Investor Stories 479: Startup Lessons from Steve Blank, Seth Levine, and Ben Orthlieb: Hubris, Influence, and Founder Selection (Orthlieb, Levine, Blank)

**Nick Moran** (0:00)
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**SPEAKER_2** (0:25)
Welcome to the podcast about Venture Capital, where investors and founders alike can learn how VCs make decisions and reach conviction. Your host is Nick Moran, and this is The Full Ratchet.

**Nick Moran** (0:42)
Welcome back to TFR. On today's special segment, we ask guests to tell the most important lesson that they've learned in their career. Here's the segment called Lessons Learned.
On today's special segment, we have Steve Blank. Steve, can you tell us a story highlighting a critical lesson that has changed your perspective?

**Steve Blank** (1:06)
I think my biggest lesson when I used to be an entrepreneur was that hubris will kill you. And hubris is kind of like a Greek word for you think you're the smartest person or you've got it all nailed or arrogance, but personal arrogance. And so my next to last startup was a believe it or not, after doing all these tech companies was a video game company called Rocket Science Games. How great could it be? We were on the cover of Wired magazine, you know, super group, blah, blah, blah. And there I was with a baseball cap and a ponytail. You have to imagine this. In fact, it was someone who reminded me that when you start dressing like your customers, you're probably going out of business. And it turned out he was right. But about 90 days after that article appeared, I realized we were going out of business. Pretty soon we sold the company for parts and I had to call up my mother and I said, Mom, I lost $35 million and back then that was a lot of money. And it was a pretty public failure. My mom, English wasn't her first language. She had to translate in her head, logically said, well, where'd you put it? And I said, no, I tend to misplace it, it's gone. And she started speaking in languages I didn't know. She knew, she said, oh, the country we came from is gone. There's nowhere else for us to go and your name is blank. You can't even change it. What's going to happen? I said, well, mom, the people who gave me the $35 million just gave me another $12 million to do my next startup. And like, but I was incredibly depressed. I mean, it was like, yeah, thanks, whatever. But the punchline of the story is I turned that $12 million bucks from the VCs who had faith in me again into a billion dollars each, returned a billion dollars to each of those VCs. And that's not a Steve Blank story. That's an innovation cluster story.
And why Silicon Valley and entrepreneurs in the right place, not just smart people, but the right place is because we get multiple shots at the goal. Failure is not a permanent failure, at least if it was an honest failure. And by the way, failure feels good and whatever. Man, that was written by someone who has never failed. Failure is miserable. I don't care. I still remember coming home at 4 p.m. and going to sleep, and my wife said, I think that's a sign of depression. And it was the first time in my career for three weeks. It was hard to get out of bed.
And coffee with one of my friends who and I were feeling sorry for myself, who said, what are you doing next? And I'm like, that's the moment I realized, why yes, I probably should do something next. And as I said, it turned out, that's why I've been retired for 26 years. But that's not a Steve Blank story. It's a story of the ecosystem we built. And that's how you know when you're an entrepreneurial cluster, when you get multiple shots at the goal.

**Nick Moran** (3:34)
On today's special segment, we have Seth Levine of Foundry Group. Seth, what is the biggest mistake or hardest lesson you've learned as an investor? And what's the story behind that lesson?

**Seth Levine** (3:44)
I'd say the hardest lesson is how little actual decision-making power that venture investors have, right? And I think that, and I say it all the time, like we're in the influence business, not the decision business, for the most part. We decide where to invest, right? Those are the big decisions we make. And then sometimes we decide to replace a CEO. Beyond that, we're mostly in the influence business, right? And I think that I've repeatedly seen investors sort of misunderstand this, and either try to operate the business from the board level, which I think is bad, right? Never works. And if you really need to operate the business, then you don't have the right CEO and management team. And or sort of feel like they are making decisions when actually they should just be engaging in discussion and influence. And I will oftentimes in a board meeting sort of step back and clarify, especially if I feel like someone's moving in to decision mode, when it's really discussion mode. And I'll say to the CEO very directly, just to be clear, this is a discussion item, not a decision item. You're going to take these inputs and you have to make the decision. And sometimes that'll help other investors sort of understand, like, oh, yeah, I've got it. That's, you know, that's my role. Sometimes you got to tell them explicitly, hey, Jane, we're not or Jim, we're not making this decision. Like this is a company decision, not a board level decision. I think that's one of the biggest things people get wrong about the venture business.