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November 2019 - Brotopia: Breaking Up the Boys' Club of Silicon Valley by Emily Chang

This book details a number of factors that have discouraged women’s participation and promotion in the tech industry. Emily Chang gives a brief history of the circumstances that have pushed women away from the industry and then covers its current issues - weaving in great insights and actionable takeaways along the way.

Tech Themes

  1. The Antisocial Programmer. As the necessity for technological talent began to rise in the early 1960s, many existing companies were unsure how to hire the right people. To address this shortfall in know-how, companies used standard aptitude tests, like IBM’s Programmer Aptitude Test, to examine whether a candidate was capable of applying the right problem solving skills on the job. Beyond these standard aptitude tests, companies leveraged personality exams. In 1966, a large software company called System Development Corporation hired William Cannon and Dallis Perry to build a personality test that could shed light on the right personalities needed on the job. To build this personality test, Cannon and Perry profiled 1,378 programmers on a range of personality traits. Of those 1,378 profiled, only 186 were women. After compiling their findings, the final report stated: “[Programmers] dislike activities involving close personal interaction; they are generally more interested in things than people.” Furthermore, Cannon and Perry’s 82-page paper made no reference to women at all, referring to the surveyed group as men, for the entire paper. A combination of aptitude tests and Cannon-Perry’s personality test became the industry standard for recruiting, and soon companies were mistakenly focused on stereotypical antisocial programmers. Antisocial personality disorder is three times more common in men than women. Given how early the tech industry was, compared to what it is now, this decision to hire a majority of anti-social men has propagated throughout the industry, with senior leaders continually reinforcing incorrect hiring standards.

  2. Women in Computer Science. According to the book, “there was an overall peak in bachelor’s degrees awarded in computer science in the mid-1980s, and a peak in the percentage of women receiving those degrees at nearly 40 percent. And then there was a steep decline in both.” It was at this time in the mid-1980s that computer science departments began to turn away anyone who was not a pre-qualified, academic top performer. There was too much demand with a constrained supply of qualified teachers, so only the best kids were allowed into top programs. This caused students to view computer science as hyper-competitive and unwelcoming to individuals without significant experience. Today, women earn only 18% of computer science degrees – a statistic that shocks many in the industry. Researchers at NPR found that intro CS courses play a key role in this problem – with many teachers still assuming students have prior familiarity with coding. Furthermore, women are socialized in a number of ways to achieve perfection, so when brand new code is not working well, women are more likely to feel discouraged. It is imperative to encourage women to try computer science if they have interest, to combat these negative trends.

  3. PayPal and Perpetuating Cycles. After the dot-com bubble burst in the early 2000s, several newly minted millionaires did the natural thing after selling a company for millions of dollars, became a venture capitalists. One of the major success stories of the era was PayPal. Among those newly minted millionaires were the PayPal mafia: Peter Thiel, Keith Rabois, Elon Musk, Max Levchin, David Sacks, and Reid Hoffman. Thiel and Rabois have a history of suggesting a meritocratic process of hiring where only the most qualified academic candidate should land the job, not taking into account diversity of any form. Furthermore, in his book Zero to One (which we’ve discussed before), Thiel proposes startups should hire only “nerds of the same type.” The mafia began investing in several new companies, seeding friends who were likely to perpetuate the cycle of recruiting friends and hiring based on status alone. Rabois, who is currently a venture capitalist has remarked: “Once you have alignment, then I think you can have a wide swath of people, views and perspectives.” These ideas seem more like justification for hiring large groups of white males who were friends of PayPal executives than a truly “meritocratic” process, which is not the best way of building a successful, diverse organization. Roger McNamee, founder of technology private equity firm, Silver Lake, suggests: “They didn’t just perpetuate it; they turned it into a fine art. They legitimized it… The guys were born into the right part of the gene pool, they wind up at the right company, at the right moment in time, they all leave together and [go on] to work together. I give them full credit for it but calling it a meritocracy is laughable.”

Business Themes

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  1. The Women at Early Google. A lot of people know the story of Sergey Brin meeting co-founder Larry Page. But few are aware of when Sergey and Larry met Susan Wojcicki, who is now CEO of YouTube. Sergey and Larry were looking for office space, and through a mutual friend, were introduced to Susan Wojcicki, who worked in marketing at Intel at the time. Though she didn’t jump on board immediately, Susan eventually came around and was instrumental in launching two of Google’s most important products: AdWords and AdSense. Wojcicki would soon be working closely with a newly recruited, Marissa Mayer, who after graduating from Stanford with a degree in Symbolic Systems, joined Google to help build AdWords and design Google’s front-end. Wojcicki and Mayer would soon be joined by Sheryl Sandberg, who came to Google in 2001 as Vice President of Online Sales and Operations. Another now-famous early female employee was Kim Scott, author of Radical Candor, who joined the company in 2004. All of these early, powerful female leaders, with the continued urging of Larry and Sergey (who wanted to achieve a 50/50 ratio of male to female employees) helped build a strong culture of female leadership. But as the Company scaled it lost sight of its gender diversity goals – “In 2017, women accounted for 31% of employees overall, 25% of leadership roles and 20% of technical roles.” Google claims it lost touch as it scaled, when the need for hiring outpaced the ability to find qualified and diverse candidates – but that sounds like an easy cop out.

  2. Startups and Party Culture. Atari and Trilogy Software pioneered the idea of a work-hard, play-hard startup cultures. Nolan Bushnell of Atari would throw wild parties and have employees (including Steve Jobs) work late into the night, building for the company. Trilogy, a provider of sales and marketing software, extended this idea even further. It started with hiring, where, according to a former engineer, Trilogy’s ethos was: “We’re elite talent. It’s potential and talent, not experience, that has merit.” The Company regularly used complicated brain-teasers in interviews and attracted swaths of anti-social engineers with young and attractive talent recruiters. Joe Liemandt, the CEO of Trilogy, also moved the company to Austin, Texas; executives likened the tactic to marooning members of a cult. Co-founder Christy Jones remarked: “I didn’t go on vacation. We called holidays competitive advantage days because no one else was working. It was a chance to get ahead.” The Company had a strong drinking and partying culture and bares striking cult-like resemblance to WeWork, except it had a sustainable business model. Other technology companies have mixed constant alcohol and long hours, which has led to numerous assault charges at well-known startups including Uber, Zenefits, WeWork and others. Startup and party culture does not need to be so intertwined.

  3. Hiring Practices to Encourage Diverse Backgrounds. Stewart Butterfield, the founder of Flickr (sold to Yahoo for $20 million in 2005), has focused on diverse hiring efforts at his new company Slack. According to Brotopia, “In 2017, Slack reported that 43.5% of its employees were women, including 48% of managers and almost 30% of technical employees – far better numbers than any tech company in Silicon Valley.” Butterfield, who grew up on a commune in Canada, recognizes his privilege, and discusses its not insanely difficult to create a diverse environment: “As an already successful, white, male, straight – go down the list – I’m not going to have the relevant experience to determine what makes this a good workplace, so some of that is just being open but really just making it an explicit focus.” Slack’s diverse recruiting team was given explicit instructions to source candidates from underrepresented backgrounds and schools for every new role in the organization. More companies should follow Slack’s lead and adopt explicit gender and diversity goals.

Dig Deeper

  • Susan Fowler’s blog post describing terrible conditions at Uber

  • Overview of gender and diversity statistics of major technology companies

  • The Sex and Drug fueled parties of Silicon Valley VCs

  • A recap of the Google Walkout over sexual harassment allegations

  • The Tech Industry’s diversity is not improving

tags: Investing, Yahoo, Cloud Computing, Google, Facebook, Sheryl Sandberg, Susan Wojcicki, Marissa Mayer, IBM, Trilogy Software, Paypal, Peter Thiel, Keith Rabois, Zero to One, Silver Lake, Sergey Brin, Larry Page, YouTube, AdWords, AdSense, Atari, Nolan Bushnell, Steve Jobs, WeWork, Uber, Zenefits, Slack, Flickr, Stewart Butterfield, batch2
categories: Non-Fiction
 

July 2019 - Alibaba: The House That Jack Ma Built by Duncan Clark

This is an excellent book to understand Jack Ma, Alibaba and the Chinese tech ecosystem.

Tech Themes

  1. Start with a Team: Alibaba’s 18 founders. At a young age, Jack Ma taught himself English by offering tours of his hometown Hangzhou to locals coming from English speaking countries. Jack went on to study English at Hangzhou Teachers Institute where he graduated in 1988. Following graduation, he taught English for a few years and because of his English skills, he was selected to go on a trip to America, on behalf of the Hangzhou government. While there, he tried using the internet to look up “beer” and noticed there were very few Chinese web pages. When he got back to China, he started China Pages, a custom website development shop for Chinese businesses. The business received funding from the Ministry of Foreign Trade and Economic Cooperation but was losing out to rival telecom company Hangzhou Communications that had recently started a competitor. China Pages was struggling to help customers realize return on their investments because there was so little business happening online at that time in China. Frustrated by competition and worried about the long-term effects of being funded by the government, Jack rounded up a group of 17 people - some were former students, some colleagues in the government, some employees at China Pages - and started Alibaba. Jack also met and recruited Joe Tsai, the first Taiwanese graduate of Yale Law School, who was then working at Investor AB on private equity investments, to join as CFO and founding board member. The team focused on the business to business market which they felt should gain more traction before business to consumer focused companies like Amazon.

  2. Open Door Policies: How China became an economic powerhouse. In 2009, China became the World’s biggest exporter, a trend that until recently, seemed all the more likely to continue. But how did we get to this point in China? In 1979, Deng Xiaoping began a series of economic reforms in China that set the stage for enormous growth. The first major act was allowing Chinese individuals to start businesses, a practice that had been strictly forbidden during the previous political era. Next, Deng announced an Open Door Policy, to allow foreign business and investment to flow into specific, Special Economic Zones. This investment spawned incredible growth in now-famous Chinese regions including Shenzhen, which grew GDP on average of 40% per year from 1981 to 1993 and by 2005 became the world’s 3rd busiest port. This incredible growth has created massive companies and seen incredible innovation but has also created global pollution. How sustainable is this great economic expansion?

  3. Right Place at the Right Time: The Importance of Timing in Innovation at Alibaba. When trying to build a business, timing can often be more important than the product itself. This can work in a number of ways - during the internet bubble, several entrepreneurs became millionaires on the backs of grandiose ideas without business models. Alibaba is the perfect example of excellent timing. Alibaba was founded in 1999, right as the internet bubble started to heat up. As valuations rose, institutional investors saw returns skyrocketing; this led Goldman Sachs to open up a dedicated Asia Tech fund, focused on investing small amounts into growing Chinese tech companies. Goldman led Alibaba’s first round in 1999 (a $3.3M fundraise), which allowed Alibaba to grow to significant scale with their tight founding team. The internet bubble also attracted a now re-famous Masayoshi Son, and his software distributor turned VC firm, Softbank, to start investing heavily in the internet. Aliababa was by no means the only fast growing Asian Tech company: Sohu (Founded in 1996 by Charles Zhang), Sina (founded in 1998 by Charles Chao who pioneered the Variable Interest Entity designation in China), and NetEase (Founded in 1997 by Ding Lei) were the famed Asian tech darlings of the day. In March 2001, right before the bubble burst, Softbank led a $20M round into Alibaba (which we discuss more below) that allowed Jack the flexibility to weather the internet bubble storm and keep Alibaba private despite growing losses. Sohu, Sina, and NetEase all needed to IPO and limped out into the public markets at poor valuations (Sohu dropped below $1 per share at one point), which caused a long-term drag on their stock prices and business performance. While Alibaba clearly had reached product-market fit by that time, their fortuitous timing (much like that of Amazon’s bond offering) allowed the Company to stay in business during a tough financial time.

Business Themes

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  1. Different Approaches to Similar Problems: Amazon vs. Alibaba. Alibaba is often hailed as the Amazon of China, but it’s actually, quite different in many major aspects. As discussed recently in this Stratechery article, Amazon’s core e-commerce business is about controlling inventory and logistics. Amazon buys at whole sale prices from brands, keeps the inventory in their 400+ warehouses and ships them out to customers. Retailers pay Amazon a fee on the sale as commission. While this revenue model is similar to Alibaba’s Tmall, a major brand e-commerce site that charges commissions on sale, Alibaba does not retain any inventory in the process. Furthermore, on Alibaba’s Taobao, independent small merchants can list any item for sale and pay no commissions, instead they pay for higher ranking on the site’s internal search engine, similar to Google’s revenue model. While Amazon boxes are delivered nationwide, primarily by Amazon, in China, Alibaba leverages a slew of 3rd party logistics providers to deliver packages any way possible: via bike, motorcycle, car, or on foot. This impacts profit margins as Amazon has to employ its entire logistics operation (350,000+ people) whereas Alibaba is comparatively smaller at 50,000 employees. Beyond their core e-commerce businesses, both Alibaba and Amazon have cloud computing offerings – as discussed before, AWS is the biggest platform in North America, and Alibaba is the biggest in China. While cloud in China is now growing more quickly than North America, it remains a much smaller piece of the overall global cloud landscape.

  2. A Lesson in Investing: Analyzing Goldman, Softbank, and Yahoo’s Returns. Alibaba’s funding history is long and complex but illustrates a common dilemma faced by investors and shareholders in startups. Alibaba’s first funding round was led by Goldman Sachs at a $5M pre-money valuation. The next round was a $20M investment in Alibaba, led by Softbank to acquire 1/3 of the Company. At the next funding round in 2004, Softbank invested in an $82M round and Goldman sold its shares, thereby inking a 6.7x return in about 5 years, which by all means is a great investment. However, if Goldman had held on to that share, as Softbank did with its share, at IPO it would have been worth $12.5B, a 3,600x+ return. This is the dilemma faced by several VCs – do I sell now, ink a great return, and make my limited partners happy? Or do I risk it, let my winners ride and realize a potentially career changing win? Yahoo is another example of this complex dilemma. Yahoo invested $1B in Alibaba in 2005 for a 40% stake in the Company (a funding round that was allegedly hashed out over golf at Pebble Beach). After rebuffing Microsoft’s $44.6B offer to buy the Company, Yahoo’s stock price plummeted. A difficult fight with activist investors ensued, and Jerry Yang was eventually fired. This all set up nicely for new CFO, Scott Thompson to come in and promptly offload half of its Alibaba stake for $7.1B, two years later that would be worth $51B. Yahoo, now owned by Verizon, sold its remaining stake earlier this year, and its expected to net shareholders roughly $40B in value.

  3. The Everything Companies: The Holdings of Chinese Internet Giants. The number and variety of companies owned by the major tech giants in China is simply staggering. Alibaba has bet big on a wide variety of companies including delivery giant Meituan-Dianping, Lyft, Snap, bike sharing startup Ofo, Chinese ride-hailing company Didi (which recently merged with Uber’s China business), fintech spinoff Ali-Pay and several others. Tencent, creator of the famous all-in-one application, WeChat, has invested in JD.com, League of Legends creator Riot Games, Fortnite creator Epic Games, and many more. Alibaba and Tencent are so competitive with one another that in recent years, the Companies have made thousands of investments trying to fund the next phase of growth in Chinese Tech. As the economist writes, “Tencent has a portfolio of 600 stakeholdings acquired over the past six years (see chart), many unannounced. There is barely a trace of bombast when Jack Ma, Alibaba’s founder, says that he eventually hopes to see former Alibaba employees running 200 of the top 500 Chinese firms.” It will be interesting to see how these investments mature – in 2018 rival delivery firms Meituan and Dianping had to merge to avoid going bankrupt despite billions in funding from Alibaba and Tencent.

Dig Deeper

  • The Rise of China's Innovation Machine by WSJ

  • Detail on the Uber-Didi ride-sharing merger in China from Business Insider

  • 9:00am - 9:00pm, 6 days a week (9-9-6) is what Jack Ma wants out of his employees

  • Jack Ma hated eBay

  • Tencent’s Investment in Epic Games / Fortnite

tags: Alibaba, Jack Ma, e-Commerce, Internet, IPO, China, Goldman Sachs, Investing, strategic investors, Yahoo, Tencent, Cloud Computing, batch2
categories: Non-Fiction
 

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