My brand, my network and my reputation are paramount

I wrote a book and will be releasing the the first few chapters on Medium in the coming weeks. The first half of the book centers around what I call “The Startup Hero’s Pledge”. You can read chapter one and chapter two. This is chapter three.

My Brand

Logo. Your logo should mean something. The initial logo for Draper Associates, designed by my cousin, Phyllis Merikallio was a blue globe in front of a black triangle. I liked this for a lot of reasons. The triangle represented “change,” and the globe represented “the world,” so together these images said, “Change the world.” Apple’s logo was a rainbow-colored apple, which was both eye catching and meant that the products were for everyone. Nike’s logo was a simple black “swoosh,” which implied that Nike shoes would make you active, maybe even a better athlete, and a faster runner.

But your brand is not just a simple logo. Your brand permeates your organization. My friend, the late Don Hitchens was perhaps the best brand advisor I ever met. He told me, “Tim, your brand is everything. Your brand is what you wear, who you work with, how you treat and incentivize your employees, how you treat your suppliers, and of course how you treat your customers. Don changed my life. I took brand to heart. I even decided to always wear the same dark suits and colorful Save the Children red ties (until recently when the charity stopped selling ties). I try to be a good example in everything I do, and I constantly try to think about how I am treating the people I work with, sell to, fund, teach and raise money from.

Steve Jobs always wore a black turtleneck and jeans. It said, “I am not wearing a tie, so I am somewhat counter-cultural (because IBM was all white shirts and ties at the time), I want to be comfortable, and I want my customers to have a more comfortable, easier life, and my products will be easier to use.”

Your brand extends to your customer. There is an old saying, “The customer is always right.” And that is a good motto to live by. The three greatest entrepreneurs I backed (so far) went much further than that. Niklas Zennstrom, founder of Skype (in concert with his partner, Janus Fries), Robin Li, founder of Chinese search engine Baidu, and Elon Musk, founder of PayPal, Tesla, and SpaceX, all used the same word when referring to their customers. The word is “delight.” They said, “We want to delight our users,” this is the mindset that helped build Skype, Baidu, Tesla and SpaceX. And it probably should be the mindset you use as you become a Startup Hero.

I recently talked to my friend, Marc Benioff who is the Founder, Chairman and CEO of Salesforce. He told me that when he spoke to Mark Zuckerberg of Facebook, Mark Z said, “You don’t have much of a technology orientation, do you?” Marc B responded, “We have a customer orientation.” The customer is always right, and if you delight your customer, your brand will expand in a positive way, your business will thrive and you will move the world forward.

My Network

Build your network. Build it all the way up and down the food chain. You never know when your largest investor will need a plumber or your janitor will need a dentist. Get to know people. Connect with what they do. Help people with their challenges. Use your network to make the people around you successful.

To start with, in order to build a link to someone, you have to meet them. In many cases, that can be as simple as turning to the person sitting next to you on a plane, or standing near you at a party, or waiting in line at the DMV and saying, “Hi, what is your work?” In other cases, you will have to target people you need to meet, and set up appointments with their assistants, or figure out where they are going to be and be there yourself.

Then, get contact information. Find out how the person wants to be reached. Email, telephone, WeChat, Text? And reach them that way. Then follow up. Some thank you note or photo reminder of the meeting can increase the strength of the bond you have established. The bond increases and your reputation is enhanced as someone who follows up. Subliminally, you have shown your contact that you are a hard worker. Include in your follow up anything you might have discussed or promised each other in the discussion.

And then, where it makes sense, when you have established a real connection, try to make a deal with the person, no matter how simple. Ideally, the deal will have money going one way or the other, and some service going either way or both ways. This exercise will force you into a creative mindset, where together you and this person will pursue a project with some type of end goal of progress.

The deal and its contract (whether a large legal document or a handshake) creates a solid bond. The bond shows trust between you and the other party. Trust can lead to all sorts of benefits to your business life. I have made deals with people to share a cab from the airport that led to me to an entrepreneur to back. I have funded entrepreneurs on a napkin, and they in turn spread the word to all their entrepreneur friends that I have the ability to move fast. And I have hired employees with a handshake, which led to long term loyalty and trust and an opening up of their networks to the business.

I was named the #1 Networked VC by AlwaysOn magazine. Apparently, they ran a computer model looking at all the connections of all the VCs, and my name came up the most often. So I will use my own network in describing how to build out a network, but by no means is this necessarily the best way to do it. Everyone needs to work with their own style, their own strategy, and their own people to discover how to network best.

In my business, the venture capital business, a network is paramount. We need to spread the word far and wide that we are in the business so entrepreneurs know how to find us. We need to connect our startups with other investors, customers, service providers, suppliers, employees, and potential joint venture partners. We need to know the press so we can help our entrepreneurs get the word out when they launch a new product or service. We need to know educators, so they can send us their most promising students to work for the companies in our portfolio. And we need to know influencers who promote progress, small businesses, and entrepreneurship, so we can encourage them to support our portfolio companies.

The Draper Venture Network Story

When the Draper Venture Network (DVN) started, I was still new to the venture capital business. I listened to the advice of many of the veterans of the industry as I was getting my sea legs. The conventional wisdom suggested that: 1. Venture capital is a local business — most venture firms would not venture more than 25 miles from their office to make an investment, and 2. Venture capital does not scale. So most venture capital firms just grew by investing larger amounts in companies and eventually graduated into the private equity or buyout business.

When people say, “this is the way it is,” I start looking for reasons why that might not be the case. I took this conventional wisdom on as a challenge. I wanted to see if I could invest in companies outside of my immediate neighborhood, and I wanted to see if I could scale the venture capital business geographically. I tend to believe that if everyone agrees that something is the way it is and it will never change, it may just be time to see if I can change it. My opportunity to shake up the status quo started with a boondoggle to Alaska.

It was three years into my venture capital career. I was struggling with my fund and worrying about the money I had borrowed from the SBIC. I got a form letter from the Alaskan Government asking if I would come to Alaska to discuss venture capital and possibly put together a venture capital fund in Alaska. Oil had fallen to $6 per barrel and the real estate business was also in free fall. The Alaskan Government was searching for a new economic cornerstone that could supplement its core industries. I am sure many other venture capitalists got the same letter, but no one else responded. After all, Alaska was not in their 25-mile radius. But I had other plans.

I flew up on Alaska Air, landing in Ketchikan (very short runway, very icy — the nose of the plane was over water when we finally came to a stop) on the way to Juneau (the plane’s wing almost hit the trees as we landed). Alaskan pilots are extraordinary.

Once I arrived in Juneau, I met with a small group from AIDEA, the Alaskan Development Authority, and discussed the venture capital business and how it might help the Alaskans diversify their economy. They asked me to give an impromptu speech at lunch to what seemed to be the local chamber of commerce. I met some local entrepreneurs, who had some fun local businesses and ideas, collecting business cards as I went. One card was from David Rose, who ran the Alaskan Permanent Fund, one of the largest pension funds in the U.S. Certainly that was a contact I could use at a future date.

The press there asked me about the opportunities that might make good venture investments in Alaska. I had heard about everything from a fish head splitting company, to a salmon skin wallets company, to “Alaska Men,” a tongue-in-cheek magazine that a very motivated woman was driving. I sensed that there was a lot of creativity in the state, and I thought there would be ample opportunity that would come out of the woodwork once the entrepreneurs of Alaska learned that venture capital was available from our fund.

Oddly, that same day, I was asked to speak to the Keidanren, a high-level Japanese keiretsu consisting of the chairmen of 20 of the largest businesses in Japan who were visiting Alaska to lobby against the unitary tax they were paying. I didn’t really understand the connection, but it seemed to be a good opportunity for me to meet some of the most powerful people in Japan. Perhaps the Alaskan Government just needed someone to stall the Japanese while they deliberated, or maybe it was a test for me, but I prepared and made a speech. I was very nervous speaking to such a powerful group, but I didn’t need to worry. The jet-lagged Japanese businessmen kept falling asleep on me. During the speech, every once in a while I shouted and watched all their heads bob up for an instant before they dozed back off. But I got to know some of them after the speech (they were happy to have had a nap) and they were quite helpful to me when, several years later, I set up a Japanese venture fund. You never know when efforts to build a network will pay off.

Whatever the tests were that the Alaskans gave me, I guess I passed. It took two years, but eventually AIDEA awarded me a $6 million fund to invest. After receiving the award, I heard one of the executives, Burt Wagnin say in frustration, “This money is gone.” He believed that the venture capital business had no use in Alaska and I would just lose their money. Maybe he believed it, and maybe he just knew how I ticked, because nothing could have motivated me more….

I put a team together with local Anchorage real estate businessman, Jim Yarmon, and fellow Harvard Business School alum, Jim Lynch and we three agreed to put half the money in Alaska, and half in Silicon Valley. We called the fund Polaris Fund to give it local appeal, and we were off to the races. We made it work, funding a bone stretching technology company (seemed painful, but it actually grew people’s bones), a low earth orbit satellite company, and the fish head splitter company as well as a few great Silicon Valley companies. It took a few years, but we ended up returning the $6 million to AIDEA and much more. Burt Wagnin can now rest easy knowing that the money was well invested.

This Polaris Fund in Alaska turned out to be the first of many network partners we would set up. Because the Polaris Fund worked out so well, I started to believe that there might be a full-blown franchise opportunity in venture capital, and with it an opportunity to significantly expand our network.

So I set off to try to “franchise” venture capital. And it wasn’t difficult. After Polaris, people started coming to me. I got a call from Todd Stevens, a classmate of mine from HBS and together with Zions Bank money, we set up the Wasatch Fund in Utah. The bank was looking to participate in this new form of finance, and we were the perfect ticket. So we put a team together and started investing in and around Utah. In Washington DC, I teamed up with Stanford fraternity brother, John Backus to raise a fund we called Draper Atlantic. In Los Angeles, another Stanford fraternity brother, David Cremin had decided to leave the music business just as the Los Angeles Community Development Bank asked me to put together a fund for me to run, which we called Zone Ventures. And there were many others that followed (Timberline in Seattle, DFJ Gotham in New York City, DFJ Portage in Chicago, DFJ Mercury in Texas, Access Ventures in Colorado, and DFJ New England in Boston). We even decided to go international in 1999 and set up DFJ ePlanet as a joint venture with Roderick Thompson and Asad Jamal, two very bright but somewhat mysterious people who had hunted us down to use our newly minted but effective brand to build a global franchise.

This group of venture funds became the DFJ Network (now renamed the Draper Venture Network (“DVN”) because of branding confusion issues we ran into). Our network became unique in the world of venture capital. As a group, we became the #1 most prolific venture investor since our network boasted over 50 general partners who were investing in more than 100 companies per year. Investors from all over the world were discovering that they could help each other with deciding on investments, with making introductions to new companies to invest in, with making connections to potential customers for portfolio investments, and with sharing investments and syndication. Because of our model, and the system we built, many new venture capitalists were created and trained, and hundreds of portfolio companies have been funded around the world. The network became a major asset for us. Arguably, we would never have backed Skype and Baidu if we hadn’t created the network.

In 2008 though, the markets collapsed and the network was beginning to unravel. Many of my DFJ partners who had not been around for the creation of the network (and missed out on Skype and Baidu) wondered why DFJ would tarnish the brand with groups that had spotty results. I argued that some of the funds had done quite well, and that all venture funds went through a dry spell during this period because of a lack of liquidity, and because confidence in the global markets was low. The network limped along for several years until we hired Gabe Turner, who steadily and systematically brought the network back to life, rebranding as the Draper Venture Network (DVN) and building on its strong global reputation.

Today, the Draper Venture Network spans 14 relationship firms, with 8 alumni firms, covering over 50 cities around the world, managing several billion dollars in nearly 1000 companies. And the power of the network is unprecedented for deal flow, due diligence, best practices, and the connections the teams make for their portfolio companies around the world. Today the network now includes: Right-Click Capital in Australia, Dalus Capital in Mexico, Wavemaker in Singapore and South East Asia, Blume Ventures in India, as well as the various Draper branded funds: Draper Dragon in China, Draper Athena in Korea, Draper Nexus in Japan, Draper Esprit in the UK, Draper Triangle in the Midwestern US, Draper Aurora in Russia, and Draper Associates in the Silicon Valley as well as three smaller firms in our DVN beta program, and we are adding more partners every year.

A network provides network effects. More nodes on a network increase the power of the network as the square of the number of nodes on the network. This is known as Metcalf’s Law, after entrepreneur, venture capitalist, educator and pundit Bob Metcalfe. The Draper Venture Network allows me to evaluate and potentially fund any company from anywhere in the world. My deal flow is also expanded and improved. My judgement can only have been improved by seeing more companies from more regions, and Draper Associates’ returns should continue to improve because we see so many more companies for each one I actually invest in. Additionally, my entrepreneurs can easily grow their businesses internationally because our network has such great reach. I would never have envisioned the awesome potential of bitcoin to bank the unbanked if I hadn’t spent so much time evaluating and working with startups from other countries around the world.

The DVN network boasts nearly 1000 companies. So we are able to get quantity discounts on travel, insurance and the like. The network also becomes a large marketplace itself. The companies can sell to each other, or band together to pitch a large customer with multiple needs. Because of the size of the network, we are able to attract large companies to come to an event we have called the DVN CEO Summit, where business development teams from Fortune 500 companies gather to connect with our startups and see which ones they can work with on partnerships, joint ventures, or as customers. Some of the attendees are also looking to acquire our companies.

The Beyond News Hat Story

Beyond the formal network created by DVN, we have a network of entrepreneurs whose companies we funded. We backed Scott Walchek and his company called Beyond News. Scott was a confident, good looking man with a swagger. He negotiated a very tough deal with us, but we liked him and we liked Beyond News’s business plan. We invested in the company partly because it had a very sweet deal with Lexis Nexis, the legal data firm. But, two weeks after our investment cleared, the Lexis Nexis deal fell apart. We were very circumspect thinking we had bet on a deal that the company may have known was going to fall apart and the company may have waited to tell us until the check cleared, but Scott said, “Look it happened. We are just as surprised as you are. We are telling you this right away.” Then he told us, “This is a blessing. We have another plan to take this company forward, and it is a better model.” John was confident that Scott was on the up and up, and Scott appreciated that, but I was still a little circumspect.

Instead of Beyond News, I started to call the company “Beyond Belief,” because I was not 100% certain of what we had actually invested in. I even told the Scott that I would eat my hat if we ever got our money back on our investment in Beyond News. Scott shrugged, and without missing a beat, laid out his new plan for the business. He would do online comparison shopping. His enthusiasm was catching.

The business did start working. Scott and his team were building some strong momentum, and he got a call from a potential partner. Scott described the event to John Fisher, who represented us on the board of Beyond News.

Scott said, “We were talking with David Peterschmidt of Inktomi, and he said he wanted to buy the company. When we asked how much he hoped to pay for it, he started writing on the chalkboard. First he put a ‘1’ down, and we were about to walk out of the room thinking we were worth way more than one million dollars! Then he put a ‘3’ down, and we thought, ‘Wow! Thirteen million dollars is awesome!’ But we kept our mouths shut and he kept writing, and he added a ‘0’! After he wrote the word “million,” we smiled and quickly shook his hand to seal the deal.” We sold C2B for $130 million in Inktomi stock!

The San Francisco Giants hat I brought for the closing dinner tasted like ink and cardboard.

The Inktomi stock shot up from there almost ten-fold. Scott Walchek made so much money he became a venture angel. Since we stood by him when he was down, he brought John a great lead.

I came to John saying we need to fund the search engine for China. He said, “What a coincidence. Scott Walchek just sent me a lead on a startup called ‘Baidu’ that does just that and he is already a seed investor.” Baidu grew to be worth over $60 billion and eventually became one of our greatest investments ever, but it wouldn’t have happened without the network.

Build and support your network!

Think about what your network is made up of today. How can you potentially expand it? How might it be helpful to you in the future?

My Reputation

A reputation can be built over 40 years, but it can be ruined in a day. The infamous blue dress put a damper on all the good things Bill Clinton had done for America and the global economy when he was in office. Watergate hangs heavy over Richard Nixon’s legacy even though he did some extraordinary work including opening up the US’s relationship with China. Enron and WorldCorp were great companies before they overplayed their hands and got into accounting messes.

In a crisis, the best way to avoid ruining your reputation is to pause, accept what the fates have in mind for you and just work through it. Do not overplay your hand! Sometimes in a crisis people resort to trying to correct the problem with a shortcut or a lie. Or they try to overcompensate and hide the problem and then they get in deeper. I don’t know for sure, but my best guess is that the notorious schemers, Ponzi, Madoff and Sanford all started out their businesses with honest intent, and then made some bad choices to try to prop up their results, ruining what might have otherwise been stellar careers.

Handling a crisis is best done by coming out with all the bad news right away. When Gavin Newsome was Mayor of San Francisco, he was caught having an affair. Almost immediately, he came out to greet the press saying, “Everything you have heard about me…is true.” That honesty nipped the story in the bud and ended the news cycle. Gavin went on to become Lt. Governor (and at this writing, he is the frontrunner for Governor of California).

Tylenol was one of the most successful over-the-counter products of all time when some nefarious person laced some of the bottles with cyanide. Seven people died from these contaminated pills. Johnson & Johnson was Tylenol’s parent company, and its chairman, James Burke had to protect the people and save the product. The company immediately told the customers not to use the product, and they took the product off the shelves at great cost to the company. Ultimately, they were able to resume shipping the product with better security on the bottles. The Tylenol consumers so appreciated the company for keeping them safe that the sales shot up after the repair of the scare. Rather than trying to cover it up, the company came straight out and told consumers the truth. The company was then seen as the victim of tampering, not the killer of 7 (or more) people, and the customers soon came back with even more confidence in the brand.

Don’t try to cover it up. You will save your reputation if you open up and tell the whole story. Your reputation is paramount.

Quexercizes on Brand

1. Does the brand make the product or does the product make the brand? Charles Schwab built his brand and then created products around it. Hotmail and Skype built the product and allowed it to spread from person to person with very little friction.
2. Think about the brands you trust. Why do you trust them?
3. Design your personal brand with an edge. Who are you and what do you stand for? Then take an action toward building that brand. Then tweet it out to your network and respond to the reaction you get from your friends.

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