French fries can be sacrosant

This week I came across John Greathouse of Rincon Venture Partners and his post Startup Lessons from watching “The Founder”. The movie portrays the story of Ray Kroc buying McDonalds from its founders and scaling the business up. The post has several good take aways, but nothing does the story justice like Ray Kroc’s own autobiography Grinding It Out. His introduction is a preview of just how page turning the story is:

The next morning I got up with a plan of action in mind. I was on the scene when McDonald’s windows opened for business. What followed was pretty much a repeat of the scenario that had played the previous day, but I watched it with undiminished fascination. I observed some things a lot more closely, though, and with more awareness, thanks to my conversation with the McDonald brothers. I noted how the griddleman handled his job; how he slapped the patties of meat down when he turned them, and how he kept the sizzling griddle surface scraped. But I paid particular attention to the french-fry operation. The brothers had indicated this was one of the key elements in their sales success, and they’d described the process. But I had to see for myself how it worked. There had to be a secret something to make french fries that good.

Now, to most people, a french-fried potato is a pretty uninspiring object. It’s fodder, something to kill time chewing between bites of hamburger and swallows of milk shake. That’s your ordinary french fry. The McDonald’s french fry was in an entirely different league. They lavished attention on it. I didn’t know it then, but one day I would, too.

From the Operators

Mark Roberge formerly of Hubspot gave a talk titled A Step by Step Guide to Revenue Growth. The natural dynamics of raising venture capital will steer you to start growing your customer base as quickly as possible. Months and years down the line this can leave a wake of churned customers and fired sales reps. His advice of starting with a single “aha” moment you know leads to an engaged user, and then measuring that by cohort is sound advice. At Quizlet, our premium content effort that I work on is facing this very dilemma. Mark’s talk is making me think twice about whether we’re ready to pour gas on this, or if we should measure student success a bit more carefully before scaling.

Writing this newsletter has made me a better thinker. There’s something about having to put your thoughts on paper that forces you to really flesh out an idea. You don’t have to start a newsletter to do this. This week our friends Andy Sparks of Holloway writes about his practice of journaling.

From the Investors

Tomasz Tunguz of Redpoint Ventures took a look at the data this week and asked Where Have All the Angels Gone? Angel deal volume peaked around at ~700 deals a year in 2014, and has fallen to below 250 a year. Institutional seed has largely taken the share. For Danielle and I, we’re happy to stay away from raising a seed fund. It leaves us free to take riskier bets, and not be accountable to LPs. We can do fewer deals and spend more time with the founders we invest in.

One of the things that originally got me fascinated about finance was reading Daniel Fischel’s book Payback: The Conspiracy to Destroy Michael Milken. During my childhood I remember hearing about the savings and loan crisis and how it was portrayed as a blight on capitalism and financial innovation. Fischel sets the records straight and explains how Milken actually saw a fundamental gap in how we evaluated credit. So it was fascinating this week to read Should Private Startups Be Issuing More Bonds and see many companies issuing debt who are risky but definitely not going to $0 are still being rated as effectively junk status.

Mark Suster of Upfront Ventures writes this week that managing a board is a bit like flying: most of the time everything is fine, but when you hist turbulence, you don’t want to be building a relationship with your board under duress. He offers advice on how to host dinner with your board so you can build the relationship before it will be truly tested.