Market always wins.

1. “When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens.” 

“If you address a market that really wants your product, if the dogs are eating the dog food, you can screw up everything in the company and you will succeed. Conversely, if you’re really good at execution but the dogs don’t want to eat the dog food, you have no chance of winning.” 

A great product in a great market can make an executive look great, regardless of skill. Similarly, when a talented executive tries to achieve success with an offering that is lousy or the market is lousy, the result is inevitably lousy. 

Warren Buffet has expressed a similar thought: “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.” 

Andy wants great management and a great market when he invests. 

One big difference between Andy Rachleff and Warren Buffett is that as a venture capitalist and entrepreneur, Andy builds new moats.  Warren Buffett and Charlie Munger make it clear that they only buy existing moats. Building new moats and buying existing moats are very different objectives, involving very different skills and talents.

Company choice matters.

7. “All our advice on Silicon Valley careers is based on a simple idea: that your choice of company trumps everything else. It’s more important than your job title, your pay or your responsibilities.” 

Feedback is what’s driving returns today in markets, and as Reid Hoffman has said, what company you work for and who you learn from matters more than ever. 

Networking “early and often” is an excellent approach to business and life especially in a digital world.

On venture capital:

8. “Human beings want returns, but they don’t like risk.” Most people talk a good game about risk and uncertainty but will typically back off when it comes time to actually do anything.  Some of these people are your really smart classmates who have never gone anywhere financially in life. People who are comfortable with risk earn a premium as a result of the risk aversion of other people. Ironically, people who are oblivious to risk sometimes also get lucky and earn that same premium (even a blind squirrel finds a nut once in a while).

 

9. “It doesn’t matter how many losers you have, all that matters is how big your winners are.” “You can only lose 1X your money [as a venture capitalist]. “[As a venture capitalist] you make bets and you have to be willing to be wrong a lot…. It’s one of the few industries I know of where you can be wrong 70% of the time and be brilliant.” If you have been reading this series you recognize that Andy is talking about what I have called “harvesting optionality.”  A tape measure home run hitter can strike out a lot and still be great. It is magnitude of success and not frequency of success that matters most for an investor.

 

10. “When it comes to investing in venture capital I would follow the old Groucho Marx dictum about ‘never joining a club that would have you as a member.'” The very best venture capital firms and startups don’t need your money. This fact is a byproduct of cumulative advantage and is reflected in the power laws that drive venture capital returns. Andy Rachleff writes: “only about 20 firms – or about 3 percent of the universe of venture capital firms – generate 95 percent of the industry’s returns, and the composition of the top 3 percentdoesn’t change very much over time.”