The Monk and the Riddle: The Art of Creating a Life While Making a Living (13 page)

My departure created turmoil and bitterness for many involved. I felt I had done the unforgivable. I had bailed out of a plane that was still in midair. Yet when I finally asked myself the question that I had encouraged Lenny to ask himself, I could not ignore the chasm between my own passion and what the company needed. Without a grander vision, and some prospect of realizing it, Crystal was not a place I could see myself working the rest of my life. That meant I needed to get out, now.

M
Y MIND
came back to the PetUniverse.com pitch. At least, I thought, I'd started at Crystal with a story and a passion. All I saw in this pitch was greed.

I had begun to find aspects of the startup game increasingly disturbing. Expedience ruled. Sometimes I wondered if, rather than developing tomorrow's business leaders and talent, we weren't merely cloning speculators, hack business men and women, who arbitraged their drive for a quick hit and who believed that if you're rich, you're right. Heaven help us if these businesses actually have to be operated on a bottom line basis for the long run.

I retreated to my home and checked my messages. After the kind of morning I had, I felt compelled to e-mail Lenny.

The deferred life: drive, then passion.

Who wants that?

Chapter Six

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T
HE NEXT MORNING
I headed toward San Jose for a board meeting. Traveling south on Highway 280 offers none of the gleaming lakes and plush hills that texture the landscape leading to San Francisco. After a brief stretch of road flanked by Stanford's rolling open spaces, grazed by meandering cows, and spotted with giant radio telescope dishes, sprawl displaces the more bucolic scenery. First, suburbia with its housing developments and strip malls. Then block after block crammed with one- and two-story buildings whose fronts are stamped with a veneer of business respectability but whose three other sides drop the pretense. “Tilt ups,” built in a hurry to house wave after wave of new industries, these generic cubes have replaced boundless acres of cherry, plum, and apricot orchards. This is the “silicon” in Silicon Valley, the place where the Fairchilds, Intels, and their progeny were born. Microprocessing plants, chip fabs, clean rooms full of drab bunny suits; this is the place. Like a ghetto that takes on the face of each new wave of immigrants, this part of the Valley has, in turn, sheltered the chip, computer, software, and now Internet hopefuls. In the future, anthropologists will be able to identify each generation of the Valley's industries by sifting through the flotsam and jetsam of endless remodels. A sudden rash of competitors marks each industry cycle; then the industry peaks and consolidates into a handful of winners. In no time another wave of wannabe industry-builders moves in and fills the vacancies. It's “recycling,” Valley style.

I made haste to the offices of TiVo, a high flyer with a big idea, attracting a lot of attention with its promise of changing the entertainment world. The conference room hummed with activity this morning. Various VCs and industry leaders in their denim and khaki finery milled and munched pastries and bagels, clustered in twos and threes. Meanwhile, the management team welcomed arriving board members. Mike Ramsey, CEO and one-half of the founding team, was dressed in the stylish LA banded-collar, pleated-slacks look. In his late forties, Mike's dignified gray is unusual in startups these days. He is an experienced leader, poised and polished and always appreciative of the people who work with him. His sidekick and co-founder, Jim Barton, on the cusp of forty and dressed in jeans and a button-down shirt, looks like he grew up on the range. A no-nonsense technologist, he always gives it to you straight. The rest of the executive team, attired somewhere along the Mike-Jim continuum, excused themselves from the room periodically to deal with whatever momentary emergency required their attention. The finely tailored director from New York, in a blue suit and white shirt that Lenny would have appreciated, stood a little off to the side, pouring himself another cup of coffee and adding a generous splash of milk.

The room was decorated, if that's the right word to use, in the mode of “Valley professional”: stark, functional, disdaining extravagance. A wood conference table for a dozen or more dominated the space. A sleek black box the size of a large laptop computer carefully perched atop a television set somewhat inconspicuously in the far corner. Except for the parking lot, where the shiny, late-model luxury cars attested to many earlier wins, it was hard to tell that the assembled group comprised some of the Valley's most prominent deal makers and game changers.

In these early-stage businesses, where progress is measured in minutes, monthly board meetings are the norm. At this moment, TiVo was only two years old, and it had already raised more than $100 million, attracting an illustrious group of investment partners, including Sony, AOL, Disney, DIRECTV, Philips, CBS, NBC, Liberty Media, TV Guide, Showtime, and Quantum. It had launched a world-class product and service, and it had assembled a stellar team.

Now TiVo was on the verge of what most founders think of as Heaven. It was about to go public. Looking around the room, though, I would say exhaustion trumped elation. And unlike Lenny and other wannabes like him, these guys viewed an IPO as a means, not an end—as a financial pit stop, a chance to refuel for the long—the very long—road ahead.

TiVo had attracted such high-profile support because of its unusual potential—because of the power of the idea and the promise of fundamental change. I had first heard of the company in the autumn of 1997, when Stewart Alsop, a Silicon Valley pundit, columnist, and venture capitalist partner in New Enterprise Associates, called me about the initial idea. He and Geoff Yang, a prominent venture capitalist then at Institutional Venture Partners and now at Redpoint Ventures, were seeding a startup called Teleworld, TiVo's first incarnation. A few days later I headed over to the Konditorei to listen to the founders' pitch. Mike Ramsey was a distinguished executive from Silicon Graphics, where he had run a large piece of the business, and Jim Barton was a standout engineering wizard who had also come from SGI. Among those who pitch me, they were unusual in their maturity and accomplishments. SGI had been involved with Time Warner Cable's video-on-demand trials in Orlando, Florida. An ambitious attempt to cost effectively deliver to home viewers a vast library of movies they could watch at their convenience, those trials had been a bust, but Mike and Jim wanted to apply the lessons learned to a new venture.

Their Teleworld idea was to sell a new kind of hardware, a home server that not only digitally stored incoming electronic information, including audio and video content, but also linked the gamut of digital devices rapidly becoming commonplace in the home: computers, PDAs, and Internet appliances. Concerned that they might be ahead of the market and that customers would be slow to appreciate the ultimate value of their product, Mike and Jim planned to jump-start the business by giving customers the ability to digitize and store several hours of television programming in a set-top box. Their initial product would be, in effect, a souped up VCR with a clever programming guide. Because of the costly electronic storage requirements, it would carry a hefty price tag.

Their strategy made me cringe. Working at companies like GO and WebTV convinced me that there is no margin in the consumer hardware business. It requires an enormous investment, demands massive distribution, and scales slowly. I believed the value of consumer hardware could be derived only from the services it delivered to the consumer and industry partners (in this case, advertisers, programmers, and networks). The business model inherent in such a strategy, though, is uncertain. If you price the hardware high enough to generate acceptable margins, your product's retail price is too costly to quickly develop the volume of users needed to enable a robust service business. On the other hand, unlike with Internet services and software where there is no or nominal marginal expense for each new user, the cost of subsidizing these pricey boxes to make them affordable in order to accelerate adoption could break the bank. Mike and Jim talked about selling hundreds of thousands of set-top boxes, but that wouldn't build a large enough audience for service providers and advertisers. They would have to sell millions of units, and quickly. If they focused on the boxes, I told them, “your legacy may be that you sowed the seeds of a huge market, which the consumer electronics giants and service providers ultimately reaped.” Pioneer new territory, I cautioned, but don't end up with arrows in your backs.

What a buzzkill I was. They were gracious and thanked me for my candor. As we parted, I couldn't imagine how they would succeed in the hardware business they envisioned, and I never expected to hear from them again. Entrepreneurs, in my experience, don't like to be told they're wrong. It isn't in their dispositions to sit and listen to that kind of critique. That's why many ideas in this Valley happen against all common sense. It's good when entrepreneurs are a little bit deaf and blind, but if they're completely deaf and completely blind—and many are—they're unlikely to learn enough from the market and their advisors to make their vision a reality.

To my surprise, Mike called back a week later, and I agreed to meet again. He and Jim hadn't taken my advice wholesale, but they had carefully considered it and revised their plans where they thought their ideas could be improved. Their new idea, which ultimately became TiVo, was much, much bigger.

In essence, they had evolved the business from a hardware-based model to a service-based strategy. The gist of their big idea was what they called “personalized television.” Using the box and its ability to record programming, they now proposed to build a service that would give viewers complete, individualized control over what they viewed on television and when they viewed it. They would price the box lower to foster sales in higher volume, leaping into a financial no-man's-land in a gamble that they could assemble a marketable audience in time for the service revenues to kick in and more than compensate for their losses on the boxes. How would they make money when each box was priced below cost? Volume—that is, a volume of viewers sufficient to fund a money-making service based on subscriptions, advertising, and commerce. The mix among those revenue sources and the balance between how much would come from consumers and how much would come from industry partners would be determined later. Eventually they believed that the stand-alone hardware and its expense would disappear as televisions and other set-top boxes provided the power and digital storage necessary for personalized television. Then TiVo would be a service provider only, with a much stronger financial model.

I listened to their new idea and realized that if they succeeded, the grid between television programming and network time slots would be broken. If the viewer was watching a show that had been time-shifted, commercials would no longer have a captive audience. The viewer could simply skip forward at will. He could watch a show broadcast Sunday mornings during weekday prime time, and vice versa. Advertisers who paid top dollar for prime-time audiences might or might not reach those audiences any more. With TiVo's box, your time was prime time, anytime you watched. Control would move from the broadcast networks to every single member of the audience. Television would never be the same.