The MBA: To Skip or Not to Skip?

Average MBA Salary Progression from 1998

Average MBA Salary Progression from 1998 (Photo credit: Wikipedia)

I read in today’s WSJ, Dale Stephen’s article, “A Smart Investor Would Skip the MBA.”  For the most part, I think Stephens makes a strong case.  The value proposition of the MBA, as with other professional non-science degrees (e.g., law), is coming under increasing pressure.  While I agree with the general thrust of Stephen’s argument, there are some places I would disagree.  Here’s my take.

The MBA is a two-year investment of both time and significant money.  What I think most MBA grads who have found this investment a positive, valuable return describe 3 core elements as to what they received.  First, they built a network of classmates who were smart, ambitious, diligent, etc.  Second, they get a good job coming out of B-school.  And third, they got some academic knowledge–some accounting, finance, stats, marketing–though most MBAs I talk to don’t really cite this knowledge acquisition as detailed or really as valuable as the network and the job.

I do think the element of the network is a relatively strong value proposition for many who attend b-school.  More mature than high school students, more single-minded on a business career than undergrads, B-school students tend to bond pretty cohesively.  Mutual professional interests keeps  these network bonds relatively tight.

The job out of B-school is also an important element of value, though to me, the marker is how does the B-school grad do over the first 5-10 years of her career, as that’s where earning power leverage is really going to get established.   The academic knowledge gained, while useful, is I think increasingly exposed as differentiated–you can teach yourself accounting, finance or stats a variety of ways, for vastly cheaper.

So if that’s the core value of the business school education, is it worth the cost?  Though Stephens says no and encourages us to go to Developer Boot Camp (a great idea), I think the answer is more nuanced…  It depends, really on just a few key factors.

One, is the school one of the top 5 or 6 schools: Wharton, Harvard, Stanford, Kellogg, Chicago, Tuck?  Those schools have the most accomplished alumni networks and attract the strongest candidates.  When you assess the long-term earning power of alums from these programs (on a NPV basis), the costly investment still adds up.  The flip side to this is that once you’re out of these top 5 or 6 programs, the ROI on the investment starts dropping fast.

Two, do you have a specific idea of what you want to get an MBA degree for?  If you want to be an entrepreneur or a film producer, then even a top business school may not really provide a competitive investment.  If, on the other hand, you got a CPA in undergrad, and you now want to leverage deeper grad level finance and accounting to extend or expand your career platform, then you are likely going to make the MBA cost / benefit  pencil out.  If you know what you want to do after you get the MBA, then really dive deep into what the MBA offers from a benefit standpoint, before sinking the cost in.

Finally, if you only have a general view of what you want the MBA for, then two thoughts.  First, stick to point one above–only go if you can gain access to a top 6 school.  Second, while you can explore a little bit during B-School what you want to do when you grow up, work to figure out a plan and a path.  This will help you drill in on building the strongest and broadest network possible, it will help you figure out which job would give you the best start post MBA, and it will help you get the most from the investment costs.

 

 

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Adding some internet thinking to internet education

Image representing New York Times as depicted ...

Today’s New York Times features an editorial titled, “The Trouble With Online College.”  The editorial argues that rather than offering college-level education at vastly increased distribution and much lower costs that “study after study” evince that these efforts are flawed, particularly for those who are struggling with classwork.

This argument and the evidence supporting them are thin and wanting; indeed this piece showcases that online education detractors are clinging to an old framework of thinking, failing to  consider and assess new opportunities that online education enables.

A major shortcoming in this editorial and the critics’ arguments, is a lack of appreciation and understanding of internet economics and offerings and their fundamental differences from traditional ‘brick-and-mortar’ ones.

The New York Times piece, for example, opens by highlighting Stanford University’s offering by “a pair of celebrity professors” who attracted more than “150,000 students from around the world  to a noncredit” course.  It then criticizes this approach by calling out huge attrition rates: 90% or more in large classes.

This attrition is natural and right in line with other internet offerings.  This Stanford course, and many like it, are free or nearly free.  In the internet world, free service offerings can attract lots of people who sign up and try things out.  Large numbers fall off.  It doesn’t make the service offering a failure, it’s just the way the internet works.  Indeed, large scale internet businesses built on a freemium business model (Evernote and Dropbox) for example, have gained success in offering a free trial experience that a small percentage actually convert over an pay for.  A similar theme is at work with internet education offerings that are free or nearly free.  For example I’ve signed up for free classes at MIT just to check them out that I’ve not completed.  I’ve paid (under $100) for other online courses, some of which I have completed. The fact that I don’t complete the course doesn’t mean I don’t get value from it, it just may not be a fit for what I’m looking to learn.  Indeed, having so many educational offerings that are so much cheaper and easily available than going to a university or even a community college is hugely beneficial.

My second critique of this editorial is that there is no mention of an even more fundamental difference internet-based education offers relative to traditional classroom learning: namely the ability for a student to truly proceed at his or her own pace.  In a traditional classroom environment, the instructor has a certain syllabus or plan that has to be achieved by a certain timeframe–a semester, a quarter, whatever.  For some students, the pacing is perfect.  For others, its too slow, and for others, its too fast.

With online-based learning, a student has the ability to proceed at her own pace–fast or slow.  If you don’t get trigonometry as quickly as the teacher demands, well, you can just keep going over it until it makes sense.  Further, if the suggested resources don’t make sense to you, you are a Google search away from finding other online offerings that explain the topic slightly differently, in a manner that may make better sense to you.

The good news here is that despite the critics, today’s students (the vast majority of whom grew up in the internet age) are already adjusting.  I’ve heard anecdotal stories of college students who download podcasts of lectures from classes similar to those they are taking but from rival colleges.  They do this to reinforce learning on the subjects they are taking in class.  But they are also finding that the perspectives that other professors at other universities offers broadens their views on the topic, resulting in better grades from their own classes.  Again, with the power to broaden distribution and slash costs, online educational offerings are going to disrupt education, and students will do this irrespective of whatever critics say.

And this, I think, is a core failure in this editorial.  It underscores that traditional college education thinking remains stuck in an outmoded, costly, increasingly questionable product.  For nearly $200,000 for a private 4 year college, and a non-trivial fraction of that for state and even community colleges, post-secondary education has less and less to show.  Embracing and extending the internet offerings is an unavoidable step.  Leaning on flimsy arguments like high attrition rates, and failing to account for the go at your own pacing just showcases that those embracing the status quo fail to see the transformative changes upon us in education.

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Berkshire Hathaway Annual Letter, 1979

Warren Buffett speaking to a group of students...The 1979 Chairman’s Newsletter represents Buffett’s first since Berkshire Hathaway went public on NASDAQ.  Not that this distinction changes Buffett’s approach much.  Indeed, he argues that Berkshire Hathaway is targeting long-term shareholders, and with about “98% of the shares outstanding [at the end of the year] are held by people who also were shareholders at the beginning of the year,” they were achieving that goal.  

 

More directly interesting and worth considering for early stage companies and investing are a few key points.

 

One is a theme that discussed in other Letters: namely, the focus on investing in a great company at a fair price versus seeking a bargain investment in a less-than-great company.  He discusses this in his comparison of Berkshire Hatahway’s Textile businesses relative to some of the the other assets.  Specifically, he compares textiles to network television stations, which then were pretty hard to replace and cash generating cows.

 

Our textile business also continues to produce some cash, but at a low rate compared to capital employed. This is not a reflection on the managers, but rather on the industry in which they operate. In some businesses – a network TV station, for example – it is virtually impossible to avoid earning extraordinary returns on tangible capital employed in the business. And assets in such businesses sell at equally extraordinary prices, one thousand cents or more on the dollar, a valuation reflecting the splendid, almost unavoidable, economic results obtainable. Despite a fancy price tag, the “easy” business may be the better route to go.

We can speak from experience, having tried the other route. Your Chairman made the decision a few years ago to purchase Waumbec Mills in Manchester, New Hampshire, thereby expanding our textile commitment. By any statistical test, the purchase price was an extraordinary bargain; we bought well below the working capital of the business and, in effect, got very substantial amounts of machinery and real estate for less than nothing. But
the purchase was a mistake. While we labored mightily, new problems arose as fast as old problems were tamed.

Both our operating and investment experience cause us to conclude that “turnarounds” seldom turn, and that the same energies and talent are much better employed in a good business purchased at a fair price than in a poor business purchased at a
bargain price. Although a mistake, the Waumbec acquisition has not been a disaster. Certain portions of the operation are proving to be valuable additions to our decorator line (our strongest franchise) at New Bedford, and it’s possible that we may be able to run profitably on a considerably reduced scale at Manchester. However, our original rationale did not prove out.

 

The second nugget I got from this letter is the detailed, concrete thinking on how business drivers might affect future business results.  In this letter, Buffett talks about an increasing performance in his auto insurance business.  Fewer claims were submitted, yielding better profits.  Simple business, insurance!  :)  Buffett points out though that in 1979 oil prices had soared.  They’d soared to such a degree that people were changing their driving habits, specifically by driving less. Less driving led to fewer accidents.  Fewer accidents led to better profits for Buffett.  Buffett calls this out as likely temporary.  If and when gas prices fall, driving will increase, and the temporary gift of lower claims will evaporate.  A solid, cogent example of the types of detailed drivers that we all need to think about in business to anticipate how a business might evolve and change over time.

 

Third, another useful theme Buffett talks about a lot: you attract the investors you deserve.

 

In large part, companies obtain the shareholder constituency that they seek and deserve. If they focus their thinking and communications on short-term results or short-term stock market consequences they will, in large part, attract shareholders who focus on the same factors. And if they are cynical in their treatment of investors, eventually that cynicism is highly likely to be returned by the investment community.

 

His description comparing how you attract and manage a relationship with investors to running a restaurant is terrific.

 

Phil Fisher, a respected investor and author, once likened the policies of the corporation in attracting shareholders to those of a restaurant attracting potential customers. A
restaurant could seek a given clientele – patrons of fast foods, elegant dining, Oriental food, etc. – and eventually obtain an appropriate group of devotees. If the job were expertly done, that clientele, pleased with the service, menu, and price level offered, would return consistently. But the restaurant could not change its character constantly and end up with a happy and stable clientele. If the business vacillated between French cuisine and take-out chicken, the result would be a revolving door of confused and dissatisfied customers.

So it is with corporations and the shareholder constituency they seek. You can’t be all things to all men, simultaneously seeking different owners whose primary interests run from high current yield to long-term capital growth to stock market pyrotechnics, etc.

 

Great writeup in 1979, I look forward to reading the 1980 one.

 

 

 

 

 

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The Fast-Changing Landscape

Image representing iPad as depicted in CrunchBase

In tech, we talk a lot about how fast things change, how dynamic things are.  As an investor in mobile, I think and talk about this all the time.  I sound like a booster, sometimes even to myself.  I try to balance that, I really do.

This week, though, wow, if you ever thought that the landscape was settling and the picture was coming into focus, did that ever get thrown out of the window.

Intel saw a 27% year-over-year drop in earnings as the PC market continues to shrink.  Chipmaker Qualcomm, which is riding the mobile wave, overtook Intel in market cap: unbelievable.  Also highlighting the headwinds in the PC market, Michael Dell is reportedly looking to take the company he started in his dorm room private.  Hard to imagine giants like Intel and Dell facing such a changed landscape.

At the same time, it’s not like new markets are standing still.  Sharp is reporting that its ramping down production of the full-sized iPad as the demand for the iPad Mini is so much stronger.  Gee, that was quick!  Has the iPad Mini even been out for 6 months yet?

And finally, it’s exciting to see that someone other than Apple is starting to see consumer hype and love in the mobile market, with the WSJ is reporting that the upcoming Galaxy IVS from Samsung is seeing “iPhone like hype.”  I’m not hating on Apple here, I just think its great for everyone when there’s strong competition, which Samsung appears to e bringing.

However stifled innovation may seem today, it sure seems like the market is pretty dynamic.

 

 

 

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A Reaction to Lance/Oprah: Get After Bullies

Tonight I watched the first episode of Oprah’s interview of Lance Armstrong.  I came to the interview with an open mind.  Or rather, as open a mind as one could have after reading the entire USADA report on the conspiracy Lance Armstrong had led, and the coverup that was orchestrated around it.

The interview was ok.  Oprah was kid-gloved in her questions. But in listening to Lance’s responses, she gave him a heavy dose of the “Oprah Fish Eye,” which I understand from my wife is interpreted as Oprah-speak for “I’m not buying this.”  So net/net Lance didn’t rehabilitate himself much.

But to me the larger story is what a world-class bully this guy was.  He ruined the lives of teammates, employees and vendors, who weren’t able to sustain the Armstrong-led deception.  And while USADA documented Armstrong’s shameful actions in text, the Oprah Interview is exactly the place to put this under a harsh, harsh light.

Yes, Armstrong won a dirty race against dirty competitors.  Yes, Armstrong is a humanitarian who inspired countless cancer victims to fight and fight hard against their afflictions.  But he is also a bully.  A bully who, according to court sworn testimony, could be characterized as sociopathic.   Reputations were destroyed.  Futures were ruined.  All based on the a king among the paupoers of a sport no one in sports had paid any attention to, cycling.  Armstrong’s teammates and confidantes were all just one word away from being bounced out of the highest levels of an industry they loved and into a job as a maintenance manager at a bike shop.  He is a bully of historic proportions.

His benefits to people fighting cancer are important.  He’s an inspiration.  I get this.  But bullying people, ruining people’s lives, their reputations, in order to forward a story is WRONG.  It’s completely wrong.

And it’s wrong, not in a small way.  But rather, it’s wrong in a big way.  In my view, bullying is is as big a problem as cancer.  In today’s world, we are fighting bullying in many places.  We deal with it in our schools with our own children.  We see it as well in far away places where the stakes are even higher–in places like Rwanda or the Sudan where we see genocides.  In places like Thailand and Vietnam where we see human slavery and trafficking.  And too often, we don’t fight as hard as we can on these fronts.

But they are all bullying.  And bullying is wrong.  And it needs to be called out as wrong.  It needs to be shamed.

It needs to stop.  And we all need to call it out.

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Where are we?

Over the past few weeks, I’ve noticed two themes in press and analysis around the tech world.

economist cover

Theme #1 : Where has the innovation gone?  This was represented best I think with this week’s cover of the Economist, asking whether we’ll ever invent anything as useful as a toilet ever again.  This echoed folks like Michael Arrington who quipped that he was bored and Peter Thiel who griped that instead of flying cars, we got instead 140 characters.

Usually, when I hear lots of mainstream concern that innovation is dead, that’s when I start getting excited.  The froth is coming out of the market, and the true innovation is out there, lurking, perhaps unrecognized (yet).  But it’s out there, just waiting to delight.

So on one hand, I’m excited.  Bullish about the future.

Theme #2: Thoughts on the Series A crunch.  Lots has been written about the pending Series A crunch.  I basically agree with Michael Maples Jr’s as quoted in a PandoDaily article, where he says (paraphrasing) that every year there are about 10 fantastic startup companies.  Irrespective of funding environment, those 10 are the ones everyone wants to get into and those have little trouble finding funding.  The goal is to start or be involved with one of those companies.

With that as context, I’ve read with increasing alarm the press that prominent incubators are putting out about how much follow-on funding their companies have attracted.  Here was one such announcement just made today.  I can understand why its useful and its not to take away from the work that incubators are doing to help companies get themselves started and off of the ground.   I’ve never been much of a fan of funding announcements though.  I’m more of a fan of announcements of big customer wins, market share achievements, and partners that are committing to your solution.  That’s real traction and where you have those wins, funding will follow.  I do worry that the signal from incubators on follow on financing is going to, if anything, prolong the Series A crunch.

These are just thoughts.  The concrete action feedback, if you’re a startup, is to stay focused on winning in the market place through traction–customers, market share, partners, revenue, growth, etc.

Delight a rapidly growing customer base and the Series A crunch and the concerns on a lack of innovation in today’s tech market will magically work themselves out.

 

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Disruption Daily: Early Thoughts on Facebook Graph Search

Peter Drucker dies at 95

Big tech news today with Facebook announcing its new Facebook Graph Search.  Wall Street apparently didn’t like the news, sending FB down -2.74% on a day the rest of the market was pretty sharply up.  I might need to lean in and pick some up.

I think it is a big tech story for 2013.  I agree with David Weekly’s initial observation that this is a serious ongoing threat to Google.  It’s a pretty obvious step for Facebook and I think its going to pay off for a few basic reasons.

First, it starts to highlight in a very mainstream way how Facebook has, in effect, become the internet for many people.  People are spending so much time on Facebook that it makes sense that FB would invest in convening a “Dream Team” of Google Search engineers to do some semantic forking and NLP stuff to make Facebook the place you go for search.  It makes all the more sense when you consider that Facebook content isn’t really searchable via Google–I can’t go to Google and search for that status update, photo, or meme you posted.  Just doesn’t work.  So an obvious strategic move.

Will it succeed?  I’m bullish.  It’s one of these strategies where Facebook’s chocolate meeting the peanut butter of search seems to fit really nicely.  Certainly it seems a lot smoother of a fit than Google trying to veer into social with G+.  (With Marissa Mayer taking her talents to Yahoo, I think Google’s push into social is perhaps even more at risk, as her fingerprints in terms of user experience and design were so pervasive.)

Second, I think that there are a variety of scenarios where FB search could be quite disruptive in the shorter term–with local in particular.  We are all connected to friends through Facebook, and I’d bet that a lot of accounts have a huge portion of friend connections who are nearby.  The next time you need to know whether that new Chinese place is any good, are you really going to go to Yelp or Google, or would you like to see that 6 of your friends had “Liked” the place on Facebook.  Local is a big kahuna market, and FB has a nice route to going after it.

Third, it’s a winning move in that FB is growing engagement and retention, and search (along with mobile) gives it a new avenue to continue driving this lift.  Surely there’s an opportunity to go for the jugular over time with Google, and this is good for the industry.

A final point on Facebook’s capacity to disrupt Google in a major way… I remember reading an interview of Peter Drucker in 1997 or 1998, around the time that the Department of Justice was lining up to take on Microsoft for anti-trust violations.  The interviewer asked the father of modern management what his opinion was on the anti-trust case. His answer, basically, was that in the case of the technology industry, the market moves too quickly.  When a company becomes as big as Microsoft  the seeds for obsolescence are in a sense already planted.  He forecast that based on Microsoft’s size, some small, disruptive company that no one had yet heard of would step up to take on Microsoft in relatively short order.  Though there’s no reason to think Drucker had ever heard of them in 1998 when the interview happened, it’s pretty clear that he was prophesizing Google.

Now certainly we’ve all heard of Facebook, so this time around is a little different.  But at the same time, it’s not lost on me that in the same week that the Department of Justice announced it would not pursue action on Google after 2 years of investigation–the true sign of being a tech behemoth–Facebook announced its Facebook Graph Search.

 

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Digital Health Getting Real

Image representing GE as depicted in CrunchBase

Amid all the CES press, I was interested to read that GE had hired Risa Stack, PhD, from venture giant KPCB, to become the General Manager of GE’s Emerging Health Innovations group.  This hire, along with the details of the resources GE is putting into this effort and its just announced partnership with the StartupHealth incubator, is significant.  I’m excited to see where this leads.

First, while the intersection of health and technology is heating up, the path to distribution has been challenging.  While a company like FitBit has overcome the distribution challenge, getting startup consumer devices into mainstream channels remains very, very hard for most.  For startups that gain access to GE’s resources through the StartupHealth incubator partnership will help de-risk this crucial element of distribution.  Surely, companies will still need to build great products that solve real problems, but to have a big player like GE in support of these efforts will go a long way towards solving a key choke point.

Second, as a consumer, I’m excited and interested to see what new products will get created and offered.  I’ve not been one of these measure-everything-about-my health folks.  As a member of the cult of Crossfit, I tend to stick to the basics of writing out my performance in a notebook log with an old Bic pen.  But that doesn’t mean that I’m not interested, I am.  I think though that beyond just personal fitness, there will be all kinds of interesting health and consumer tech opportunities that make our lives better across of big and current hard chronic health management situations, e.g., diabetes, cancer treatment, MS, potentially kidney-related issues, etc.

I’m excited about GE’s commitment and approach to its Healthymagination effort.  I think it’s exciting for startups and exciting for us as health care consumers.

 

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Monetize early and often

A common, long-running theme in Silicon Valley is that companies will get started with no sense of a business model.  The common ethos is this: “we’ll get lots of eyeballs, and then we’ll monetize the eyeballs later.”

And certainly if you look at a business like a Twitter or an Instagram, neither were ones where a business model from day 1 made much sense.  To succeed at scale, they needed to establish themselves as very broadly adopted, broadly used services.  Indeed, not so long ago, many were hand-wringing over whether Facebook would ever be able to generate sustainable revenues.  Given that $FB is now pulling in well over $1B / quarter, no one’s really harping on that anymore.  So I think it’s safe to say that for the foreseeable future, we’ll continue to see tech companies that grow first and monetize later.

At the same time, I’m noticing a trend of companies that are starting to monetize earlier in their life cycles.  Companies like Evernote, AirBNB, and Uber are examples, where they were generating revenue really early and growing from there.  My sense is that we will see more of these, for a few reasons.

First, the breadth of endpoints is massive.  Over the last 5 years, we’ve seen the explosion of smartphones, tablets, Kindles and other e-readers, along with the continuing growth of the PC market.  The increase in nodes (or screens if you prefer) and endpoints where a service can be offered and a transaction consummated is staggering.

Along with this rise in endpoints, distribution is now becoming increasingly accessible, if you can pay for it.  If your company can prove that it can generate gross margin on a per unit basis, then it’s going to be possible for you to invest a good portion of that margin in acquiring new users via a broad range of promotional and advertising offerings.

A third reasons is that a broader range of business models–freemium and in-app purchases, for example–have matured over the last several years.  This gives tech startups a path to offering users a low-friction, try-before-you-buy value proposition on the one hand, while offering a path to monetizing from early in the lifecycle.  This is a great thing for startups.

I think all of this bodes well for startups.  Getting revenue in the door at any level is a great validation of product-market fit.  It’s also a great way to keep the doors open and retain equity.  If I were starting a company today, I’d be looking for a path to get revenue in the door from as early on as possible.

 

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I Second That Emotion

Image representing Mixpanel as depicted in Cru...

There’s a management aphorism attributed to Peter Drucker that goes something like this “If you can’t measure it, you can’t manage it.”   This was on my mind, as I read Liz Gannes’ great article on AllThingsD today covering Mixpanel founder Suhail Doshi‘s call for an end to Bullsh*t Metrics.  His basic point is that technology companies have not innovated enough on how they think about measuring their businesses.  He’s calling BS.

Pageviews, installs and total installed base are out.  Engagement and retention are in.  This makes a lot of sense.

When I meet with very early stage startups, as I did last week at AppNation for VC Office Hours, I find myself repeating a few of the same points again and again.  Very early stage companies (i.e., pre-product or pre-product-market fit) tend to want a sense for how many installs or pageviews they need to attract an investor.

My answer heads a different direction.  To me, the first thing I want to see is evidence of what I think of as early product market fit.  Rather than showing me installs, show me that any small number of users that truly, with concrete evidence, really want your product.   This is actually more difficult to do than you might think.  It requires that the startup can show engagement and retention over a period of time.  And it requires that the startup is thinking about what how it measures user engagement in a manner that’s specific to that specific company.

This perspective seems aligned with Doshi’s feedback.  One thing that I liked a great deal in his post was his recommendation that startups focus on One Key Metric (OKM).  The idea is that tracking 1 actionable metric that “they can literally bet their business on.” Companies picking OKM have to deeply understand their business and what is driving growth and success in order to do so.  This reminds me of discussions that I’ve read of Facebook and Twitter‘s early growth, where FB started to realize that if a user added 7+ friends, that the likelihood that that user would become a retained user went up dramatically.  Similarly Twitter found some number (I don’t recall what the number was) of followers where, when attained, a user would be much more likely to be retained.

This mode of thinking and focus on OKL is smart–it focuses the leaders of a company on understanding, deeply, what users are doing on their service and what drives value to the user.  Hard to argue with this.

BRV portfolio company, Thumb, where I serve on the board, has been drilling in on it’s on OKM.  (I can’t disclose what the metric is.)  It’s been exciting to watch how the focus is leading to increasing retention and engagement, which as publicly reported is already quite high.

In any case, if you’re a startup in the tech space, I recommend reading Doshi’s post and contemplating what your OKM is.

 

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