Book Review, Entrepreneurship

On Living that Good Life

All of human unhappiness comes from one single thing: not knowing how to remain at rest in a room.

Blaise Pascal

Camels. Mongolian Greeters. Gwen Stefani. A custom-built temple. Such is the lavish 70th birthday party that banking billionaire Stephen A. Schwarzman threw himself (at a modest price-tag of approximately $10 million).

But in “What it Takes: Lessons in the Pursuit of Excellence”, Mr. Schwarzman’s “non-memoir” memoir, we encounter a very different side of the high-flying financier (who chalks the party’s reputation up to “bad press”). You can probably already tell from the beginning of this review that, frankly, this book made me want to gag. Schwarzman starts off with false modesty befitting only a man who spends millions of dollars on a party for his 600 “closest friends”.

I never wanted to write a memoir chronicling every moment of my life. I never considered myself worthy enough.

This, combined with the fact that Schwarzman has used his wealth to completely renovate an absolute architectural icon of my alma mater into a self-named dance floor and late-night “hang-space”, I almost didn’t finish the book.

But when I did, I realized that there were some lessons that could be drawn from his narrative. Rather than give his full backstory, I’m going to pull out a few salient bits that I found novel. You’ll excuse me if I don’t go into detail about how Schwarzman rose from humble ranks to the top of the financial pyramid.

Entrepreneurship at Any Age. Maybe just appealing to my advancing age (30 is the new 20, y’all!), I was actually quite surprised to find out that Blackstone was not a dorm-room idea, like Ken Griffin’s Citadel or Mark Zuckerberg’s The Facebook. Although Schwarzman had always dreamed big, the idea for Blackstone came after he had built a storied career climbing the corporate ladder of Lehman Brothers, one of the most revered financial firms of the 20th century.

What were [the Schwarzmans] doing with one store in Philadelphia? When America thought linens, it should be thinking Schwarzman’s Curtains and Linens. I could imagine our stores from coast to coast….

Stephen A. Schwarzman

After working his way to the top of the food chain, Schwarzman began planning his exit in the wake of Lehman’s fire sale to American Express. A disastrous trade had forced Lehman’s executive leadership into a corner, and an emergent American Express snapped up the financial firm for a bargain. But Schwarzman was intent on emerging from the flames to accomplish his long sought-after dream of becoming a “switchboard operator” (more on that later). That, and an admirable desire to keep working with Pete Peterson, the former CEO of Lehman that he really admired.

38 years old, with two young children and a significant amount of wealth, Schwarzman contributed $200,000 in capital (Pete matched) and the two set to work building Blackstone. They hired a secretary, got office space, rented furniture, and began calling. And miraculously: nothing happened. Despite shaking the trees with numerous high-ranking contacts, the only contracts that came in for advisory M&A work were barely enough to pay for their fixed overhead, let alone their own salaries. As Schwarzman notes: “Squibb Beech-Nut… hired us for an advisory job for $50,000. In my previous life, that would have been less than the legal fees on a single deal. It was now a lifeline.”

To see Pete and me, who had been so powerful at Lehman, so sure of our success, take a beating would have given many people pleasure. I couldn’t let it happen. I could not fail. I had to find a way.

Stephen A. Schwarzman

Through dogged persistence, things began to turn around a year into the venture (Fall 1986) which must have seemed an eternity for the two former kings of finance. But entrepreneurship at any age is possible, and always requires dogged persistence. As Schwarzman relates:

As a salesman, I’d learned you can’t just pitch once and be done. Just because you believe in something doesn’t guarantee anyone else will. You’ve got sell your vision over and over again. Most people don’t like change, and you have to overwhelm them with your argument, and some charm.

Chutzpah is a Good Thing. One of the best anecdotes Schwarzman relates is from early in his career. Just out of college, casting about for a job, someone asked young Stephen in an interview, “What do you want to be?” His response: “I want to be a telephone switchboard… taking in information from countless feeds, sorting it, and sending it back out into the world.” The interviewer thought he was crazy, though I actually admire the vision of being a central hub for information processing: it’s a business model often termed “platforming” today.

Regardless, Stephen ambled through his interviews and landed a job with Donaldson Lufkin Jenrette, a white-shoed Wall Street firm. Bill Donaldson (“the D in DLJ”), called Stephen a day or two after his interview and offered him a starting job at $10,000 a year, with a secretary to boot. Stephen’s response? “That is absolutely terrific, but there’s only one problem… I need $10,500 because I heard there’s another person graduating from Yale who’s making $10,000, and I want to be the highest-paid person in my class.” Wow. I would have never said something like that in my first job out of school. But understanding that Schwarzman is that kind of a gutsy negotiator tells you a lot about the origins of his future success.

Another display of outstanding gumption comes not from Schwarzman, but a person he interacted with. Recently divorced, Schwarzman and his son Teddy lived alone in a Fifth Avenue bachelor pad in New York City. To help around the house, Schwarzman hired a chef named Chang to cook dinners. As he started dating his soon-to-be-second-wife Christine, she came over and “[brought] some order to my bachelor habits.” Upon opening the fridge, she found boxes of Stouffer’s ready meals piled up. Chang had been reheating them and serving them to Schwarzman and his son as if he were a private chef! But the best part of the story is this: years later Schwarzman looked again to hire a private chef and put out an ad in the paper. I’ll let him tell the rest:

[We] were particularly impressed by a resume from a chef called Hymie. We invited him for an interview, and Christine recognized him the moment she opened the door. It was Chang!

Get in the Weeds. There is a debate that often rolls around my professional development program about how much to “dive into the weeds”. When a manager is running a business, she may be in charge of hundreds or even thousands of employees. GE, for example, at latest count had 283,000 total personnel. How to understand all the details of such a sprawling operation?

“Culp grabbed the reins in the summer board meetings, drilling the new CEO on questions about the power business, scolding Flannery in front of directors for not knowing such nitty-gritty details as inventory levels. Given the sprawl of GE, few expected Flannery to have them at the ready.”

Some in my program advocate for a detailed knowledge of the inner workings of every portion of the business. From client contracts, to marketing spend, to R&D, to financial planning and accounting adjustments, these “micro-managers” advocate for following that famous Delphic maxim: “Know thyself”.

However, the other camp advocates that “micro-managing” is a dirty practice that has earned its disrepute. A lack of employee autonomy, combined with poor executive decision-making and mercurial interpersonal skills leads to a drag on breakthrough innovation and ultimately, stalled growth.

The answer for Schwarzman is clear: the devil is in the details. On an early flight to a prospective client in St. Louis, Eric Gleacher, the partner Schwarzman had prepared a prospectus for, noticed a math error that cascaded throughout the entire document. This single small error led to nearly half of the prospectus being wrong! Unfazed, Gleacher calmly admonished, “This is a mess, but we can give the presentation anyhow. Just take out the bad pages, and I can talk my way through the rest of it.” For the rest of the flight, Gleacher returned to his newspaper and Schwarzman set about removing the erroneous pages. The two landed in St. Louis, took a cab to the airport, and started the presentation. On page one, Gleacher’s eyes go wide. In Schwarzman’s haste, the young associate had torn out all of the good pages, instead of the bad ones!

As [Gleacher] spoke, he all but launched himself across the table grabbing our presentation books from the [prospective client]. “I can talk you through without any numbers.”… I could have melted under the table. We left the company, got in the cab, and rode back to the airport. Not a word. Right before they called the plane, Eric turned to me: “If you ever do that to me again, I’m firing you on the spot.

You have to admire Schwarzman for taking the lesson to heart. Lehman taught him that if he wanted to succeed in finance, he had to “observe every step of the process and [be] trained in all details, any one of which, done wrong, can bring everything crashing down.”

In the End. At the end of the day, I’m probably being too harsh on Schwarzman. He is a human being just like the rest of us, and has done many quite admirable things with his enormous wealth, including funding higher education endowments which often goes to subsidizing aid for poor and underprivileged applicants. Still, one is left wondering whether this book really has much to offer in terms of lessons other than the common tropes of “Sit up straight, be on time, and do the work!” In the 21st century, with all we know about gender bias, income inequality, the looming threat of climate change, and more, there are so many systemic changes we need to make before just “doing the work” results in perfectly meritocratic outcomes.

Next time: we hold guard! I read Barbarians at The Gate in record time because the movie-like tenor of this masterpiece left me on the edge of my seat.

Getting My Eating Pants Ready!

Have a great Thanksgiving all! I am so thankful that you have read this far and stayed with me throughout the year!

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Entrepreneurship, Personal

On Art as Motivation

The creation continues incessantly through the media of man.  But man does not create… he discovers.

– Antonio Gaudi

I’ve been thinking a lot recently about art — and not only because I spend so much time watching Netflix while my wife studies.  I think about it because mostly, I feel like I am consuming it in the background and am not sure how much I am actually absorbing.  Right now, as I write this post, Friends is on in the background.  Does it comfort me? Do I actually get the jokes? Does it help quell the sound of crickets at night? I don’t know, I just know I instinctively reach for it.

I care about actually making sure I am absorbing what I consume because art has occassionally, well, changed my life.  It’s a trite observation, but I always really enjoy when people talk to me about some piece of history they have read, or some documentary they watched, or even a great piece of music that they listened to that changed their life.

For me, the first time I had one of these life-altering moments was on a trip to Florence.  My wife and I had never been to Italy, and in getting there almost drove our car into Brunelleschi’s Duomo.  Exhausted, excited, and with a too-full itinerary, we headed around town. One of our first stops was the Galleria dell’Accademia, home to Michelangelo’s David.  Even though I really have never had any connection to fine art, I specifically remember that as soon as I entered the main hallway that housed the giant sculpture, my heart stopped.  It felt like I was cresting the top of a roller coaster ride.  Honestly, it caught me by surprise.

Me Seeing Michelangelo’s David

And on that same trip, it happened for my wife too.  We drove into Rome the following week, having had a long trip up and down the coast of Italy.  It was great, but exhausting, and to top it off the rental car somehow had a lot of damage for which EuroAvis was going to make us foot the bill.  After we crashed at the hotel for an hour, we went to see La Traviata at the Roman Opera House, a show we had bought tickets for long in advance.  I expected to look over and see Kelsey nodding off.  Instead, as the curtain ascended and the crystal staircase levitated onto the stage — replete with a singing Prima Donna — I looked over to see Kelsey crying.  It was the most silent, sweet cry I’ve ever seen.

After returning from Italy, I realized there were things in life that should have had no differing impact on me than a large statue in the Boston Commons or a Broadway musical, but somehow struck a deep deep nerve.  The reason I started off this piece with Gaudi’s quote about returning to the origin and my habituation to Friends is that I think we often turn to music, fine arts, movies, etc. that bring us comfort and relieve stress.  I know I do.  In fact, there are several psychological studies that link prenatal heartbeat tempo to human musicality.  Maybe we seek music that makes us feel like we’re in the womb again! Weird.

But instead, I really want to find the one or two pieces of art that will just connect with me on a “deep, cellular level”[1].  If you have an experience or two that did it for you, please let me know.  Otherwise, I will try to focus on quality over quantity.  I think these experiences are the kinds of things that lead us to avoid the instinct to self-soothe, and help us see the world in a broader, deeper light.

[1] The words of Dax Shepard.  I’m obsessed with his new podcast, The Armchair Expert.

Entrepreneurship, Healthcare

Weaponizing Natural Selection

This weekend there was a fantastic article in the Journal about building antitrust momentum against Big Tech and the rising Techlash of 2016-2019.  It’s an incredible read and really shows you how far we’ve come since this puff piece about Chris Hughes’s second “startup”: the ’08 Obama campaign[1].

Review of “The Moral Animal”… or my take on Chris Hughes

At the same time, I just finished an incredible book on evolutionary psychology, The Moral Animal.  An oldie but a goodie, this book gave me insights about the Theory of Natural Selection that I had not encountered in any of my college psychology courses or other readings (Dawkins, Wilson, Etcoff).  It is pretty amazing the play-by-play of Darwin’s life that Wright lays out while simultaneously weaving in an explanation of the theory of natural selection and its many consequences[2].

One passage in particular toward the end of the book really piqued my interest.  As Wright details, despite it’s simplicity the Theory of Natural Selection has major implications for one of the most nagging questions humans have asked: is there such a thing as free will?  If all of our reward and punishment systems are biochemically-driven, “designed” by natural selection to promote fitness, do we really have any volition in the actions we take? Or are we all just justifying actions post-hoc as if we were a “rider atop an elephant”?

The sustained momentum of the Techlash is, I think, in large part driven by the fact that Americans at some level feel it deeply unfair that Big Tech is profiting off of our deepest impulses in ways that the broader public didn’t understand until now.  As an example, a former Facebook executive implicated “dopamine-driven feedback loops” in Facebook’s destruction of our society and comity writ large.

I can’t answer the question of whether we have free will and/or whether it is moral that companies are profiting off of their weaponization of natural selection.  But what I want to start to answer is, what if natural selection were weaponized for good?  What if all of the addictive impulses of our reward and punishment systems were leveraged by technology to promote social good?

Let’s take the healthcare industry as an example.  Most players in healthcare are driving toward the Triple Aim: lower cost, higher quality, better experiences.  What if we:

  1. Simplified Consumer Healthcare Apps to Drive Positive Feedback Loops?  People are really embracing the wearables trend[3], but counting steps has diminishing returns above a goal of 7,500 per day.  How do we as an industry gamify the treatment of chronic diseases like renal failure, diabetes, and obesity? Companies like Livongo lead the way toward reducing the overall costs of these chronic conditions, which represent up to 90% of all U.S. healthcare spending annually.
  2. Made Lower Cost Options the Default?  Research shows that defaults are perhaps the most important factor in creating long-lasting changes in human behavior[4].  However, when we sign up for health insurance plans, finding coverage and establishing a primary care relationship are among the most difficult things to do!  What if during the annual enrollment/renewal process payors automatically enrolled patients at the lowest cost (e.g., CVS HealthHUB, Walgreens VillageMD, local family medicine) clinic to deal with routine disease management conditions? Combining this with the ability to opt-out via a single button click would simultaneously lower cost and preserve consumer choice.
  3. Provided Better Visualizations for Probabilistic Outcomes? In his book Thinking, Fast and Slow, Daniel Kahneman describes how he and Amos Tversky moved the psychological mainstream from viewing humans as “probability calculators” to “heuristics users”.  Subsequent research has shown that humans are notoriously terrible at interpreting probability.  How can we advance the visualization aids and tools used in the delivery of healthcare to help people better understand their choices and what outcomes are likely to occur from various treatment pathways?[5]

I’m really excited to see announcements from CVS that they are continuing to disrupt healthcare with the introduction of “HealthHUBs”.  Structural changes that improve how we pay for and deliver healthcare is always welcome in my book.  However, Wright’s book opened my eyes to the fact that we are going to have to have more nuanced answers for how to fight millions of years of evolution that intentionally drives behaviors that, while once evolutionarily adaptive, are now being exploited by industries from Tech to Pharma to Food/CPG to drive sub-optimal outcomes.

[1] For Chris Hughes’s latest reversal into anti-tech crusader see his NYTimes op-ed on breaking up Facebook.

[2] Is self-delusion actually a wonderful trait for natural selection? Likely so.  The more authentic a deluder’s belief in their own delusion, the greater their ability to persuade other chimps of this delusion as “truth”.  What implication does this have for the definition of “truth”? This is left to the reader to ponder.

[3] For more on this see Apple’s CEO Tim Cook predicting that their company’s greatest contribution to mankind will be in healthcare.

[4] Shout-out to Richard Thaler, last year’s Nobel Laureate in Economics and a teacher at my dear alma mater!

[5] A lot of the momentum in this area was blunted during the push for the Affordable Care Act.  Patients confronted with “probabilities” were most often end-of-life patients and their families trying to understand treatment options and/or palliative care.  Reviews and explanations of evidence-based medicine protocols were labeled “death panels” and ended up politically DOA (no pun intended).  Now that we know that 25% of all Medicare spending occurs in the last year of life, the issue rears its ugly head again.

Entrepreneurship, Healthcare

Is Healthcare Innovation Different?

Capitalism without bankruptcy is like religion without sin. Bankruptcies and losses concentrate the mind on prudent behavior.

– Allan Meltzer (rephrasing of an old adage)

Last weekend, I binged through an incredible podcast (thanks Alexa!) called The Dropout about the saga of Elizabeth Holmes and her ill-fated biotech venture Theranos.  It made me look forward even more to when I get to read Carreyrou’s Bad Blood, based on all of the WSJ articles I had read before.  Her’s is a very compelling saga about our insatiable desire as Americans to be pioneers and frontiers(wo)men of the 21st century while simultaneously making billions.

Before I get into the meat of my latest thoughts, I want to be very clear on one thing: I am of the belief that Theranos was an unjustifiable criminal enterprise.  Putting millions of patients’ lives at risk through fraudulent behavior is not “flying the ship and building the ship”.  Real-world decisions have real-world consequences, and I think that this case seems more clearly a case of right and wrong as time goes on.

However, one of the questions that the podcast explicitly brings up is this: what role does Silicon Valley’s “win at all costs” and “fake it till you make it” have when it comes to disrupting healthcare? More broadly, what role does capitalism have in healthcare? Is it corrupting? Should we just listen to the 2020 Democratic candidates and accept that Medicare-for-All (single-payer or some safety-net alternative) is the right way forward and enough with healthcare as a money-making venture?

I’ve written before about how private markets are an incredible technology that help focus the whims of many to align to simple, achievable goals.  I’ve hinted at how complex our healthcare system is (largely driven by anachronisms in how we pay for and deliver it).  But now I want to answer the question directly: should innovation in healthcare be different than for existing industries Silicon Valley has disrupted?

Yes, but Tech can actually provide a model for how we have our cake and eat it too.

Healthcare approach to #Disruption

Let me explain this by way of analogy.  Let’s say you are about to buy a home.  Congratulations! You’ve signed some papers, found the perfect neighborhood, and lined up a lender.  The offer was accepted and you are about to close.  Just one small process: the inspection.  The inspector is walking through your soon-to-be-home and as he sees the outside of your house he says, “Hrmm, uh-oh.”  You wait for him to continue his walk-through, and just before he finishes he goes to your basement foundation wall and says, “Hrmm, uh-oh.”  Which of those worries you more? If you’re like me, probably the foundation wall.  The foundation of your house crumbling is a far costlier, scarier proposition than a small leak or missing piece of vinyl siding.

And that’s how we have to approach Silicon Valley disruption to healthcare.  There are varying degrees to which healthcare must continue to evolve.  Core phlebotomy and related lab work that is the basis for clinical diagnoses needs to be treated with infinitely more care than improved teeth-whitening products.  Some of the FDA’s guidelines on real-world evidence have been really illuminating on this topic and frankly, hearten me that our government agencies are being responsive in the Age of Tech.

However, these lines are going to get blurred very quickly.  For example, Amazon’s recent acquisition of PillPack shows that it is getting serious about disrupting healthcare logistics.  This is less concerning in cases of delivering vitamins.  A missed day of vitamins won’t have major adverse impacts.  But what if Amazon misses a shipment of at-home chemotherapy pills? How about if Amazon becomes the primary supplier for a hospital’s perioperative department and misses a day’s worth of disposable surgical instruments?[1]

In my opinion this is a solved problem.  At major tech companies, product capabilities are segmented into one of two major “buckets”:

  • Platform and Core: These are software solutions and services that should be very rarely modified and undergo extensive review/testing when they are
  • Applications and Non-Core: These are portions of the software stack where it will not cause undue burden to the business or to users if they are non-functional; they can be updated at a daily/weekly cadence with ease

This segmentation is the reason that you will see far fewer upgrade to the GMail core encryption protocol than you will to the “One-Click” integrations GMail has for airlines, car rentals, tickets, etc.

Prudent leaders of 21st century health systems are going to have to be clear in drawing these lines for their own organizations.  For example, modifications to core insurance eligibility checking systems should be performed far less frequently than updates to fitness monitoring apps.  With this in mind, innovation won’t die on the vine for core capabilities, but rather be entrusted to be as advanced as possible without sacrificing patient safety or operational stability.  Silicon Valley is more likely in this model to be successful improving healthcare by nibbling away at the edges of healthcare delivery than providing a grounds-up rethink.

[1] Supply chain risk in pharmaceuticals and medical devices is a huge concern for the modern healthcare organization, leading organizations like Intermountain to develop their own non-profit, named CivicaRx, for generic drug delivery.

Corporate Strategy, Entrepreneurship

Greed is (Not?) Good

Capitalism is a great technology and a mediocre philosophy.

– Reid Hoffman

This week I passed by an article in the Wall Street Journal about how pay regulations are back on the table for big banks.  Although the rule was mandated by Dodd-Frank, a decade later the pay restrictions and clawbacks are not in place (seriously?).   At the same time, I started reading Duff McDonald’s epic takedown of MBAs, The Golden Passport.

I haven’t read the full thing yet so don’t want to give a review, but it’s definitely getting my attention. Mainly I’m drawn in by McDonald’s provocative writing and crux-finding.  In the earliest chapters, he lays out the root of all MBA evil: profits.  Telling the story of Frederick Taylor, the founder of Taylorism and an early management science pioneer, McDonald throws down and calls out Taylor as a traitor to workers and glorified bean-counter.  When discussing the “original case study”[1], McDonald criticizes Taylor’s self-aggrandizement and attempts to science-ize management:

Frederick Taylor generalized a step too far.  In arguing that his methods revealed a universal science of management, Taylor engaged in metonymy–confusing just one part of management (that is, quantitative analysis) for the whole.  Efficiency–and its close relative, profitability–is just one possible goal of management.  Others include customer satisfaction, community relations, and quality.  In Taylorism, one could argue, lie the seeds of American industry’s eventual comeuppance at the hands of the Germans and the Japanese…[H]e was implicitly sanctioning the idea that a company can be judged by a single metric.  Today’s even more pernicious version of such: shareholder value.  Writes Stewart: “The modern-day CEOs who sacrifice the long-term viability of their corporations for the sake of short-term boosts in their quarterly earnings reports are direct descendants of the pig-iron managers who undermined their work team’s morale in order to achieve temporary productivity targets.”

McDonald is not subtle, to say the least.  But, ignoring European dissatisfaction with their more socialist system and Japan’s anemic growth over the last decade, McDonald also gets one crucial thing wrong in my opinion: that profits, shareholder value, efficiency, or whatever you want to call it, are the wrong metric.  In my opinion they are the right metric, but the markets that are developing in America are no longer fully free and fair.

Profits represent a very simple metric: revenues minus costs[2].  Revenues are also a very simple metric: the value to the person buying the good or service.  And cost, you guessed it, is a simple metric: the value that was expended in producing the good or service.  So, at its core profits represent the purest definition of value creation, the difference between what value was expended to produce a good or service and what the consumer values that good or service at.

My argument is that Friedman was right and there is no better way for a society to operate than to have corporations attempt to maximize profits.  By only taking into account value created (revenue) and value destroyed (cost), all of the hardest questions are boiled down into “value”.  It’s a nebulous term, but with a free and fair market, it forms the motive that self-interested humans need to participate without relying on political connections, committing fraud, or more.  In a free and fair market, you have to create value, or you go out of business.

But surely, there are problems.  In America today, there is income inequality, monopolization, fraud, Wall Street short-termism, and more.  These are real problems that are infecting our society and becoming more visible with each passing year.  So do they exist because MBAs have tricked the world into sacrificing the common good on the altar of profit-driven capitalism? No.  Increasingly, consumers lack the ability to take their dollars elsewhere.  In repeat transactions, consumers have no choice because America’s markets are getting less free and less fair. Some examples:

  • Transactional in Nature.  When corporations have a one-and-done interaction with you, why bother having good customer relationships, support, or quality?  Examples: car salesmen (who are not linked to service), realtors.
  • Private Equity Leveraged Buyouts.  If you’re definitely going to exit an investment in 7-10 years, does it make sense to plan for longer? Certainly a private equity firm that does will have a lower IRR, and therefore not look as good to future investors. Examples: RJR Nabisco, Toys R’ Us.
  • Monopoly.  When every repeat transaction is guaranteed to go to your platform, why bother doing anything right? Customers can’t switch, so they won’t. Examples: Cable companies, landline phones, employer health insurance.

    Meet customers where their tastes are

Compare that with some of the best examples of customer satisfaction, quality, and community relations.

  • Amazon.  Online retail is cut-throat, single-digit margin business with insanely low switching costs.  Bezos knew from the outset that good customer service could be a huge competitive advantage.  People value convenience and purchase consumer-packaged goods every few days, so by having the best customer service Amazon keeps its customers wanting more.
  • Rolex. When your good is a commodity, how can you stand out from the crowd? Make your watch impeccable quality, ornately adorned, and a status symbol.  The business model here makes sense from a profit perspective: don’t compromise on quality, and your customers will more than make up in the difference of your costs.
  • Mom-and-Pop Shops.  When your reputation is on display daily because all of your clients are neighbors, you often behave with community relations in mind.  According to a recent study[3], small businesses donate 250% more than larger businesses to non-profits and community causes.

So how to address the problems of our day if not by throwing out the concept of shareholder value?

  • Executive Compensation Periods.  Deferring the compensation for longer than the current 5-year standard and enabling clawbacks is absolutely crucial to ensuring that, say, 10 years into a toxic mortgage the executives are not retired and fully vested while the rest of the economy melts. The WSJ article is a salient reminder of the urgency of this.
  • Expansion of Small Business Loans and Incentives.  If Amazon can get billions of dollars in incentives for building HQ2, why can’t other businesses? To New York’s credit, the majority of what Amazon was leveraging were programs that already existed for other businesses.  For some municipalities though this is not the case.  We should be encouraging small upstarts to take on incumbents and build in the communities they serve.
  • Incorporation of Full Cost into the Production of Goods.  Coal-powered energy brought almost 1 billion people out of poverty in China at the turn of the 21st Century.  There is real evidence that the climate is changing, but at what benefit? Let’s assign a dollar value to carbon, modify it frequently, and levy it on large industrial companies.  This will help address externalities within the framework of the profit-seeking motive.
  • Aggressive Monopoly-Busting. I am firmly on the side of more vigorous antitrust enforcement.  Modern business has gotten basically a free pass to vertically integrate thanks to Bork’s precedents and a focus on an actually bad single metric (HHI).  Makan Delrahim took a step in the right direction, but the courts need to break precedent and change with the times.

Culture is important.  Greed is not always good.  But show me a better technology than profit-based incentives for capitalism before you say we should throw the baby out with the bathwater.

[1] The original case study was, not surprisingly, about steel and railroads.  In 1899, the Bethlehem steel company found themselves in possession of a surplus of two million pounds of pig-iron bars.  They needed to figure out the most efficient way to load them into railcars for transport, and Taylor stepped in.  Whether counting, efficiency, or science, McDonald considers this the original sin of HBS.

[2] What type of profits? Economic profits.  There are adjustments, tax considerations, etc. etc. in the real world I understand, but I am simply using the most basic definition of profit available.  This might even be part of McDonald’s argument: that such an analysis is too simplistic.  But I would argue there’s nothing wrong with establishing that gravity is 9.8 m/s^2 of acceleration, even if there’s always air resistance on Earth. As is often said, “the difference between theory and practice is, in theory small, but in practice much larger.”

[3] Seattle Good Business Network

Entrepreneurship, Personal


Vision without action is merely a dream.

Action without vision just passes the time.

Vision with action can change the world.

– Nelson Mandela (sometimes attributed to Joel Barker)

I’m getting excited for this week.  The stage is getting lit.  The Solutions Gallery is being set up.  It’s all coming together folks.


I don’t have too much to say for this blog post given all the prep we’ve been engaged in at Cerner for this year’s Cerner Health Conference (CHC).  For those who aren’t familiar, every year Cerner hosts the Cerner Health Conference in the beautiful City of Fountains and brings together the best and brightest in the Digital Healthcare industry.  From providers to health system leaders to excited Cerner associates (that’s me!), everyone gets together for 4 awesome days to discuss the latest and greatest our organizations are delivering.

But the star of the conference every year is someone who is not always explicitly in the room: the patient.  Every single person at a session, keynote, or workshop is there to do one thing and one thing alone: improve healthcare for patients across the globe.

Which is why I was so moved this weekend by a short film from the Cleveland Clinic that I watched.  Every new Cleveland Clinic employee watches this video and is given a “Patients First” pin when they join.  If you have the time, I highly encourage you to watch it.  Tip: have tissues on hand.  By watching the video, wearing the pins, and always keeping the patient at the center of everything they do, employees at the Cleveland Clinic, from custodial staff to CMIO, have transformed it from an average institution to one of the nation’s best hospitals across every conceivable metric.

Lots of research shows that psychological distance has a big impact on organizational function.  The further removed companies are from the humans that they serve, the worse they perform.  This has often been cited as the reason for business scandals such as the Ford Pinto’s deadly fuel tanks and Impax delegating drug pricing to Martin Shkreli. It also is used as a potential explanation for Amazon’s incredible success in an competitive retail landscape: when you are earth’s most customer-obsessed company, it’s pretty easy to deliver value and beat the competition.  As a former Amazonian, I can tell you that the “Customer Obsession” value made it pretty easy to make decisions because there was always a right answer: whatever the customer needed.

So going into CHC18 I am most excited to bring this client focus to bear.  As a healthcare vendor, it is incredibly easy for Cerner associates like me to have psychological distance from the providers and patients we impact every day.  Events like CHC18 are an incredibly important reminder that at the end of the day there are real people counting on us to deliver in a big way.

Also, just please watch the video.  It is truly one of my favorite things I have watched this past year.  And that includes the much-buzzed-about A Star is Born remake.

Corporate Strategy, Entrepreneurship


Your margin is my opportunity.

– Jeff Bezos

A recent business article from the Wall Street Journal caught my eye, detailing the intense battle for talent in the self-driving car industry.  A few years ago the idea of self-driving cars seemed incredibly futuristic and unattainable.  Now, it is basically inevitable.  Every company from traditional carmakers like GM, to ridesharing companies like Uber, to tech titans like Google has an autonomous-vehicles strategy.

What we discussed a lot when I worked in venture capital were the knock-on effects of self-driving cars.  Yes, self-driving cars will create billions (or maybe trillions depending on who you believe) in value for the companies that successfully implement and deploy this technology. That is why the talent war is so fierce, with salaries often exceeding $1 million for skilled engineers.  The future potential market looks to be unlimited.  However, several times that in value will be created in knock-on effects.  For example, if travelers or truckers no longer need to stop on cross-country trips, who will stay in motels? Will there be drone-to-car deliveries to allow cars to fuel up (themselves and their passengers) without needing to stop at predefined gas stations? What if a network of high-speed charging stations are created? What will they look like? All of these ideas and more will help reshape the transportation economy in a future of autonomy.  For venture capitalists, that presents a real opportunity to invest 10 years ahead of schedule and reap a massive payout.

Along these lines, Peter Johnson and Prashant Shukla (at my former employer Jump Capital) wrote up a great piece about the future of insurance.  One of the things they hinted at was that the explosion of data from semi and fully-autonomous vehicles will completely remake the insurance value proposition.  I highly recommend going and reading that piece.

But my target for today is a different knock-on industry I love discussing: rental cars.  For anyone who has rented a car, you will have invariably had the same experience.  After landing at an airport, you go to the rental car counter (or take a shuttle to the rental car counter), and… wait.  There is a line, and once you get to the front of it a kindly attendant takes your name and information and clacks away at a keyboard.  After some awkward silence, your car options are announced (“I have a Kia Optima or a Hyundai Elantra for you, does either work?”) and you get a set of keys.  You also get a bill (printed on paper at most locations) that includes a bunch of hidden fees and services (liability, collision insurance, etc.) and some other unintelligible information.  You sign in four different spots, drag your luggage to the car, and you’re good to go! And that whole experience does not even cover booking a rental car which happens through hundreds of on and off-brand channels[1].

My proposal is simple: build the next brand in rental cars.  I would argue that today’s consumer favors speed and simplicity over choice and cost-optimization.  Instead of focusing on offering every car under the sun and massive channel discounting, this new rental car company would focus on the experience, and meet the need of the “extended-stay-rider”.  Imagine this: your plane lands at the airport.  Using publicly available flight tracking information, an app sends you a notification, “Hey, we just saw you landed at O’Hare, are you still interested in renting your Hyundai Elantra?”  If you say yes, you walk to arrivals where (similar to how ridesharing currently operates), an autonomous vehicle (or gig-economy driver) is waiting for you.  You unlock the car with your phone (or the key), load up, get in the car, and head off to your destination.  Everything operates as a flat-fee[2], and advanced loyalty and price discrimination schemes can be easily implemented on top.  On the backend, advanced logistics technologies like those employed by Lyft and Uber would route the cars far more efficiently than having massive parking lots where cars sit idly. This would also lower the required PP&E investment from parking the cars and maintaining the rental counters.

Which begs the question: with the advent of ridesharing, would anyone even want this experience? This is the discussion (read: argument) that my venture capital co-workers and I had repeatedly in the office.  Why on earth would anyone rent a car when I can call one on-demand from my phone?  To these colleagues, the world would consist of two types of riders: “stable-riders”, who would own their own car and require amenities and personalization to keep them engaged while the car was in autopilot; and “on-demand-riders”, who would use some form of app to hail a car as needed.

But I firmly believe there is a vast middle.  We can call these folks “extended-stay-riders”.  Much as extended stay-style hotels cater to a niche ($1.3 billion in revenue) clientele that require something in between a hotel and motel, there will always be consumers who need a rental-car-like experience.  Families traveling with children and pets that need to make stops, cost-conscious travelers who do not want to be squeezed by on-demand supply shortages, and business travelers who accumulate rewards and build loyalties with brands.

This is the billion-dollar brand that I can’t wait to be launched.  We could call it, “Disrupterprise” or “Self-Drivertz” and it would have curb-side service of extremely clean, self-driving cars, all for a flat fee.  If you want to run with this idea, take it! I have the feeling it will exist eventually, and after looking through the 2017 financial statements of Avis there is more than enough margin to make it happen[3].

[1] The 2017 financial statement also reveals hundreds of marketing partners and resellers that the company relies on, as opposed to a strong direct-to-consumer brand appeal.  This does not even get into the weeds of company-owned vs. licensed locations, which adds another layer of complexity and cost obscurity.

[2] This is one thing I truly loved about the Zipcar service.  They made booking/re-booking so simple and transparent.  In addition, gas and insurance were not an issue when renting.  I was convinced they would disrupt the rental car industry, but after the Avis takeover it looks as if the company has stagnated and focused on cutting costs.

[3] Avis-Budget’s financial statements reveal a staggering $1B+ in yearly SG&A on only $6B or so in core revenue.  In addition, they carry $10B in car assets on their books, net of depreciation.  This is all financed heavily by debt, which carries about $180 million per year in interest payments (half of Net Income).


Time Is (Not) Money

Last month, I announced that we were shutting down SmarterCloud, our cybersecurity startup.  I gave a few lessons learned, including that raising money from venture capitalists is a lagging indicator, not a leading one.  By the time you have raised the money, you have already accomplished quite a lot.

But I also want to expand on the topic of money in startups by developing a “framework” for how startups grow and maintain their competitive advantage.  I should just state this up front: MBAs love frameworks.  For example, right now I am taking a class from Marianne Bertrand entitled “The Firm and the Non-Market Environment” that tries to lay out the interactions between large companies and non-market forces like governments and NGOs.  In it, we use the framework of “Pluralism” to better understand why firms make the choices that they make. Basically, this means that when we are reading through a case study, we reference the basic framework to predict what will happen, and what the costs and benefits of those decisions are.

So, in the case of SmarterCloud, I wanted to develop a framework that explained why we failed to raise money.  As I mentioned, Amazon released a competitor in August that provided basic DLP for their platform, which caused multiple VCs to express hesitation at our prospects.  They kept asking, “Why aren’t you just building something and getting it out there?” To this I responded, “I need money to build a team to build the product.”  The discussion was circular, and ultimately, we missed the fundraise.

mad men that's what the money is for GIF by
Talking with VCs about product development

Why did these conversations fall flat and the fundraising process fail for us? Well, to explain that, I think the framework that is most applicable is what I would call the “Time Is (Not) Money”(tm) framework.  I always assumed that our limiting factor was money.  We needed money from venture capitalists to build the team to build the product.   Without that, we could not build a kickass product and dominate the market.  However, I was wrong.  We were playing in an existing market niche against massive companies that had their sights set on building adequate versions of what we wanted to build.  Since cybersecurity is mostly a game of incremental advancements, major technological breakthroughs rarely win the game.  It is a low-patent, highly-competitive, low-margin business.  Contrast this with biotechnology.  That is a high-patent, low-competition, ultra-high-margin business.  Scientific inventions fueled by massive R&D budgets are rewarded well in that industry.

So, when starting your startup, ask yourself an honest question: do I really need the money? If you need massive amounts of money, you should be converting that into a defensible moat.  This is why Uber needed massive amounts of money, because it essentially converted that liquid capital into “network capital” that allowed them to dominate specific regions through aggressive recruitment and promotion.  This is similar to a company like Oculus, which was developing new hardware and multiple patented inventions to leapfrog existing technology and create a whole new space.  Contrast that with a company like StitchFix.  On the podcast “How I Built This”, Katrina Lake details how she used manual methods (think Excel and Google Sheets) to bootstrap her first customers and get instant feedback.  At the time, home delivery kits were an extremely popular segment, and the race was on to be the “Blue Apron of X”.  So, she was racing against time and although raising money was a part of the journey, the focus had to be heads-down product development.


SmarterCloud is Shutting Down

Company Logo - Dark

Unfortunately today I am announcing that we are shutting down SmarterCloud.  The decision was a long and painful one, but the team ultimately realized that we could not achieve our vision of being the leader in insider threat detection.  If you hit me up on LinkedIn or Twitter, I am always happy to dive into the myriad reasons this happened, but for this blog post I wanted to list the three key mistakes I made as an early-stage founder.  I also want to highlight that they are mistakes, as I think it is really important to admit failure and not spin this into “it was a learning experience and yay everything is cheery!”  As I’ve written before, there is way too much in terms of sunny materials on the Internet that paints everything optimistically.  Realism in entrepreneurship is sorely lacking.

Lesson #1: Do Not Validate Past the Close.  We had amazing success early on getting our message to resonate in the marketplace.  Through a series of customer interviews and the team’s prior industry experience, we realized there was a massive gap in the tooling available for insider threat detection on cloud infrastructure.  Lots of competitors existed to prevent insiders from leaking Salesforce or Google Drive data, but there was almost no one focusing on Amazon Web Services and Microsoft Azure.  By analyzing compute and storage log data, we could build an anomaly detection platform that highlighted “hey, this person is downloading data off of EC2 and that’s kind of fishy”.  Pretty straightforward concept, glaring market need.

Being an early stage startup, our approach was to raise the minimal amount of funds we would need to get 9-18 months worth of runway to pay ourselves and a few of our former security and data engineering buddies a bare bones salary, plus a WeWork office.  This strategy led us to entering awesome business competitions like the New Venture Challenge, which focus on telling a story of how your product will fit and scale in the marketplace.  Unfortunately, this led us to “validate past the close”.  As soon as large enterprises told us they were willing to pilot our product, our fingers should have hit the keyboards coding.  Unfortunately, we spent too much time after customer validation on message refinement and pitching.  If we had hit the keyboards coding, we could have gotten something for our customers to play around with and provide real field data feedback, which is invaluable.  By the time summer rolled around and we started coding, the 800-pound gorilla in the room had released a major competitor.  That valuable time lost was because we did not understand…

Lesson #2: Money is a Lagging Indicator, Not a Leading One.  This one is oft-repeated online, but easy to dismiss.  Successful founders who have raised unicorn-status funding say, “I can not wait to get back to building my product!” or “The company is about our customers, not our investors”.  Another way to put this is, “By the time you have raised money, you have already succeeded at that stage”.  We viewed capital too much as a goal in itself.  By raising money, we felt we could do more.  Get an office.  Hire our friends.  But what we did not realize was that the investment is a lagging indicator.  By the time a venture capitalist decides to invest, they have already made you grind it out for months, if not years.  Behind the overnight successes are journeys that took a decade or more.  Instead, companies should focus on…

Lesson #3: Build a Viable Product, Not Just a Minimal One.  The Internet Zeitgeist, along with a lot of modern concepts in Design Thinking and MBA entrepreneurship courses focus on the “minimum” portion of MVP, not the “viability” portion.  For example, people hoping to launch a phone app are encouraged to show people storyboards and pictures of how the app “would behave” rather than rushing to write code.  And, to be fair, that process helps weed out really poor ideas.  If you want to build the next Facebook, putting some diagrams in front of people may help you realize, “Jeez people already really like Facebook enough”.  But as soon as you get even a single person saying, “Yes I would buy what you have described/shown to me, where do I sign?”, start building.  The product has to be viable.  We had several schematics and detailed architecture diagrams of what our product would do, but little in the way of demonstrations.  In today’s world of freemium, it’s just really hard to get anyone to pay for schematics.

In fact, Eric Ries, founder of The Lean Startup movement was recently on an episode of Nick Moran’s venture capital podcast The Full Ratchet discussing this exact same concept.  When Ries did consulting for General Electric to help bring “the startup way” inside the corporate behemoth, he got resistance that if the company focused too much on the customer and their needs, they would miss opportunities to get real revenue.  He clarified.  He did not want GE to bring diagrams of a potential engine to customers to see if they wanted to use it.  Rather, he wanted to find some viable product that could be sold without spending months or years in the R&D phase.  So, the company found an existing engine that was completely functional, but could be used in a new application.  While research and development continued on improvements to specifically meet the needs of the new industry, GE was bringing in revenue and new customer insights based on actual field data.  But there was a viable engine being deployed! And that is the part of this story I feel is often overlooked.

As with most founders, I am extremely proud of my incredible team and the work we accomplished.  Since most of us were students throughout the experience, we are landing on our feet at new gigs across the country (I’ll have more to say on my next journey in the coming months).  There is still space for a bold vision on deterring cybersecurity threats in the enterprise, and lots of work to be done, so I look forward to seeing how our friends and competitors carry this sector forward.


Corporate Strategy or Employee Autonomy?

In preparing for battle I have always found that plans are useless, but planning is indispensable.

– Dwight D. Eisenhower

Recently, I read an excellent analysis of the Amazon Whole Foods acquisition put out by Ben Thompson over at Stratechery. I’m linking it because it was one of the most detailed and well-thought out strategic analyses I’ve read in a long time.  While at Amazon I wasn’t in (or near) the retail division, so I can’t tell you if it’s accurate or not. Regardless, it helps the reader formulate questions about what is actually going on in the grocery sector.

My criticism of the piece though is that it all feels a little bit “too cute”. I mean, it almost makes too much sense.  This perfectly laid out plan of how Amazon is going to transform the grocery business: could Amazon really move 50,000 employees in their Amazon retail division in the exact same direction?

When I worked on the Amazon Echo, I remember writing a feature to ease the way we organized and transformed the voice data we collected.  It was basically a simple service to classify an individual piece of data as DEV/BETA/PROD based on the device it was coming from.  But here’s the thing: no one told me to build it.  There had been talks about doing some sort of similar service for a long time in the organization, but no one had prioritized or architected it at all.  It was basically a thought floating around the water cooler, and then I built it.

Although obviously not at the scale of the Whole Foods acquisition, my example shows that at large organizations, things just sometimes happen. Beyond a certain scale, it’s hard to understand every last thing that happens in a fast-moving firm.

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Amazon at Scale

Which brings me back to Stratechery’s analysis.  Amazon has done a lot of experimenting in groceries and instant delivery.  It’s clever to think that the Whole Foods acquisition is part of a perfect strategy to implement a multi-year plan to convert grocery shopping into a set of “primitives”.

But my view is that analysts are reading far too much into this.  Heider and Simmel showed nearly a century ago that humans very often see narrative where there is none. The simple explanation for big moves like this is that tech companies perform bold, extreme experiments in new industries they seek to understand and dominate.  Facebook followed a simple strategy of experimentation and delayed profitability with its massive WhatsApp acquisition (which is finally starting to bear fruit). In fact, the risk for Amazon seems fairly low here.  Whole Foods, at the close of last year, had more than $6 billion in mostly tangible assets and more than $5 billion in revenue.  That makes a $13.7 billion acquisition price seem extremely reasonable after comparable infinite-multiple tech acquisitions.

For entrepreneurs and leaders, I think the important lesson to realize is that culture matters an incredible amount. Corporate strategy is important to think about and, as General Eisenhower wrote, plans can be very useful.  But the most important plans a company can lay remain a unique and compelling company culture.  The reason I was able to build the service I did, and a passionate team of retail Amazonians were able to acquire Whole Foods, is because the Amazon Leadership Principles are so clearly defined and deeply imbued into the organization that employees feel confident moving quickly and boldly. The Amazon Leadership Principles are the 14 best-laid and most well-kept plans that Jeff Bezos has ever made. Perhaps one could argue that a defined, unique culture is an integral part of a good corporate strategy, but it’s more about planting seeds than harvesting fruits.