I had lunch last week with Brooke Coleman and and Katherine Blum, a couple of great attorneys from Gunderson Dettmer. We were talking a bit about the absurd pace at which legal transactions (financings, partnerships, mergers) took place in the late 1990's. If you wanted to make your clients really happy back then, all you had to do was get your work done quickly -- really quickly. These days speed rarely holds the same importance. I shared with Brooke and Katherine what I believe is the key to being a successful lawyer in the Valley -- "do good work." That's it. If you want to make people happy, do good work for them. Not surprisingly, Brooke and Katherine were underwhelmed by my shared wisdom. But I think it points to the reason we find it hard to invest in service businesses. Service business are ultimately only as good as the people who provide the service. And if I learned anything in the years that I recruited for law firms, it's that it is really hard to scale a business that is dependent upon identifying and attracting great people. Technology businesses are far more leveraged than service businesses. A relatively small number of software developers can build a product with huge reach. Whereas a relatively small number of service providers can service a relatively small number of organizations. Don't get me wrong, service businesses can be great money makers. But as a general matter they are lousy early stage venture investments.
