Tag Archives: Thinks
This article originally ran in Term Sheet, Fortune’s newsletter about deals and dealmakers. Sign up here.
Reddit co-founder Alexis Ohanian announced Wednesday that he would be stepping down from his daily role at the company (he will continue to serve on Reddit’s board).
Ohanian said he will return to Initialized Capital, an early-stage VC firm he co-founded with Garry Tan, as a full-time general partner. The firm has more than $ 250 million in assets under management, and its investments include Coinbase, Instacart, Zenefits, Opendoor, Soylent, and Cruise Automation.
Now, he plans to double down on investment opportunities in emerging technologies such as blockchain, and says the firm will participate in upcoming initial coin offerings.
“The threat that ICOs pose long-term are to VC firms that aren’t very good because the onus will be on investors to justify why founders should take their money and not use other ways to get it,” he told Term Sheet. “We’re up for that challenge.”
How do they plan to do this? Ohanian says his focus for 2018 is to roll out software that will automate some investment decisions. This may also increase deal flow diversity and help founders gain access to the firm’s network more efficiently.
“It’s a challenge for all of venture,” he said about investing in non-white-male founders. “We have to get it right. Believe me, I used to think about this before I had a black daughter, and I really think about this now on another level because it’s so personal to me.”
As we’ve seen with Social Capital’s “capital-as-a-service” platform, diversity improves when human bias is taken out of investment decision-making. For context, Social Capital evaluated nearly 3,000 companies during its private beta and committed to funding several dozen across 12 countries. CEO demographics skewed 42% female and majority non-white.
Though Ohanian wasn’t familiar with Social Capital’s data-focused investment platform, his response to the findings was, “hell yeah.” So why aren’t more firms fully embracing the data?
“It’s ironic because venture capital firms talk about investing in founders who are building the future and replacing file cabinets with software and yet venture is so technologically backwards,” he said. “That’s because very, very few people running these firms are product people.”
It looks like data-driven venture investing will only accelerate in the future. It remains to be seen how well quantitative recommendations are accepted in a world of big personalities and a strong belief in “the pickers.”
Make yourself indispensable to your clients and employers. You’ve heard it before. But we live in a fast paced, global economy. And it’s easier and faster than ever to replace a talented individual. This means it’s harder than ever before to become indispensable. There’s an easier way that doesn’t involve being a super talented genius.
You don’t need to be indispensable to be indispensable. You need merely to hold the only set of keys to essential elements of ongoing business.
The Problem With The Indispensable Argument
Even if you are indispensable, do your clients really believe that?
Companies large and small fire people all the time without knowing how critical they were to the business. People are irrational. And if so motivated, they’ll fire you even at considerable harm to their business. It’s not enough to be indispensable, you need to back it up with strong, material leverage.
What is material leverage?
In business terms, material leverage in business terms is an assisted advantage that exists outside of yourself but is perceived by others. The principle is simple. You legitimately own or control the linchpin of an ongoing transaction, or business and use it to influence terms of an engagement.
Examples include effective control over partnerships, pipelines, websites, apps, platforms, or databases. Or perhaps you have contacts that are essential to the other party’s operations.
Strong vs. Weak vs. No Leverage
The key to understanding the power of leverage usually rests on the amount of time, energy and attention required to replace whatever linchpin you own or control. The more time required, the more powerful the leverage.
No or Weak Leverage
If the resource that you own or control can be easily replaced in a day, you effectively have no leverage. If there is a whole marketplace full of easy alternatives, or the perception of one, you have no effective leverage or at best weak leverage.
Perception is more powerful than the reality. If the other party doesn’t perceive or understand the leverage, they won’t respond to your influence over it.
A good measure of strong leverage is if its value is worth more than your annual salary or fee. If your leverage is perceived to be worth 5x your fee, then they will likely bend your way. Not doing so would risk costing them considerably more. That’s strong leverage.
When & How to Use it
Basically if someone isn’t paying their tab, trying to cut you out, or you feel you’re about to be fired, strong material leverage can come into play.
Step 1. You have to decide what your goal is.
Are you trying to use your influence to keep a good deal going and growing, or is it time for you to cut ties? Decide now.
Step 2. Let them hear the branch creak.
Use your leverage as influence to resolve issues and negotiate, not to bully anyone. Do this by letting those involved hear the branch creak. This means to hint just enough of your potentially hazardous move to cause them to rethink their course of action.
If your goal is to keep things going, then you need to think of the use of strong leverage as more of a dance. It’s not a battle, it’s about keeping the appropriate amount of tension and pressure to move with your partner.
If the goal is to keep profitable engagements going as long as possible, don’t wield your leverage like a sword in battle. You may feel superior to the other party in the moment but you’ll lose the value of ongoing transactions with those involved in the process.
This is a more subtle art. The other party needs to hear the branch creak and contemplate their own peril. You need merely hint at your leverage and let them worry about perilous outcomes.
Remember, leverage only works if they and you both stay in the tree.
Step 3. Make the corrective action clearly known.
If you’re too aggressive, the other party may see no path forward and impulsively jump out of the tree on their own. They need to hear both the branch creak and know the corrective solution to make it stop.
If you decide to cut ties, the first move is usually not to pull the rug out from anyone. A longer exit, is often more profitable. Leverage allows you to negotiate the terms of an exit. You may have the other party simply pay you to keep your resources in play. This is more amenable as it buys everyone time to decide what to do next.
No one likes being under someone else’s thumb. But leverage buys you a seat at the table and an engaged audience, ensuring you can be heard out. Tread softly and carry a big stick.