00:00hello I'm Michael Copeland and this is
00:02the a 16z podcast you're about to hear
00:05part two of the been and mark explained
00:08practically everything podcast if you
00:11missed part one find it on a 16z comm
00:14part two picks up with a discussion of
00:17disruption theory disruption theories
00:20been in the news of late as it relates
00:22to Clayton Christensen you know the
00:23master of this and I just want to ask
00:26you guys not so much about the criticism
00:27of him but from where you sit that
00:32theory and his thinking kind of
00:34galvanized itself into a book in
00:36nineteen ninety-seven you know do you
00:38build companies differently today does
00:40though do those theories still hold
00:43water or what changed yes sir I think I
00:46think his book was actually quite
00:48brilliant it's funny that it's coming
00:49under criticism now after he's been
00:51proving like completely right into the
00:53general idea that he had its kayak Chua
00:56Lee reminds me of the creationist
00:57attacks on evolution we're like yes from
01:01it it's like intellectualism at its
01:03worst right it's like oh here's
01:05something wrong with Darwin's original
01:06theory and it's like okay now we based
01:09all of biology on it we've made
01:10tremendous progress like how about that
01:12and this is kind of like you know yeah I
01:15don't believe in if I don't believe in
01:16electricity no and you know this is kind
01:20of the kind of business version of that
01:22where you know he developed the theory
01:25all of us in high tech and it was an
01:28amazing business book at the time
01:30because it explained a phenomenon that
01:32you know and now is kind of obvious but
01:35in 1997 was tricky which is why does
01:38there really why do there need to be new
01:40companies all right and what's happened
01:43if we just got through talking about
01:45like there's an explosion of new
01:46companies and these companies aren't
01:48trivial they're becoming very very
01:50important company you know companies
01:51like Google and Facebook and and so
01:56forth and and so he's kind of been
01:59proven right and then not only has he
02:01been proven right on kind of the large
02:02level but the mechanics that prevent the
02:06kind of incumbents from innovating at
02:09the same rate as the new
02:11company are still completely in effect
02:13and and we you know use his models all
02:19the time in our thinking and our
02:20analysis and no doubt there are probably
02:25some minor problems with examples he's
02:28used or like the way he worded it or
02:30what have you but like basically he was
02:32right yeah I would also say two things
02:34I'd say one is we actually use his
02:35theory basically to tell us what not to
02:40well so for example we have this
02:42basically this theory that basically
02:44it's very very dangerous
02:45so one of the great things about our
02:46industry about venture capital is you
02:48get to do these things that basically
02:49disrupt sort of the big established
02:51incumbent companies conversely a very
02:53dangerous thing to do is to attack
02:54companies that we are internal term is
02:57the new incumbents and so it's one thing
02:58they like go attack you know a tech
03:00company that's been in business for 50
03:02years that's on at six CEO or something
03:03like that it's another thing to go into
03:04a Google being run by Larry Page right
03:06because Google being you know Larry Page
03:08is like fully aware of the theory of
03:10disruption and in full command of his
03:11company and if you like he sees a
03:12disruptive threat coming he is quite
03:14capable of doing the things to head it
03:16off that a you know fourth generation
03:17professional CEO might not be able to do
03:19so so anyway so that that was one thing
03:21one thing I would say the other thing I
03:22want to say is disruption it's it's a
03:24Gris with Ben it's funny that this is a
03:26topic now but since it is it's worth
03:27talking about which is the term
03:29disruption Viton by its very nature the
03:32term itself has negative connotations
03:33right it's it's disruption seems like
03:36it's one step away from destruction and
03:38so it gets it's got this kind of you see
03:40that's kind of popular kind of
03:41conception that there's something bad
03:42about it the actual way that Christensen
03:45used the term was actually in a very
03:46sort of applied way in a very specific
03:48circumstance in business and and and
03:52actually in a very positive way which is
03:54basically he described as a way that
03:55progress happens right so progress
03:57doesn't happen by basically old
03:59companies like deciding to do new things
04:00company to progress happens because new
04:02companies decided to new things and then
04:04disruption is the process by which the
04:06new things are able to take over from
04:07the old things if you decide you don't
04:09like disruption what you're basically
04:10saying is you don't like new things
04:11right it's basically to be against
04:13disruption is to basically be pro the
04:14status quo and pro the status quo means
04:16the way well however the world is today
04:18like that's it like that's all we're
04:20gonna have like the way things work
04:21today this is as good as it's ever going
04:23the disruption argument is no no no no
04:25things can become much better products
04:27and become much better businesses can
04:29become much better opportunities where
04:30people can become much better and so
04:32it's a it's a negatively connotative
04:33term it has very positive implications
04:35and I think that that's really in at
04:37least in the last couple years has been
04:38lost a lot of the commentary you
04:40mentioned Google and and one of the
04:41things that we've seen you know through
04:43the technology industry's history is
04:44that it's very very hard to disrupt
04:47yourself and kind of make a transition
04:49from one thing to another
04:50IBM may be the only company that's done
04:53it Google you know they're trying
04:56everything you know and Facebook is
04:58trying everything and do these companies
05:00somehow change the rules or is it the
05:02same rules applying and you know
05:05disruption theory catches up with them
05:06in 50 years maybe so you think you're
05:09anything kind of have to break that back
05:11apart and go back to what Mark said I
05:13think that people often think of big
05:15companies can't innovate little
05:17companies can but the real truth is new
05:20companies can innovate and companies
05:23that are so old that the original
05:25inventors are gone have a lot of trouble
05:27doing it and so if you go back to HP or
05:32IBM or any of these companies when the
05:35founder when Thomas Watson was running
05:37the company when Dave Packard was
05:38running the company ain't have any
05:40trouble right doing new things and they
05:43did a phenomenal I mean HP in particular
05:44did it like a crazy number of new things
05:46just amazing and in retrospect really
05:50phenomenal and if Mark Zuckerberg is
05:52running the company or Larry Page is
05:54running the company you know that's not
05:55an old company that's a new company and
05:57as innovators they you know we believe
06:02and this is gets back to why we don't
06:04attack them because they'll attack right
06:06back and very effectively you know
06:09they're gonna be able to do new things
06:11and like sometimes that will mean
06:12bringing a new talent through
06:14acquisition or new technologies through
06:16acquisition but they're gonna be able to
06:20think about the problem through a lens
06:22that is not the business they're in and
06:25that's kind of that this is the the
06:27amazing thing that Clayton Christensen
06:29laid out was that you know if you're
06:31like if you're an old company run by
06:33professional managers you're really good
06:35at studying and optimizing the business
06:37you're in and so if there's a new
06:39business that comes along that doesn't
06:41is inconsistent with that you get stuck
06:44but if you're Mark Zuckerberg who
06:46created a business from nothing then you
06:49have a very different view of the world
06:50and it's not like okay how do i optimize
06:53the business that I'm in it's like well
06:54how do I get another business that's
06:56like Facebook that's more the way you
06:57think about it the other thing is the
06:59fact that Krishna Center was able to
07:00articulate this in a theory that's so
07:01clear and put in the book is I think
07:03that like the best professional CEOs in
07:06the tech industry today
07:06like now understand this in a way that
07:08maybe their predecessors 10 or 20 years
07:09ago didn't understand it right so I'll
07:11just give you two examples of people I
07:12work with John Donahoe at eBay like when
07:14mobile came along you know sort of
07:16classical professional CEOs when mobile
07:17comes along would you know would look at
07:19it and say well I've got this great
07:20business on the web if I move to mobile
07:22it may or may not work as well and so
07:24maybe I don't want to try to make the
07:25move maybe I want to stay on the web and
07:27reinforce the web and like not take the
07:29risk of quote disrupting myself by
07:30making the jump to mobile but since John
07:32understands disruption theory and it's
07:34been like articulated and explained in a
07:35way that makes sense you know he was
07:38able to be based on a phenomenally
07:39successful job he went full throttle
07:41into mobile and they made the jump
07:42they've done very well maybe we've been
07:44doing the same thing with this I just do
07:46one examples this project moonshot which
07:48is these cartridge-based servers I think
07:50at HP that are a direct attack on the
07:53existing blade server business and the
07:55blade server Business at HP is a very
07:56very big and profitable business and HP
07:58is basically self disrupting with this
08:00new kind of cartridge-based server and
08:02so again and and when there's when you
08:03have the discussion HP board meeting and
08:05you have the discussion you're like okay
08:06why are we taking the risk of damaging
08:08this big existing profitable business by
08:10doing this new thing the answer is
08:11because it's the right thing to do
08:12according to disruption theory like it
08:14is like there is a logical framework and
08:17again think about what's happening which
08:18is something new is happening progress
08:21is happening right this is now the
08:22reason and the motivation and the
08:24explanation of the justification to be
08:25able to make progress so it's it's a
08:26it's an incredibly powerful positive
08:28thing let's get to entrepreneurs and
08:30entrepreneurship you guys founded the
08:33in part I've been told because you
08:37wished you'd been told or helped in
08:39certain ways what's one thing both of
08:43you wish you knew or someone had told
08:45you as entrepreneurs well that presumes
08:50we woulda listened you know there's just
08:55so much that we did not know going
08:57through it the first time and you know
08:59one of the great things about the
09:00entrepreneurial experience is it's just
09:03an amazing learning curve about
09:05everything from you know markets to
09:07organizational structures to
09:09compensation to everything but you know
09:12probably one of the most challenging
09:15things to learn while you're out there
09:18is kind of how macroeconomics impact
09:25markets and particularly how they how
09:30private funding can change very very
09:32rapidly you know when we were you know
09:35particularly and this wasn't as a Harsha
09:39lesson at Netscape but at a Opsware and
09:42loud cloud it was like incredibly
09:44difficult for us to go from a funding
09:46environment where basically had the
09:49highest multiples in the history of
09:51anything - there was no money available
09:54period that I mean like that was it was
09:57the most dramatic fall imaginable from
09:59the highest of highs to the lowest of
10:00lows and you know to have the Nasdaq
10:03fall over 80% and that not being you
10:07know that's Nasdaq that's not tech tech
10:09Feld 95% it's just like not something
10:12you could even imagine or get your head
10:14around so I wish you know like I wish we
10:16would have known that I wish I wish I
10:19don't know if we would have believed
10:20anybody if they had told us that but
10:22that would have probably made a little
10:25less painful if we had any idea how bad
10:27it could be it would have made a worse
10:29book I'll tell you that that you wrote
10:30but still on the other side of the table
10:35what do you want more or less from
10:38entrepreneurs more or less of
10:41entrepreneurs yeah well you know it's
10:45very different across different
10:46businesses but like the the the one
10:51thing that would probably be nice if
10:53there was less of that's pretty
10:54consistent is it'd be nice if it wasn't
10:58so important to entrepreneurs what their
11:00peers valuations were like that that is
11:05probably the most meaningless thing to
11:08focus your mind on as an entrepreneur
11:10imaginable it's just you don't have
11:14anything else to base your value on do
11:16you know you yeah so it's not actually
11:23you know your company's your company
11:25their company is their company you're
11:27looking at the price they got not any of
11:30the business metrics that they have or
11:32like how the company is going so you're
11:35not actually basing your valuation on
11:37anything in that sense and there's
11:40better data to be gotten for sure like
11:43you know we have better data we can talk
11:46to them about all the kind of valuations
11:48based on actual revenue and so forth as
11:49opposed to the person they went to
11:51school with or the person they worked at
11:53their last company with right and but
11:55people get very wrapped around the axle
11:57on that because there's you know it's
11:59kind of the thing that Peter Thiel talks
12:01about where as competitions actually
12:03like really destructive and that's like
12:04the worst kind of competition because
12:06it's competition that's irrelevant to
12:08anything in life other than you know you
12:10can go tell your friend what valuation
12:12you got and I think that it causes bad
12:18you know errors in judgment and delays
12:20and decisions that need to be made
12:22quickly and things like that so you know
12:25it's just it's one of those things where
12:26humanity gets a better of you and I
12:31wouldn't like less of that would be good
12:33mark any any anything you would offer on
12:36that well the thing that the great
12:37entrepreneurs all have in common we talk
12:39about this a lot but you just see it
12:40every day as the great entrepreneurs all
12:41have amazing courage
12:43and so I would say we're blessed in that
12:45the hunter a lot the entranceway we work
12:47and we select for it I mean we try very
12:48hard to look for it but the entrance we
12:49work with that are amazing one of the
12:51things they all have in common is
12:52they're incredibly courageous by which I
12:53mean they don't give up they don't they
12:55don't quit like they don't they don't
12:56quit they don't flinch they don't get
12:57demoralized they don't get I mean it
12:58well actually they may get demoralized
13:00or depressed but they show up to work
13:01the next day and they work their way out
13:03of whatever problem they're in and they
13:05just keep pounding and pounding and
13:06pounding and pounding and I think
13:08there's a little bit too much in the
13:09valley right now of the pivot and the
13:12lean start you know the lean startup and
13:13the you know that everything's
13:14experiment and Minimum Viable Product
13:16and failure is good and kind of all
13:18these excuses to be able to give up when
13:20things aren't going well
13:22and I think that the great entrepreneurs
13:25through history have always been the
13:26opposite kind of personality and all
13:28that they've always been I'm gonna make
13:29this thing work hell or high water
13:30matter what I am going to knock my
13:32weaith you know headfirst through any
13:33you know barrier that I run into I don't
13:36care what people say about me I don't
13:37care what kinds of problems I have I'm
13:39gonna figure this out and I'm and I'm
13:41not gonna give up and so I would just
13:42say we love working with people who have
13:44that personality type right and you can
13:46never have enough of them Elon Musk
13:47comes to mind I mean cars and space yeah
13:50so to start think about this to start a
13:52new electric car company and by the way
13:54think about the last part company start
13:55of the United States they literally made
13:57a movie about the catastrophe that
13:58resulted which is this movie Tucker and
14:00so if you want like a story of like a
14:02horrible business which went better than
14:03DeLorean yes well actually well he had
14:06the a defray the expenses but you know
14:12car companies like all that all the car
14:14companies in the US that are successful
14:15or like you know from the 1910s 1920s
14:16and so to start a new car company in the
14:19electric car category I went all the
14:20electric cars had failed simultaneously
14:22to start the first new private rocketry
14:24company in the United States in probably
14:2640 years to go straight up against the
14:28big boys to do those at the same time
14:30and then to go through the 2008 crash
14:32and he he has actually recently opened
14:34up on this of like he almost lost both
14:36companies in 2008 like they've almost
14:37both vaporized and then they got through
14:40both of those and have both come out the
14:41other side like just gigantic screaming
14:43successes is just a it's a spectacular
14:45performance and a huge part of it as he
14:49then let's touch on your book a little
14:51bit the hard thing about hard things one
14:53thing it got great reception but you're
14:56like well yeah that sounds good for you
14:57Ben but that was your story how can I
15:00embrace that and make that my story but
15:02you know I are there it was there
15:04anything in the response that you wish
15:06people had pushed you harder on well the
15:10things that people pushed me on actually
15:12annoyed me so my it's hard to say that I
15:14wish about that I mean I think that to
15:18your point though it was my story and
15:22the reason for that I mean there was a
15:24really specific reason for that which is
15:26building these companies tends to be
15:28very dynamic and very situational and so
15:31a very frustrating thing about
15:33management advice in general and
15:35particularly you know both in books and
15:38then things that you often get from
15:40board members or or kind of pattern
15:43matches as it were is that they're
15:46giving you advice and it's based on
15:48something and that advice and what it's
15:51based on may or may not be relevant to
15:53you and if you don't know what it is
15:55it's very difficult to interpret it and
15:57I always found that you know management
15:59books would give like guidance and you'd
16:02be like well okay is that what I should
16:04be doing but I have no idea where it
16:06came from and so it's hard to say so a
16:09lot of putting my story and was just to
16:11say look this is why I'm telling you
16:13this and like if your situation like is
16:16completely different than this then that
16:18might be the part of the book that you
16:20ignore or like at least here maybe you
16:23can map it on to what you're doing but I
16:25think that without knowing why somebody
16:28is telling you something it's pretty
16:29difficult to to get value out of it and
16:34on the topic of the entrepreneurial
16:35journey we have to go see a pitch all
16:37right that's what you guys would get
16:38paid to do so Ben and Mark thanks so
16:40much we will do this what I won't do it
16:43in five years we'll do it much sooner
16:44than that thank you very much Michael
![How To Succeed As A NEW & YOUNG Realtor [Deals Every Month + Luxury Listings]](/_next/image?url=https%3A%2F%2Fi.ytimg.com%2Fvi%2FrtrRghgTayc%2Fhqdefault.jpg&w=3840&q=75)
