20VC Why Great Companies are Defined by How Many Things They Say No To, Why Being First Does Not Matter & Why Market Over Traction or Team is the Most Important Thing with Guillermo Rauch, Founder & CEO @ Vercel

In this episode, the host welcomes Guillermo Rausch, a notable but low-profile angel investor and the founder and CEO of Vasell, to discuss his journey from a passionate young web developer to a successful entrepreneur and investor. Guillermo shares insights on the importance of market demands in determining business success, the value of rejecting seemingly good ideas, and the critical role of product simplicity and user experience. He also touches on the challenges of balancing speed with product quality, the future of AI in product design, and the potential pitfalls of overvaluing brand-name experience in hiring and investing. The conversation delves into Guillermo's perspective on the unique advantages of immigrant founders, the evolution of business models with AI, and the potential for startups to disrupt established incumbents.

• Being first is not as crucial as making the right decisions.
• A good company is characterized by its ability to reject ideas and opportunities that do not align with its vision or market needs.
• The market and consumer willingness to purchase are the ultimate determinants of success.

"What makes a company good is how much they reject over time, how many things they say no to, how many seemingly attractive, on the surface ideas they rule out."

This quote emphasizes the importance of discernment in business decision-making. A company's success is often determined by its ability to focus on the right opportunities and avoid distractions or misalignments with market demand.

• Guillermo Rausch is a successful angel investor and founder of Vasell.
• He has raised significant capital from notable investment firms.
• Guillermo's entrepreneurial journey began early, and he has a history of successful ventures, including Learnboost and Cloudup.

"To date, Guillermo has raised $312,000,000 for Vasel from the likes of Excel, Bedrock, Green Oaks, GV and more."

This quote highlights Guillermo's success in raising capital, indicating his credibility and the trust investors have in his ventures.

• Guillermo's interest in technology started at a young age, driven by his passions.
• He created websites about his interests using basic HTML and tools like FrontPage.
• Passion has been a guiding force throughout his career, leading him to the web and software development.

"The first thing I ever did was creating websites for my passions and my interests when I was a kid."

This quote illustrates how Guillermo's early interests in technology and the internet were intertwined with his personal passions, a common theme among successful entrepreneurs.

• Guillermo dropped out of high school to pursue entrepreneurial opportunities.
• He balanced his academic life with his entrepreneurial and development work, which eventually led him to choose the latter.
• His work in open source projects and online freelancing helped him support his family financially.

"And I was also starting to help my parents financially with I would like work online, get bounties for solving different problems in existing open source or private projects."

This quote reflects the early responsibility Guillermo took on by contributing to his family's finances, which influenced his decision to pursue work over traditional education.

• Immigrants can bring a unique appreciation and perspective to the countries they move to, akin to joining a startup.
• Guillermo believes that immigrants are motivated and driven because they value the opportunities and infrastructure available in their new country.
• The U.S. is seen as a place with a strong foundational system that, despite its issues, has a reliable framework for success.

"Only immigrants can have a very in depth appreciation for the unique qualities of the place that they immigrate into."

This quote captures the idea that immigrants have a unique ability to recognize and leverage the special opportunities and qualities of their new environment, which can contribute to their disproportionate success as founders.

• Guillermo prioritizes tangible creations and contributions when evaluating potential hires.
• He values the ability of candidates to demonstrate their skills and impact through their work, which can be shared globally via the internet.
• The company looks for signs of excellence and capability that might be overlooked by traditional tech companies fixated on credentials from prestigious institutions.

"What hyperlinks have you shared with the world about your creations?"

This quote suggests that Guillermo values the ability of candidates to showcase their work and contributions to the world, which provides a more direct measure of their capabilities than traditional resumes or credentials.

• The ability to articulate and present oneself well is important, but it must be backed by depth and substance.
• Guillermo addresses the challenge of discerning between those who can sell a story well and those who have the actual depth of experience and skill.
• He suggests delving into details during conversations to assess the true depth of a candidate's knowledge and contributions.

"Let's go into the specific, down to the cisco of how you"

This incomplete quote suggests that Guillermo values in-depth discussions that reveal the true expertise and contributions of individuals, beyond surface-level articulation.## Cloud Infrastructure and Problem Solving

• Discussing cloud infrastructure and decision-making processes.
• Evaluating the depth of understanding in potential system engineers.
• Importance of conceptual understanding over complete technical knowledge.
• Differentiating between storytelling and substantive knowledge in interviews.

"Let's talk about what cloud infrastructure you use. Let's talk about what options you weighed on the table. Let's hear your awareness about what vendors and what alternatives existed."

This quote emphasizes the importance of discussing the decision-making process behind choosing cloud infrastructure, including the evaluation of different vendors and options.

"That doesn't mean that you have the complete texture. I think really what you need is the conceptual understanding."

The quote suggests that while complete technical knowledge may not be necessary, a conceptual understanding of how different parts fit together is crucial.

"That texture is what allows you to discern better whether someone is just telling you a good story or there's actually depth to the story."

The speaker highlights the importance of being able to distinguish between a candidate who has genuine knowledge and one who is merely a good storyteller.

• Mistakes made in talent identification, particularly overvaluing brand names on resumes.
• Importance of evaluating a candidate's potential contributions objectively.
• The tendency of founders to overvalue external credentials in hiring decisions.
• The benefits of hiring experienced entrepreneurs who have learned from past mistakes.

"Sometimes I've placed more weight than I should have on this stellar linked list of awesome brands that you worked at."

Guillermo Rausch admits to having mistakenly given too much importance to prestigious company names on a candidate's resume.

"Can you evaluate the opportunity in its more objective and measurable merits than the approximations of merit?"

This quote encourages a more objective evaluation of candidates, focusing on measurable merits rather than perceived prestige.

• Preference for hiring serial entrepreneurs due to their learned experiences.
• The strategy of constraining the search space to identify successful opportunities.
• The concept of using personal experiences and past learnings to gain an advantage in the market.

"I think the only risk there is that the pool could be constrained."

Guillermo Rausch acknowledges the potential limitation of preferring experienced entrepreneurs but notes the importance of quality over quantity in successful hires.

"It really is all about finding whatever Alpha you can across a number of dimensions."

The speaker highlights the importance of identifying unique advantages in various aspects of business and hiring.

• The debate over whether simplicity is always better in product development.
• The complexities of evolving a product from early stages to IPO readiness.
• The risk of becoming too formulaic in the tech industry.
• The importance of sequencing in product development strategy.

"Is simple always better in product?"

This question raises the issue of whether aiming for simplicity in product design is always the most effective approach.

"But I do think that a lot of those will be these deceptively simple things where the interface of the user is just magical."

Guillermo Rausch suggests that some of the greatest products may appear simple to the user, but this simplicity is the result of complex behind-the-scenes work.

"The simplicity of your product from zero to one might not be the simplicity of your product from one to two and two to three."

The speaker indicates that the product development strategy and level of simplicity may need to change as a product and company evolve.

• Sequencing refers to the strategy and progression of a company through various stages of growth and funding.
• The changing nature of product simplicity and strategy as a company scales.
• The concept of becoming multi-product over time and adapting strategies accordingly.

"What do you mean by sequencing? Sequencing by funding round sequencing by stage of product market fit?"

This question seeks clarification on what is meant by "sequencing" in the context of business growth and product development.

"You have to reevaluate your priors, because the challenge, the market, the growth, things are changing over time."

Guillermo Rausch emphasizes the need to continuously reassess strategies as a company grows and market conditions evolve.

• The challenge of maintaining simplicity in products as they evolve and cater to broader markets.
• The strategy of being selective in battles and focusing on creating the best products in a category.
• The concept of waiting and observing the market before reacting to trends.

"Is that not the biggest challenge, though, which is like, bluntly, everyone struggles to retain simplicity with product over time."

The speaker recognizes the difficulty in maintaining simplicity as products become more feature-rich and cater to diverse customer needs.

"You don't always have to be first, you have to be right."

Guillermo Rausch argues that being correct in product strategy is more important than being the first to market.

• Setting high standards for product readiness before market release.
• Reducing the negative impact of rapid experimentation on customers.
• Using extensive internal testing to ensure product quality and safety.

"We spend a lot of time on what we would call the internal testing of a product before we feel it's ready to get to market."

Guillermo Rausch explains the rigorous internal testing process that his company undergoes before considering a product ready for market release.

"Sometimes you're better off waiting."

The speaker advises patience in product development, suggesting that waiting for the right moment can be more beneficial than rushing to respond to trends.

• The evolving relationship between front-end design and artificial intelligence.
• The potential for AI to simplify complex user interfaces and dashboards.
• The future of UI design in the context of AI advancements.

"I think uis will change if we can go to a chatbot."

Guillermo Rausch predicts that user interfaces will evolve, possibly becoming more simplified through AI-driven solutions like chatbots.

"Now that I have those, how profoundly different will my design be?"

The speaker contemplates how the inclusion of AI in the design process will fundamentally change the approach to creating new software.

• The role of AI in transforming traditional tasks and decision-making processes.
• The potential for AI to revolutionize the design of software and user interfaces.
• The hypothesis that AI will not commoditize UI but rather enhance the creativity and effectiveness of design.

"There are a lot of jobs to be done that people will have to perform no matter what decisions that need to be made."

Guillermo Rausch points out that despite AI's transformative potential, certain tasks and decisions will always need human input.

"My bet is that sterling is going to look completely different."

The speaker expresses confidence that AI will lead to innovative and distinct approaches in UI design, changing the landscape of software development.## Evolution of Software Design

• Software design has progressed from a deterministic approach (Software 1.0) to a more AI-driven approach (Software 2.0).
• Designers must adapt to the new tools and methods available for problem-solving.
• Startups have the advantage of not being burdened by legacy systems and can fully embrace AI from the outset.
• Incumbent companies can retrofit AI into their existing products to enhance their total addressable market (TAM) and claim to be AI-ready.
• The introduction of AI can be disruptive, leading to completely different design approaches.

What made you a good software 1.0 designer. It needs to be actualized.

This quote emphasizes the need for software designers to update their skills and methodologies to stay relevant in the era of AI-driven design.

• The transition to AI may be a temporary phase where the focus shifts from selling tools to selling solutions.
• AI may automate tasks such as marketing and decision-making, reducing the need for human intervention.
• Incumbents could have an advantage during this transition by leveraging their existing infrastructure and market presence.

Copilot's an incumbent strategy.

This quote suggests that incumbent companies might use AI as a strategy to maintain their market position during the transition to more AI-centric operations.

• The importance of user interfaces (UI) is highlighted, with a focus on their evolution in an AI-first world.
• AI may necessitate more UI, offering users a range of choices due to the probabilistic nature of AI outputs.
• Successful AI products often provide suggestions rather than definitive answers, allowing for user feedback and iterative improvement.

We actually, in some ways have to give people more UI.

This quote reflects the hypothesis that AI systems may require more interactive and choice-driven UIs to manage the uncertainty inherent in AI responses.

• The paradox of choice is discussed, questioning whether an abundance of options is beneficial for users.
• In creative processes, more options can be advantageous, allowing users to explore and iterate more effectively.
• AI systems can accelerate the iteration process by suggesting alternatives and learning from user feedback.

I do think that accelerating the iteration loop in turning down things could be really healthy, provided that the trajectory is good.

This quote captures the idea that AI can help streamline the creative process by offering multiple options and learning from user preferences.

• AI's role is compared to that of an assistant suggesting ideas versus an agent acting independently.
• For AI to transition to an agent role, it must maintain a close feedback loop with the user, who retains ultimate control.
• There is a preference for AI to assist in the creative process and enhance efficiency rather than taking over decision-making.

I think we absolutely will. But it requires the close feedback loop with the person that that agent is acting on behalf of.

This quote indicates that for AI to become an effective agent, it must work closely with human users, ensuring they remain in control of the decision-making process.

• AI can disrupt traditional business models, challenging incumbents who are invested in their existing solutions.
• Startups can capitalize on AI by offering simplified, focused products that reject unnecessary features.
• Incumbents may struggle to adapt to AI if it requires a fundamental change in their approach to product design.

The incumbents are in a very problematic position when, as I mentioned earlier, the new AI alternative is just really disruptive to their historical approach to solving the problem.

This quote highlights the challenges incumbents face when AI introduces radically different solutions that may not align with their traditional approaches.

• Some incumbents are recognized for their early adoption and strategic focus on AI.
• Even with the right strategy, incumbents may still be disrupted if new AI methods are radically different.
• The discussion includes examples of companies that have successfully integrated AI and those that may face challenges due to platform shifts.

So they have years of strategically thinking in the direction of AI.

This quote acknowledges that some incumbents, like Microsoft, have been forward-thinking in their strategic planning for AI integration.

• The conversation touches on the need for business models to evolve in response to technological changes.
• The impact of AI on business models and the potential need for companies to adopt new strategies is discussed.

This theme was introduced but not expanded upon in the transcript provided.## Acceleration of Cloud-Based Business Models

• AI is seen as an accelerant to the shift towards consumption-based business models that the cloud initiated.
• Companies are expected to offer comprehensive platforms that solve business problems, not just individual services or products.
• Successful businesses will integrate infrastructure that scales with use and tools that enhance collaboration and productivity.

"I think it's an acceleration of what was already happening with cloud."

This quote emphasizes the viewpoint that AI is not starting a new trend but rather speeding up the transition towards cloud-based, consumption-driven business models.

"And that's traditionally a consumption. You pay for what you use business model like Snowflake."

The speaker is comparing the emerging AI business model to existing consumption-based models, such as the one used by Snowflake, where costs are based on usage.

"Because when I buy software, I expect to buy a comprehensive platform that solves business problems."

This quote highlights the expectation that software should offer a holistic solution to business needs rather than a single-purpose tool.

• The debate between the future of open versus closed AI systems and which will dominate the industry.
• Closed systems offer packaged, comprehensive solutions, while open systems rely on community and ecosystem support.
• The success of AWS is cited as an example of how a head start in technology can lead to a significant competitive advantage.

"Dude, you said about open there and you're the master of open source."

Speaker C acknowledges Speaker A's expertise and history with open-source systems, setting the stage for a discussion on the future of AI systems.

"Llama is not as good as GPT four, not even close."

Speaker A makes a direct comparison between two AI technologies, suggesting that the open-source option (Llama) is currently inferior to the closed one (GPT-4).

"But with the ecosystem saying this is what we're going to bet on, this is where we're going to throw all of our AI researchers..."

Speaker A explains the strength of open systems: a collective effort by the community to improve and bet on a technology, despite its current shortcomings.

• A prediction that not all current investments in AI will fail; some will be productive through mergers, acquisitions, or positive ROI.
• The comparison to the success of Web 2.0 companies like Uber, Airbnb, and Facebook is made to illustrate the potential of AI investments.

"False. My prediction is just like what happened with Web 2.0..."

Speaker A challenges the idea that most AI investments will fail, drawing parallels to the success stories of the Web 2.0 era.

• Personal experiences and problems encountered can guide successful investments.
• The importance of a founder's unique position, willingness to endure hardships, and ability to learn quickly.
• Market demand ultimately determines the success of a product or company.

"People underestimate just how much their own time goes into thinking about important problems that need to be solved..."

Speaker A reflects on how personal experiences and insights can lead to successful investments in areas one is passionate about but lacks the time to pursue.

"Ultimately, it's all about the market."

This quote underscores the idea that the market's needs and desires are the ultimate deciders of a company's success, more so than the founder's expertise alone.

• AI is expected to play a significant role in improving the quality of products and experiences for users.
• The goal is to empower creators and developers to fulfill their creative dreams and produce the best possible products with the right tools.

"Our dream and our vision is that Versaille has raised the bar of every experience that people have with software, with applications, with products."

Speaker A shares the vision of elevating user experiences through their platform, hinting at the transformative potential of AI in product development.