you find capital is really cheap, raise a lot of capital. I definitely am a big fan of that. If you need the capital, raise the capital. But there is a flip side to it which most people don’t tell you, which is don’t spend it now, spend it when times are terrible. You want to really, really buy low and sell high, right? And so basically if you can deploy the capital in really bad times, that’s what large companies do. You can get talent but cheaper, all your costs are much better so everything, that dollar goes a long way in bad times and so my view is always if you raise a lot of capital, raise it in good times but also don’t forget to spend it in bad times.
Navin: Yeah, that’s critical. Right? So we’re getting to the end of this interview. So in parting, what is your key advice to entrepreneurs as they look at building the next generation of leaders? And especially companies like Amazon and Facebook, what’s your advice to them?
Venky: So this is something I found myself telling people a lot right now, and I see a lot and again this is just my personal view, I see a lot of articles, there’s so much more information, including this podcast about advice to entrepreneurs. There’s so much data, so much advice, and feedback, and books being written, right? So what I would say is the following, every business, every start-up, every opportunity you’re going after is slightly different than everything else that existed before, which is why it is so much fun and that’s why this thing is such a great thing to do, to be an entrepreneur. So keep in mind that the advice you get doesn’t always reflect that nuance, that notion that everything is slightly different and everything has to be thought through from ground up. Right?
And so don’t rely on anybody else. I think as an entrepreneur, start with first principles when you pick your start-up, what you want to do, how you want to go. People who give you input, people who give you advice, it’s good, it’s good as a way to spur your own thinking, but you have to think about it. You’ve got to solve it from first principle as to how do you get to market, how do you get customers who use your product, what you build for them? And I’m a little worry about taking ideas from other people and hoping that works in your situation. I think the whole thing in this as an entrepreneur, it’s just you and the problem that’s it, right? And you’ve got all your reins, you’ve got all your knowledge, but you’re going to have to solve it and nobody else can really help you at the end of the day. And that’s what makes this business so much fun and so scary at the same time.
Navin: No, that’s good. You have a different perspective. I respect it and I think the entrepreneurs are going to like that. Venky, thanks a lot for taking the time.
Venky: Thanks, Navin.