A few months ago, my friend Edmond wrote a very insightful post about the most important professional lesson he had learned. While working as an engineer at companies like Google and Quora, Edmond figured out that the best use of his time was to focus on high-leverage activities like automating repetitive tasks, interviewing potential candidates, and mentoring new hires. These tasks are time-consuming, but they consume much less time in the short run than they save in the long run. One could fill a book with the ways that engineers can leverage their time more effectively – in fact, Edmond has been working on such a book since last year.
Over the last few months, I’ve been thinking about where my own effort is best spent and what sort of high-leverage activities I can concentrate on as an investor. I spend most of my time talking with people, which is very hard to automate. And while I could help a portfolio company interview engineers, that’s probably not the ideal use of my time.
I’ve resolved that one of the best things people can do with their time is to learn, and then share what they learn with others. As a VC, I’m in a great position to do this because I meet with so many entrepreneurs who have a lot of influence within their companies.
I recently met a spate of founders who were concerned about getting pricing right. They weren’t sure whether their prices were too high or too low, or how to test those prices. After talking with several founders who had the same questions, I realized that one of the highest leverage things I could do would be to learn all about pricing myself. If I were to read several books and talk to dozens of founders about the subject, then not only would I know how to price things, I’d be able to give good pricing advice to everyone that I talk to. Since I talk with hundreds of founders each year, and those founders are busy and do not have time to do a lot of research themselves, every lesson that I learn and share can have a significant positive impact.
I think this observation is generalizable: one of the best things that I can do as an investor is to share as much useful information as possible with others. Some examples:
I can share my knowledge about engineering or entrepreneurship topics. This might mean walking someone through how to write entity resolution code, or giving them advice on how to recruit more effectively. It could also mean that I immerse myself in a topic, then share my learnings with as many people as possible. Essentially, if I’m an expert on something, I can transfer my expertise to every company that I work with.
I can analyze hundreds of pitch decks that I’ve seen and share the results. Investors are one of the few groups that can provide a data-driven analysis of pitch decks, term sheets, investor update emails, and other investment-related documents. By describing what works and what doesn’t, I can save founders some time while making them more effective.
I can share my fund’s investment funnel metrics** to help other investors and entrepreneurs calibrate their performance and their expectations. Homebrew wrote a post about their metrics a few months ago, and I found it invaluable. Being able to compare my fund’s funnel to Homebrew’s indicated a few places where my fund does a great job and a few places where we could be even better. Those funnel metrics are also useful to entrepreneurs. What are the chances of getting funded by a seed fund? About 1%. How about if you were referred by another founder and the investor wants to meet you after doing a screening call? About 20%. Knowing your chances of success helps you channel your effort into the highest ROI situations.
** investment funnel metrics - how many companies reached various stages of the due diligence process and finally got funded.
Does sharing knowledge help the bottom line?
I don’t think anyone would object to more knowledge-sharing from VCs (or from entrepreneurs, or from engineers). However, is this actually good for business? In my experience, it is. Here are five arguments in favor of sharing:
People appreciate openness and candid feedback. I’ve never gotten a great reaction from being vague (“I’d like to pass on your current round. Sorry.”), but I’ve received many good responses from people with whom I’m open and direct. Guarding my knowledge doesn’t help anyone, but sharing it improves deal flow and generates stronger endorsements from the people I work with.
I don’t believe in karma in the literal sense, but I do believe in probability: the more good deeds you do for other people, the more likely those people are to help you someday. Sharing knowledge is a good deed. It’s something I do without expecting anything in return, but which almost magically leads to good results for me over time.
While I haven’t been investing long enough to see exits, I’m confident that learning about useful topics (e.g. software pricing) and sharing the results will be useful to the companies I work with. Maybe I can help one company increase their revenues 3%, or maybe I help another one lower churn by 1%. That’s not much, but it’s something, and if I can do that for 20 or 100 companies then I’ll have a large aggregate impact. That’s good for the companies and for my fund’s eventual bottom line.
Knowledge sharing has a great feedback loop. The more I share, the more I’m seen as an expert, the more people come to me with problems that I can advise on and learn from, the more I learn, and the more I have to share. Being seen as an expert also helps a lot with deal flow.
There’s been research about whether the most successful people tend to be givers (who help others while disregarding personal gain) or takers (who exploit others for personal gain). Most people expect that givers would be overexploited and unsuccessful, and sometimes that is the case, but it turns out that many of the most successful people are givers. In his fantastic book, Give and Take, Adam Grant describes several studies that showed a preponderance of givers among top performers. In one study of 160 engineers, the best engineers turned out to be above average givers. In another study of salespeople, the top performers were givers who averaged 50% more in annual revenue than non-givers. Give and Take explains that being a taker helps you get ahead in the short-term at the expense of the long-term; being a giver has the opposite effect.** In my opinion, teaching is a great way to give.
As a parting thought, most of this post applies to everyone, not just investors. If you have followers on Twitter or Quora or Facebook or anywhere else, share useful, insightful learnings with them. You’ll be helping people out without too much effort, and who knows, someday those people might be in a place to help you out.
** Note: there are several caveats to being a giver, like being conscious of potential exploitation and avoiding burn out. These topics, and many others, are described in detail in Grant’s book.