Matthew: Steve, can you speak a little bit about some of the companies that you were involved in, particularly the ones that you founded, how did you come across your co-founders? What kind of qualities were you looking for?
Steve: Great story. In fact, it’s the largest crater I ever did. Your audience should know we’re sitting south of Market in San Francisco, literally two doors down from where that company was. It was called Rocket Science Games. It was my first and only foray into the video games business. There are more lessons learned in what not to do as a CEO and as a founder in that company. I write about it on my blog at SteveBlank.com. It’s a category called Rocket Science. You will find true confessions about every possible way to screw up a company in that one.
Let me answer the last part of that question. First is where did I found my founder. I was at a company called SuperMac. One of the engineers who at the time, must have been all of 24, was a brilliant guy named Peter Barrett. You’ve heard stories about individuals who are 100x more productive than normal? Peter was off the scale. He invented something called Cinepak, the first video compression algorithms, and a whole set of other products for this company.
I was VP of Marketing of the company and I had been there for about four years. We had taken the company out of Chapter 11 into an IPO. It was a great run. I had been recruited by a venture capital firm to be an entrepreneur-in-residence. I was going to quit SuperMac to be an EIR, which a nice, subtle way for a venture capitalist to lock up good talent at no salary or sub-salary. They make you eat their food until you do something smart or they throw you out.
So I was going to do that. I was just about to retire but Peter Barrett had come into my office and said, “Listen, I’m thinking of doing a startup.” I said, “Oh, what’s it about?” He said video games. I was completely not interested but I said, “Peter, you know I’m going to join Merrill Pickard, which was the name of the firm, and which, by the way, later turned into both Benchmark Capital and Foundation Capital after it split up.
I said, “Well, I’m happy to introduce you. Why don’t I set up a meeting for you?” So I did. I set up a meeting with Kathryn Gould, one of the senior partners there. I figured, well what the heck? I’m not interested, but let me accompany Peter.
Peter, you should understand, was incredibly articulate. I think sometimes I can construct a sentence, but by far this was the most articulate guy you’ve ever heard in your life. Plus, the way he described things matched the elegance of his code. We went down to Merrill Pickard and I’m just sitting at a conference room table. I’m going to look at my watch, Peter’s going to tell you about game. Kathryn and I, to this day, 20 years later, think he slipped some drugs into our water. We’re absolutely guaranteed, because what we heard was the most astonishing story, in one breath, every told for a half hour, about why this video game company will revolutionize the entire industry. It was so logical and so compelling, not only did Kathryn say, “I’m in,” right there on the spot, she turned to me and said, “And if you’re not the CEO, you’re an idiot.” I had already come to that conclusion.
That was a heuristic. Heuristic 1 derived out of that. Today in the United States there’s a 72-hour cooling off period for buying cars and houses, and signing contracts. There should be one for taking venture capital money. If I would have actually thought about it for three days, I hated the customers, I didn’t like games, and what the hell did I know about this business? But none of that stopped me, and literally by the next Monday there was a bidding war going on with different venture firms trying to throw . . . in fact, I had a VC throw a two million dollar check across the table to me and say, “Goddamnit, pick up the check,” and I wouldn’t. That’s how crazy this deal became.
No one ever asked me, “Do you guys have any domain expertise in this area?” And I clearly didn’t. Another heuristic. If you don’t have a passion for your target customers, it will become a job at best, and at worst, a disaster. You need not to be a founder or an early employee in that company. If you want to have a job there, that’s great. But if you’re not passionate about that customer set, love them, like them, want to hang with them, etc., you’re screwed before the company starts.
I should have known that. I like to play games but it wasn’t a passion. On the other hand, in Peter’s case, this was another heuristic. It was a passion but Peter never built any games. He was a great game player and very passionate, but in hindsight again, starting a video game company just because you play games is like opening a restaurant chain because you like to eat out. It’s confusing your interests with, again, any domain expertise.
We continued to make a series of mistakes, like no one on our board had any domain expertise. The third one is we hired almost all of the Apple [inaudible 5:48] team at the time to build the world’s best tools to engineer games. Again, the equivalent would have been if we’d hired the world’s best oven manufacturers to open a restaurant chain. We confused the tools with what it actually was about games that was important. Users didn’t care about how you compiled you code. What they cared about was whether this thing was fun enough to play, and they were going to determine that in the first 30 seconds.
We made every stupid mistake out of arrogance and hubris. My job in the first year or two was essentially to generate enormous hype so we could generate enormous amounts of money raised to generate enormous amount of consumer interest. I got us on the cover of Wired. I did finally hire a VP of Marketing who was a domain expert, who came in and said. “Steve, these games stink.” What do you think I did? Did I listen? I said, “Nah, get out of the building and go talk to people. You’re wrong.” He came back in and said, “Steve, not only do I think the games stink, everybody I showed the games to think they stink.” And I said, “Don’t you see us on Wired? They think we’re geniuses.” It was as much hubris as you could pack into one company.
The good news is that as the thing was cratering, we managed to sell it to Sega to at least keep it from bottoming out. In my 20 year career, that was the only company where I was going home at 4:00 in the afternoon and going to sleep. My wife, as smart as she is, said, “You know, this is a sign of depression. You need to get the hell out of there.” It was the only time ever in my career that I did not drive in to work and be excited. Another heuristic is if you ever can’t wait to get to work, get out of that startup, because a startup ought to be something that you’re just excited about when you’re driving to it.
I remember IN most of my career, at least five or ten times, driving down Highway 101 in Silicon Valley, going in to work in the morning thinking, “You know, if they made me pay to work here, I’d actually write them a check. I can’t believe they pay me.” That’s the feeling you ought to have, and if you don’t have that feeling, it’s just wrong. So is that enough about Rocket Science?
Matthew: That was incredibly good stuff.
Matthew: Thanks for sharing, Steve.