Transcripts/videos of interviews with venture capital greats are a particularly valuable source for uncovering business insights, as they have seen firsthand the growth of multiple successful startups. In this article, I'll focus on the Computer History Museum's Cisco Oral History Part One & Part Two from 2014 with Sequoia Capital Founder Don Valentine & former Cisco CEO John Morgridge.
Brief bio: Don Valentine started Sequoia Capital and invested in now-famous companies such as Cisco, Atari, Oracle, Apple & more. John Morgridge helped scale Cisco as their CEO.
You can access the transcript & video of the interview here Cisco Oral History Part 1, Cisco Oral History Part 2, video of Cisco Oral History Part 1, and video of Cisco Oral History Part 2.
Below are some insights from the interview. While these quotes largely speak for themselves, I added some extra takeaways/points to think about further that may be helpful.
Additionally, you may want to quickly check out the transcripts/videos for more context.
Insight 1: Don Valentine from Sequoia Capital on the benefits of high pricing in the B2B context
"And here we had no need to persuade the founders and the first people there to price the product high, and to continue to price the enhancements, and as different kind of protocols were added, to charge extra for everything. And it's one of the great decisions that's not obvious but extremely enviable" (Part 2, Page 7)
Key Takeaways & Analysis:
-Are you pricing low to find product-market fit and then raise prices later on, or are you pricing low to get deals fast?
-Have you run any tests at higher pricing?
-Please note there's a longer discussion on pages 6-7 on pricing in the transcript you may want to look into
Insight 2:Â Example from Don Valentine on some of the largest market demand a startup can experience
"And what happened was, there was no ability for the packet to recognize the terminal or the mainframe that they were supposed to lodge the data. And what you had are, technically, collisions of information at the wrong destination, called a broadcast storm. And it got worse and worse and worse as the people who ran the computer departments of corporations allowed personal computers and minis into their system. And this is the company, from our experience at Sequoia-- and we financed 1,000 companies-- that had a market demand the likes of which I have never seen" (Part 1, Page 4)
Points to Think About Further:
-When searching for product-market fit, are you striving to solve a big problem (doesn't necessarily need to be pain)?
-Or are you only solving a small problem that's low on the priority list for executives in your target market?
Insight 3: On how Don Valentine invested in microprocessor technology
"So Atari-- the first investment Sequoia made-- was microprocessor driven and had a very quick and unusual history of success. Apple, of course, was driven by a microprocessor. 3Com and Electronic Arts were derivative investments, from my point of view. We knew that the first personal computers needed, in some way, to be networked, although that word had not been invented yet. But they were one on one and couldn't talk to one another." (Part 1, Page 2)
Points To Think About Further:
-Maybe you can incorporate something like this into your investor pitch, telling the wider story of why your technology is an improvement over past successful technology
Insight 4: John Morgridge on the importance of gross margins in scaling a fast-growing business:
"I've come to believe that gross margins are, to some degree, a state of mind. And I think Don believes that also. If you start accepting that you can only have a small gross margin, then you don't create a product that satisfies at a level that will permit a higher gross margin. And certainly, from very early days-- not basically from the founders, but from Don and some of our other early employees-- we created that idea that a gross margin of 65 or 70 was possible in this business." (Part 1, Page 30)
Points to Think About Further:
-Have you thought about the impact on gross margin on scaling your startup, or are you only thinking about getting the next deal?
Insight 5:Â John Morgridge on how profitability & cash flow increases the odds when acquiring companies
"One of the reasons Cisco was able to do all the acquisitions is that it, in effect, generated so much cash that it could afford a mistake here or there along the line. And you expect that when you acquire. If you're going to acquire, you're going to have, perhaps, success a little better than the venture capital business but not a whole lot better. And so you better be in a position where you can afford the mistakes." (Part 2, Page 7)
Further Research:
-There are very little resources on acquiring companies, so you may want to research this part of the interview if you're in this situation
Insight 6: John Morgridge on acquiring companies to accelerate product strategy
"You know, an interesting example of this strategy was in the switch business, where in a period of one plus years, Cisco acquired three companies which had products that went from entry level all the way to a large switch. When you acquire, you are, in effect, buying time. Time that you did not invest. But someone else did, so you get the asset that they had invested in developing. And in a period of a year plus, we became the dominant vendor by three acquisitions across a spectrum of products in the switch business." (Part 2, Page 10)
Key Takeaways & Analysis:
-acquiring companies can allow you to increase your product offerings fast, but can pose risks to your company (see quote about affording mistakes above)