Lessons from Bill Gurley

Venture capitalist Bill Gurley, a general partner at Benchmark, is renowned for his insightful analyses of technology trends and his profound advice for startups. His writings and presentations, including the acclaimed "Runnin' Down a Dream," offer a wealth of knowledge for anyone navigating the competitive landscape of innovation.

On Investment Philosophy and Strategy

"It's called asymmetric returns. If you invest in something that doesn't work, you lose one times your money. If you miss Google, you lose 10,000 times your money. You have to orient yourself toward, 'What could go right?'."[1] This highlights the venture capital mindset of prioritizing potential huge wins over the fear of smaller losses.
"Being 'right' doesn't lead to superior performance if the consensus forecast is also right."[2] True investment success comes from having a variant perception that proves to be correct.
"Have strong opinions, but loosely held." In the dynamic world of venture capital, it's crucial to have conviction in your beliefs but also the flexibility to change your mind when presented with new evidence.[3]
"The minute you set a very hard rule, you might be setting yourself up for a mistake."[2] Gurley cautions against rigid investment formulas, as some of the best opportunities often defy conventional wisdom.
"All the great investors I've ever studied have felt macroeconomics is one of the silliest wastes of time possible."[2] The focus should be on individual company and market dynamics rather than broad economic predictions.
"Venture capital is unscalable. Production equals the time each partner has."[4] This speaks to the hands-on, relationship-driven nature of successful venture investing.
"If you can't sell, venture capital is not a good industry to be in."[2] The ability to champion your portfolio companies and your firm is paramount.
On missing Google: "The biggest mistake I ever made is I met Larry [Page] and Sergey [Brin] when they had 25 employees at Google and had them present to my partnership, and we didn't follow through and try to invest."[5] This serves as a powerful reminder of the potential cost of inaction and the importance of recognizing game-changing companies early on.
"Truly great products are bought, not sold." Look for companies whose products have such strong pull that they don't require a massive sales and marketing engine to gain traction.[2]
"All revenue is not created equal." Gurley emphasizes the importance of high-quality revenue streams, such as those with recurring revenue and high margins.[2]

For Startups and Entrepreneurs

"Focus on Product and Team, Not Hype." Entrepreneurs should concentrate on building a superior product and a strong team rather than getting caught up in external validation.[3]
"Patience, Discipline, and a Strong Framework" are critical qualities for successful entrepreneurs.[3] It’s about methodical execution, not just chasing every opportunity.
Understand Industry Structure. Many entrepreneurs focus solely on their technology without analyzing the market they are entering. A brilliant product can fail if the go-to-market strategy is flawed.[3]
Prioritize Strong Unit Economics. A sustainable business must have a clear path to profitability, where the cost to acquire a customer is significantly less than the revenue that customer generates.[6][7]
Value Customer Satisfaction. A loyal and happy customer base is a powerful engine for sustainable growth.[6][7]
On layoffs: "I hate the 5 to 10 percent layoffs. You don't get any material impact to lowering your expenses. Yet you get all the cultural negatives of having done a layoff."[8] If cuts are necessary, they should be decisive and substantial enough to make a real difference.
"If you are going to focus on one thing, focus on conversion rates." This metric is a direct indicator of whether your offering is resonating with customers.[2]
"Expansion isn't always a good thing." Gurley’s firm, Benchmark, has remained focused and relatively small, a lesson for startups to not equate growth with success.[2]
Acknowledge luck. While hard work is essential, external factors and timing play a significant role in a startup's success.[2]

The Foundation: "All Markets Are Not Created Equal"

Gurley's 2012 blog post, "All Markets Are Not Created Equal: 10 Factors To Consider When Evaluating Digital Marketplaces," is considered required reading for anyone building a marketplace. It outlines his core framework for assessing their potential.[1][2]

"Great marketplaces do not simply aggregate a market; they enhance it." They should leverage technology to create a user experience that was previously impossible.[2]
On Economic Advantage: A successful marketplace should offer a better economic deal for both buyers and suppliers. As an example, Gurley notes that with Airbnb, "the income is 'found money' that simply didn’t exist prior to the marketplace. And in many cases the consumer receives a better price as well."[2]
"Opportunity for Technology to Add Value." Technology should be a core competency, enhancing the user experience and creating a defensible advantage.
"High buyer and supplier fragmentation is a huge positive for an online marketplace." Marketplaces thrive when they can aggregate a large number of small players who would otherwise have difficulty finding each other. Gurley believes that in consolidated industries, the marketplace has no bargaining power.[3]
Low Friction of Supplier Sign-Up: Gurley notes that the ease of onboarding new suppliers can significantly impact a marketplace's ability to scale.
Size of the Market Opportunity (TAM): While a large Total Addressable Market is important, Gurley cautions that, "if all the other factors are negative, it will not matter that the market is large. Some markets are crappy candidates for marketplaces."[2]
Ability to Expand the Market: The most revolutionary marketplaces don't just take a piece of the existing pie; they make the pie bigger. "This has been the revolutionary impact of a company like Airbnb. They didn’t just replace hotels, they 100x’ed the market."[1]
Frequency of Use: Higher transaction frequency leads to stronger customer relationships and a higher lifetime value.
Being in the Payment Flow is Superior: "It is much easier to extract reasonable economics when you are in the flow of payment."[4] When a marketplace has to send a bill later, it can feel like a "tax" to the supplier.[4]
Strong Network Effects: "With each step, it should get easier to acquire the incremental consumer AS WELL AS the incremental supplier."[2] For Gurley, this is the holy grail. He gives the example of Uber, where more drivers lead to shorter pickup times, which in turn attracts more riders, creating a virtuous cycle.[2]

On Liquidity and Network Effects

For Gurley, achieving liquidity is the paramount goal for a new marketplace.

"Highly liquid marketplaces naturally ‘tip’ towards becoming a clearinghouse where neither the consumer nor the supplier would favor an alternative."[2]
Focus on "Liquidity Quality": In an interview, Gurley emphasized that it's not just about the breadth of a marketplace, but the quality of the experience. He cares "way more about that than I do how broad you are."[5]
"Aggregating demand is much harder and more critical" than aggregating supply. While you need suppliers, the real challenge and value lie in attracting the buyers.[2] To Gurley, "demand is the game."[3]
On Recognizing True Network Effects: Gurley cautions that the term is overused. He suggests a simple test: "If it's a two-sided network, do one graph for the supplier and another one for the consumer," with the y-axis representing value and the x-axis representing market penetration. If the curve goes up and to the right, you have a network effect.[3]

On Monetization: The "Rake"

Gurley has written extensively about the "rake," or the percentage a marketplace takes from transactions.

"The most dangerous strategy for any platform company is to price too high." An overly greedy rake can undermine the entire platform.[6]
"There is a big difference between what you can extract versus what you should extract."[7] This highlights the long-term thinking required for sustainable marketplace success.
High Rakes Invite Competition: Drawing on Peter Drucker's "Five Deadly Business Sins," Gurley warns that the "worship of premium pricing always creates a market for the competitor."[6][8] A high rake creates a price umbrella for a new entrant to undercut.
A High Rake Can Lead to Disintermediation: If the fee is too high, buyers and sellers will be incentivized to transact "off-platform" for future interactions after their initial match.[7]
The Rake is a Powerful Strategic Lever: Gurley points out how a lower rake can be a disruptive weapon, as seen in Amazon's strategy with the Kindle, where they planned to "subsidize the hardware platform and live solely on the content margin."[6]

On Marketplace Dynamics and Strategy

The Rise of Vertical Marketplaces: Gurley has noted that "a deeper focus on a particular category or vertical allows these marketplaces to distinguish themselves from broader marketplaces like eBay."[9]
Vertical Labor Marketplaces vs. LinkedIn: Gurley sees specialized labor marketplaces as a more evolved service than broad professional networks. He argues that for professionals on these platforms, their "reputation on the vertical service matters way more than your profile on LinkedIn."[9]
The Challenge of Labor Marketplaces: Gurley has pointed out a key difficulty in labor marketplaces: the value doesn't necessarily increase significantly after reaching a certain level of supply penetration, making strong network effects harder to achieve.[3]
Unlocking Wasted Potential: A key benefit of many successful marketplaces is that they "unlock wasted potential of assets," as seen with Uber and underutilized cars, and Airbnb with spare rooms.[9]
The Power of Unlocking Economic Wealth: Ultimately, Gurley sees marketplaces as powerful economic engines because "in connecting economic traders that would otherwise not be connected, they unlock economic wealth that otherwise would not exist. In other words, they literally create 'money out of nowhere.'"[9]
The Importance of Trust: For marketplaces to thrive, especially those involving real-world interactions, building trust is paramount. This can be achieved through reviews, identity verification, and secure payment systems.

Learnings from "Runnin' Down a Dream"

In his presentation, "Runnin' Down a Dream: How to Succeed and Thrive in a Career You Love," Gurley outlines a practical guide for achieving professional fulfillment and success.

"Greatness isn't random, it's earned."[9] Success is the result of deliberate effort and preparation.
Find Your Deep, Personal Interest. Instead of the overused term 'passion,' Gurley suggests focusing on what genuinely interests you, as this will fuel the hard work required for success.[9][10] "There's nothing that's going to make you be more successful than if you love doing what you're doing because you're going to work harder than anybody else…It's going to feel like fun."[9][11]
"Everybody has the will to win. People don't have the will to practice."[10][11][12] This quote from Bobby Knight is a favorite of Gurley's and serves as a test to see if you truly enjoy the process of honing your craft.
Hone Your Craft Constantly. Become a student of your field. Be obsessive about learning everything you can.[10][11][13]
"Strive to know more than everyone else about your particular craft…you have zero excuse for not being the most knowledgeable in any subject you want because it's right there at your fingertip, and it's free…"[9] The internet has democratized access to information.
"It's extremely important to be obsessive about understanding everything you possibly can about your craft."[9][10]
Study the History and the Pioneers. Understanding the foundation of your field will provide a stronger base for your own contributions.[11][13]
Develop Mentors in Your Field. Seek out people who have achieved what you aspire to and learn from them. "Take every chance you can to find somebody who can teach you about the field you want to excel in."[9][12]
Document What You Learn from Mentors. Take notes and share them with others.[12][14]
Embrace Your Peers. Your peers are a valuable source of learning and support. "Don't worry about proprietary advantage. It is not a zero-sum game."[12]
Celebrate the Accomplishments of Your Peers. This fosters a positive and collaborative environment that will benefit you in the long run.[12][14]
Always Be Gracious and Pay It Forward. "Give the majority of credit to other people that helped you. It is the right thing to do. It will keep you from being an asshole."[12]
Humility is Key. Acknowledge the help you've received and be willing to help those who come after you.[14]
Go to the Epicenter. If you want to be the best in a particular field, it often helps to be where the action is, as it provides more networking opportunities.[10]
Twitter as a Learning Network. Gurley highlights Twitter as an incredible tool for learning from and connecting with experts in any given field.[12]
Don't Chase Status and Compensation. If you're not passionate about the work, you'll eventually burn out, regardless of the external rewards.[11][13]
You Can't Fake Passion. Someone else with a genuine passion for the same field will outwork and outperform you.[11][13]

Additional Insights

"Over the past 10 years, the majority of value creation in the venture community has been in consumer Internet."[4][15] This points to his focus on large, consumer-facing markets.
"No one's fearful, everyone's greedy, and it will eventually end."[4] A classic Gurley warning about the dangers of market bubbles.
"Silicon Valley is way more correlated with Nasdaq than anyone admits."[4] He often reminds the tech world that it is not immune to broader market forces.
"Marketing executives like big budgets, as big budgets make it easier to grow the top line."[4] A cautionary note to look beyond top-line growth and examine the efficiency of marketing spend.
"The future doesn't matter if we don't get there."[16] A pragmatic reminder to focus on surviving the present before dreaming about the future.
"Most revolutionaries don't become the best leaders. They become fascists."[16] An observation on the personality types that can disrupt industries versus those that can effectively lead and scale companies.
On the shift to hybrid work: Gurley sees the challenges and opportunities in creating new tools for collaboration and productivity in a hybrid work environment as a significant area for innovation.[8]
"You can't make money with a consensus accurate prediction."[4] Echoing his theme of needing a differentiated viewpoint to achieve outsized returns.
Be wary of rules of thumb. The venture capital world is full of exceptions, and blindly following rules can lead to missing out on great opportunities, as was the case with not backing academics as CEOs in the early 2000s, which led to Benchmark passing on Google.[1]
"Life is a use or lose it proposition."[13] This quote from his partner Kevin Harvey, which Gurley shares in "Runnin' Down a Dream," encapsulates the urgency of pursuing a career that brings you joy and fulfillment.

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