This is my two-hundred-second weekly reflection. Here are my takeaways from this week:

• Exiting venture capital – I’ve noticed an uptick in the number of VCs I’m talking with who are considering doing something outside VC. Many are looking at the prospect of returns, the number of years required to realize them, and the challenging exit environment for IPOs and M&A.
• Complexity – This week was a reminder that explaining complex concepts simply is a way to give value to others and enhance your own learning at the same time.

Week two hundred two was another week of learning. Looking forward to next week!

This week I chatted with a founder who wants to hire for a key role but feels he can’t afford to do so. The business is bootstrapped and hasn’t received any external growth capital. I faced the same situation when I bootstrapped my company. I was drowning and needed someone who could think strategically and execute. I wanted to hire someone in a leadership role, but the business wasn’t generating enough cash to support an additional leadership-level salary.

I ultimately realized that I would be adding this person to help grow the business, not stagnate it. If the business grew, then the incremental cash generated by the business could cover the additional salary expense.

I couldn’t afford to pay someone for a year if they didn’t help move the business forward. I also couldn’t expect them to move mountains on their first day. There would be an evaluation and ramp-up period, and at the end of it, I should know if their contributions could help grow the business and if they were a good culture fit. Because I was hiring a leader, I estimated that within three months I should know. After reframing it like this, I realized that I didn’t need to think in terms of the business’s current state absorbing this leader’s entire annual salary. It just needed to be able to absorb three months’ worth or so. Said differently, I needed to be able to invest just one-fourth of their annual salary. Since this amount was much lower, thinking of it this way made the decision seem less risky.

I ended up hiring someone, and it worked out perfectly. Within a few months, he had learned the specifics of the business and our industry and was contributing in a meaningful way. The business began generating more cash around the third month, and within twelve months the growth more than covered his salary.

My big takeaway is to not think in terms of annual salary when resources are limited at an early-stage company. Instead, think of hiring as making a three-month (or so) investment in someone to accelerate business growth (and cash generation). By the end of three months, you can usually tell if you’ve made the right decision. This isn’t a hard-and-fast rule and doesn’t work for all roles or at all companies, but it’s an alternative way to think about hiring when things are tight.

Today a friend texted me about a company I follow and sent a screenshot of a news headline. He wanted me to be aware that the company may be going through hard times. I read the headline and laughed.

The headline included company financial figures that were wrong. I know they were wrong because I’ve read the reports issued by the company. The writer clearly didn’t understand the company and had confused the details. I pointed this out to my friend and shared the correct financial figures, which show the company’s doing fine.

This exchange was a reminder of the value of getting first-source data. When you rely on other people’s interpretations, you run the risk of basing your conclusions and actions on incorrect interpretations.

I recently met with a friend, and the topic of the ideal work environment came up. He’s a successful entrepreneur and investor. Like many, he’s worked from home quite a bit during the last few years.

He’s learned that working from home isn’t ideal for him. He can focus well, but he believes it comes at a cost. It’s harder for him to do his best work without interacting with other people. He says the buzz and energy level are polar opposites at home and the office. The office’s energy helps him get into the zone where he has his best ideas and can do his best work.

He recognizes that things have changed and flexibility is a high priority now for people on most teams, and he thinks hybrid setups offer the best of both worlds if implemented well. They satisfy the needs of folks like him while giving others flexibility.

I hadn’t thought about this lately until he brought it up, but I think the ideal work environment depends on the company’s culture and stage. Hard-charging start-ups trying to find product–market fit whose founders feed off each other for ideas might be better suited to in-person work. Slower-growth companies with mature offerings, a steady customer base, and an established culture may do well in a hybrid or even fully remote environment.

More interesting details came out today in an article about Reddit’s potential IPO. A few points reported by Bloomberg caught my attention:

• Revenue increased more than 20%, from $666 million in 2022 to over $800 million in 2023.
• The company is unprofitable. Adjusted EBITDA is negative $69 million.
• Its listing is closely watched and a bellwether for tech IPOs.
• It’s expected to unveil a public IPO filing as soon as this month.
• It could start marketing its IPO as soon as March.

These assertions can’t be confirmed as accurate until the company files its S-1 with the SEC (reporters, being human, can make mistakes).

Assuming the info is accurate, I have a few thoughts:

• This IPO will likely be a bellwether given Reddit’s brand awareness among tech and non-tech investors and the timing—if it happens, it will be the first tech IPO of 2024. This means it will be watched closely by VCs and founders. Its performance will influence other companies considering an IPO in the first half of this year.
• Last year’s fall IPOs of Instacart and Klaviyo haven’t performed well to date. Both are still trading below their IPO offering prices, even as the NASDAQ is nearing all-time highs (more on that here). What about Reddit’s offering will be different and get enough investors interested in purchasing shares?
• Reddit is most likely free cash flow negative and burning cash—I’m not sure at what rate or how close they are to being cash flow breakeven. But I wonder how this will impact public-market investor receptiveness to this listing. Instacart and Klaviyo both reported positive free cash flow for the 2023 quarters proceeding their IPO, and those listings haven’t performed well.
• I suspect public-market investors are rethinking revenue multiples for technology companies. I’m curious to see how investors value Reddit given that it’s likely consuming cash.

I’m looking forward to Reddit filing its S-1 so I can dig in. If the company decides to proceed with the listing, I’m really curious to see how investors receive this company.

Today I read in an article that Reddit picked the New York Stock Exchange for its initial public offering. Reddit is a social platform that allows users to create digital communities based on niche user interests. It’s probably best known to mainstream America for the events of 2021, when a community named WallStreetBets played a role in the GameStop saga. I visit Reddit periodically and find it helpful. I enjoy being able to get the unfiltered, crowdsourced views of others on specific topics.

Reddit is a well-known tech company. Picking an exchange is a sign it’s seriously considering going public soon. But anything could happen. The company could decide not to list (as it did in 2021). If it does go forward with a listing, that could be helpful in gauging public-market investor appetite for new technology companies. If it lists and is successful, other companies might follow its lead.

Today I read an interesting fact. In the 1860s, there was a unique group of successful stock market investors. They went against the grain and were thought of as outsiders by their investing peers. They were called “panic birds.”

Here’s what they did that was so different from what other investors did:

• You had to physically visit Wall Street to buy or sell stock then. Most investors were on Wall Street daily, regardless of whether they were buying, selling, or just observing the market. The panic birds, though, stayed far away from Wall Street when conditions were normal. They didn’t want to get caught up in the prevailing group think or speculative mindset that prevailed among investors on Wall Street. They wanted to be able to see things clearly and think objectively.
• They went to Wall Street only when the market and other investors were in a panic or desperation was rampant.
• They bought only when two conditions were met: prices had crashed and liquidity was scarce (i.e., they were getting the bargain of a lifetime).
• When they did buy, they didn’t buy broadly; instead, they bought carefully in only the highest quality companies.
• They held their investments long term. This wasn’t common—people regularly bought and sold in those days.

This list describes some successful investors alive today. For example, Warren Buffett has a panic-bird investing style. He’s had outsize success, and he’s well respected on Wall Street. Yet he lives in Omaha, Nebraska. He buys only when companies are trading at a material discount from what he believes their intrinsic value is. He’s been known to buy large positions in a handful of companies during times of crisis, and he usually holds those positions for a long time.

I found all this interesting. It showed me that most good ideas aren’t new. They’re borrowed from people who came before us, figured things out through trial and error, and went on to achieve outsize success. I suspect that Buffett and other successful investors studied history and borrowed from the most successful and timeless ideas as they formulated their investing approaches.

This is my two-hundred-first weekly reflection. Here are my takeaways from this week:

• Curveballs – This week, I was thrown a few curveballs. It was a reminder that the unexpected can happen anytime. Flexibility and focus helped me navigate the week.
• Optimism – Entrepreneurs I’ve talked with are very optimistic about 2024. Most have plans to grow businesses or launch new ones. Entrepreneurial sentiment appears to be starting the year off strong.
• History – I learned some fascinating things from historical events and people in business this week. As I read, I was able to see how current times are mimicking history.

Week two hundred one was another week of learning. Looking forward to next week!

I’ve been learning about business models in different industries for a few years. SEC filings of publicly traded companies have been great for companies I’ve wanted to take a dive deep into, but I wanted an additional resource. One that would help with discovery of companies and industries I’m less familiar with. One that could help me efficiently learn about new business models at a high level.

This week I found the Business Breakdowns podcast and have enjoyed listening to several episodes. It breaks down public and private companies, which I really like, and covers a broad range of industries. Some of the companies profiled I would have never thought to research, or wouldn’t have been able to because they’re private. The episodes I’ve listened to have been helpful and have gotten me thinking more about various ways of charging for the value you provide to customers.

If you’re interested in learning how different companies generate revenue and think about their business, consider giving the podcast a listen.