Dan Sweet

Big and Small

I find Vinod Khosla fascinating.  He founded Sun Microsystems, was a general partner at Kleiner Perkins, and then formed his own fund where he now focuses on cleantech investing.  He’s from San Francisco but he talks trash about hybrids, solar, and wind power.

This post over at VentureHacks brought this recent interview with Vinod Khosla to my attention.  Vinod is on from 10:40 to 20:40.  If you want to hear the LinkedIn founder not answer some questions in a typical CEO-like manner feel free to watch the preceding portion of the video.  I wouldn’t bother.

A couple quotes that struck a chord with me from this video:

“If you succeed, it better be material.  I say, I don’t mind failing, but if I succeed it better be worth succeeding instead of some incremental thing.”

Also…

“This is really really important and misunderstood about startups.  Startups aren’t big or small, they are MADE big or small.  So an entrepreneur picking the right partner will more likely end up as a big company than if they pick the wrong partner who wants a 3x return on their money.  Any investor who looks at exit strategies, or multiples of investment, or even does an IRR calculation, a rate of return calculation, probably is the wrong partner for you.”

I work for P&G.  Everything we do is huge.  At the same time most of what we do is very very small.  We are absolutely thrilled if we grow a business 10%.  We consider 5% growth a very solid performance.  We regularly put significant effort into growing a tiny piece of something in one small channel a couple percentage points, do this all a few times over, and then are proud to put together a plan that moves the needle by incremental points (by points I mean one or two).

When we do something new, we do WAY more than “an IRR calculation”.  We’ve got teams of people from multiple functions, worksheets with tons of tabs, financial review meetings, and  years-long timetables.  According to Vinod, this would be guaranteed to smother the idea, result in failure, or at the very best something only “incremental.”  And often that is what happens.  However, occasionally the team turns out a Swiffer and builds a billion dollar category out of thin air.  P&G is full of paradoxes.  Big and small.

Minimum incentive to open a new credit account?

I wrote this recently in reply to a question posted on Quora.com.  If you haven’t checked out Quora yet, go check it out.  Quora is a great example of a business model based on Clay Shirky’s concept of cognitive surplus.  I like the execution because they make it easy to share your knowledge and also make it social enough that it motivates people to contribute more.

Q: If a merchant offers you a discount when you apply for their credit card, how much should it be worth to go for it?

A:
Short answer: minimum $100 offer value
Long answer:
3 filters to use
1 – What is your current credit score?
2 – Are you getting a major loan (house, car, boat, etc) anytime soon?
3 – Are you making a larger purchase from this vendor in the future?

If the answer to 1 is “I don’t know” then just say no to all of these offers in general.  Go to a site like creditkarma.com and check your credit for free without a “hard” inquiry.  “Hard” and “soft” exist.  Google it if you don’t know the difference.  If your score is 700+ then proceed to question 2.

If the answer to 2 is “yes”, then you should also just walk away.  $100 or whatever isn’t worth a few extra hundred in interest on that new loan because you dropped your score just under 720 with some dumb “offer” you “took advantage of”.  If the answer to 2 is “no” then proceed to question 2.

Many of these offers are one-time offers only good at that store on the initial purchase when the card is opened.  This is where question 3 comes in.  For example, 5 years back I bought a furniture set at Macy’s signed up for a card and got 20% off.  $2-300 in my pocket.  Yesterday I asked about a coupon that was valid only for Macy’s cardholders.  My account had gone inactive but, no problem sir we’ll open it right back up for you and you’ll save $14.  No thanks, I am thinking about some new furniture down the road.  Probability I buy furniture from Macy’s again * expected value of future deal > $14 so this is a pass for me.  You do the calculations for your scenario.

If its not a one-time deal with a vendor, you have decent credit, and no plans for major new loans in the works, then go to town.  It will impact your credit if you do a number of these.  For that reason, I don’t do these for less than $100 as plenty of them come along.