Transcript Things they should taught me at MIT

3 stages to any business
• Starting it
• Growing it
• Selling it
What do all these stages have in
common?
The 3 things every entrepreneur
needs to know about MONEY
How to …
make it
grow it
give it away
HOW TO MAKE IT
(and tips for starting a company)
Do you have what it takes to start
a company??
Q: Why are most startup companies started by
mediocre people?
A: The really smart ones know better!
How to recruit really good people
• Take your time
• Network
• Advertise in places where great people NOT
looking for jobs would be
• Example:
– We’re hiring software engineers at Propel.
Nobody’s Perfect
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No perfect CEOs
No perfect engineers
…
The whole trick is getting people to work
effectively together to complement each
other
Know your strengths and
weaknesses
• Focusing all your time on your strengths is
a trap (e.g., technology, product)
• Spend at least as much time in filling your
weaknesses (e.g., marketing)
• People tend to keep making the same
mistakes over and over again (e.g., under
hiring)
When recruiting remember:
Skills are easy to acquire but
simple behavioral change is
nearly impossible
• Example:
– The “toilet seat down” problem
• Solution:
– Learn how to compensate
• I’ve known excellent management
consultants who consult for years before
they realize this
The single biggest mistake you
can make when starting or
running a company and how to
avoid it
Hiring the wrong CEO
(like yourself)
People don’t always tell the
whole truth
• My 4 yr old… “I didn’t do it!”
• Our President …
• Bill Gates ...
Can you imagine Bill saying…?
• “I switched to Linux on my desktop because
I wasted too much time rebooting NT.”
• “Yeah, bundling IE into the OS was a
brilliant afterthought.”
• “We could have easily complied with the
Sun Java contract.”
How I personally made over
$200 million in a year
1) Infoseek went from 5 to 100 in
little over a year
2) Having 6M shares didn’t hurt
either
How I made $10 million for my
second startup company as a
result of attending a 4 hour free
course taught at a hotel
Negotiation skills
Two courses everyone should
take after they graduate from
college
• Presentation skills
• Negotiation skills
• Survey…how many have taken these?
How to sell $30 worth of
lemonade in only 20 minutes on
the Stanford campus and how it
relates to commerce on the
Internet
The most important skill for
success in the real world isn’t
taught at MIT, but that’s starting
to change
Interpersonal skills
How to precisely value Internet
companies
• Finally…for the first time...the secret
formula revealed…
• Say someone asks:
“Is Yahoo overvalued?”
• You say...
Well… If you have to ask, you
just don’t get it, do you?
How AOL makes big money...
The 2 step TOP SECRET strategy revealed
here for the first time….
• Make it really EASY to sign up
• Make it really HARD to cancel
My two biggest mistakes
• Refusing to acquire Yahoo for $20M in
1994 because I thought it was overvalued
• Telling Michael Robertson to “pound sand”
when he wanted me to buy his company for
$20M
Michael Robertson’s top secret
business technique for instant
wealth
• “If at first you don’t succeed, try, try again”
• “It doesn’t hurt to be:
– in the right place
– at the right time
– with the right product”
10 minute instructional video
• “How to make really big money using the
Internet”
• Includes secret techniques used by Gates,
Diller, Geffen, Spielberg, …
• Illustrates step by step techniques Robertson
used in mp3.com
NOT AVAILABLE IN STORES
HOW TO GROW IT
How to legally avoid paying
capital gains taxes forever
Always sell at a loss
Donate the stock
Die
A complicated technique...
How to consistently get a 60%
average annual return in the stock
market
Buy and hold
10 stocks max
Microsoft, Cisco, Dell, EMC,
AOL, Sun, Intel, Worldcom, Nokia
What your stockbroker doesn’t
want you to know: why trading
stocks may be riskier than
gambling in Las Vegas
•Spreads
+
•Stocks are completely unpredictable
over the short term
= YOU LOSE
Company announces great
earnings (above expectations) but
its stock tanks. Why?
“Who the hell knows?”
• Market explanations are always done
AFTER the fact
Why mechanical trading systems
don’t work
Because I’ve lost money in every
proven, tested system I’ve tried
Never invest in one stock
• Never > 20% of your portfolio; preferably
under 10%
• I used to think that investing in Microsoft
was safer than US government T-bills
• Now I’m looking at an even better
investment…
The perfect investment…Can you
guess what it is?
• Recurring revenue stream
• High margins/High ASP/Low cost producer
– underpaid workforce, overpriced service, zero COGs, low
overhead
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Large user base
No competition
Established, well known brand name
Service never goes out of style
No manufacturing or shipping costs
Doesn’t need to worry about customer satisfaction
They pay nothing in taxes
HOW TO GIVE IT
Charitable giving agenda
• Why?
• How?
• Where?
“I worked really hard to make it”
“… we’re talking REALLY hard
…nights…weekends…holidays… gave up
sex for 2 years…”
“Now you are asking me to give it away?!?”
“Are you nuts?”
“Where do you want your estate
to go tomorrow?”
CHOOSE ANY TWO:
Family
Taxes
Philanthropy
Who gets to spend your dough?
You? Or the government?
Giving statistics in Silicon Valley
One of the richest areas on the planet, yet
for high net worth households (assets >$1M
not including their home) :
• 45% give < $2,000/yr
• 6% give $0
Source: Community Foundation Silicon Valley
The best things in life aren’t all
that expensive
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House
Car
Vacations
Subscription to Fortune
Replay/Tivo box
Private jet
Assets for guaranteed income for rest of your life
So now what?
So we had a choice...
• Sit on our assets
or
• Put those assets to work in a way that will
benefit:
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ourselves
our kids
future generations of our family
our friends and community
Why it is better to donate to
charity sooner than later
• No tax advantages to
giving after you are
dead
• No personal
satisfaction to giving
after you are dead
• Giving can ultimately
benefit you or your
family
presbyopia
hair loss
sleep apnea/snoring
lactose intolerance
psoriasis
receding gums
near sighted
torn ACL
type I diabetes susceptible
macular degeneration
ringing in my ears
Example
• Ten years from now, you might be diagnosed with:
– Heart disease/stroke
– Cancer
– ALS, Parkinson’s disease, …
• At that time, starting a giving plan will be too late
to have an impact on your health
• In hindsight, would you think keeping your assets
sitting in stocks was the right move?
Life changing advice
• SK: “How do you get people to donate large
sums?”
• LE: “You know, there are some people in
this world who are looking for places to
give money away”
• SK: “Say what? What have you been
smoking?”
Was he right? Let’s find out...
What kind of person do you want to be? In “A
Christmas Carol,” did you like Scrooge better
BEFORE
or
AFTER
?
Virtually all who try philanthropy
stick with it
• 100% donor satisfaction at CFSV:
– No donor advised endowment funds have
closed (except if the donors move)
Giving need not be altruistic
• Can be totally pragmatic
• Example
– We give because we get a higher return on our
assets
– Our one-time $80M donation may cure cancer,
diabetes, or arthritis; save the world; help
reduce pollution; …
– Was that a good use of $80M? Or should I have
invested it in stocks? For whose benefit?
Giving need not be altruistic
• Or giving can be in your self-interest
• Example: donate to causes that affect or
may affect you or your immediate family
– aging research
– heart disease
– asteroids
Giving may actually make you
money!
Example:
– You donate to a CRT when your stock is locked up at
$50
– Trust can short other shares (of the same stock) to lock
in the gain
– Trust pays you back your donation over time
Result:
– You can actually end up with more money in your
pocket than if you sold that stock at $25 in a selling
window
“Why Give?” Summary
• We DO give to make a positive difference
in our own lives and the lives of people we
care about.
• We DO NOT give not out of a sense of
obligation or payback or civic duty or
because it is “the right thing to do” or “to
create a legacy”
Why give
• Your wealth gives you an opportunity to
make a difference
• If you don’t take advantage of it, who are
you trusting to look out for your interests?
• We are the leaders we’ve been waiting for
• One person CAN make a difference
You can make a difference
• Progress a little at a
time
– Funding NEOS
discovery
– Funding nuclear
disarmament
– Funding medical
researchers
– Funding campaign
finance reform
• Immediate gratification
– Cured cancer in rabbits
– Helped clean up the air
• Passed AB71 and designed
the sticker
• Got top government
support for SB1726
• Funded smog check
measurements in
California
– Helped education
• Funded buildings at MIT
and DeAnza
• Raised millions for Tech
Museum
Agenda
• Why?
• How?
• Where?
Giving survey
• Would you rather donate:
– your own money
– someone else’s money
Giving options
• Charitable Lead Trust (income to charity
now, later assets pass to heirs)
• Charitable Remainder Trust (income to you
now, later assets pass to charity)
• Donor advised fund
• Supporting organization to a community
foundation
• Private foundation
Which option?
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Smart estate uses a combination
CRT: Secure income stream for you
CLT: Pass money to your heirs
Donor advised fund: Under $1M assets;
minimizes tax bite and maximizes
charitable giving
• Supporting org: >$5M in assets; you can
influence investments and donations
Easiest way to donate
• Gift appreciated stock to a donor advised fund at
local Community Foundation (typically $25K
minimum)
• E-mail* them whenever you want to make a grant
• After you make the donation, you spend the rest of
your life giving away someone else’s money!
* For any progressive community foundation
Charitable fund advantages
• You can add stock (and liquidate) when
your stock is locked up
• Can donate to fund when stock peaks;
decide on recipient later
• Gift to charities at anytime from the fund
• Less hassle (no personal recordkeeping, no
periodic stock transfers, e-mail donations)
Advantages of charitable fund
• Endowment compounds tax free forever
• You get to give away an infinite amount of
OPM and your annual grants will typically
increase each year
• All this from a ONE-TIME donation!
Carnegie Foundation
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Donated $5.2M 100 years ago
Built 65 public libraries
Still in operation today
Moral: A small one time donation can have
a bit impact
How to donate to charities when
your stock is locked up
• Your stock seems to always peak when you
are locked up… but...
• You donate the stock; the charity shorts
other shares
• Allows you to give charity lots more money
AND gives you a bigger writeoff
• Typically done through a community
foundation
Hypothetical example
• You start an Internet music company
• At IPO, you are worth $2.5B, but you can’t sell
any shares
• So you donate 1% ($25M) to a charitable fund
• You get a nice writeoff and can make donations to
your favorite causes for the rest of your life
without an additional investment
A tale of two Larrys
• Larry #1
– Worth $2B at IPO
– Too focused on his business to make a gift to charity
– Business doing fine. He’s now worth $200M.
• Larry #2
– Also a billionaire
– Gave $100M to top scientist in aging to donate over 5
years
– 2nd largest funder of aging research in the US
– Business doing fine. He’s now one of richest people in
the world
Giving strategy
Make periodic small donations as
your stock rises
Many notable philanthropists regret not
having taken advantage of this strategy.
Don’t make the same mistake.
Kirsch Foundation
• Identified areas we thought were important for
ourselves, our kids, our friends: environment,
education, medicine, ...
• Started with a donor advised fund at the local
community foundation
• Added to it over the years
• Switched to a supporting organization so we could
invest assets more aggressively, hire a staff, and
lobby
Kirsch Foundation
• Hired CEO
• Recruited world-class medical advisory
board (including Gordon Gill from UCSD)
• Currently
– $80 M in assets
– Donate $6M per year
– Total staff of 5, including program officers in
medical and environmental areas
My recommendation
• Start NOW with a small donor advised fund
• Add to it as you become comfortable with
the results and as your estate grows
• 10% of your net worth after taxes is a good
starting amount
• Supporting organizations beat private
foundations on every single metric
Agenda
• Why?
• How?
• Where?
Traditional philanthropy
• Donate to American Cancer Society, United
Way, public TV, etc.
How to give intelligently
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Figure out the areas important to you
Create your own criteria (I have 20)
Make a long term commitment
Realize that results are often hard to
quantify
• See my website for details:
www.skirsch.com
Kirsch Foundation
• We both have full time jobs
• Needed a few easy goals we could accomplish in
our spare time. Root causes.
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Saving the world
Curing major diseases
Restoring the environment
Improving education
Reforming politics
Funding worthwhile projects that others won’t fund
Helping out our local community
Encouraging philanthropy
Summary
• While your reasons for giving may vary, it
makes sense to start a giving program now
• Easiest way to get started is set up a donor
advised fund at a community foundation
• It’s as easy as opening a bank account, a lot
more fun and satisfying than doing the rest
of your estate planning
Summary
• The time to give to many causes is NOW,
before they create a problem for you or a
family member or your community
Survey
• How many of you have I convinced to setup
a donor advised fund or to begin/expand
your own charitable giving?
• If I haven’t, why not?
For more info
… and a copy of this talk, please see my
website:
www.skirsch.com