This post originally appeared on TechCrunch on March 16, 2013. TechCrunch titled the piece “Searching For Beasts In Silicon Valley’s War For Talent.”

At a recent wedding in San Francisco, a friend who runs engineering for a successful, pre-IPO company started talking about a member of the latest generation of newly minted millionaires. This acquaintance of ours had started one company and then, before that company had ever made money, sold a big stake to a venture investor, only to start another company in the same area.

“Has he even done anything yet?” my friend said and then, looking around, “When did that stop being a requirement?”

This wasn’t jealousy. Silicon Valley has always showered so much money on the deserving and undeserving that it would be hard for any one of us to say which group we ourselves belonged to. But one crucial difference between this boom and the last is that the folks in the last boom had to ship or starve.

Today, not shipping pays pretty well. Five years after Peter Thiel said the simplest predictor of a startup’s success is whether a founding CEO pays herself less than $100,000 – $125,000 per year, the typical founder of a company that hasn’t yet released its first product earns, according to private salary surveys, nearly $200,000 per year.

And that’s just the beginning. Until the advent of secondary sales a few years ago at companies like Groupon and Zynga, where key employees get cashed out early by venture capitalists, you had to wait ‘til your company got bought or went public, because the investors wanted to make sure you didn’t make money before they did.

Now, of course, you can cash out as soon as the startup has made any significant progress. The rationale has been that this relieves pressure on the company to sell out prematurely, giving the early folks enough money to live well while they build their company for long-term greatness. But many just quit. How many startups would be doing better now if all their early people still had to work there for a big payday?

The broader trend of generally increasing pay, at least for young engineers, has had even more profound consequences on Silicon Valley’s culture. Before most computer science graduates ever walk across a stage to get their diploma, they’re set for life. This is especially true in 2013, which will be the first year in which most companies pay top engineering graduates in Silicon Valley $100,000 or more per year in salary.

For the companies, for Redfin, the engineers are worth every penny. And for the engineers, the money is nice to have. But how many engineers hired from Stanford or Berkeley in the past year will ever feel the savage need to make something happen, to bust out of the matrix, to push the limits of their abilities?

Kite-surfing: the latest hobby of Silicon Valley elite

The problem is that the young engineers earning that much become well-fed farm animals at the very moment in their lives when they should be running like wild horses. Many now remind me of middle-aged men, collecting expensive scotch or taking up John-Kerry hobbies like kite-surfing and race-car-driving at the age of 24.

What changes these folks isn’t just the money. It’s the cosseting, which can permeate the most minute interactions between engineers and their mentors. If you as a manager have spent all day wooing new hires, you aren’t likely to turn around and tell a young engineer on your team how much more she is capable of, even if this is just what she needs to hear.

This is why Silicon Valley’s War for Talent hasn’t always been good for the talent. After all, the only way to get much better at your craft is to be challenged in ways that make you uncomfortable. Yet not many people in high technology are uncomfortable these days.

The result for many engineers and product managers is often a case of arrested development, as they drift from one startup to the next, dabbling in several side-projects, without the ballast of having solved some really hard problems or contributed to a lasting business. In the recent laments against the proliferation of amateur-engineers, Ph.D. programs are often cited as the solution, but the true training ground for software’s elite has always been a high-performance startup.

When I came to Silicon Valley, I came for the boot-camp, I longed to be broken and built back up bigger, better and faster. I earned $32,000 per year in my first job at a San Francisco startup; adjusting for inflation, this is still less than $50,000.

Almost every day, our head of products gave me the best advice a young person can get: “Just go figure it out.” If I’d told him terrorists had taken over the men’s bathroom, he’d have said the same thing. I took on the challenges he gave me for many reasons, but the inescapable one was that I needed a raise.

Our CEO at the time liked to swing by my desk and say “A chain is only as strong as its weakest link. God help you if you’re that link.” Whenever I wanted to show him one of my projects, he liked to stop me at the threshold of his office to ask, “Wait… Is it sweet?” And then, because it often wasn’t quite sweet enough, I usually turned around right there.

My first year at that startup was the most harrowing of my life. But it also made me resourceful and tough, which is probably the most underrated quality of an entrepreneur. After a life of all A’s for often-mediocre work, it gave me high standards. It was just what I needed when I later co-founded my own company.

None of that would have happened if my startup had been like lotus land. But now many startups are. The perks offered by profitable, public technology companies such as Google are well known; what’s new in the past few years is the emergence of the private, venture-funded company that offers yoga classes, on-site haircuts, a chiropractor, massages, laundry and dry-cleaning, as well as “an executive chef who prepares local, organic meals, available for dining at the office or to go.”

Redfin caters lunch

I’ve been asked about the same perks at Redfin. We want the absolute best talent, so of course our pay is competitive; we cater lunches, and our offices are pretty nice. But the problem I have with perks isn’t just the money; it’s the symbolism. After all, when evaluating a Redfin job applicant one of the big questions I’m trying to answer is “when did she do something hard?”

It could be something you put yourself through for fun like running a marathon or far more serious like fighting in a war. It could be the grinding repetition of preparing for a piano recital or the grit required to dig ditches or paint houses for a living. It could be raising a child all by yourself.

Maybe some of these examples sound preposterous to you, but they’re what the rest of America does every day. Looking for candidates who have visited that hard place in themselves at one point in their life isn’t some Marxist fantasy of mine. It’s how capitalism works best.

Startups, like professional football, are best done by the most desperate people on the planet. Products don’t just walk out the door on their own; sooner or later, to ship something amazing, you have to dig deep and bring out your beast. A horse running wild is a rare sight, but it takes your breath away every time.

The post Wild, Wild Horses appeared first on Redfin Real Estate Blog.

• The last-second economy: in the I’ll-call-you-when-I’m-close era, consumers expect everything to be available on a moment’s notice, including real estate agents and taxi drivers, who are now being located, tracked and routed via their iPhones
• The green cloud: data centers, which consume 5% or more of America’s power, are finally becoming more energy efficient
• The return of hardware: software companies have embraced building their own hardware, for consumers and for their own secret uses
• Immigration reform: after the election, everyone suddenly agreed to let in more immigrants. Folks of all sorts will come, but what they’ll have in common is plenty of pluck, which is just what this country needs.
• Slow investing: spread-it-wide-and-thin investing is going out of fashion, as investors become more patient and more committed.
• The hacker way: businesses are worrying less about avoiding mistakes, organizing themselves to be fast and resilient rather than risk-averse.

The more important question is what’s next in 2013, especially in the real estate market. As we predicted last October, real estate is increasingly becoming the main reason economists are optimistic about an overall U.S. recovery. Will the market keep improving? We’ll dig into that question soon.

The post The Best Ideas of 2012 appeared first on Redfin Real Estate Blog.

“Well,” I said, expecting the conversation to take a better turn, “I like to think I know a good egg when I see one.”

“That just means you have no idea what you’re looking for,” Sean said. “Nobody can tell just like that if someone’s going to be a good hire. You have to work at it.”

It’s a problem I think about all the time, since I interview someone almost every day of my life. Google is famous for systematically tracking which interviewers are better at predicting the candidates who will thrive but a friend there told me the company concluded no one is much better than anyone else.

This conundrum came to mind at a TechStars talk last week when an engineer asked me how she could hire good marketers without knowing much about marketing herself.

All of us start from one area of expertise, but our first challenge as an entrepreneur is to hire folks from the other areas. Engineers worry their hard work will be overlooked because a marketing guru can’t deliver the buzz. Business folks entrust overseas coders to bring their million-dollar idea to life.

It’s a crapshoot, but you can raise your odds if you treat everyone the same, using the interview to dig into her work. The problem is, most engineers and business people interview one another like the Europeans in “Barcelona.” As one American in the movie gleefully reports to another, it never occurs to a Spaniard that an American is just being an ass; instead they just assume “it’s some national characteristic.”

That kind of deference in an interview is your enemy. Once you hire someone, you have to defer to her expertise, which means that before you hire someone you can’t. Engineers who can’t explain ideas clearly in the interview usually don’t code clearly. Marketing folks who seem slick in the interview won’t represent what you stand for in a genuine way. Fortune-500 guys who only talk about the big picture won’t get nitty-gritty about the work you need done.

Be Stupid
I used to nod knowingly at candidates slinging the most outrageous baloney, just so I didn’t look stupid. Now, if I don’t know what Node.JS is, or why someone would buy Windows Live Mesh, or how ad re-targeting works, I say, “I’m sorry, can you explain that to me?” And then, rather than accepting an explanation I still don’t understand, I usually ask a follow-up question: “Can you explain it to me like I’m a four year-old?”

Being stupid gives the candidate a chance to be smart: the candidate has to understand an idea down to its bones to explain it in the simplest terms. My first manager, David Lichtblau, saw on my resume that I liked physics and so asked me in my interview to explain special relativity to him, handing me a marker as if I were going to jot out the math, or depict a Fitzgerald contraction graphically. He told me the last candidate had done general relativity.

Halfway through, I realized with a flood of relief that he himself hadn’t brushed up on relativity, so I could tell him anything. But he was too tenacious for that. By the end, I found myself trying to account for the shape of the universe using the new bogus law of physics I had concocted on his white board. It took a long time, and I tried to avoid it at all costs, but what that finally forced me to do was think.

Hire Smart People Everywhere
What’s most impressive about Dave’s tenacity is what he was using it for: to hire someone to document and test a programming interface no outsider ever had, or ever would, use. Someone at that first startup had a saying, “Hire smart people everywhere,” to which my new boss gleefully added, “even for your job.”

In reality, deference can be a form of hopelessness, based on the premise that someone in a role other than yours doesn’t need to be smart, or couldn’t possibly be smart. Wrong. You can expect a human resources professional, an accountant, a salesman, a publicist, an engineer to be brilliant, and brilliance in any field is self-evident. More important, you can always judge the quality of someone’s energy, whether she has soul, how she makes other people feel. If you’re not excited about someone, regardless of her role, pass.

But most hiring managers think they have to settle for the stereotypes: a pretty face for PR, an accountant who lost his sense of curiosity in a tragic medical accident, an HR bureaucrat. These are the atoms of your being as a company, and if they are mediocre, the company will be mediocre.

“Show Your Work, Please”
Deference also prevents you from seeing someone’s work. There’s a tendency for interviews to be about someone’s work: you talk about the passion rather than showing actual passion. The first lesson I learned in interviewing was to focus on specific examples rather than generalities. You can’t ask someone if she’ll work really hard, but you can ask her to tell you about a time she did: how long ago was it, how long did it last, what did she get done, how does she feel about it now?

But even more important is to ask the candidate to do the work, not just talk about it. Ask a publicist to write the first paragraph of a press release, or a product manager to develop a feature idea, an agent to write a contract, or a salesman to pitch you on his last product. Coding challenges are widely accepted in engineering interviews – we’ve had engineers turn us down because our coding challenges weren’t hard enough — but are often viewed as cruel and unusual elsewhere.

Our chairman, Paul Goodrich, asks would-be executives at Redfin to present their point of view to the entire board. I apologize to big-shot candidates when asking them to do this, but really I love it. You want an interview loop to be as close as possible to someone’s first four hours on the job.

For a candidate who loves her work, this request won’t be onerous or off-putting; it will be exhilarating. At one nadir of my professional life, I interviewed for a job as a bicycle messenger. I showed up in my good outfit. The hiring manager, a large 50-something with a gigantic ash-tray in front of her, was the dispatcher, routing messengers to pick up packages. To start the interview, she leaned back and looked me over with an appraising eye. Then she said, “Can you run in place?

“Here?” I said. “Now?” She nodded gravely. I began to run in place. She returned her attention to her black-and-white portable TV, looking up after two minutes to see that I was still enthusiastically hopping around. “You’ve got the job,” she said.

Best interview ever.

The post All You Have to Do Is Ask: How to Hire Smart People Everywhere appeared first on Redfin Real Estate Blog.

What publishers know is that if your first effort is even slightly disappointing, no one will give you a second chance. The same is probably true of entrepreneurs, except our books are written in public, in real time, with no editors.

It matters more than we care to admit which book comes out first.

What if our generation’s greatest entrepreneur, Steve Jobs, had launched his second startup first? For anyone under 30, Steve Jobs sits alone atop the pantheon of entrepreneurs for what he did at his first venture, Apple. But when I was coming of age, Steve was merely a sympathetic figure, a sort of poet’s poet, one who had gone up the river on his next venture and completely lost it.

The company Steve founded on leaving Apple in 1985, NeXT, was for most of its 11-year history a colossal, ghastly failure, hemmhoraging money and talent. I once met one of NeXT’s engineering leaders, a Frenchman who reported to Steve Jobs. When I wondered aloud what it was like to work for Steve, the engineer answered with one word: “Air-o-wing.”

I twice had to ask him to repeat what he said, and then finally understood him. It wasn’t inspiring or profound to work with Steve Jobs. It was harrowing.

What made NeXT a failure for many years was exactly what made Apple a success: Steve’s insistence on perfection at any cost led to delays in a product almost nobody could afford, that didn’t bother to work well with anything else. It is no affront to NeXT’s Linux-based operating system, now used by Apple, to say that if NeXT had been Steve’s first company, it would have been his last.

We often remember leaders like Steve for having made the right decision at the right time, but mostly people make the same decision at the wrong time and the right time: if Hitler hadn’t come along, Winston Churchill wouldn’t be remembered as the bellicose Brit who stood up to the Nazis in World War II, but as the bellicose Brit who ordered those poor Australians to “go over the top” of the World War I trenches at Gallipoli, costing 500,000 people life and limb and Churchill his job as First Lord of the Admiralty. All of us, especially the visionaries, can be like broken clocks, waiting to be right twice a day.

Technology is littered with examples of this. Consider the great Evan Williams, whose single-minded pursuit of self-publishing took a wrong turn at Odeo, a directory of podcasts, before he hit upon Twitter. I doubt Evan would have had the capital or conviction to overcome years of struggle at Odeo if he hadn’t already been successful with Blogger.

By the same token, I feel lucky to have co-founded Plumtree with Kirill Sheynkman and Joe McVeigh before running Redfin. The three of us supported one another in Plumtree’s early dark days until a surge of sales during the dot.com boom saved the company.

Had I tried to run Redfin first, it would have failed. I never would have had the credibility to hire the engineers to open our San Francisco office or to raise the money to keep Redfin in business.

Most important, without my Plumtree experience, I myself never would have had the confidence to keep going when Zillow and Trulia launched a national version of the map-based search website we’d created for Seattle.

We celebrate entrepreneurs who fail once and try, try again. But these folks are rare and often totally insane. Some of the most talented entrepreneurs I know started their first company at the wrong time, with the wrong people, or with the wrong idea; the primary lesson they draw from their own harrowing experience is never to try again. They will spend the rest of their lives at Amazon, Microsoft and Google.

In the hagiographies of entrepreneurs, we ignore people like that, trying instead to convince ourselves that DNA is destiny. The great technology writer Sarah Lacy made her name on her first book, Once You’re Lucky, Twice You’re Good, arguing that a second success only proves that what made you successful all along was being good, not just lucky. But this is the perspective of an observer, in retrospect, trying to make sense of a sometimes-random world.

If we’re being honest with ourselves, we know that you never get a chance to be good unless you were lucky first. Sometimes I wish I could convince my friends whose first entrepreneurial experience was hard that their main problem was just the order in which their work got published.

The post First You’re Lucky, Then You’re Good appeared first on Redfin Real Estate Blog.

He was in flip-flops and a t-shirt. The CEO was wearing slacks and a button-down shirt. The chairman looked at me once to say “excuse me,” then laid flat on the table a notebook of product sketches.

I gathered that an experimental change to the website had lifted revenue and so now the change would become permanent. “All is well!” I thought. But the co-founder wanted to know why the change wasn’t being expanded, so that its effect was five times bigger.

Challenging one another to grow faster is an essential dynamic. When Redfin was first raising money from Greylock, Reid Hoffman’s only question was about why we couldn’t grow faster. I bristled at the question until Redfin’s Sasha Aickin explained that it wasn’t a statement of dissatisfaction so much as a genuine question.

Once a company has figured out who its customers are and where to find them, what will be the factor constraining its growth? When a retail business first becomes a hit, for example, it can still only grow 30% per year because it can’t open stores fast enough. Redfin is, in some ways, like that because we have to hire local agents; in other ways we’re not.

But mostly in the virtual, venture-funded world, a major constraining factor for mid-stage companies is audacity: no one even asks Reid Hoffman’s question because the company is already moving so fast. At many companies, the designers would say it was enough simply to accept the website change, not to take it to its logical extreme.

With any big group, there is a tendency to compromise, to consolidate gains, to revert to the mean, to be like everybody else. In Greek tragedy, the chorus is the conservative voice of the community, and the chorus is always right.

But a startup isn’t always a tragedy, so as a CEO you’re always trying to figure out when you should be listening to that chorus, and when you should be listening to yourself. A co-founder can come between those two voices, walking into the coffee-shop of your mind to tell you that your crazy convictions should be crazier, or that they should be set aside.

I have read many times that any equity split between partners is fine except 50-50, just because of the power struggles 50-50 creates. This is often wise advice, particularly when a founder has pitch-perfect instincts and a dominant personality. But what most CEOs really lack for when running a new company is a partner, not a subordinate. And the result of a partnership at its best is not less conviction, but more.

Just look at the co-founders of Atlassian, a massively profitable pre-IPO company with over $100 million in revenues. In the baloney-gorged world of enterprise software, only Atlassian has always refused to hire any salespeople, instead driving revenue just by making its product easier and cheaper to buy. Its corporate motto, printed in the lobby of every office, is “Don’t f*** the customer.”

Where else did the co-founders get the conviction to be different, if not from each other? I recently had dinner with the two of them, equal partners after 10 years in the business, and at 9 p.m. stood up to catch a flight. What surprised me most about our night together was that they didn’t want it to end: “we’ll just stay here,” one said. “We have a lot to catch up on.” It was like watching an old couple steal second base in the back of a movie theater. They were so engrossed in talking to one another that they didn’t notice Francis Ford Coppola in the booth four feet away.

The beauty of a true partnership is why I actually love to see a co-founder with the same stake as the CEO. Redfin has at times been lonely, mostly because I pushed so hard that others could only push back. Redfin is much, much better off because it isn’t that way now.

When I get to the empty basement of our parking garage for the start of my bicycle ride home from work, I always feel a little blue that I didn’t get more done. But in the earliest years, I felt something else too: a strange, flooding feeling. For a long time I didn’t know what it was, but recently I realized it was relief, that I wasn’t a center of attention, someone always trying to sway others or being swayed.

Now as I pedal out of the basement and into the sudden sun of a Seattle summer, I often think about the co-founders in their own, private coffee shop, two people who had created their own solitude. The French say that newlyweds are “seulement a deux,” alone just the two of them. It’s probably a way that only true partners can be.

The post Alone, Just the Two of Us appeared first on Redfin Real Estate Blog.

Of course, both the financiers and engineers are right: the financiers have noted that Facebook’s revenues have been slowing, with display advertising revenue growing only 37% year over year; the company is trading at 70 times its likely 2013 earnings per share, where as Google is trading at 12 times its likely earnings per share, and growing ad-display revenue faster. At current overall growth rates, Facebook not surpass Google in revenue until 2036, yet is worth today half what Google is.

But the engineers know that Facebook has become a personalization and distribution platform for almost every major new web application. For example, when you use Facebook to log-in to Redfin, Redfin gets an enormous amount of information about who you are, so we can tailor our website to your needs. Redfin on Facebook is much better than Redfin by itself.

Facebook is thus the most valuable user network in the world, the most valuable database, and the most valuable developer platform. It is run by the best entrepreneur in the world. But Facebook makes money today from display advertising. The question is how large can a display advertising business be, and when will Facebook develop other ways to make money?

The largest display-advertising business that I can think of is a good but not great business: Yahoo has revenues only slightly larger than Facebook’s. Could Facebook’s display advertising revenue be ten times what Yahoo’s are today? One hundred times? Could Facebook ever make more money from display advertising than Google?

I don’t think so.

We think of Google and Facebook as both being in the advertising business, and Facebook as being the next Google. But users often come to Google with an intention of buying something, be it a cappuccino or a car; the ads Google shows are, for many users, indistinguishable from the search results and nearly as helpful. Facebook users on the other hand come to see photos and links from their friends, so the ads to the right of your Facebook feed are beside the point, and mostly just as lame as what I see when I visit Yahoo.

To reach $10 billion or $50 billion in revenues, Facebook will have to make money in other ways. We have always believed that the easiest way to make an enormous amount of money is the Steve Jobs way: build a beautiful product and, at some point, ask the people who love it to pay for it. For example, this is what we wrote in 2009 about Facebook:

I’ve often wondered why Facebook doesn’t just charge people to stay on its site, since that’s clearly the intent of their web development, and it’s clearly what their users want to do too. A Flickr-style fee for storing additional photos or messages could perhaps generate more than $1 billion in revenue, in a way far less intrusive to its users than Facebook’s past ad-related blunders. Maybe that will happen soon, too.

For now, I am glad that Facebook has focused on growing the cow, not getting more milk. The main reason Facebook has grown among users and developers alike is that it’s free, and the main reason people are excited about Facebook is because of its user and developer growth.

But when the financiers wonder where $100 billion worth of milk will ever come from, my guess is that it will come directly from Facebook’s most ardent users and developers, not just from its advertisers. Facebook just has to ask the people who love it the most for a little money.

The post Facebook Could Be Worth $100 Billion, But Not For Display Advertising appeared first on Redfin Real Estate Blog.

I thought of him recently because some folks from Mayor Mike McGinn’s office recently invited entrepreneurs from around Seattle to contribute ideas to a threaded discussion on how to nurture Seattle’s technology scene. We’re getting together Tuesday.

Some of the best ideas have been about education, especially Amy Bohutinsky’s proposal to create a technology-focused university campus at Magnuson Park. But others focus on lowering taxes for startups, or providing free office space and Internet access. Further south in San Francisco, Twitter, Zynga, Square, Uber and AirBnB have been asking for special tax breaks and rule concessions.

I for one am glad to see government and business working together. I don’t have much patience with folks who simply view business as evil, or, for that matter, who view government as evil. And I agree that Seattle’s taxes on revenues rather than profits aren’t especially helpful to new businesses of all stripes.

But I’m always surprised when high-tech companies lobby for tax-breaks or special treatment, a new phenomenon in an industry long remarkable for its spirit of self-reliance.

After all, Mark Zuckerberg flew over 30 states with lower taxes than California to locate Facebook’s headquarters in Silicon Valley — a decision now costing Facebook and its employees $1.5 billion in taxes. If he had to do it all over again, Mr. Zuckerberg has said he’d stay in Massachusetts, another notoriously high-tax state.

The reason of course that Mr. Zuckerberg prefers states like Massachusetts and California is mostly because of their abundance of educated citizens. When local governments and universities fail, Taco Bell gets more employees. When they succeed, Twitter gets more employees. Tax breaks and rule concessions don’t have much to do with it.

And venture-funded startups can afford the taxes. We don’t need special treatment from the government, because we’ve already already got it from computers and investors. A thousand years from now, historians will marvel that the cost of capital hit historic lows sometime around 2012.

This is why I have a hard time with the usual line: that startups deserve special treatment because we play a special role in creating jobs. If AirBnB is such a great deal – and let’s face it, it really, really is – then the people using it to rent rooms should be able to pay the tax that San Francisco levies on tourists who stay in every other type of bed & breakfast or hotel.

If one of my favorite online services, Uber, believes the rules that govern taxi medallions are twisted and wrong – I’ve met dozens of immigrants who have saved their whole lives to buy one, and dozens more running the most desperate gypsy cab outfits without the benefit of a beautiful iPhone app — then let’s dispense with medallions entirely. When anyone, not just Uber, can offer door-to-door service without a license, believe me, consumers will benefit.

And if Amazon is going to become the world’s largest retailer, it’s going to have to charge its customers sales tax, just like all the bookstores and Best Buys it has put out of business. I will happily pay it.

The idea of fairness, which studies have shown even a dog can understand, is so powerful that most writers sidestep it entirely, arguing instead that hot startups can make the rules, even unfair rules, because they’re the ones with the money. This is the take-our-toys-and-go-home argument that the great Sarah Lacy has, with her usual panache, perfected:

You want to say companies [like Twitter and Zynga] are greedy and just not “paying their share”? Fine. Then if you believe they are greedy, believe they’ll move. Do you want the jobs or not? Because a neighboring city will take them. Any city in the country would take them.

The problem with Ms. Lacy’s tough talk is that startups aren’t actually that tough. As the co-founder of one of the first-generation San Francisco startups that went public, and the CEO of another company with a big San Francisco office, I know the costs and benefits of staying in San Francisco as well as anyone. Yes, Ms. Lacy is right that half of San Francisco’s Kafkaesque laws should be thrown out; but even if they aren’t, I am certain that Twitter, Redfin and other growing startups won’t move.

No founder considers the tax climate when deciding where to start a company, only where he and his fellow engineers and product managers want to work. And once a company is up and running, no one except Eduardo Saverin would move the team just to save on taxes. If Twitter absconded to Burlingame or Pleasanton, half the company would quit rather than commute.

A business-friendly government like those of mayors Ed Lee and Mike McGinn can certainly make cities more business-friendly, but the trend today is already their friend. Now that so few technology companies actually manufacture chips, wafers or gadgets — and now that money is cheap, recruiting is paramount, and rent is a tiny fraction of a startup’s overall costs — we are entering the age of startups and the city, not the suburb.

If you want to hire young, brilliant people, especially the designers now in shortest supply, you have to be in a city, or operate a private shuttle service to and from a city. We could dismiss San Francisco as a fluke, but just look at the startup scene in New York. Startups are in cities because that’s where the smart people are, and the startups are willing to pay for it.

My real issue with our demands of government, however modest those demands may be, is fundamentally aesthetic. At a time when some cities can’t pay to pick up the garbage and Facebook went public for over $100 billion — you hear charges that Occupy Wall Street is simple class warfare, but if it were, someone would be Occupying Facebook even as we speak — why ask for more? The whole reason I was drawn to Silicon Valley was that it seemed like an enclave from a culture of entitlement. Everyone else complained about something at the school I went to, U.C. Berkeley, but startups actually changed it.

Now we characterize anyone who opposes our request for special treatment as participants in a sinister lobby, and cast ourselves, the economy’s primary beneficiaries of state-subsidized education – and the controllers of the most powerful communication channel in world history — as powerless. It’s easy to get in the habit of nursing injuries and sticking your hand out, but we’ll be better off if we avoid it.

Some day, I hope technology companies can invite governments to a forum, asking not what our country can do for us, but what we can do for our country.

The post Since When Did We Become a Lobby? appeared first on Redfin Real Estate Blog.

Before even looking up, I responded: “WHY DON’T YOU GO F*** YOURSELF?” Then I saw my neighbor, still so stunned he hadn’t quite erased the jolly, just-joking expression from his face, sitting behind the wheel.

My wife later reminded me that since our street diverts cars one block to the north and two to the south, I didn’t even have to look up to know that the only possible target for my bizarre spasm of aggression was someone I’d see every week for the next decade.

When you think about it, your whole life is like that street, much shorter than you once imagined, almost entirely populated by people you’ll meet over and over again.

But for a long time, I didn’t think about it. Until I was 15, my twin brother and I began every fall term by apologizing to our assembled friends for the way we were the year before, as if the coming year could make everyone forget the fleas we occasionally picked up from our dogs, or our tendency to yank on one another’s headgear in tussles.

It wasn’t until I was a hiring manager who called job applicants’ references that I considered how long people would remember all the ways you act up as an adult. I began to reflect on my greatest hits. It was like hearing your own voice on an answering machine, except instead of taking 30 seconds it seemed to take 30 years.

I now see amazing job candidates, some better qualified to run a business than I am, dismissed with the slightest gesture by some dude we dug up from LinkedIn. “Can you send us a few thoughts about working with Jerry?” we ask in a note. The message back makes the rest a formality: “Can I call you instead?”

When you’re younger, you never wonder what would be said about you in such a phone call. The whole world is a vast frontier, a life without consequences. You rage through it like an instinctive animal. If you think you’re good at something, especially at a software start-up, you let everyone know it.

But then you get to the end of the street and have to double back again.

The post Life on a Short Street appeared first on Redfin Real Estate Blog.

We have, I told our investors, given away $100 million because of my irrational belief that

1. Redfin was put on this earth to make real estate better, and that
2. One of the simplest ways to make real estate better is to give consumers more value.

The problem with the refund is that it’s like the tooth fairy: nobody really believes in it until a gift shows up under the pillow. The first act of a rational CEO,  I said, would be to keep the service exactly the same and eliminate the refund entirely.

The line was silent. Then Austin Ligon, the founder and former CEO of CarMax, asked an unexpected question: “Can you name a great consumer brand that was built by someone completely rational?”

I thought about one of my heroes, Ted Turner, who once broke through a stalemate with stunned Japanese businessmen by removing his clothes one article at a time. He publicly described TimeWarner’s decision to shut down CNN’s cash-hemorrhaging foreign offices as a clitorectomy.

I remembered that Nike was so committed to its athletes that it paid for Tonya Harding’s legal defense after her goons clubbed a competing figure-skater in the knee. I thought about Whole Foods’s concupiscent piles of fruit, which are, like someone you fall in love with, so much better than they have to be.

Wouldn’t a more calculating business skimp on the strawberries?

The problem with rational decision-making is that you can’t ask consumers to have an emotional connection to your company if you yourself aren’t guided by emotions. When the only basis of your identity is an elaborate calculation of self-interest, you have no identity at all.

Nobody cared about Han Solo until he rode after Luke into a snow-storm yelling “Never tell me the odds!” And nobody will care about your company if you don’t take a similar stand. This is why Steve Jobs hated the word “brand,” because Apple’s identity was an authentic expression of himself, not a calculated construction of the marketing department.

What this cynical, jaded, spun-out, over-hyped world is still famished for after all these years is a reason to believe. Belief is such a deep need that we find ourselves developing tearful, fierce relationships with silly little products and then feeling like dupes when we find out how cynical their manufacturers can be.

Our need to believe is why investment bankers, who are so good at making money as investors, are almost always terrible at making money as the CEOs of consumer companies. They always do the math.

The problem is, that I do too. It’s easy to be crazy, but not after you know you’re crazy. Why did Redfin go to the trouble of figuring out how many people the refund put off, and how many it drew in, if we were just going to ignore the result?

I don’t know. What’s really hard about this job is knowing when to be crazy and when to be calculating, because you can’t just be one or the other. It’s certainly easier to be calculating. It takes confidence to ignore numbers, to set aside focus groups and advisers, and do what you believe in, because then the only person you’ll have to blame for your craziness is yourself.

But if I met my old self, the one just starting out in a consumer Internet business, the first advice I’d give him would be: have the courage of your convictions.

We do this all the time outside of business, without thinking a thing of it. A lovely friend of mine once broke up with someone because he wasn’t a little crazy. How, she asked, could she be crazy around someone who was always totally, maddeningly normal? Then she said, “That’s crazy right?”

I told her it was the only completely sane thing she’d ever said.

The post Never Tell Me the Odds appeared first on Redfin Real Estate Blog.

I asked Chris if we could publish his letter and he said yes. With his permission, we are removing one sentence about Redfin’s high-end listing business just because it has a lot of inside baseball, and another sentence about Costco’s supplier relationships that is probably sensitive to Costco.

When I asked for a picture of Chris to accompany this post, he said he doesn’t have one of just himself, without the kids. So you’ll have to take my word for it that he’s a very handsome man. Other facts to know about Chris:

• He told me when my first child was born that I should get pictures of him with Santa every year until we are 18. When my second child was born, he made a comment about the child’s name that persuaded us to change it.
• Even though Chris is our top dog in finance, he reviews phone bills, expense reports, invoices for unreasonable charges.
• Chris makes 100 suggestions per month about how Redfin could be better, and just about all of them are right on. He travels around the office with binders of materials that have every known fact about our business since inception, and shuffles through them to make his points. Often, the first premonition that I have said something wrong in a board meeting is the sound of Chris rifling through his binders. Do you know how rare it is to find someone nitty-gritty and strategic at the same time?

In short, we would be lost without Chris! I hope you enjoy hearing what he has to say about Redfin’s strategy.

*~*~*~*~*

From: Chris Roske

Sent: Wednesday, March 21, 2012 4:43 PM
To: Glenn Kelman
Subject: FW: Costco note

Glenn, I enjoyed your blog on Costco. I am somewhat passionate about Costco (my wife would not use the word somewhat) and feel in many ways that the more Redfin is like is Costco the greater our ultimate success will be. I think Costco goes beyond the customer experience. I think the key to their success is value and the trust that is developed by putting the customers interests first. I think Redfin shares many of these same traits and certainly is the standout leader in the Real Estate Industry and can be just as successful as Costco. I think the market value of both Redfin and Costco is based on the customers trust that has been earned and potential to earn it in the future. I apologize if this rambles but I love the fact we have a lot in common with Costco and I think we can still learn from them. I also appreciate the opportunity to share my thoughts with you and take this with a grain of salt as I have a bias (likely irrational bias) to how Costco operates. You do not have to reply.

My passion for Costco:  We own some Costco stock, first buying more than 20 years ago, and are a loyal customer. Because their value proposition is so strong they have insulated their business from the competition by keeping their business simple and their focus on value for the customer, I am confident the business will continue to create great value for shareholders.

Value: The reason I do not sell Costco stock is exactly the same reason I bought it back then.  It’s simple.  There is simply not a more efficient way to sell goods than their model and other retailers cannot match their ability to provide superior value to their customers.

Costco’s profit is basically its membership fees, as it essentially breaks even on the sale of goods. Thus, competitors who make their profit on the sale of goods always have to charge more in aggregate. Costco also has great purchasing power in that it limits the number of goods in a store.  This provides greater  leverage with supplier pricing as there is competition to get products into a warehouse.

Redfin perspective: We offer great value with the team approach and agents spending time working with customers, not marketing. This is a core value proposition and it is clearly a huge differentiator. The team approach is more efficient and gives us a huge advantage in the market.  Our ability to make our agents much more productive is the same advantage Costco has with its efficient warehouses. Redfin Open Book is another great opportunity to leverage our buying power with service providers to provide a benefit for our customers from both a quality and pricing perspective.

Trust: Costco strives to earn customers’ trust and all actions align with this goal. Costco does not sell anything unless it can offer a better value. It never markups any national brand more than 14% and limits the private label markup to 15%. Customers also can return anything. This provides customers with great confidence in purchasing at Costco. They may find an individual item less expensive somewhere else, but on a cart full of items, you are almost always going to be better off buying at Costco. Costco values customers’ trust so much that it is incredibly resistant to raising prices. If it raised prices just 2.5%, its profits would double and result in short-term increases in the stock price. However, if Costco had done this 20 years ago, I doubt the company would have the market value it has today.

Redfin perspective: Our 100% guarantee and no-commitment stance on working with us is similar to Costco. Our incentive pay does align the agents’ interest with the customer. However, our ability to create trust is much more difficult than Costco’s because it depends on individuals providing a service that is personal in nature. Our employee model gives us a great opportunity to be better than our competition by our ability to standardize best practices and not accept anything less to create this trust.  You have recognized that this can be a huge differentiator for us and the emphasis on training will help.  However , we need to commit to consistency of quality service across all markets. On the pricing aspect, no business is as disciplined as Costco and long-term Costco has certainly benefited by keeping price increases to a minimum. Costco also benefits from a pricing philosophy that is simple, consistent and transparent and it is important that Redfin remain committed to this.

Marketing: Advertising does not provide any benefit to the customer so Costco does not do it. It is a cost that needs to be passed onto the customer. Costco’s  marketing is usually limited to contacting employers to encourage employees to sign up for Costco memberships.

Redfin Perspective: This is a hard one because we originally adopted this stance but competition has forced us to use marketing and it makes sense for us. The event marketing is incredibly consistent with Costco because it does provide a benefit for our customers. I understand we need to let marketing do what marketing does but it is a different philosophy than Costco’s and can even reduce the customer or potential customer’s trust if this is abused.

High-end Customer: I think it has been very key to Costco’s success that it  was accepted by the high-end customer first. Costco got lucky in that they originally appealed to small business owners and once it was acceptable for them to shop for values in warehouse, it was acceptable for everybody and even became trendy.

Redfin Perspective: We have made some inroads but in my opinion, Redfin could learn from what I think has been a key part of Costco’s success. I know Redfin wants a standard level of service that is high for all customers, but let’s make it higher for higher-end buyers. A home-run customer experience gets shared and the power of our brand grows. If it can be cool amongst high-end buyers to use Redfin, we will find it easier for moderate-priced buyers to follow suit. It is much harder to go from the low-end market to the high-end. As you know, the Japanese auto companies created different brands because this is such a challenge and Windermere’s local significant market share can at least partially be attributed to the fact they started off serving expensive neighborhoods.

Expansion: Costco has always had a conservative approach to physical expansion. It typically owns rather than leases, looks at demographics and has a bias toward lower-risk infill over new markets. It also only goes into markets where the cost of building a warehouse is low enough to support its business model. It also often goes in to new markets with more than one warehouse or at least plans for more than one, to leverage its marketing efforts. Finally, when Costco goes into a market, it engages in pre-marketing with free memberships. It has also had success introducing ancillary businesses like travel, pharmacies and gas that encourage more visits and are consistent with its value proposition

Redfin Perspective: Redfin has followed Costco’s strategy of selecting markets and done a good job in going after more desirable markets first. The new strategy of ramping up our PR and Marketing campaigns as we enter new markets in order to make a bigger splash is consistent with what Costco has done. Redfin’s consistent value approach into ancillary businesses is similar to Costco’s.

Perspective on Overhead: Costco focuses on keeping costs to a minimum. It has modest headquarters, low marketing and basically tries to minimize costs that do not directly benefit the customer.

Redfin Perspective: Redfin does a good job on this  because you think it is important, however it is becoming more difficult as we grow. I am conservative and am concerned as overhead costs increase more than transaction growth.  I believe Costco would argue that despite its size ($89B), the business  is pretty simple and does not require huge overhead to manage.

Perspective on Customers, Employees and Investors: Costco values its customers first, followed by employees.  Its strives to deliver stockholders a attractive but not fantastic return. Everything flows from the customer value proposition. It takes care of its employees with higher pay and benefits, but expects more out of them than other employers. This higher pay makes it a desirable place to work. Further, there is a culture of hard work that permeates the organization and it rewards that hard work. Also, the lack of turnover is a huge competitive advantage in an industry that has high turnover. Finally, the goal for stockholders is a strong, consistent annual return which Costco achieves by growing profitability and revenue.  Given the loyalty of Costco’s customers, I am confident they will continue to deliver a strong return.

Redfin Perspective:  Redfin leads the industry in watching out for our customers. Our customers recognize that. I do get concerned when we spend time and resources on initiatives that don’t deliver value to our customers. As far as employees, like Costco, Redfin does a great job of providing benefits to a class of employees who normally don’t get them, of promoting from within and you clearly have the employees’ best interests at heart. The stockholder comparison is irrelevant because of our maturity, investors… but I think the fact the value of the company is based on customers trust that has been earned and potential to earn it in the future is a common trait between Costco and Redfin.

Thanks again,

Chris

The post Roske Speaks: Redfin Should Be More Like Costco appeared first on Redfin Real Estate Blog.