Should VCs be held accountable when they give bad advice?

In case you missed this last summer, my heart goes out to “EJ” and Troy whose homes were trashed by AirBnB “guests.” If you’re not familiar with those events, have a look at those links to catch up.  Some of the thoughts expressed here were part of comment threads I participated in on TechCrunch.   I’ve edited this post slightly for grammar and republished with a new title that I think matches the content better as well as refining the final 2 questions; the content remains materially the same, including my somewhat controversial “boy” comments.  Any apparent flip flops in position are accidental.

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I’m interested in the curious response by the CEO of AirBnB.  Why is Brian Chesky handling this so ineptly?   TechCrunch is asking some great questions finally (albeit a few months too late after hyping the shit out of the company because let’s face it Paul Graham’s a pretty important guy in Mike Arrington’s world). This will have a major impact on revenue and valuation so it’s worth a question:  Who is responsible for these mistakes? In this case I don’t blame the CEO.

When you hand a kid (and let’s face it, a 20 something is still a kid, especially this generation who is over parented), who has ZERO management experience of a business, the checkbook and they keys to the car, don’t be surprised if they take it for a drive.

The AirBnB crisis and the Facebook privacy incidents was/are a fully avoidable situations, they are not  “Black Swan” events. These are crises borne of incompetence fueled by inexperience and financed by arrogance. 

You can’t realistically expect a 20 something boy to actually think ahead to how his system can be abused or how his users privacy can be violated.  He doesn’t have the life experience to do it.  He’s never managed a business.  He’s learning on the job.  He’s focused on valuation.  He’s focused on “making it big”. You can’t realistically expect a 20 something boy to be compassionate to his customers and know how to handle a major PR crisis—most can’t even treat a girlfriend compassionately.

The same situation is happening at Facebook.  Mark Zuckerberg’s a smart guy, but over and over again he persists in violating his customers’ privacy needs and this will impact his valuation at some point in the future.  Is Mark accountable for these decisions?  I argue No, because like Brian Chesky, he’s like a child-simply in over his head. Maybe also arrogant to believe he is special and that he doesn’t need experienced leadership–though at least Sheryl Sandberg has some voice in Facebook, she doesn’t appear to be able to keep the company from sticking its foot in its mouth.(May 2012 edit:  as I re read this post on the eve of Facebook’s IPO; I have to say that my opinion of Mark has evolved. I still believe he is young, but he also appears to be learning very quickly and from all accounts is dedicated to learning how to be a CEO.  Whether it’s seeking out experienced advice, or a preternatural maturity, he appears to be leading the company in a Gates/Jobs way that happens once in a generation and as a result I believe him to be an outlier. I will also add that I now would hold him responsible for major decisions since he holds 57% of the voting stock and appears to be firmly in control.)

No, the people I hold accountable are the so called adults in this case:  the venture capitalists and the board of AirBnB and Facebook.  They both knowingly funded someone under qualified to run a business of this magnitude.  They aren’t providing adult supervision and know how—how can anyone with any ecommerce experience not know that business should have 24×7 phone support?  How can anyone with any business experience not understand the implications of opt out privacy policy decisions?  Yes, I’m looking at you, Paul Graham and Marc Andresson, and hell Jeff Jordan of eBay and Jeff Bezos of Amazon, you are all should know better, so you must be asleep at the switch to let these kinds of foolish decisions be made.  How on earth can you justify your term sheets when these kinds of incidents keep happening? I guess we shouldn’t be surprised with Ashton Kucher not getting it, but the rest of you have no excuse. The boards and investors are nearly entirely male by the way, so that’s an interesting point, too.

edit:  just read Paul Graham’s reponse to Mike Arrington and it only proves my point–Brian Chesky is not getting good advice.  Here’s the investors’ response on all things D: “Not overly concerned.” 

My point: Just because Mark Zuckerberg and Brian Chesky are smart guys with a great idea doesn’t make them great operators.   Not saying you  need to bring an army of MBAs either; but surely, you can do better. Next time, we all hope you’ll consider the value of experience, maturity, and dare I say, judgment, when managing your portfolios.

This leaves me with 2 questions:

  1. Did the board of AirBnB not warn Brian Chesky of the risks of operating without a risk management/crisis PR plan, or did AirBnB refuse that advice? If the former, should founders get to claw back shares when investors “fail” at their jobs? If the latter, should Chesky have been replaced?
  2. How should companies with young male technical founders compensate for potential downsides of arrogance, naivete, and lack of empathy?

13 comments

  1. Hi Melinda,

    It’s great to see a post that tries to go beyond the circumstantial histrionics and focus on the essential business issues. I agree wholeheartedly that the “adult” VCs must take responsibility here, at least for their cash and the cash they manage.

    The experience I had with Airbnb (http://thefutureofpublishing.com/2011/07/airbnb-and-the-comfort-of-strangers/) in June demonstrates that Airbnb was not merely unprepared for a crisis. They don’t have even the basics in place — the reservation system is broken, and customer service a calamity. How did this escape the due diligence process? It was simple to detect.

    It troubles me that when the market is frothy all the adults decide that business rules can be suspended until they top up their bank accounts.

    And Mr. Arrington of course is an essential cog in this wheel. By calling out this over-the-top example he’ll be all the more powerful hyping the next untested start-up. What a shame.

    There is so much great stuff coming out of technology these days, and more than enough cash to go around. Doing it right may take a little more time, but it lasts longer.

    Thanks…

  2. I agree it’s not enough for the grownups to encourage their founders to look high on the horizon and offer a reassuring, “Steady-On” as turbulence is encountered. What I find unconscionable is how predictable (and therefore avoidable) incidents like these are, given the number of companies experiencing them in their ascendancy.

    The war stories and proudly worn battle scars make for great talks from those who were in the trenches at the time, but that’s certainly not why they let these things happen (and they do choose to let these things happen, imho). Predictable risks are not proactively mitigated because the goal is to ‘cross the chasm’ in one shot, and casualties are regarded as an inevitable consequence of that kind of long-shot effort.

    The whole point of the generous funding of a group of young, smart innovators is they are just fearless enough to not be deterred by risk, and the float will provide enough cushion to ride out the rough patches. If NASA took this approach to the moonshot however, there is a chance we would still be dreaming of the day when we arrive there, because the process of getting from idea to execution with only one shot would have failed for lack of ability to overcome the risks, or due to a spectacular failure which would lower everyone’s risk tolerance to a level where the political winds would not support an appreciation of the reward which lies on the other side of taking risks of that kind.

    Risk is an easy thing to manage, if your organization wants to do it, and then your war stories (and the reputation of your brand) won’t be sullied by the victim’s side of the story – the shit is going to hit the fan regardless – The choice they have is to make the story that follows be one of the effort that went in to being ready for the day, or the aftermath which resulted from the lack of preparation.

    Instead, many risks are regarded as low probability edge cases, where mitigation can be relegated to the realm of interrupt driven, incident response work. Any engineer will tell you, interrupts impose a much greater tax than they appear to, and they inevitably distract from innovation and customer focus, despite the effort to avoid this work by betting against the need to do it.

    This is the point where you’re absolutely right about the need for the grownups to step in and correct some assumptions – Young companies which thrive on the vibe of their culture and the enthusiasm the marketplace has for their product find themselves in something of a closed loop of utopian thinking where teams come to believe their customers represent that same culture, and are no more likely to act against the company than their peer at the office with whom they would never doubt the motivations of.

    Someday, founders will know you won’t get funded without a solid risk management strategy in the package. Until then, many expensive lessons will be learned the hard way. This will strip founders of control over their companies, over and over again. Worse yet, it will rob customers of their property, peace of mind and faith in the product. Beyond that, it will also serve to degrade trust people have in online marketplaces, whether they be peer to peer, social, virtual or otherwise.

  3. Have you ever worked at a start-up? You’re quick to scapegoat age and lack of experience, but the reality is ANY young company growing quickly doesn’t have the resources to cover all its bases.

    If the airbnb founders sat around all day creating risk management strategies, they never would have had time to launch a site.

  4. This whole post is dead wrong. In fact adults are not capable of creating successes like Facebook and airbnb because they would be scone guessing every step of the way based on their wisdom and experience. All the haters are clearly jealous of success and have little comprehension for what it takes to succeed on these levels.

  5. I have, and your statement is the most common way to move quickly past a litany of what on the surface appear to be difficult readiness requirements. The reality is risk issues are considered hard to solve and slow to move because the founders don’t understand that problem. These are actually easy challenges to handle in the right hands, but those hands are not likely to be those of the founders.

  6. Goodness. It’s interesting to see people in their late 20s referred to as “boys.”

    One wonders how you’d react if a fairly respected individual in the technology community with a profile similar to yours attempted false truisms as those you’re promoting, but with a sexist bent referring to accomplished female technology entrepreneurs as “girls.” Or, indeed, attempting to argue that older women who took time out to raise children are “out of touch with the business world and its realities.”

    This blog post is loaded up with assumptions about individuals and their competence based solely upon age… yet if similarly flip judgments were made about the author based on her gender or age — including dismissive comments — they’d be profoundly offensive.

    Try again. Less age/gender resentment, more facts this time.

  7. Brian, despite our disagreement on the TechCrunch threads regarding my use of the word boy, I’m going to allow this post here so long as you try to stick to the questions I listed at the end of the post. Let’s move past how I said it, and move on to what I said. The CEO tried to hush a blogger by telling her she was impacting his funding. I think we’d both agree that was the wrong move. So who in your opinion is accountable here? The board for failing to insist on a risk management/mitigation plan, or the CEO for not following it?

  8. In fact the average age of successful founders is 40+. Young founders may get a lot of press, but older founders and indeed women founders, outperform the averages. http://www.washingtonpost.com/opinions/five-myths-about-entrepreneurs/2011/06/29/gIQALtCBhI_story.html

  9. I have and currently do work at a startup. Risk management is not a factor of my current company’s business model. But it has been in my past: PayPal, eBay, Linden Lab, Check Point Software. So believe me, it’s top of mind for me as a strategic factor to take into account when managing a company. PayPal’s entire business model is driven off risk management–a counter intuitive, but true statement. How is a guy who has no experience in these types of environments going to to know how to manage such a critical factor? I”m saying it’s fine that he’s a CEO. My question is this: the risk management/mitigation strategy is failing. Who is accountable, the board or the CEO? Either the board advised the CEO to get a plan in place, and the CEO ignored that advice or abandoned the plan; or the Board didn’t offer the advice. Which do you think it was? I believe it was the first, but the board should have made a risk mitigation strategy a condition of investment or in some other way helped this young man understand what the real iceberg was ahead.

  10. Thanks for the thoughtful reply, Thad. I hadn’t seen your post. Honestly I hadn’t paid much attention to AirBnB up until these incidents. Other than thinking it was another over hyped unsustainable model. But I am a general manager in ecommerce and this type of basic PR + risk mitigation strategy should have been in place. It’s a failure of leadership for it not to be. Sounds like you agree. I’m getting a lot of heat at Tech Crunch about using the term “boy.” Thanks for not taking it personally. My fiancee wishes me to point out that I really do like boys. :)

    I guess what bothers me the most is the opinion, which appears to be mostly held by young people, that there’s only a binary choice in leadership between Mark Zuckerberg types and Rupert Murdoch types. There’s a whole wealth of us “business weasels” in the middle who love and like engineers and who see our role is to enable them, not “hold them down.”. Sheryl Sandberg is an example. Pierre Omidyar and Meg Whitman were another pair.

    Re: Arrington. He’s a tough bird. I wouldn’t tangle with him without a lot of thinking in advance. The guy’s taken his knocks and he’s smart and tough. I respect him a lot.

  11. Thanks JP! your NASA approach is really interesting to consider and it’s a good admonishment to me to temper my fury at the stupidity of the funding choice. Yes, we do have to fund some stupid ideas and some young arrogant hotshots to get to the moon. But we both agree, we MUST temper that, just a little bit! As I like to say, “just enough process and risk management to keep us sane and making money.”

  12. When your business, as facebook’s is, is to sell your personal data for financial gain, there is no way, no matter who you have as CEO that you can avoid privacy missteps.

    Google brought in Eric Schmidt as adult supervision, that didn’t stop privacy debacles from happening. It doesn’t matter.

    Sandberg is facebook’s COO, yet every time they roll out a new feature, there’s always a privacy flare up. It doesn’t matter.

    It doesn’t matter, because they make lots of money and are incredibly successful.

  13. This is too funny. AirBnB has website technical issues and, because of their useless ‘Contact Us’ links, there’s no way to report it. Duuuuaaaaaahhhhhh. Serves them right. I have been unbale to contact one poster (renter/landlord)….and there’s not a damn thing I can do about it. Is someone listening???

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