The hardest thing about starting a company is that from day one you emerge as this completely vulnerable entity trying its hardest to project success, power, trajectory and inevitability while you secretly know that you’re one knock-out blow from extinction.
Think about it: You start with nearly no money, you bring on some co-founders and if they quit it could completely derail your mission, you talk to journalists who if they decide to be cranky can ruin your reputation, you pitch investors who can change your outcomes by giving you cash that enables more forward progress but if they withhold it you can starve. While all of this is going on you are trying to get customers to use your product, enterprises to sign contracts that don’t leave you with unlimited liabilities and landlords to take you in with limited deposits or guarantees.
In a word – you are truly vulnerable.
Understanding your vulnerability and understanding the power of those with whom you must do business is a very important part of figuring out as a startup how to fit into the broader ecosystem and the art of statecraft is tremendously important in knowing when and how to project power in sales, recruiting, negotiations, fund raising, etc. In politics this is often described as a Hobbesian system (after Thomas Hobbes who wrote Leviathon in 1651).
In a Hobbesian world powerful countries exploit their strength because they can and other players either align themselves with powerful countries are create competing systems. It’s convenient not to bother thinking about politics because you want to just ship really cool code and if users love it then you’ll be successful – but that’s not reality. You have to exist in a world with powerful ecosystems (iPhone vs. Android, Facebook vs. Twitter, YouTube vs. Facebook).
If you have success you have to make hard choices.
It is a really big historical decision that Facebook made not to have Google index its pages. On the one hand it denied Facebook from enormous amounts of web traffic that Google controlled at the time but in the longer-run due to network effects of social networks it made Facebook significantly more powerful.
What are the chances that SnapChat or WhatsApp would emerge without getting crushed like a bug? It’s a Hobbesian calculation. Being able to leverage mobile contacts on your phone gave them independence from Facebook while many other people were doing anything they could to oAuth in FB users. Apps still need Apple and Google to allow them in their respective app stores so in theory they could be crushed (I’ve seen the Hobbesian force of Apple when they decide they don’t want you as a competitor) but the calculation must also consider that Apple and Google must deal with governments and with large user bases who would react negatively to Goliath killing a popular David adversely or unnecessarily. Even big countries must be mindful of Hobbesian forces.
And the forces at play not only involve companies that have power but the individuals within those companies. If you grew up inside of Facebook through its rise, its IPO and it becoming an 800-pound gorilla you will see the world through that lens precisely because you are so powerful that you’re used to getting your way because you’re, well, Facebook. Whereas if you’re an emerging player like Meerkat you’re having to feel your way through ecosystems to figure out who your friends are and how powerful they’ll let you be – or not.
It’s really no different than when we were 16 and in high school and your position in the world was defined by whether you were strong, tall, smart, good looking, funny, rich, cunning, organized or whatever. You learned your place in the world by those around you and how they treated you and how your actions were received and what got you ahead or what got you punished.
When I spend time talking with startups about this I usually start with a parable because it’s less heavy than political theory. I often tell the story about the scorpion and the frog. It goes like this:
A scorpion is on the side of a river and he wants to get to the other side but he can’t swim. He sees a frog in the river and says, “Mrs. Frog, will you please carry me to the other side of the river bank?” A skeptical frog says, “No way. You’re a scorpion! You’ll sting me and I’ll die.”
“Of course I won’t sting you. I’m a scorpion, I can’t swim! If I string you I’ll drown.”
“Good point. Yeah. Ok, then. I’ll take you across. Hop on my back.”
Midway across the river the scorpion suddenly stings the frog.
With her body beginning to paralyze and realizing that she’s going to die and as she drowns so, too, will the scorpion, she screams out, “Why did you do that, Mr. Scorpion? Now we’re both going to die!”
“I can’t help it. I’m a scorpion. That’s what I do.”
And that is Hobbes in a simple parable. People act how they do because they can – it’s who they are. And the sooner you begin to think about that in your interactions in business (and life) the easier decisions become.
If you hire somebody early in your startup who is naturally cautious and uneasy with risk – you’re going to have an employee who is constantly one foot out the door because he can’t handle the uncertainties of startup life. If you hire somebody with 3 kids and who doesn’t have a lot of savings you’re naturally going to have somebody who cares more about cash than equity even though you REALLY WANT everybody in your company to have the same motivations as you. Don’t forgot that your scorpion is the fact that you own 35% of the company, which makes your mindset in the company different.
Many times in my job I have to deal with people at big corporations – often some of the biggest and most powerful in the world. At times I scratch my head at the behavior. I might see them underinvesting in technology, charging margins that are too high (which invites in disruptors), threatening startups (if you don’t sell to use we’ll just build a competitor and crush you) or similar. I used to be easily offended by this kind of behavior. I found it irrational, annoying and counter-productive.
Over time I began to think more about the scorpion. He’s trying to bully me because he’s an SVP at an enormous company and he’s used to getting his way with suppliers or employees or his peers – so that’s how he deals with people in life. The sooner I realized that and didn’t take it personally the better.
A general counsel at your customer or biz dev partner or acquirer won’t easily give in on items like “limitations on liabilities” because they’re GCs. They’re not paid to be buddy-buddy with you. They’re paid to control risks and they get exactly zero credit if your partnership with their company goes well. They are only affected when your system starts leaking out confidential information and there is a limitation on how much they can sue your for.
So my simple recommendation for everybody who is new to business and working in a startup (or frankly anybody in business trying to understand people and organizations around you) is to think about the scorpion in each of us.
Why does this person or company exist? What are her motivations? Put yourself in her shoes – what is she trying to achieve at her company? What is the company trying to achieve? How powerful or vulnerable is that company and why do they want to work with me? How will they act if I become extremely successful? How will they act if the market tanks? How will she act when my competitor comes along and offers the same product at 50% cheaper to steal marketshare from me?
We live in a Hobbesian world. Knowing your place in it is a great start. And it will make you a significantly better negotiator and operator.
(Cross-posted @ Both Sides of the Table)