Uber And The False Hopes Of A Sharing Economy

Regulating Ride-Sharing: New York May Be The Model For The Future

Writing On The Wall: London and Vancouver Moving In A Similar Direction

At its inception, Uber touted itself as a shining example of the “sharing economy” described by Jeremy Rifkin, in this now famous book, The Third Industrial Revolution. As time has passed the reality has been radically at odds with a sharing economy.  Among the many issues that have emerged has been the legacy of Uber’s ugly corporate culture, secret apps used to confound regulators, and to intimidate journalists, a Justice Department investigation of illegal practices, including 200 Uber employees conspiring together to attack Lyft’s operations. The proverbial chickens have come home to roost, as municipalities around the world have begun to regain control of transportation policy within their jurisdictions, and the inflated valuations of these unicorns begin to deflate.

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READ MORE: Wharton Newsletter: Regulating Ride-Sharing: New York May Be The Model For The Future

From the Wharton Newsletter/Podcast, August 14, 2018

The largest market for Uber, Lyft and other ride-hailing app companies — New York City — last week had its first successful attempt at regulating the growth of the nascent industry. On Wednesday, the New York City Council passed a series of bills, notably one that places a one-year moratorium on the issue of new for-hire vehicle (FHV) licenses. Other bills establish minimum wage levels for ride-hailing service drivers; require FHVs to submit data on ridership with penalties for failure to do so; and create driver-assistance centers to provide counseling services.

New York City had little option to act, especially after a similar move by Mayor Bill de Blasio fell apart following intense lobbying by Uber. Increasing road congestion by cars was the biggest contributing factor to the passage of the bill capping new licenses, corroborated by a decline in subway ridership. The number of FHVs in the city had grown from 65,000 in 2015 to about 130,000 currently. Uber is the biggest gainer, as shown by its almost hockey-stick growth in ridership.

New York City took the right steps to regulate the FHV industry, according to Wharton professor of operations, information and decisions Senthil Veeraraghavan. “This is the right way to go,” he said. “This is a great experiment that we’re [witnessing].”

“They had to do something,” noted Wharton management professor John R. Kimberly. “This is part of an obviously much deeper story … and the timing seems to be right.”

The move to ensure that drivers receive a minimum pay of $15 an hour after they cover expenses is also significant, said James Parrott, director of economic and fiscal policies at the New School’s Center for New York City Affairs. He had worked on an extensive study for the city’s Taxi and Limousine Commission that looked at the ride-hailing sector and its growth, and in particular its impact on driver earnings.

Kimberly, Veeraraghavan and Parrott discussed the implications of the legislative actions governing New York City’s for-hire vehicle industry on the Knowledge@Wharton radio show on SiriusXM. (Listen to the podcast at the top of this page.)

“This is the right way to go. This is a great experiment that we’re [witnessing].”–Senthil Veeraraghavan

Incentive to Improve

The establishment of a minimum pay for drivers is an important incentive for ride-hailing app companies to increase the utilization of drivers’ time, said Parrott. Drivers currently have a passenger in the car for only about 36 minutes of every hour, which means they don’t have a paying passenger for 42% of their time, he added.

Up to now, Uber’s business model has been “to flood the streets with cars,” since the firm gets a commission based on every fare, Parrott said. “There’s been no incentive for them to better utilize the drivers’ capital,” he added. “Keep in mind; this is an industry where the capital investment in the rolling stock – the cars – is entirely put up by the drivers. The pay standard gives them an incentive by allowing them to pay a little bit less if they make better utilization of the drivers’ time.”

The city will use the year ahead to study congestion levels in the city and find ways to redress that, including through congestion pricing mechanisms. Last week’s actions took a step in that direction with a surcharge on cabs below 96^th Street ($2 per ride for medallion trips and $2.75 for ride-hailing app cabs). It will also allow the city to monitor how the pay standard works out, and how the ride-hailing app companies make better utilization of drivers’ time, Parrott said.

“Even if you increase utilization by 10 percentage points – from 58% to 68% – you would only increase average wait times across the city about 20 to 30 seconds,” said Parrott, citing his study’s findings. “We sense that most people can live with that.”

According to Parrott, the number of Uber trips in the city increased 100% in 2016 and 70% in 2017. Going forward, he said that figure could probably grow another 40% over the next year, “even without any additional cars on the street – just from increased efficiency.” Those increased efficiencies could come from a variety of quarters, including urging part-time drivers to go full-time and recruiting some of the drivers from the non-app services, such as the traditional livery car segment that has no minimum pay standards.

“Uber and the drivers are on both sides of the story,” noted Veeraraghavan. Riders want low waiting times, which can be achieved with more vehicles. But drivers want fewer drivers, because that would allow them to get better pricing, he said.

“Granted it might have been done a lot sooner, but it seems to me that at least in the city of New York there’s a real, serious effort to get their arms around the problem.”–John Kimberly

Worsening Congestion

Parrott said New York City had first started talking about capping Uber and Lyft cars in 2015, drawing “heavy pushback” from the ride-hailing industry at that point. Between then and now, the number of trips using ride-hailing apps has skyrocketed to 600,000 a day, which is more than five times the level in 2015, he noted. A 2016 study by the mayor’s office proposed several remedial measures including those to reduce congestion, improve air quality, protect drivers’ interests and enhance passenger experiences.

Parrott said that while the city bears some responsibility for not acting sooner on the unbridled growth of the FHV industry, it faced a different climate when it attempted that in mid-2015. Uber at the time controlled 90% of the market in the city as opposed to 66% now, he pointed out. Suicides by six cab driversalso highlighted the “economic crisis” and changed public opinion in favor of the changes, he said.

“Theoretically speaking, there’s always a gap between what firms will want to optimize and what society wants to optimize,” said Veeraraghavan. “And it’s hard for individuals to see what’s optimal for this society.” However, as city residents have begun seeing the impact of the FHV industry’s growth — including on public transportation ridership numbers — they now have had a better understanding. “So we have a redo from 2015 to 2017 … and we’re seeing better support for this.”

“Granted, it might have been done a lot sooner, but it seems to me that at least in the city of New York there’s a real, serious effort to get their arms around the problem and to figure out how to solve it,” said Kimberly.

Congestion in New York City has worsened in recent years with not just the influx of cabs, but also other vehicles “providing instant service for a variety of needs that people believe they have,” including delivery vehicles, said Kimberly. “The density of tourists on the sidewalks is so great it spills over into the street – that slows down traffic and makes it hard for cars,” he added. The option of levying congestion pricing is being seriously considered also at the state headquarters in Albany, he noted.

At the same time, “the growth of FHVs has meant that there’s much better transportation access in the outer boroughs, so the city doesn’t want to diminish that newly available service,” said Kimberly. “And yet the city also has a great interest in making sure that the drivers are able to remain economically viable to meet their expenses and to earn a decent living.” Higher wages would also enable drivers to work fewer than the 10-12 hours a day they now put in, he added, and that would have safety benefits as well.

“If they can show that they have stability and regulatory certainty in their largest market in the U.S., that will give investors a lot more certainty….”–James Parrott

Congestion pricing will also help fund investments in maintaining and upgrading the city’s aging subway and public bus system, Parrott said. The decline in mass transit ridership is not just because of the growth of the FHV industry, he noted; commuters are turning away because of “under-investment and under attention to adequately maintaining the mass transit system.”

Uber’s Leadership Challenge

The changes also highlight a “leadership challenge” for Uber, said Kimberly. “They have hundreds of markets around the globe, and each market has its own political configuration, and its own way of doing business,” he noted. “When you think about the challenges of operating an enterprise like Uber on a global basis with all the local idiosyncrasies that need to be taken into account both economically and politically, it’s a really interesting [problem].”

Uber, which is currently valued at about $62 billion, is said to be preparing for an initial public offering of its stock next year. “If they can show that they have stability and regulatory certainty in their largest market in the U.S., that will give investors a lot more certainty about the potential prospects for the company,” said Parrott.

Uber’s impact on employment is also large, Parrott noted. Uber drivers are not legally considered employees, but if they were to be treated as full-time equivalent (FTE) employees, Uber would be the largest private-sector employer in New York City, with about 35,000 FTEs, he said. “[Ride sharing] has become a huge enterprise in New York City, and it and it’s not what people usually think of as gig work where you are doing this to supplement other income. We found that 80% of the drivers bought their cars mainly for the purpose of providing transportation services, and two thirds of the drivers are full-time drivers.”

Parrott noted that both Uber and Lyft embraced the pay standard proposal. But Kimberly thought they had little option in the matter. “I don’t think it’s by accident that they’re embracing the pay standard,” he said. “Left to their own devices, they probably would not have done that. But there’s been so much social criticism – and valid criticism – of their models that they’ve really had no choice.”

Another Silicon Valley Reckoning Is Coming: “Star Entrepreneurs” and Way Too Much Money

Another Silicon Valley reckoning is on the horizon.  We have seen cyclical events like this before, the 2001 bubble burst being the most recent memorable reckoning. The talk in 2001 was about too much “dumb money.” The coming reckoning, however, is on a massive, unprecedented scale, fueled by the same excess of global capital that has fueled the bubbles in housing markets in attractive locations around the World. The problems with Uber, Travis Kalanick, and the now obvious difficulty of the Uber Board of Directors to exercise meaningful governance should have been the “canary in the coal mine.” CNBC’s reporting on the excessive Silicon Valley “unicorn” valuations and media reports that New Enterprise Associates would divest $1 Billion in startup investments that cannot be made liquid has now made the situation blatantly obvious. After a long silence, the Wall Street Journal has finally joined the reporting on the crisis. What more does one need to take to the exit?

 

Source: In ‘Founder Friendly’ Era, Star Tech Entrepreneurs Grab Power, Huge Pay – WSJ

In ‘Founder Friendly’ Era, Star Tech Entrepreneurs Grab Power, Huge Pay

Silicon Valley financiers are losing leverage to star entrepreneurs

Two brothers who are co-founders of online payments startup Stripe, John Collison, left, president, and Patrick Collison, chief executive, have supervoting shares in the company, which was valued at $9 billion in its latest round of fundraising. PHOTO: DAVID PAUL MORRIS/BLOOMBERG NEWS

The Wall Street Journal

By Rolfe Winkler and Maureen Farrell

May 28, 2018 4:25 p.m. ET

Founders of highflying startups are increasingly wresting control of their companies from venture-capital backers and extracting huge pay packages tied to going public.

Venture capitalists had long called the shots in startup boardrooms and continue to be the primary backers of private companies. But in recent years they have had to compete against new classes of investors including mutual funds, sovereign-wealth funds and now Japan’s SoftBank Group Corp. , which has a $92 billion Vision Fund investing in startups.

That has reduced their leverage, shifting power toward star entrepreneurs and adding pressure on VCs to cultivate “founder friendly” reputations that will help them get a piece of the next hot startup. The flood of capital also gives entrepreneurs the ability to pick not just their investors but also when and whether to go public. An initial public offering is the primary way in which VCs cash in on their gains from startup investments.

VCs say empowering founders—through special voting shares, governance rights and other tools—frees them to follow ambitious long-term strategies once their companies go public without having to worry that poor performance will bring pressure from activist investors that scoop up stock. They point to founder-controlled tech companies such as FacebookInc., where founder Mark Zuckerberg had power to make bold moves and resist early pressure to sell the company. Facebook, which went public at around $100 billion, is now valued at roughly five times that.

Venture-capital backers of Stripe Inc., whose software is used by businesses to accept and track digital payments, recently gave the company founders an incentive to go public: special supervoting shares. The move was meant partly to assuage the founders, brothers Patrick and John Collison, that they would keep significant control of the company they founded in 2010 if it went public, people familiar with the matter said.

Many of Stripe’s investors say the founders have earned the right to control the company because it has performed so well. It was valued at $9 billion in its last fundraising round. Until March, when Stripe added its first independent director, the Collison brothers’ only fellow director was Michael Moritz, a partner at Sequoia Capital, one of the company’s earliest investors. Stripe and Sequoia representatives declined to comment.

Glenn Kelman, the longtime chief executive of online real-estate brokerage Redfin Corp.that went public last July, said that in the run-up to the IPO he was pushed to be more disciplined with expenses by two big investors who traditionally buy public-company stocks but also back later-stage private companies. Redfin’s shares are up about 50% since the IPO.

“There is a new world of VCs who really can’t perform their governance functions on boards because they want to preserve their relationship with you,” Mr. Kelman said of the venture-capital industry.

Star founders of private companies often get to pick their own investors, but as public-company CEOs they can’t. Supervoting shares—typically a second class of stock held by insiders that have 10 votes per share—give founders more power to elect directors and approve other items up for shareholder vote and protect them from investors who may have different priorities.

Last year, 67% of U.S. venture-backed tech companies that staged IPOs had supervoting shares for insiders, according to Dealogic, up from 13% in 2010. The proportion of non-tech U.S. venture-backed IPOs with supervoting shares has stayed between 10% to 15% every year over that period.

The proportion rises as tech companies get larger: 72% of founders of U.S. tech startups valued over $1 billion that had IPOs over the past 24 months have supervoting shares, according to a Wall Street Journal analysis.

Empowering a founder has risks. Uber Technologies Inc. co-founder and former CEO Travis Kalanick built a ride-hailing juggernaut valued at $68 billion with a pugnacious leadership style, but that approach ultimately contributed to a series of scandals. His supervoting shares and de facto control of the board made it more difficult for investors to push him out.

They did so last year, and then abolished supervoting rights and adopted a “one share, one vote” policy ahead of a planned 2019 IPO, something Mr. Kalanick ultimately voted in favor of.

Spotify Technology SA’s shareholders issued special “beneficiary certificates” to its founders in February, in part because co-founder and Chief Executive Daniel Ek wanted to maintain control, a person familiar with the arrangement said. The certificates boosted Mr. Ek’s and his co-founder’s voting control to a combined 80.5%, double their economic ownership. Spotify listed its shares in April. A Spotify spokesman declined to comment.

Snap Inc., whose two co-founders control about 90% of its voting power, sold shares with no voting rights in its 2017 IPO, meaning public-market investors don’t have any say on corporate matters.

Evan Spiegel, co-founder and CEO of the Snapchat parent, received a $625 million stock package that vested with the IPO as an incentive to get it done, people familiar with the deal said.

Drew Houston, co-founder and CEO of online-storage company Dropbox Inc., in December got his own stock package worth potentially $590 million partly tied to his company’s March IPO, according to offering documents. The stock vests based on Dropbox’s share price, among other milestones, and he can earn the full amount only if shares reach $90, triple their current value. Mr. Houston already holds nearly $3 billion of Dropbox’s shares.

Bankers and lawyers who work on IPO deals say there is little precedent for big stock packages offered to founders ahead of public offerings, a reflection of venture-capital firms’ decreasing leverage. Snap and Dropbox representatives declined to comment.

Some star founders may even be emboldened to overstep boardroom norms.

WeWork Cos. co-founder and Chief Executive Adam Neumann, who has 65% voting control, is one of two members of his board’s compensation committee, along with longtime company investor Benchmark, according to WeWork’s recent bond-offering documents. Public companies aren’t usually allowed to have their executives on compensation committees—which set executive pay—to avoid conflicts.

A WeWork spokesman said Mr. Neumann takes $1 a year in salary and declined to comment on whether he receives stock compensation or recuses himself from committee discussions of his pay. It is unclear when WeWork will tap the public markets, but the company’s $4.4 billion investment from SoftBank in 2017 was seen as pushing out its need for a public offering potentially for years.

WeWork bond documents show that in 2016 and 2017, the company paid more than 1.3 million shares of class B stock compensation, worth more than $50 million at the company’s current valuation. Mr. Neumann controls 78% of class B shares, which come with supervoting rights.

—Eliot Brown contributed to this article.

Write to Rolfe Winkler at rolfe.winkler@wsj.com and Maureen Farrell at maureen.farrell@wsj.com

OOPS!! Amazon’s Vancouver expansion tightens local competition for tech talent

SOMEONE FORGOT TO THINK OF THE UNINTENDED CONSEQUENCES

Marc-David Seidel, UBC Apologist for the Amazon Deal Predicts Pie In the Sky Bye and Bye

Tech workers are already in short supply and Amazon’s increased presence likely to lure workers away from local technology-based startups

What upsets me most about this well-written article by Jenny Peng, is that she has exposed the fact that the enthusiasm for bringing Amazon to Vancouver appears to have caused long-term economic blindness in exchange for short-term political gain. Prime Minister Justin Trudeau, BC Premier John Horgan, Vancouver Mayor Gregor Robertson,  and the Vancouver Economic Commission’s acting CEO Brian Buggey, and Sean Elbe, head of VEC’s Technology Sector all need to address serious questions about the probable negative economic impacts of the Amazon deal, not to mention the disconnect with earlier official enthusiasm for Vancouver as an entrepreneurial hub. Which will it be, Amazon or high-tech startups?

READ MORE:  Canada Is Not Silicon Valley

Prior to the Amazon deal, the Trudeau government, BC and the Vancouver Economic Commission had been promoting the Global Talent Stream visa initiative, which will indeed most likely benefit Amazon, but the situation for the Canadian government’s Startup Visa for immigrant entrepreneurial companies is far from favorable. So the Amazon deal seems to have sent another torpedo into the growth of the high-tech entrepreneurial economy in Vancouver.

Poignantly, one UBC Professor, Carson Woo, offers strong prima facie evidence from local companies of the probable damage, while another UBC Professor Marc-David Seidel acts as an apologist for Amazon, claiming that Amazon will create high-tech spinoffs sometime mañana. While Seidel may have a point, the reality is that such spinoff economic growth can literally take decades to develop, which offers weak justification for the Amazon decision. I offer the underwhelming examples of other such deals.  Portland, Oregon is one such example. Intel and Nike remain the anchor employers of thousands of employees between them, and though there has been some spinoff growth over the years, it has been not much to write home about or to rival the economic importance of Intel and Nike.  It is Seattle’s problem with Boeing.  Vancouver has just done the identical thing.

By JENNY PENGStarMetro Vancouver

Mon., April 30, 2018

Source: Amazon’s Vancouver expansion tightens competition for tech talent | The Star

VANCOUVER—Following Amazon’s announcement Monday that the company plans to add 3,000 jobs in Vancouver by 2022 with a new office, observers say this could increase the competition for highly skilled tech workers already in short supply.

The Seattle-based retail giant, which opened its first software development site in Vancouver in 2011 with over 1,000 employees, announced that the new jobs will be in e-commerce technology, cloud computing, and machine learning. Employees will be working in a tower the company plans to build on top of the old Canada Post office in downtown.

Carson Woo, associate professor of accounting and information systems at UBC’s Sauder School of Business, said hiring is “a zero-sum game” for tech companies.

He recalls sitting in on board meetings among high-level executives from some of the city’s top employers, who hoped Amazon doesn’t expand in Vancouver. Their reservation, Woo said, comes from the time and money they’ve invested in training these workers.

“Essentially, you’re taking people from other companies,” Woo said.

This is why Woo believes the Canadian government will eventually allow Amazon to hire from overseas like it did for Facebook and Microsoft in the past.

“Because otherwise, the local companies will really suffer,” he added.

Bill Klug, an instructor of cloud computing at the British Columbia Institute of Technology, said small and medium-size companies will feel the pressure especially in what they pay their staff when competing with large multinational tech corporations.

In addition to demand outweighing the supply of tech workers, Amit Venugopal, managing director at Ecenta Canada Services, said Vancouver’s high costs of living has deterred workers he tried to recruit from the east coast who said the salaries offered don’t always match the cost of living.

“Vancouver has a very small native growth of technology workers and the cost of living is prohibiting people from other parts of Canada” moving to B.C., he said. In addition, workers aren’t always interested in being a programmer and opt for work in business or technology management that create a skills gap that employers need to fill.

Despite the growing competition for skilled tech workers, Marc-David Seidel, associate professor at Sauder, said his research in labour mobility indicates that these jobs will help Vancouver’s ecosystem to grow because as some employees will stay with Amazon long-term, others will create start-ups of their own, invest in other start-ups or work for other organizations, adding to the diversity of the workforce.

He highlighted Austin, Texas and Silicon Valley as examples of where the spin-offs helped grow the local tech economy.

“These types of announcements are more a sign that the ecosystem has been growing,” he said, “and that the culture that’s developing the ecosystem is being recognized by international players.”

Jenny Peng is a Vancouver-based reporter covering business. Follow her on Twitter: @JennyPengNow

Big Idea Social Entrepreneur: The New 21st Century Career

Late last year I wrote on this blog about my frustration with the lack of Big Ideas driving innovation. My rant was stimulated by a New York Times article on the grim underbelly of the “an app for everything” culture: people who were working on “small ideas,”  and losing their shirts in the process.  I also shared the thoughts of other entrepreneurial leaders, investors, and journalists, also bemoaning the fact that we seem to have lost our way, and are no longer thinking BIG.  This morning I stumbled on a post on the HBR Blog Network, entitled “Idea Entrepreneur: The New 21st Century Career.” I took some editorial license and added the words “Big”  and “Social” to my blog post, simply because the author was actually making the case for Big Ideas and Social Entrepreneurship, and the hopeful sign that there may be a re-emergence of people who care about Big Ideas.  Read my original post here, followed by the HBR Blog post.

The concept of “social entrepreneurship” has noticeably taken off with this generation of young people. While there some debate about the definition of “social entrepreneurship,” I am comfortable with the following explanation.

A social entrepreneur is a person who pursues novel applications that have the potential to solve community-based problems, both large and small. These individuals are willing to take on the risk and effort to create positive changes in society through their initiatives.

Examples of social entrepreneurship include microfinance institutions, educational programs, providing banking services in underserved areas and helping children orphaned by epidemic disease. Their efforts are connected to a notion of addressing unmet needs within communities that have been overlooked or not granted access to services, products, or base essentials available in more developed communities. A social entrepreneur might also seek to address imbalances in such availability, the root causes behind such social problems, or social stigma associated with being a resident of such communities. The main goal of a social entrepreneur is not to earn a profit, but rather to implement widespread improvements in society. However, a social entrepreneur must still be financially savvy to succeed in his or her cause.

I had the good fortune of working with the global social entrepreneurship NGO,  Enactus and a group of my students from the UBC Faculty of Management. We interacted with other social entrepreneurship groups as far afield as Perth, Australia, and Rotterdam in the Netherlands to develop our own project. Enactus categorizes projects by the potential for the project to become self-sustaining by the participants, and the original project volunteers working themselves out of a job. Our project was designed to meet the highest categorization within Enactus. We designed a roof-top hydroponic vegetable garden project that would produce high yield cash crop fruits and vegetables for the homeless community, managed by a local housing organization.  The end goal was to enable the homeless volunteers to take over the operation, generate income for themselves, and collaborate with the charity organization to enter into simple permanent housing.

Read more: What Makes Social Entrepreneurs Different?

Read more: http://mayo615.com/2012/11/18/app-development-booms-depressing-underbelly-what-ever-happened-to-big-ideas/

“Big” Idea Entrepreneur: The New 21st Century Career

Reblogged from the HBR Blog Network

by John Butman  |  10:00 AM May 27, 2013

Read more: http://blogs.hbr.org/cs/2013/05/idea_entrepreneur_the_new_21st.html

There is a new player emerging on the cultural and business scene today: the idea entrepreneur. Perhaps you are one yourself — or would like to be. The idea entrepreneur is an individual, usually a content expert and often a maverick, whose main goal is to influence how other people think and behave in relation to their cherished topic. These people don’t seek power over others and they’re not motivated by the prospect of achieving great wealth. Their goal is to make a difference, to change the world in some way.

Idea entrepreneurs are popping up everywhere. They’re people like Sheryl Sandberg (Facebook COO and author of Lean In), who is advocating a big new idea from within an organization. And like Atul Gawande (the checklist doctor), who is working to transform a professional discipline. Or like Blake Mycoskie (founder of TOMS shoes), who has created an unconventional business model.

In my research into this phenomenon (which forms the basis of my book, Breaking Out), I have been amazed at how many different kinds of people aspire to be idea entrepreneurs. I have met with, interviewed, emailed or tweeted with librarians, salespeople, educators, thirteen-year-old kids, marketers, technologists, consultants, business leaders, social entrepreneurs — from countries all over the world — who have an idea, want to go public with it, and, in some cases, build a sustainable enterprise around it.

The ones who succeed — whether it’s disrupting an established way of doing business as Vineet Nayar has done with his company or bringing a mindset change to a small community like Maria Madison has done in Concord, Massachusetts — share the following methods:

• They play many roles. They are manager, teacher, motivator, entertainer, coach, thought leader, and guru all rolled into one. Think Reid Hoffman (founder of LinkedIn and author of The Start-Up of You), Daniel Pink (author of Drive) or, in India, Kiran Bedi, leader of a worldwide movement to transform prisons and root out corruption.

• They create a platform of expressions and generate revenue to support their social activities. Idea entrepreneurs have to be exceptionally good at expressing their idea, and usually do so in many forms. They give private talks and major speeches, write books and blogs and articles, participate in panels and events, engage in social media — activities that can generate revenue (sometimes in considerable amounts), through a combination of fees, sales of their expressions, and related merchandise. Jim Collins has created a long-lasting enterprise supported by the sale of books and media, as well as fees for consulting, speaking engagements, and workshops.

• They offer a practical way to understand and implement their idea. Because people have a hard time responding to an abstract idea, the idea entrepreneur develops practices (and personally models them, too) that lead people to the idea through action. Bryant Terry, an “eco-chef” who argues that good nutrition is the best path to social justice, embeds his ideas in cooking methods and suggestions for social interaction around good food.

• They draw other people into their idea. The idea entrepreneur gathers people into the development, expression, and application of their idea. They form affiliations, build networks, and form groups. Al Gore created the Climate Reality Project Leadership Corps to bring his ideas about environmental sustainability to people around the world. Eckhart Tolle, a spiritual leader and author of The Power of Now, has established the online Eckhart Teachings Community with members in 130 countries. This inclusion of many people in many ways creates a phenomenon I call respiration— it’s as if the idea starts to breathe, and takes on a life of its own.

• They drive the quest for change. It is all too common that people with an idea for an improvement or a change to the world are satisfied to point out a problem, propose a solution, and then expect others to execute. The idea entrepreneur, however, sees the expression of the idea as the beginning of the effort — and it can be a lifelong one — in which they will continue to build the idea, reach new audiences, and offer practices that lead to change. Dr. Bindeshwar Pathak, based in Delhi, believes that world-class sanitation is necessary for India to realize its full potential. In forty years of idea entrepreneurship — spent in writing, speaking, travelling, network building, and technology development — he has influenced the way millions of people think and act.

People who have shaped our thinking and our society over the decades, even centuries, and continue to do so today — from Benjamin Franklin to Mohandas Gandhi to Hannah Salwen, an American teenager who modeled a disruptive approach to philanthropy — have followed the path of the idea entrepreneur.

These days, the model is well-defined and, thanks to the amazing range of activities we have for creating and sharing ideas, is within reach for just about anyone. If you have an idea, and want to go public with it, idea entrepreneurship can be one of the most powerful forces for change and improvement in the world today.

As Trump Tightens Legal Immigration, Canada Woos Tech Firms: But Canada Is Not Silicon Valley

There Is More To High-Tech Immigration to Canada Than Meets The Eye

My long-time business partner and I, one of us in Canada and the other in Silicon Valley, earlier this year launched a business targeted at bringing immigrant entrepreneurs to Canada, Vendange Partners. http://www.vendangepartners.com

From our years’of experience in Silicon Valley and with technology entrepreneurship around the World, we knew that many of the best and brightest young entrepreneurs abroad dreamed of bringing their ideas to the United States to forge their skills and their new companies.  But from our discussions both in California and overseas it is clear that Trumpism is having a profoundly negative effect on this flow of talent into the American economy, both individual technical talent and entrepreneurial teams looking to start companies and raise capital.

The Canadian government and some of the provinces, particularly British Columbia, Ontario, Quebec, and to some degree the Maritimes, have done a commendable job of promoting high-tech immigration and entrepreneurship.  The Global Talent Stream visa is an excellent vehicle as described in The New York Times article included in this post. Global Talent Stream attempts to address the need for technical talent for companies already operating in Canada.  The competition for such talent and the salaries offered in the United States are a major problem for Canadian companies, particularly in AI and robotics. Theoretically at least, a Global Talent Stream applicant with an employer lined up can be working in Canada within about two weeks.

The so-called “startup visa” program for founders and already established teams wishing to set up in Canada is more complicated.  The program requires a committed investment from a “designated” Canadian investor and a letter of endorsement among other requirements before the visa is granted. The difficulties of doing this are something of a Catch-22. In practice in the past, endorsement letters were written by government listed “designated” investors without actual investment, but this still did not result in a wave of high-tech startups coming to Canada. The only other option is for entrepreneurs to bring a significant amount of their own capital with them to Canada.  This option has led to abuse. At its original launch under the Harper government, the startup visa program, unfortunately, became a magnet for immigration scams.  Hence, the startup visa program remains over-subscribed with applicants bringing their own capital to qualify for the “startup” visa for up to five founders.

Finally,  There is also simply too little smart Canadian venture capital and too many startups competing for the limited funds. It is also commonly acknowledged that Canada’s investment institutions and the Canadian financial mentality are not well-aligned with the Silicon Valley investment culture. Major U.S. pension funds like the California Public Employees Retirement System (better-known as CalPERS) annually invests 10% of its entire portfolio in venture capital funds. The same cannot be said generally about Canadian pensions funds and investment banks, as one example of the differences. Much lower risk debt capital and convertible debt seem to be more popular products in Canada.  In defense, it is often pointed out that the Canadian economy is roughly one-tenth the size of the United States. Yet, on a relative scale, the Canadian venture capital industry still does not compare well. Add to this the fact that the Canadian government has historically been far behind other OECD industrialized nations in R&D investment in innovation and you have major problems.  Anecdotally, the sheer amount of money and number of available investors in Silicon Valley alone is well-over 5oo compared with a mere handful in Vancouver. When the more than one thousand local indigenous BC startups actively seeking capital are layered onto the available sources of risk capital in Vancouver, there is major local competition before the immigrant entrepreneurs even arrive in Canada. Looking for risk venture capital in Canada, a la Silicon Valley is problematic.

With that candid and sobering analysis of high-tech immigration to Canada, for individuals who have taken the time to do an in-depth analysis of themselves, and the pro’s and con’s of such a major move, Canada may still offer many advantages to entrepreneurs, and those advantages are only likely to improve over time.

Vendange Partners

 

Trump’s Policies Are Already Sending Entrepreneurs to Canada and France

Canadian and French Policies to Attract Entrepreneurs and Researchers Impacting Silicon Valley

Last week, the U.S. Department of Homeland Security delayed the International Entrepreneur Rule to next March, and it is currently accepting comments on plans to rescind it altogether. The agency cited logistical challenges in vetting these new visas. The International Entrepreneur Rule was designed by the Obama Administration to support Silicon Valley and the high tech industry’s need for immigrant entrepreneurs and engineers. Immigrant entrepreneurs in the U.S. account for 44% of all startups.   The news has prompted a backlash from immigrant entrepreneurs like PayPal cofounder Max Levchin and leadership at the National Venture Capital Association, who argue that rolling back the rule will drive would-be job creators to other, more welcoming nations. This is already happening.

Canada’s Global Talent Stream Visa Program For Immigrant Entrepreneurs Targets U.S. Immigration Policy

To Silicon Valley observers, Canada has always seemed incapable of igniting a technology-driven economy, despite years of the government support for telecommunications, and a byzantine maze of government grant programs for research and development. Canada has remained a laggard in R&D investment compared to other OECD industrialized nations. Venture capital and government tax policy in Canada seemed to have a focus on short-term tax deductions rather than long-term gains as in California.  Then there was the demise of Nortel and the decline of Blackberry. There may be a new opportunity to bootstrap Canada into the high-tech industry big league: Trump Administration immigration policies that are already impacting Silicon Valley.  Not long after Justin Trudeau’s Liberals came to power in 2015, Trudeau sensed the opportunity to exploit Trump’s anti-immigration stances and the Liberal government swung into action to create the Global Talent Stream visa program specifically designed for rapid immigration for entire entrepreneurial teams. Since that time Trump has fulfilled his promises by slashing the H1-B visa program and announcing the end of the Obama Administration’s Startup Visa Program. Immigrant enrollments at U.S. universities is already down over 40%. Startup Genome, the acknowledged global leader in entrepreneurial ecosystems rankings, currently ranks Vancouver and Toronto 15th and 16th globally in its 2017 study, but those in the know acknowledge that Canada still lacks crucial technology ecosystem capabilities.  Nevertheless, Canada may be on the verge of a technology tidal wave.

Source: Trump’s Policies Are Already Sending Jobs to Canada | WIRED 

Source: Macron Inspires Entrepreneurs to come to France – Financial Times

Source: Trump Administration to end Startup Visa Program – Government Tech

Macron Determined To Make France “A Startup Nation” With Major Technology Initiatives

In 2015, long before Emmanuel Macron’s launched his campaign for the Presidency of France, as a minister in the Hollande government, Macron launched a significant new technology initiative, The Camp, on a seventeen-hectare campus just outside Aix-en-Provence, designed to inspire new thinking on crucial technology issues, and to incubate new entrepreneurial companies. The Camp will open officially this Autumn.  Now that Macron has swept the country in a stunning Presidential victory, it is clear that technology and entrepreneurship are crucial elements of his vision for France, backing it up with a 10B € technology-based economic development fund. The South of France generally, the Cote d’Azur and Provence are emerging as France’s technology center.  France’s nuclear research facility, Cadarache, just northeast of Aix-en-Provence, is the equivalent of California’s Lawrence Livermore Labs, and the home of ITER, the European nuclear fusion project. Prior to Macron’s 2015 launch of The Camp, the government had already established the Sophia Antipolis technology park near Nice, as a center for advanced telecommunications research and entrepreneurial start-ups.

The Camp, Aix-en-Provence

As if to underscore France’s rise on the global stage, France has recently leapfrogged the U.S. and Great Britain as the world’s new leader in “soft power,”  the ability to harness international alliances and shape the preferences of others through a country’s appeal and attraction.

 

 

Uber is Enron Deja Vu: Culture Trumps Strategy

A Silicon Valley Tragedy

Remember Enron’s “Smartest Guys in the Room?”

An early photo of Uber’s management team

Why did Uber spin so wildly out of control?

For over a  year now I have blogged here about the red flags flying about Travis Kalanick and Uber. Many investigative articles have been published over this time, in the New York Times and other publications, which have raised disturbing questions about Uber, Kalanick and some members of his team. The Board of Directors has finally taken action but it feels like its a day late and a dollar short.  Why did it take so long?  I have bluntly used the epithet that “Uber is Trump,” but now on reflection, it is more apt to describe Uber as Enron the sequel, and “deja vu all over again.” Remember the audio of two Enron electricity traders laughing about “screwing grandma?” That is Uber.

Culture Trumps Strategy

So as the current management adage says, culture trumps strategy.  This is not simply about the bad behavior of a few individuals and that eliminating them will solve Uber’s problems. The aggressive, confrontational business strategy is itself an integral and inextricable part of the problem. Some have said that Uber has a good business model and deserves to succeed.  I dispute that.  Jeremy Rifkin’s Third Industrial Revolution describes his vision for a new sharing economy.  The book has been read by world leaders and praised for its insights into a bright new evolving economy.  Uber and other companies like it have morphed the sharing economy into something ugly.

Uber morphed the sharing economy into “the gig economy,” epitomized by jobs without security or benefits, and the now viral video of Kalanick berating an Uber driver who was going bankrupt. SFGate also exposed the Uber operating strategy of psychologically manipulating drivers to work more hours than intended. The central principle of Kalanick’s business strategy is what he euphemistically describes as “principled confrontation.” Uber enters a market without following any existing rules or regulations, simultaneously entering into negotiations with municipalities which are typified by stalling tactics from Uber, and no intention to conclude an agreement. Uber’s goal is to take over the market by force, making any agreements with municipalities unnecessary. While pursuing its strong-arm goal, Uber has used a software tool, Greyball, to evade law enforcement. Uber is now under criminal investigation for the use of Greyball. Even the notion that Uber somehow improves traffic congestion has been debunked by a Northwestern University study commissioned by the San Francisco Transportation Authority which found that ride sharing has a heavy negative impact on San Francisco’s traffic congestion. See www.sfcta.org/TNCsToday

Uber is also facing a major lawsuit from Google for expropriating Google driverless car technology by hiring one of Google’s engineers. Uber has now fired the engineer in question, but the firing itself may be a circumstantial admission that its intent was to steal Google IP.  In another case, nearly 200 Uber employees were encouraged to use fake ID, burner phones and credit cards to sabotage Lyft, by booking and then quickly canceling more than 5000 rides with Lyft. Then there is the matter of what can now only be described as pervasive sexual harassment within Uber. Adding to all of these issues, local communities have begun to resist Uber much more aggressively. In one example, a protest movement in Oakland is opposing Uber’s plan to open offices in Oakland. There are other examples dotted around the World. Finally, there is the unresolved matter of the status of Uber’s drivers as “independent contractors or employees” which is nearing a final decision in California state and federal courts.

Clearly, Uber’s business strategy is driven by its ugly corporate culture. Stepping back to consider the complete picture, Uber’s business strategy looks to me like a house of cards.

Uber’s Leadership Conundrum

Those who know me and my blogs here know that I am a student of Harvard Business School professor John Kotter and his philosophy of leadership with humility at its core.  Uber presents a leadership conundrum for me. I was interested to hear BackChannel journalist Jessi Hempel express the same point tonight on PBS Newshour.  Uber obviously urgently needs to change its culture, yet without the wild aggressive culture defined by Kalanick, the question remains whether Uber can survive? It is not clear to me that humility could turn the Uber cultural battleship. There have also been a number of business articles suggesting that changing a corporate culture is far more challenging than changing a corporate strategy. So I am left to ponder Peter Drucker’s Four Quadrants of Managerial Behavior, and Quadrant Four’s “high task, low relationship” model for Uber. I learned this in Intel’s M Series management courses years ago. The course used the case study of the film “12 O’Clock High,” a demoralized B-17 bomber unit as its example. Gregory Peck arrives as the new unit commander and begins by “kicking ass and taking names.”  A similar case would be George Patton’s arrival in North Africa to take command of a demoralized tank unit.  My sense at the moment is the only best hope is that somehow an interim leader at Uber will have the latitude to take whatever actions he deems necessary to right the ship.  Such a solution seems doubtful at the moment.

Business Ethics Missing in Action

This morning on NPR’s Morning Edition, Nina Kim interviewed the Director of the Markulla Center for Applied Ethics at Santa Clara University, Kirk Hansen. The Center is named for early Intel and Apple executive, Mike Markkula. Mr. Hansen said that “Uber will undoubtedly become one of the most important business case studies” to emerge from Silicon Valley. Hansen went on to point out that founders of startups are often not capable of taking the company to a mature large company, and that it may be necessary to remove or reassign the founder. In the case of Uber, this is impossible because Kalanick and his founder group have the majority of shares.  This contrasts with most startups legal framework, where the investors or Board may hold the right to remove the founder in specific circumstances.

The Smartest Guys in the Room

As a grey-haired Silicon Valley alumni, I am personally offended and outraged by what has happened at Uber. I am deeply ashamed. Over the years I have worked for some well-known SV companies, startups, VC firms, and my own consultancy. I have personal knowledge of things that happened that were not kosher, and I have been present in situations where the ethics were not the best, but nothing in my Silicon Valley experience rises to the level of Uber. Something has gone wildly out of control since my time with how we conduct ourselves in business, and it is now tarnishing the history and reputation of fifty years of Silicon Valley achievements. From my own personal experience working at one wildly successful company years ago, and after rewatching the Enron documentary video,  “The Smartest Guys in the Room,” the answer is simple: too much money.

 

Source: Uber CEO Kalanick likely to take leave, SVP Michael out: source | Reuters

TECHNOLOGY NEWS | Mon Jun 12, 2017 | 4:22pm ED

By Heather Somerville and Joseph Menn | SAN FRANCISCO | Reuters

Uber Technologies Inc [UBER.UL] Chief Executive Travis Kalanick is likely to take a leave of absence from the troubled ride-hailing company, but no final decision has yet been made, according to a source familiar with the outcome of a Sunday board meeting.

Emil Michael, senior vice president, and a close Kalanick ally has left the company, the source said.

At the Sunday meeting, the company’s board adopted a series of recommendations from the law firm of former U.S Attorney General Eric Holder following a sprawling, multi-month investigation into Uber’s culture and practices, according to a board representative.

Uber will tell employees about the recommendations on Tuesday, said the representative, who declined to be identified.

The company is also adding a new independent director, Nestle executive, and Alibaba board member Wan Ling Martello, a company spokesman said.

Holder and his law firm were retained by Uber in February to investigate company practices after former Uber engineer Susan Fowler published a blog post detailing what she described as sexual harassment and a lack of a suitable response by senior managers.

The recommendations in Holder’s firm’s report place greater controls on spending, human resources and other areas where executives led by Kalanick have had a surprising amount of autonomy for a company with more than 12,000 employees, sources familiar with the matter said.

Kalanick and two allies on the board have voting control of the company. Kalanick’s forceful personality and enormous success with Uber to date, as well as his super-voting shares, have won him broad deference in the boardroom, according to the people familiar with the deliberations.

Uber CEO Travis Kalanick speaks to students during an interaction at the Indian Institute of Technology (IIT) campus in Mumbai, India, January 19, 2016. REUTERS/Danish Siddiqui/File photo

Any decision to take a leave of absence will ultimately be Kalanick’s, one source said.

The world’s most valuable venture-backed private company has found itself at a crossroads as its rough-and-tumble approach to local regulations and handling employees and drivers has led to a series of problems.

It is facing a criminal probe by the U.S. Department of Justice over its use of a software tool that helped its drivers evade local transportation regulators, sources have told Reuters.

Last week, Uber said it fired 20 staff after another law firm looked into 215 cases encompassing complaints of sexual harassment, discrimination, unprofessional behavior, bullying and other employee claims.

SILICON VALLEY SHOCK

Even a temporary departure by Kalanick would be a shock for the Silicon Valley startup world, where company founders in recent years have enjoyed more autonomy and often become synonymous with their firms.

Uber’s image, culture, and practices have been largely defined by Kalanick’s brash approach, company insiders and investors previously told Reuters.

Uber board member Arianna Huffington said in March that Kalanick needed to change his leadership style from that of a “scrappy entrepreneur” to be more like a “leader of a major global company.” The board has been looking for a chief operating officer to help Kalanick run the company since March.

The debate over Kalanick’s future comes as he is also facing a personal trauma: His mother died last month in a boating accident, in which his father was also badly injured.

Michael, described by employees as Kalanick’s closest deputy, has been a recurring flashpoint for controversy at the company.

He once discussed hiring private investigators to probe the personal lives of reporters writing stories faulting the company. Kalanick disavowed and publicly criticized the comments.

Michael will be replaced as the company’s top business development executive by David Richter, currently an Uber vice president, the company spokesman said.

Alongside Uber’s management crisis, its self-driving car program is in jeopardy after a lawsuit from Alphabet Inc alleging trade secrets theft, and the company has suffered an exodus of top executives.

One Uber investor called the board’s decisions on Sunday a step in the right direction, giving Uber an “opportunity to reboot.”

Jerks And The Start-ups They Ruin

Perhaps the premiere of Season 4 of “Silicon Valley” twigged me to share this post. but despite the title, the HBO series only connection may be the now viral “mean jerk time algorithm.”     The real “Silicon Valley jerk” has been around for decades, buried with all the other dirty laundry. Uber’s Travis Kalanick has only brought it front and center at this moment. It is something of a conundrum as some of the jerks are also the most successful. We all now know about the “bad” Steve Jobs. Oracle for years had a very bad reputation that came directly from Larry Ellison himself.  Microsoft was long known as a “sweatshop” with a highly negative culture led by Steve Ballmer. Even venture capitalists themselves have caught the disease as evidenced by Reid Hoffman and the late Tom Perkins of KPCB.  The best assessment I have heard is that these aggressive unrestrained corporate cultures destroy their own goals. Or better yet, the saying that “culture trumps strategy.”

 

Reblogged from the New York Times

SundayReview | OPINION

Jerks and the Start-Ups They Ruin

By DAN LYONS, APRIL 1, 2017

Credit: Tim Enthoven

The tech industry has a problem with “bro culture.” People have been complaining about it for years. Yet nobody has done much to fix it.

That may finally change if the people in charge of Silicon Valley — venture capitalists, who control the money — start to realize that the real problem with tech bros is not just that they’re boorish jerks. It’s that they’re boorish jerks who don’t know how to run companies.

Look at Uber, the ride-hailing start-up. It’s the biggest tech unicorn in the world, with a valuation of $69 billion. Not long ago Uber seemed invincible. Now it’s in free fall, and top executives have fled. The company’s woes spring entirely from its toxic bro culture, created by its chief executive, Travis Kalanick.

What is bro culture? Basically, a world that favors young men at the expense of everyone else. A “bro co.” has a “bro” C.E.O., or C.E.-Bro, usually a young man who has little work experience but is good-looking, cocky and slightly amoral — a hustler. Instead of being forced by investors to surround himself with seasoned executives, he is left to make decisions on his own.

The bro C.E.O. does what you’d expect an immature young man to do when you give him lots of money and surround him with fawning admirers — he creates a culture built on reckless spending and excessive partying, where bad behavior is not just tolerated but even encouraged. He creates the kind of company in which going to an escort bar with your colleagues, as Mr. Kalanick did in South Korea in 2014, according to recent reports, seems like a good idea. (The visit led, understandably, to a complaint to the personnel department.)

Bro cos. become corporate frat houses, where employees are chosen like pledges, based on “culture fit.” Women get hired, but they rarely get promoted and sometimes complain of being harassed. Minorities and older workers are excluded.

Bro culture also values speedy growth over sustainable profits, and encourages cutting corners, ignoring regulations and doing whatever it takes to win.

Sometimes it works. But often the whole thing just flames out. The bros blow through the money and find they have no viable business. For example, Quirky, founded in 2009 by the 20-something Ben Kaufman. It raised $185 million to build a “social product development platform” that sold kooky gadgets but filed for bankruptcy basically because the “brash” and “unorthodox” chief executive had no business being a chief executive. One indication that Mr. Kaufman is a bro? Well, the first reference he lists on his LinkedIn page is: “He’s a dick … but hilarious.”

Zenefits, a human-resources start-up, and another bro co., raised $583 million, at a peak valuation of $4.5 billion, then crashed after reports that it had used software to cheat on licensing courses for insurance brokers, and operated a hard-partying workplace where cups of beer and used condoms were left in stairwells. Zenefits limps on, but its C.E.-Bro co-founder has left the company, and nearly half the staff has been laid off.

Uber’s public downfall began in February, when Susan Fowler, a former engineer at the company, wrote about enduring sexual harassment and discrimination there. Other employees came forward with stories. One involved a manager groping employees’ breasts. Mr. Kalanick’s own bro-hood became part of the story when a video surfaced showing him berating a Uber driver who complained that Uber’s price cuts had driven him into bankruptcy. Mr. Kalanick said the driver needed to take responsibility for his own life.

As this was happening, Google’s self-driving car unit sued Uber, alleging it had stolen its ideas. Then word leaked that Uber had been using a sneaky software tool to deceive regulators in cities around the world. All this is as much a part of “bro culture” as the poor treatment of women; the point is to get away with as much as you can.

Hoping to right the ship, Uber appointed one of its board members, Arianna Huffington, to join former attorney general Eric Holder and others to investigate the sexual harassment claims. Mr. Kalanick has apologized and vowed to “grow up.” (He’s 40.) Most important, Uber has announced that it is planning to hire a chief operating officer, ideally a steady hand like Sheryl Sandberg, the chief operating officer of Facebook. It’s a great idea, but it should have happened years ago. Now it may be too late.

Ms. Huffington insists the board has full confidence in Mr. Kalanick. But should it? He’s a college dropout with a spotty track record and a reputation for pugnacity. His record at Uber includes racking up enormous losses — reportedly $5 billion over the last two years. Despite this, the bluest blue-chip investors (including Goldman Sachs and Morgan Stanley) have invested a total of $16 billion in Uber.

Bro C.E.O.s are better at raising money than making money. So why do venture capitalists keep investing in them? It may be because many of the venture capitalists are bros as well.

Venture capitalists used to be tech engineers who had made a bundle, retired early and took up investing in start-ups as a kind of white-shoe hobby. The new breed are competitive alpha males who previously might have gone to work as bond traders. At the same time, there are fewer women. In 1999, 10 percent of investing partners at venture capital companies were women. By 2014 the number had declined to 6 percent, according to the Diana Project at Babson College. This is probably one reason that, despite many studies showing that women run companies better than men, none of the 15 biggest American tech companies valued over $1 billion has a female chief executive.

Uber’s collapse should not come as a surprise but it does offer a lesson: Toxic workplace culture and rotten financial performance go hand-in-hand. It’s possible for a boorish jerk to run a successful company, but jerks do best when surrounded by non-jerks, and bros do best when they hire seasoned executives to help them. Without “adult supervision” and institutional restraints, the C.E.-Bro’s vices end up infecting the culture of the workplaces they control.

This poisonous state of affairs will get fixed only when investors start getting hurt. A crash at Uber, the most high-profile tech start-up in the world, could provide the jolt that finally brings the tech industry back to its senses.

Dan Lyons is the author of “Disrupted: My Misadventure in the Start-Up Bubble.”

The Importance of “Convergence” In Market and Industry Analysis

If You Get Technology “Convergence” Wrong, Nothing Else Matters

I came across this book during my most recent visit to the UBC Vancouver campus.  As good as I think this book is at focusing attention, in workbook style, on the importance of market and industry analysis in new venture due diligence, there is an issue that I think is not adequately addressed by any model or theory: not Porter, not STEEP or SWAT. Convergence is the issue.

We can imagine and even potentially envision a very cool business idea, but if the technology to achieve it is not ready, not sufficiently mature, the idea is Dead on Arrival (DOA).   I do not mean to pick on young entrepreneurs, but I reviewed a business concept last week that was a superb and compelling idea, but the technology necessary to achieve it simply was not there, either in terms of its capability or its price point. I am confident that it will be there in time, but it is not now.  As if to make my point, Apple announced that it was acquiring a company for $20 Million in the exact same technology area: indoor location tracking (no small feat).  At this point it is not clear that the acquired company has any extraordinary intellectual property or expertise, and the article primarily focused on the point that this “location identification” technology was “heating up.”  It looks like it may be a simple “aquihire.”   Global Positioning and geo tagging as in smart mobile phones, radio frequency identification technology (RFID), and inertial guidance are all currently used in various combinations by a host of competitors (too many) to achieve required levels of accuracy, immediacy and cost.  A local industrial RFID company has just closed its doors because it simply could not compete and make money.  The simple problem was that this company’s idea, as compelling as it was, could not achieve the necessary price point, or possibly would not even work.

So we have the problem of “convergence.”  Great idea but the technology simply is not ready….yet.

I have three personal case study examples of the problem of “convergence,” that every potential entrepreneur should study. I have to admit that I was a senior executive at all three of these Silicon Valley companies, one of which actually made it to the NASDAQ exchange.  All of them had the “convergence” problem.. Too early for the available technology.

1. Silicon Graphics.  Silicon Graphics was founded in the late 1980’s by a pre-eminent Stanford professor, Jim Clark, on the idea that 3D visualization of complex problems would become the next big wave in technology. As a minor side business, it also excelled at computer animation, a growing new market of interest to Steve Jobs and others. It is now obvious that Clark was onto something that has now finally become the Next Big Thing, but at that time, the available technology simply made it too difficult and too expensive. Silicon Graphics no longer exists. Silicon Graphics crown jewel was its enabling software code, the SGI Graphics Library. It does still exist in open form.

Read more:http://mayo615.com/2013/03/31/hans-rosling-makes-visual-sense-of-big-data-analytics/

2. iBEAM Broadcasting.  iBEAM was the precursor of YouTube, but too far ahead of its time.  the founder, Mike Bowles, a former MIT professor, envisioned streaming media across the Internet, but this was in 1999.  Intel, Fox Entertainment, Reuters, Bloomberg, Microsoft were all involved, some investing significant sums in the company. We tried mightily to make it happen for Mike, but there were technology convergence problems.  The Internet at that time simply did not have sufficient reliable broadband capability.  In 1999 the vast majority of Internet users still used a dial-up connection.  The company, with help from Microsoft and its other big pockets investors turned to satellite transmission, which is immensely expensive.  I did learn a lot about the satellite business. Great idea, way too early, and the company failed early.

3. P-Cube.  In 2001, I was approached by prominent friends at two downtown Palo Alto venture capital firms to consider joining an Israeli startup in which they had invested. The idea was wildly popular at the time….traffic policy management and so-called Internet traffic shaping.  I enthusiastically joined the new company and became its first U.S. based employee.  The compelling idea was simple, make money by charging for bandwidth. The background idea was to enable deep IP packet payload snooping to prioritize traffic, but also for its political potential. This is the technology that Dick Cheney employed after 9/11 to snoop all Internet traffic.  The only problem was that the technology was simply not yet ready.  The P-Cube Internet traffic switch was a 24 layer printed circuit board (hideously difficult to fabricate), with 5 IBM PowerPC chips, 1 Gig of onboard memory (at the time bleeding edge, but today laptops have more memory), a host of “application specific integrated circuits” (ASIC), and to top it off a proprietary software language to program the box.  In the end, P-Cube burned up $100 Million in venture capital, and I had great fun traveling the World selling it, but the box never worked, largely because the technology simply was not there..  P-Cube’s assets were bought by Cisco Systems and t0day such capability is built into the boxes of Cisco System, Juniper Networks and others.

The key takeaway lesson from this: do not underestimate the importance of technology convergence with a great idea.

Tough Love From Silicon Valley For Tough Times

Heidi Roizen is a very well-known Silicon Valley venture capitalist and entrepreneur. I first met Heidi years ago at a European COMDEX event in Nice when she was still in her entrepreneurial phase. Since that time she has gone on to fund numerous startups, and is now a Partner at Draper Fischer Jurvetson.  In this blog, Heidi is sounding the alarm to entrepreneurs that, as she says, the market has already turned for the worse. She has been there before and offers her sage advice to this generation of entrepreneurs on how to survive. IMHO, she is spot on.

Dear Startups:  Here’s How to Stay Alive

By Heidi Roizen

Reblogged from Tumblr

February 15, 2016

There are storm clouds gathering over Silicon Valley – and it’s more than just El Nino.

As a venture capitalist, I see a lot of data points within the private company marketplace.  Every Monday, I sit in a room with my partners and we discuss dozens of companies, both portfolio companies as well as those we are considering for investment.  When a market turns, we tend to see the signs earlier than the entrepreneurs working on the front lines.

This market?  I’d say it has turned.

It is going to be hard (or impossible) for many of today’s startups to raise funds.  And I think it will get worse before it gets better.  But, hey, my entrepreneurial friend, whoever said it was going to be easy?  One of my favorite expressions is: “that which does not kill us makes us stronger.”

So which is it going to be for you?  Tougher?  Or dead.

Fortunately, (unfortunately?) I’ve been to this movie before, during the dot-com “nuclear winter” – anyone remember that?   I’d like to think I’ve learned some things from that painful experience.

I’ve seen companies live, and I’ve seen them die. And I’ve concluded that certain behaviors separate the two.

Which behaviors, you ask? Here are a few from my downturn playbook for how to stay alive.

Stop clinging to your (or anyone else’s) valuation:  You know what somebody else’s fundraise metrics are to you?  Irrelevant.  You know what your own last round post was?  Irrelevant. Yes, I know, not legally, because of those pesky rights and preferences.  But emotionally, trust me, it is irrelevant now.  We even have a name for this – valuation nostalgia.  Yes, it was great when companies could raise those amounts, at those prices, blah, blah, blah, but the cheap-money-for-no-dilution thing is largely over now. The sooner you get on with dealing with that, and not clinging to the past, the better off you will be. As my DFJ partner Josh Stein says, “flat is the new up.”

Redefine what success looks like:  I had lunch last week with a friend of mine who broke her leg in three places four months ago.  “I used to think a successful weekend was 10+ miles of running,” she said.  “For now,  success is going to have to mean making it to the mailbox and back without my crutches.”  When a market like this turns, in order to survive, it is critical to redefine what success is going to look like for you – and your employees, and your investors, and your other stakeholders.  Holding on to ‘old’ ideas about IPO dates, large exits and massive new up rounds can ultimately be demotivating to your team.  If you can make it through the downturn, you will have those opportunities again.  But for now, reset your goals.

Get to cash-flow positive on the capital you already have (AKA, survive):My DFJ partner Emily Melton said this in our last partner meeting:  “Must be present to win.”  I used to say it at T/Maker (the company for which I was CEO) in a slightly different way:  “In order to have a bright long-term future, we need to have a series of survivable short term futures.”  You need to survive in order to ultimately win.

You know what kind of companies generally survive?  Companies that make more money than they spend.  I know, duh, right?  If you make more than you spend, you get to stay alive for a long time.  If you don’t, you have to get money from someone else to keep going.  And, as I just said, that’s going to be way harder now.  I’m embarrassed writing this because it is so flipping simple, yet it is amazing to me how many entrepreneurs are still talking about their plans to the next round.  What if there is no next round?  Don’t you still want to survive?

Yes, some companies are ‘moon shots’ (DFJ has a fair number of those in our portfolio) where this is simply not possible.  But for the vast majority of startups, this should be possible.

So, for those of you in the latter group, I want you to sharpen your spreadsheet, right now, and see if, by any hugely painful series of actions, you could actually be a company that makes money.  ASAP.  Or at least before you run out of money.   Because that’s the only way I know to control your own destiny.  You don’t have to act on it (although I would), but at least you will know if you have a choice.

And if you absolutely, positively, cannot get there without more capital?  Then you need to…

Understand whether your current investors are going to get you there: Guess who else cares about whether you live or die?  Yep, your current investors.   Another duh.  That’s why they are your best source of ‘get me to cash flow positive’ financing.  And yet, even though we all know this, why is it we don’t actually (1) create the plan that gets us to cash flow positive ASAP, and then (2) go to our backers and get their commitment that they will see us through  (or know that they won’t, because if they won’t, the sooner we know that, the sooner we can go out and do something about this.)  I know many VCs hate to be put on the spot about this, but I think entrepreneurs have the right to ask, and to know.

Stop worrying about morale:  Yes, you heard me right.  I can’t tell you how many board meetings I’ve been in where the CEO is anguished over the impacts on morale that cost cutting or layoffs will bring about.

You know what hurts morale even more than cost- cutting and layoffs?  Going out of business.  

I was at a conference once where someone asked Billy Beane how he created great morale at the A’s.  His answer?  “I win.  When we win, morale is good.  When we lose, morale is bad.”

Your employees are smart.  They know we are in uncertain times. They see the stress on your face.  They worry about their jobs.  What do they want to see most?  A decisive plan for survival, that’s what – even if some of them have to go.   Trust me, a clear plan is a real morale turn-on.

Cut more than you think is needed:  Yes, this is simple, but not easy.  It is so easy to justify why you want to lay off fewer people.  However, when you do, by and large, you’ll be laying even more off later.  Why we humans seem to prefer death by a thousand cuts is a mystery to me.  Don’t.  It’s easier on everyone if you cut deeper and then give people clarity about the stability of the remaining bunch.

Scrub your revenues:  Last week an entrepreneur pitched us, and his ‘current customers’ slide was alight with bright, trendy logos of bright, trendy venture-backed companies.  You know what I saw?  A slide full of bright, trendy, money-losing, may-not-survive companies.  (Luckily, in this case, the entrepreneur referenced these customers because he thought VCs would like to see that their smart startups use his stuff, but he actually had a lot of mainstream customers too.  He has a new slide now.) This, I think, was one of the biggest surprises from the last dot-com bust – we all knew we had to cut our expenses, but no one thought about what our customers might be doing. And guess what? They were all cutting costs too – including those costs which comprised our revenues.  Or worse, they were going out of business. If you are in Silicon Valley and your customers are mostly well-paid consumers with no free time, or other venture-backed startups, well, I’d be worried.  And yes, it sucks, but it is better to be worried than surprised.

Focus maniacally on your metrics: I know a few CEOs who delegate the understanding of their financials and their business metrics to the CFO, and then stop worrying about all that ‘numbers stuff’.  Don’t do that.  You have to know your numbers inside and out – they are your life blood.  You also have to know which metrics drive the business, and focus on them like your survival depends on it – because it does.  Figure out your canary (or canaries) in the coal mine (by that I mean the leading indicators that tell where your business is headed and whether it is healthy) and watch them weekly, or daily, or in real time, whatever is possible.  And, have a plan in advance about what you will do if/when the metrics go south.  Many of the best companies to have survived the last downturn became super data-driven, and were constantly course-correcting to make small but continuous improvements in their operations with what they learned.

Hunker down:  These markets generally take a long time to recover. Longer than you think. And, it might get worse. So don’t plan for the sun to start shining tomorrow. Or next month.  Or next quarter.  Or maybe even next year. Sorry.

Having just thoroughly depressed you, let me say that I’ve seen amazing transformations by companies who adapt early to the new reality.  Severe budgets give clarity.  Smaller teams often find greater purpose in their work.  Gaining control (by becoming profitable) feels really, really good.  Watching your competition (who didn’t read this) die, feels – can I say it? – well let’s just say that when your competition goes out of business, you often gain their customers…and that’s a very, very good thing.

Some of the greatest companies were forged in the worst of times.  May you be one of them.