SPEND ENOUGH TIME AROUND Silicon Valley, and you’ll start to hear a funny acronym: OPM. Particularly if you’re hanging around with battle-scarred entrepreneurs with a couple of startups under their belts, OPM will pepper conversations about early-stage companies. Sometimes it’s used in the context of sage advice: “You want to know the most important principle of starting a company? It’s OPM.” Sometimes you’ll hear it as a cautionary warning: “I know you’re confident, but please stick to OPM.” Sometimes it’s just a mantra, repeated as part of a kind of yogic practice in the conference rooms of office parks across the land: “OPM, OPM, OPM.”
What’s OPM, you might ask? Just a bit of startup slang.
Other People’s Money.
When entrepreneurs implore you to remember OPM, what they’re saying is: When it comes to financing your dream, use only other people’s money. Entrepreneurship is risky, and you want to ensure that the only skin you have in the game is…well, your actual skin. You’ll be dedicating your life to your idea. Let others dedicate the contents of their wallets.
By dedicating my time—not my money—to our DVDs by mail concept, I was following my own OPM advice. Reed wasn’t. He’d agreed, as we’ve seen, to put up $2 million of his own capital as seed money. But after a few weeks, he reconsidered the amount. He didn’t have cold feet, exactly. But he didn’t want to be the only backer.
“I like the idea, but I’m worried we might be in an echo chamber,” he said.
“You’re worried about us getting stuck up our own asses,” I said.
Reed nodded. “You do have a tendency to get high on your own bullshit.”
“It’s not bullshit if you believe it,” I said.
That’s true, by the way. For most of my career, I’ve gotten flack before for my boundless faith in whatever it is I’m selling. Even before Netflix, I’d convinced more than a few people to take pay cuts to work for me, to leave steady work to hop aboard a startup with a slim chance of survival. But in every case, I wasn’t just spewing hot air. Whether it was the latest generation of spreadsheets or DVDs by mail, I genuinely believed in what I was selling.
I had absolute faith in what Reed and I were doing. But I saw his point. Asking other people for money forced us to allow other voices into the room—to listen to people outside the Pure Atria offices or Reed’s Avalon. It forced us to validate the idea.
That’s another benefit of using OPM: before you pour your life into starting a company, it’s not a bad idea to get just a little bit of reassurance that you’re not completely out of your mind. Convincing someone to part with their money tends to separate those who are blindly supportive (“I love that idea!”) from those who are supporting you with their eyes wide open. I often counsel young entrepreneurs to start by asking people what they think, but then immediately follow up the inevitable “I love it” reply with the ask: “Can I count on you to invest a few thousand dollars?” The backpedaling is so fast and furious that it makes Lance Armstrong look like my grandmother.
Plus, it’s never too early to be in contact with future investors you might need later, when you’re raising your next round of funding. The “seed” in seed funding usually refers to the business, newly planted and hoping to grow. But it also refers to investors, who are getting in on the ground floor.
In the end, Reed reduced his original $2 million pledge to $1.9 million. We would reach out to others for the remaining $100,000.
I should start by saying that asking for money is hard. Really hard. But it’s nothing compared to what it feels like to beg for spare change on the sidewalks of Hartford, Connecticut.
When I was in college, I spent two months each summer leading thirty-day backcountry expeditions for the National Outdoor Leadership School (NOLS), a wilderness program that uses the wilderness to teach leadership skills. As a young adult I spent months in the mountains with NOLS, as have my own children, and I’ve remained involved with the school to this day. The program teaches self-reliance, teamwork, and wilderness skills, and has taken me everywhere from the rivers of northern Alaska to the glaciers that ring the peaks of Patagonia. I owe it a lot. It taught me discipline and self-reliance, and imbued in me a healthy respect for the natural world. It taught me knots, navigation, and how to catch a trout with my bare hands.
Almost everything I ever learned about being a leader, I learned with a backpack on.
In those college summers, I’d usually spend the third month recuperating at home and visiting family. But the summer after my junior year, I picked up some work at an outfit whose official name was the Wilderness School. Unofficially? They called it “hoods in the woods.” Not politically correct, and, as it turned out—not factually correct, either. While the kids were in fact adjudicated youth, most of the ones I met that summer were bright, curious, and well behaved. But a catchy name sticks.
My friend, a documentary filmmaker, was making a short film about the program, and he needed somebody to carry around his food, supplies, extra film, spare batteries, a boom mike, and a twenty-pound Nagra tape recorder. (This was 1979—way before camcorders.)
I was technically a sound guy for a documentary film. But really? I was a mule.
Still, after that month in the woods, something resonated. I signed up to work the following summer for the Wilderness School as an instructor.
The Wilderness School took inner-city kids from disadvantaged areas in Hartford, New Haven, and Stamford and introduced them to wilderness exploration. Many of the kids in the program had never been outside their city—had barely stepped off a sidewalk. The program had them canoeing rivers, climbing cliffs, and hiking the trails of the Catskill Mountains. It taught basic outdoor skills—how to start a fire, how to build a shelter, how to purify drinking water—as a way to teach leadership and teamwork. But the real objective was to put the kids in situations that seemed impossible, and prove to them, over and over, that they were capable of much more than they imagined.
Working for the Wilderness School taught me a lot about humility. Like most of the other leaders and instructors, I grew up in a leafy suburb, a child of privilege. On the surface, we didn’t have much in common with the kids we’d be leading into the woods. Most of us had grown up well fed, with secure housing and plenty of money. Many of these kids had endured homelessness, unstable housing, and hunger.
Taking a kid who had never left Hartford—who had grown up in poverty, who had already endured more deprivation than I would ever know—and dropping him into the woods outside Cornwall or Goshen was a huge change, to say the least. To help us better understand what a shock this kind of experience could be, the Wilderness School gave us a number of different training experiences, each designed to be similarly disorienting for us. All of them took place in the cities—Hartford, Stamford, New Haven—where our students were from. All of them were engineered to make us as uncomfortable as our charges.
The most impactful of these exercises? Blindfolding us, driving us to a random intersection in Hartford, confiscating our wallets and watches, and telling us that we’d be picked up in three days. No food, no water, no prearranged place to sleep. Just a phone number written on our arm, in case we decided to give up. It went without saying that all of us would rather freeze to death under an overpass than admit defeat and call it.
I was dropped off at the corner of Charter Oak and Taylor at 5:00 p.m. on a Tuesday. At first it didn’t seem that different from a regular afternoon in any city. I’d eaten a late lunch, so I wasn’t worried about hunger. My map-reading skills came in handy, and I was quickly able to locate the Connecticut River. I knew how to survive in green spaces. When night came, I improvised a shelter with a trash bag and some fallen tree branches. The night was warm, and when I couldn’t sleep, I walked down to the river and talked myself into a few beers with a group of teenagers partying down there. I didn’t particularly want to stay up until sunrise with them, drinking the night away—but I knew that beer had enough calories to stave off hunger. And it would pass the time.
When I woke up the next morning I was starving. I hoofed it into town, drawn by the unmistakable odor of fried food, and wandered into a downtown food court. I circled the tables like a vulture, trying to work up the courage to ask someone to buy me a breakfast—or at the very least give me one of their bagels. But then I had a different idea. Why bother to ask? Instead, I watched businessmen scarf down Egg McMuffins and bagels, waiting for them to leave so I could discreetly slide into their seat. I didn’t fish anything out of the trash, but I was not above scavenging a plate of half-eaten hash browns. I was like one of the pigeons crowding the plaza, alert to every sign of movement. I was also very aware of the way people looked at me—or pointedly didn’t look at me—as I went in for other people’s scraps.
I had never been looked at like that before.
By dinner on that second day, my stomach had curled into itself from hunger. Half-eaten pizza just wasn’t going to make it. I needed to cut out the middleman, get myself a few dollars, and buy myself something. I needed money. People had it. And all I had to do was walk up to them and ask. I caught a glimpse of myself in a bank window, saw my reasonably clean, preppy, East Coast clothes, my still relatively clean-shaven face, and asked myself: How hard could it be?
Answer: very hard.
One of the ways people measure a marketing or sales assignment is by analyzing the difficulty of the ask. What are you asking for, and what are you promising in return? Years later, when I was first entering the marketing profession, I looked to bottled water as one of the great triumphs of salesmanship: marketing in its purest form. Give me your money, and I’ll give you…water. Something that is almost free, and that is available almost everywhere. Something that covers 75 percent of the earth’s surface.
But that’s nothing, compared to begging for spare change. Panhandling is salesmanship at its purest. It’s the totally naked ask: money for nothing.
We’re conditioned not to ask for things—and when we do ask for them, we’ve learned that we have to offer something in return. But asking for money and offering nothing back—no service, no product, not even a song—is truly terrifying. It’s like looking into an abyss.
That day in Hartford, I thought a bare, outstretched hand was too stark. So I picked a plastic cup out of the trash and stationed myself on a pedestrian-friendly street downtown, slightly off the beaten path. I was a hundred miles from home, but I didn’t want to take the chance of running into anybody I knew—friends, friends of friends, friends’ parents. In my mind I rehearsed my line: Spare any change? I considered a longer story—I was stuck after hitchhiking, I’d been robbed on the bus, I had lost my wallet. The only thing that was out of bounds was the truth: I was participating in a strange urban test for my summer employment leading underprivileged youth through the Connecticut countryside.
The first person to pass was a brusque, tall lawyer type in a suit. I chickened out before he was within three feet. Couldn’t even make eye contact. The same thing happened with a construction worker shrugging his way out of his work vest on his way to the bus stop, then a nurse in her scrubs, hurrying to the pharmacy across the street. Every time, I’d resolve to make eye contact and ask for money—and then my body would recoil. Little by little, my shoulders slumped, my head started to hang.
I had climbed mountains. Rafted rivers. Run triathlons. But this was the hardest thing I had ever tried to do.
And then I finally did it. A friendly-looking woman, about my mother’s age, turned the corner and walked toward me. She was moving fast enough to be going somewhere, but slow enough to look like she was enjoying herself. I mustered up the courage to look her in the eye and ask, my voice barely a whisper, “Do you have any spare change?”
“No,” she said, her face turning to stone as she walked right past me.
But I had broken the ice. Over the next four hours, I made a dollar and seventy-five cents, enough for a hot dog back at the food court. I got gradually better at asking. I learned to keep it short. To make eye contact. To slump, but not too much. To use a voice loud enough to be heard, but not loud enough to seem demanding or scary.
But the breakthrough for me was simply telling people the truth. “Can you spare some change? I’m really hungry.” There was something about speaking from the heart that cut right through. It got people’s attention and broke down their cynicism and defenses.
The key was getting over the shame of asking—of showing the most basic, essential need to a stranger. It’s more difficult than it sounds.
It made me feel sleazy to ask. It made me feel low when people said no. But by far the most difficult thing to bear was the invisibility. Mustering up all your courage and desperation, then debasing yourself in front of a stranger, only to be totally ignored—that was worst of all.
Believe me, after that, asking an investor for $25,000 was nothing.
One of our first targets for funding was a guy named Alexandre Balkanski. He is one of a long line of colorful Frenchmen in my life. There was Philippe Kahn, my old boss at Borland International, who showed up to my job interview shirtless, wearing a pair of Umbro running shorts. There was Alain Rossmann, the CEO of Unwired Planet, who had once completely flipped out on me when I turned down his job offer. (I mean, come on. Was there anything more ridiculous than having an internet browser on your phone?) And there was Eric Meyer, of course, who was joining my nascent company as the CTO.
Then there was Alexandre, a major player in DVD and video technology. His company, C-Cube Microsystems, made deo compression software, for converting analog video and image material into digital bytes that could be easily stored or transported. In Alexandre we thought we had the perfect person: someone who would understand what we were doing and why it would work, and whose deep knowledge of the field could give us valuable insight into how to position our service.
Reed and I drove out to his company HQ in Milpitas. Acknowledging the importance of the meeting, I had dressed up a little, trading my hiking shorts for clean jeans and my ever-present T-shirt for a polo. Reed was wearing what was, for him, a fancy outfit: dark jeans and a white button-down. By now I wasn’t nervous—Reed and I were veterans at this kind of thing, and we knew that we had something that was worth buying. But when the receptionist showed us to a couple of chairs in the foyer and no one came out for five, then ten, then fifteen minutes, I think both of us started to sweat a little.
He’s really icing us, I thought.
Then the door opened, and a tall, fit-looking guy stepped out. He was wearing a blazer and slacks and expensive-looking leather slippers.
“Hello,” he said, in a vaguely European accent.
Uh-oh, I thought. Is he French?
When you pitch a business idea to someone, you never expect to make it all the way through your presentation. It’s like presenting a case to the Supreme Court: within a few moments of making your first point, the questions will invariably start. If they don’t, you’re probably in trouble. Nine times out of ten, they’re not quiet because they’re politely listening—they’re quiet because they’re totally uninterested. Or worse: they’re thinking your arguments are so weak and pathetic that they don’t even warrant an argument.
So we were prepared for interruptions, for questions, for probing analyses of our business idea. What we weren’t prepared for was Alexandre, who, halfway through our pitch—DVDs by mail! The largest inventory in the world! First to the space!—shook his head, knocked his knuckles on the glass table between us, and said, in an accent that I still couldn’t place:
This is sheet.
Shit? Really? We had almost $2 million on the line, a team of excited people, and a genuine opportunity to be the next Amazon. I looked at Reed, who was staring at Alexandre with an expression that was impossible to read, if you didn’t know him. I knew him, though. He was worried.
Alexandre told us DVDs were a flash in the pan. “No one is adopting this tech long-term,” he said. “The big jump was from analog to digital. Once movies are in a digital form, it won’t make sense to move the bits around on pieces of plastic. That’s terribly inefficient and slow. It’s just a matter of time before people are going to be downloading their movies. Or streaming them. At some point, probably soon, you’re going to be stuck with a warehouse full of useless DVDs.”
“I’m not so sure about that,” I said. “I think it could be a while before that happens. We’ve got at least five years.”
Alexandre shook his head. “Sooner,” he said. “Why should I invest in a company that won’t be around five years from now?”
The thing is? He was right about nearly all of it. DVDs were a middle step between analog VHS tapes and downloads or streaming. He knew better than anyone that the technology to make DVDs themselves obsolete was just around the corner. It was his field, after all. And a cursory glance at Netflix’s current business will bear out his theory that eventually, viewers would access almost all of their movies directly through the internet.
But he had the timeline all wrong. What he didn’t understand was Hollywood. We knew that the studios were betting big on the DVD format and, more importantly, were betting on DVD ownership. They didn’t want a repeat of the eighties, when video stores had established themselves as middlemen to consumers, renting the same video out dozens of times. Movie studios didn’t want to have to jack up the prices of movies just to earn their share of the home viewing market; they wanted to get their films directly into consumers’ homes, and DVD—a new technology that they could price competitively—represented an opportunity to hit the Reset button.
As for online downloading? Sixty-five-year-old studio execs weren’t exactly the most tech-savvy people around. They were terrified of what had happened to the music industry. Napster had inaugurated the age of illegal file sharing, and although DVDs had been developed with more robust piracy prevention mechanisms than CDs, movie studios were still wary of allowing customers to access movies as easily shareable digital files.
Alexandre also underestimated the “last-mile” problem. In most of the country, downloading a movie was still functionally impossible, or at least impractical. High-speed internet was only intermittently available, and frankly, it wasn’t that fast yet. Plus, the internet terminated at the computer—not the television. Even if you could download a movie in less than a few days, there was no way of getting it from your computer to your television—and most people didn’t want to plop down in their office chair and cue up Total Recall on their Compaq Presario.
Alexandre’s whole life had led up to the moment when movies and television would be able to be streamed over the internet. C-Cube, in many ways, was the enabler of what made all this possible. But like most pioneers, Alexandre was too early.
In the meantime, we had a business model that worked in a DVD world. We could afford to wait. Every piece of brand equity that we were building—all those customer relationships, all of our movie-matching expertise—would still be relevant and useful when the world shifted.
Or so we told Alexandre. But he batted away every counterargument with a dismissive wave of his well-manicured hand. And if you’re arguing with a potential investor, it’s already over. We left that office deflated, surprised, and a little nervous. On the trip back to Sunnyvale, I drove fast, as I usually do, taking corners at speed all the way home. Reed didn’t say a word.
In Silicon Valley, no one ever really tells you no. After a pitch, you’ll typically hear a sentence that begins with “This is great, but…” You get so used to it that if you hear a sentence starting with “This is great,” you mentally start gathering your papers and feeling for your keys.
This is great, but I’d love to see more traction before committing.
This is great, but why don’t we talk again when you have ten thousand subscribers?
This is great, but that’s not an investment premise we’re focusing on right now.
Alexandre didn’t tell us, This is great. He told us, This is shit.
And that scared the hell out of us.
It was time for an even harder ask: I would be pitching Steve Kahn. While normally I would be looking forward to pitching someone I knew so well, in this case it was complicated and awkward. Because Reed was pushing me to go back on a deal.
Steve had been my first boss at Borland, and in many ways he was—and still is—a mentor. He’s a buttoned-down guy who was constantly having to do damage control for me. He once told me that when he’d see me knocking on his office door, he typically had one of two thoughts: Who’d he piss off this time? Or What crazy thing did he dream up now? I’m sure he was asking himself one of these questions on the day I walked down to his basement office at Pure Atria to ask him to lunch.
Even before we had definitively decided we were moving forward with the idea that would one day become Netflix, I knew I wanted Steve on my board of directors. For one thing, all boards need at least a third person to break ties.
For another, Steve was a voracious video technophile. He’d taken his spoils from our sale of Integrity QA and used it to ignite a home video theater system arms race with Bob Warfield, our fellow Integrity QA co-founder. Theirs was an ongoing, take-no-prisoners competition. Surround sound, stadium seating, noise-canceling wall hangings, leather recliners, state-of-the-art projection systems.…If you could hook it up to a home theater, Steve and Bob already had it—or they soon would. There was about a forty-five-day window when any piece of video technology was state-of-the-art, and Steve and Bob were always fighting to be the proud owner of that window.
But the most important reason I wanted Steve on the board? He was a friend. Not only would he be helpful, honest, and thoughtful. It would be great to have one person who truly had my back.
Asking him to join the board had been easy. I was essentially asking for a favor that required nothing but a little bit of his time in return. When I took him out to lunch—an all-you-can-eat Indian buffet located in a strip mall near the office—he had listened patiently as I laid out the idea for him, my tikka masala sitting untouched in front of me. It hadn’t taken long for him to say “Sure,” but I could tell by the way he said it that it really hadn’t made a difference what the idea was.
Now, Reed thought I needed to ask him for more than just his time. If he was going to be on the board, Reed explained, he had to have some skin in the game.
But asking him for $25,000—solely for the privilege of being on our board—was going to be hard. I dreaded it. I put it off for days. It felt like a bait-and-switch—the favor I’d asked that had cost him nothing now had a price tag attached.
We went to the same Indian restaurant—I thought it might be good luck. I was nervous. Steve barely had a chance to pick his menu up when I blurted it out. Could you put twenty-five thousand dollars in?
I’ll never forget the look on Steve’s face. He exhaled, pursed his lips, and laid down his menu, and a generally weary expression slowly spread over his face. Even in that moment, hovering over a basket of garlic naan, slowly ripping a paper napkin to shreds underneath the table, I recognized it. It’s the face of being in an impossible bind. The face of “there’s no right answer.”
If Steve said no, that he wouldn’t put $25,000 toward the business, he would look cheap. Like he didn’t truly believe in the idea (even though he probably didn’t). But if he said yes, he’d be out $25,000, money he hadn’t expected to spend—and on top of that, we’d both know that he would be doing it not because he loved the idea or thought it would work but because I’d asked him to. Because he had seen in my face and heard in my voice the same thing that had gotten me over the hump on the streets of Hartford. That I was truly hungry.
When he said yes, both of us knew it had nothing to do with the idea. Steve told me later that he said to himself, “Well, that’s $25,000 I’ll never see again.”
I was most nervous about asking my mother.
Plenty of people ask their parents for money during the seed stage of startups. In fact, back then nobody even called it a “seed round.” People called it the “friends and family round.”
Still, there’s something slightly pathetic about being almost forty years old, married, with three kids and multiple successful companies to your name…and calling your parents asking for cash. You’re right back to being eight years old, tugging on your mommy’s leg, asking for fifty cents for a candy bar at the grocery store.
Still, I did it.
I asked my mother because asking my father was out of the question. He was stern and unyielding about money. His parents had lost everything in the Depression, and as a result he was extremely risk-averse with his finances. He kept his books in old-school ledger accounts, everything from income to investments to monthly utility bills. (When he died, I went through his papers, and every gas bill from 1955 to 2000 was entered in his precise engineer’s hand.) On Wall Street, he’d seen people lose everything. The way he thought about business had more to do with large companies and banks—things had to be solid, profit-driven, real—than it did with venture capital and startups that didn’t make money for a couple of years, if ever. If I’d pitched him on the initial idea for Netflix, he would have gotten out his magnifying glass and picked the idea apart.
My mother, though scrupulous with money, enjoyed a splurge now and then. Plus, she was an entrepreneur herself. When I was in high school, she had started her own real estate firm, it had prospered, and now she had money of her own. In fact, she’d put both me and my siblings through college with it.
She was on the East Coast, so I couldn’t ask her in person. I dreaded that phone conversation. Sales is theater: every pitch, every call, every interaction in which you, the businessperson, are trying to convince someone else—the customer, the client, the potential investor, you name it—is a little performance, in which each side plays a role. But a son calling his mother to ask for money? That isn’t just theater. It’s Kabuki theater. Everything is ritual and prescribed.
Both of us knew that she would eventually say yes—she was my mother, the money wasn’t completely unreasonable, and she had always supported me and my career. She had confidence in me. In fact, one of the reasons I was asking was that I knew she’d invest. What’s more, I knew that she knew that I knew.
We both understood that her thought process would go something like this:
A) I have no idea what he’s talking about.
B) Wait a minute, what?
C) Oh, for crying out loud.
D) I guess I’ll do it. I’m his mother, after all.
In other words, I knew that I would play the somewhat indulged son. She’d play the skeptical but generous mother. Both of us would be acting out age-old roles, cemented by decades of family dynamics. And that was alright for both of us.
How’s that for making Uncle Siggy proud?
I don’t remember much about that awful phone call. I wasn’t as practiced in the “art of the ask” then as I am now. I’m sure I let slip some truly heinous salesmanship clichés: I’m calling today to give you the “opportunity” to invest in my company, etc. If I’d been at home back in Chappaqua, I probably would have retired with her to the library to discuss the investment over brandy.
Even now, I cringe thinking of that phone call.
I’m sure my mom asked polite, curious questions. I’m sure I gave polite, enthusiastic answers. The only thing I really remember—and I thought this was the epitome of grace, when she said it—was that she knew that her investment would bear fruit in the long term. “I’m sure in fifteen years I can use this money to buy an apartment in the city,” she said, laughing.
She wanted to prove to me that the money she was investing wasn’t just a gift—that it was a real investment, even though she knew and I knew that the reasons she was investing had nothing to do with my pros and cons and my projections, and everything to do with the fact that she was my mother and I was her son.
I almost wished she had said no. Because now I had to actually do it.