The Venture Voting Machine

The Venture Voting Machine

In the long term the consensus of investors figures out what things are really worth and moves the price there. But in the short term, the market merely reflects consensus opinion regarding an asset’s future popularity, something that’s highly susceptible to the ups and downs of psychology. — Howard Marks, Oaktree Capital

At the end of a recent post on the necessity of seed stage growth, Jeff Carter noted the similarities between nascent political campaigns and early stage companies.

This is an idea I started kicking around in my head as well shortly after reading the most recent memo from Oaktree’s Howard Marks, where he discusses Benjamin Graham’s famous line about the short-term market’s resemblance to a voting machine.

Thinking through this has led to a few interesting analogies…

  • Jeb! is Clinkle— raised big money from big names but never got off the ground
  • Michael Bloomberg is Magic Leap — tons of money with everyone wondering what is really going on behind the curtain
  • Bernie Sanders is Slack — feeding off populist distain for the status quo (email, insider politics), it is now maddeningly impossible to go anywhere online without anyone talking about him/it

…but also a few interesting parallels between the race for leader of the free world and the one for eventual IPO riches.

When the momentum shifts in a political race it is almost impossible for a candidate to regain control. Staffers grow uneasy while donors and voters look to save face and flee to back the perceived winner. All the while, media coverage helps perpetuate the narrative and a viscous cycle ensues.

This is no different than what happens to many companies when a rough patch hits. Hiring becomes harder as news of trouble leaks, making it harder to convince customers to come on board and find investors willing to back your company, leading to worse numbers, possible layoffs, and more bad news. Again, a viscous cycle.

Victory or defeat in campaigns and company building hinges on the ability to attract and retain people and capital. There is really nothing else.

So in the spirit of election season, I thought I’d dig into a few more ideas that cross over from politics to building early stage companies.

Make the Difficult Decisions

“When the facts change, I change my mind.” — John Maynard Keynes…or someone

In politics, changing one’s opinion mid-course is generally criticized as flip-flopping in an effort to pander to a certain portion of the electorate and win votes on stances you don’t actually believe in.

It is a survival tactic that most politicians who’ve had idealism beaten out of them by years of bitter campaigning are quick to employ.

In the business world, changing course when new facts present themselves is also a survival tactic, albeit a much more respected one. The term “cockroach mode” comes to mind.

When the market speaks, companies too proud to listen are left building the wrong solutions, targeting the wrong customers, and chasing the wrong type of growth.

Appeal to Your Base

In his post, Carter points to candidates like Cruz, Rubio, and Sanders as better relative bets than the rest of the field because of their ability to “find a small niche to exploit that can give them early success and which have the signs of building something that lasts.”

This mirrors Peter Thiel’s advice from Zero to One where he warns of the dangers of scaling to new markets before truly owning a single niche.

When you own a niche, in politics or in business, your customers within that niche become evangelists for your cause (virality!), making it easier for you to…

Stay on Message

When you lose control of the story — in any pursuit — you lose.

All one needs to do is look at the difficult hole Twitter is currently digging itself out of. Or the predicaments faced by candidates (or former candidates depending on when you are reading this) like Jeb! or Ben Carson.

In 2008, Barack Obama won largely because the story he told — “Hope” for a better future — found the right audience at the right time. And it found them over and over again.

While building a company, this is something to keep in mind. You are constantly on the hunt for the right audience (investors, customers, potential team members) for your story.

When you finally hit that point where your company’s message resonates over and over again, you’ve got the makings of a repeatable engine for growth that could one day land you in the big white house of your dreams.

The NYSE on LinkedIn IPO Day

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