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.

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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

Healthcare Primitives or Primitive Healthcare?

No one wants to hear Odysseus go to the corner store.

– Alex Blumberg, StartUp

The other day Ben Thompson released yet another great Stratechery piece on Amazon’s latest foray into the world of healthcare.  It repeats Amazon’s desire to take a slice of all global economic transactions (healthcare is nearly 1/5th of the U.S. GDP alone), and lays out a potential strategy for Amazon to create a “common health interface” that employers and providers can sign on to. Using Amazon’s model of converting a market into “primitives”, they could then match things like payors/payees, or providers/patients and garner some of the profits as a middleman.

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New Advertising for Amazon Health

It is, as Ben Thompson’s writing always is, a very compelling argument, but I think it fails on a few accounts that are worth noting.  First and foremost, the joint health effort was not created with the goal of disrupting healthcare. It’s easy to see evil everywhere Bezos lurks, but Dimon stated that the first group he wants to see benefited are his U.S. employees.  The bank employs hundreds of thousands of people in corporate offices and branches across the country that could be helped by this.  I think that Occam’s razor applies here and we should try to avoid overthinking this.

Secondly, J.P. Morgan does not need to drastically disrupt the healthcare industry in order to get a major win.  Last year, the bank spent $1.25 billion alone on healthcare costs.  This amounted to 2 percent of companywide expenses.  That’s an incredible amount for a single benefit! According to their most recent 10-K, non-healthcare compensation amounted to just over $28 billion, or 45 percent of companywide expenses.  With healthcare costs growing at nearly 6% annually according to a recent AMA report, it is crucial for Dimon to control this expenditure or it will continue to balloon as a non-salary expense and prevent the firm from giving bonuses and raises that can help retain and motivate talent.

Finally, the healthcare system may just be too complex and regulated for Amazon to truly be effective.  Amazon has never played in a highly regulated industry, and there is an open question of whether it would be able to execute in healthcare.  Of course, the news of Amazon obtaining pharmacy licenses in 12 states in November sent the first shockwaves through the healthcare industry, but the real story was more nuanced.  Amazon later cancelled one of those applications (in Maine) and announced it will not even sell drugs in multiple applications.  So what could it do? It could gather more retail data from the operation of a pharmacy/retail chain and launch a broadside against industry stalwarts like CVS and Walgreens.  The recent Whole Foods acquisition bolsters the case for this.

At this point you might be saying, “Well, Amazon may not be able to play in the healthcare industry, but Dimon and Buffett run highly regulated firms (including insurance) that could make major waves when combined with Amazon’s technological prowess!” And that is partly true, but mostly uncertain.  For starters, JP Morgan has no experience with the healthcare industry’s regulations, which are covered under separate acts like the Health Insurance Portability and Accountability Act (HIPAA) and the Affordable Care Act (ACA).  It is unclear whether JP Morgan’s compliance, legal, and regulatory departments would be able to effectively transfer their skills successfully handling Dodd-Frank into the healthcare space.  Similarly, Buffett’s Berkshire Hathaway has only been involved in healthcare reinsurance, not the primary payor system.  Navigating the world of electronic medical record handling, billing, network management, contract negotiation, and more is not one of Berkshire’s core competencies.

I think what we are seeing in the market is a repeat of late last year’s “Amazon panic” that sent Kroger shares into a spiral (losing 20% or $5.4 billion in enterprise value in a single day).  In fact, since I commented on Ben Thompson’s piece on the Whole Foods acquisition, Kroger recovered to its pre-Whole Foods acquisition price[1]. With the recent hits to United Healthcare and CVS stock it is worth remembering Twain’s oft-quoted adage, “History does not repeat itself, but it often rhymes”.

[1] This is even after suffering a temporary earnings miss in Q4


Not All Activities are Humble

The society which scorns excellence in plumbing as a humble activity and tolerates shoddiness in philosophy because it is an exalted activity will have neither good plumbing nor good philosophy: neither its pipes nor its theories will hold water.

– John Gardner

When I have time in the morning before I go to class, I often turn on CNBC to see what’s going on in the markets and what’s happening in the news.  That channel is… amazing.  It’s like watching Sesame Street meets The Electric Company for adults.  It’s educational, it’s fast-paced, and there are so many colors and moving parts that my eyes can barely follow as everything flits across the screen.

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How I View CNBC

One of my favorite segments is “The Santelli Exchange”, where Rick Santelli offers his two cents about anything and everything market-related (that’s actually where the term “Tea Party” used to describe the 2010 Republican movement came from). So let today’s post be “The Diamond Exchange”, because I want to offer perspective on something that happened to me recently.

I was talking to an investment professional who tracks market movements for a living.  He was discussing what his day-to-day is like, his views on the industry as a whole, and where his biggest problems lied.  And then he said something that floored me. While discussing his analytical approach and his issues sorting through data to parse what is accurate and what’s misleading, he said:

Honestly, this is still just a blue-collar job.

He viewed his work theorizing about the markets and movements as akin to working in a factory, putting in long shifts on an hourly wage.  Frankly, I think this is the wrong attitude.  I’ve written before on being grateful for what you have and redirecting your energy away from the small worries and into the bigger picture issues.  But the Yin to that Yang of gratitude is to be grateful for other people and what they do.  I’m very grateful for the working-class men and women of this country who support our energy, manufacturing, and industrial sectors that require hard, day-in day-out, blue-collar manual labor.  And I do not want to minimize the work they do by saying that what knowledge workers do is anything like that.

What most white-collar professionals do is of an entirely different cloth: we are the philosophers of today’s day and age.  Software engineers do build, but their implementations are based on complex theories (often untested!) of how systems will interact and perform in production.  MBAs make a living as consultants and bankers developing theories and ideas about mergers, productivity initiatives, innovation, etc. that they experiment with in the workplace.  Their intellectual work product is extremely valuable, but the workers in those fields are very fortunate to have fewer physical ailments and earlier retirement than their blue-collar counterparts.

Speaking from experience, these physical maladies are especially difficult to work through. When I was at Amazon, I had a relapse of a sports-related back injury that required a cortisone shot and lots of PT to work through.  I can testify to how debilitating that was.  Both my professional and personal productivity suffered greatly, and just getting on the subway to commute to Cambridge each day was a struggle.  And I can testify to how different this was than my intellectual struggles.  Yes, I am exhausted when I go home from Booth at the end of a day working on cases, attending lectures, and writing papers.  But that is completely different from the physical low that came with my injury, and that comes with manual labor.

So, I think it’s important to continually remind ourselves of the supreme value of blue-collar work, and remind us of it’s different, important place in our society.  Although the knowledge economy is firmly here, and growing rapidly, I truly hope there is always a revered place in our society for manual laborers so that both our pipes and our theories continue to hold water.

New Year's, Personal

2017 Book List

Twice a year, Bill Gates puts out a list of the best books he has read.  In it, he describes his motivation for reading the books and a brief description of each.  Trying to learn from idols, I thought that this year I would do the same (don’t you love it when a self-aggrandizing MBA blogger compares himself to Bill Gates)?  Unfortunately, Bill Gates is an unqualified genius and I’m just a struggling business student, so I am going to recap five books I read for the entire year, not the back half.

After enrolling in business school, I got really interested in decision-making.  Most of what business school graduates do is “build a case” (that’s why we study, you guessed it, “Cases” constantly) for changes and improvements we are making to systems and organizations. There’s a lot of recent research that shows that humans are not as skilled at decision making as we might think, which is why I picked up (and highly recommend) Daniel Kahneman’s Thinking, Fast and Slow, and Jonathan Haidt’s The Righteous Mind.

Next, it was hard for anyone to ignore politics this year.  The noise was overwhelming, and I wanted to take a deep dive into issues, both on the left and right side of the political spectrum, that are often reduced to sound bytes.  So, I made my way through Matthew Desmond’s Evicted: Poverty and Profit in the American City, and J.D. Vance’s timely Hillbilly Elegy.  Some might think these both fall to the left of the political spectrum (Vance is a Yale Law School graduate who often appears on CNN), but reading about his formative years gives crucial insights into the plight of many middle American Republican constituents.

Finally, I picked up the critically acclaimed The Underground Railroad from Colson Whitehead.  The writing is fantastic, and although it weaves in bits of historical truths that are sometimes hard to discern from the fiction, I found it an incredible on-ramp to further research on African-American historical topics like the Underground Railroad, Jim Crow laws, and the Tuskegee syphilis study.

Rather than editorialize about each book individually, I’ve copied in the Amazon descriptions below (and included a link to Amazon Smile – go pick a charity of your choice!)  If you get some time this holiday season, these are definitely worth the read.


Thinking Fast and SlowThinking, Fast and Slow. In the international bestseller, Thinking, Fast and Slow, Daniel Kahneman, the renowned psychologist and winner of the Nobel Prize in Economics, takes us on a groundbreaking tour of the mind and explains the two systems that drive the way we think. System 1 is fast, intuitive, and emotional; System 2 is slower, more deliberative, and more logical. The impact of overconfidence on corporate strategies, the difficulties of predicting what will make us happy in the future, the profound effect of cognitive biases on everything from playing the stock market to planning our next vacation―each of these can be understood only by knowing how the two systems shape our judgments and decisions.


The Righteous MindThe Righteous Mind: Why Good People Are Divided by Politics and Religion. As America descends deeper into polarization and paralysis, social psychologist Jonathan Haidt has done the seemingly impossible—challenged conventional thinking about morality, politics, and religion in a way that speaks to everyone on the political spectrum. Drawing on his twenty five years of groundbreaking research on moral psychology, he shows how moral judgments arise not from reason but from gut feelings. He shows why liberals, conservatives, and libertarians have such different intuitions about right and wrong, and he shows why each side is actually right about many of its central concerns. In this subtle yet accessible book, Haidt gives you the key to understanding the miracle of human cooperation, as well as the curse of our eternal divisions and conflicts. If you’re ready to trade in anger for understanding, read The Righteous Mind.


EvictedEvicted: Poverty and Profit in the American City. In Evicted, Harvard sociologist and MacArthur “Genius” Matthew Desmond follows eight families in Milwaukee as they struggle to keep a roof over their heads. Hailed as “wrenching and revelatory” (The Nation), “vivid and unsettling” (New York Review of Books), Evicted transforms our understanding of poverty and economic exploitation while providing fresh ideas for solving one of 21st-century America’s most devastating problems. Its unforgettable scenes of hope and loss remind us of the centrality of home, without which nothing else is possible.


Hillbilly ElegyHillbilly Elegy: A Memoir of a Family and Culture in Crisis. From a former marine and Yale Law School graduate, a powerful account of growing up in a poor Rust Belt town that offers a broader, probing look at the struggles of America’s white working class.  Hillbilly Elegy is a passionate and personal analysis of a culture in crisis—that of white working-class Americans. The decline of this group, a demographic of our country that has been slowly disintegrating over forty years, has been reported on with growing frequency and alarm, but has never before been written about as searingly from the inside. J. D. Vance tells the true story of what a social, regional, and class decline feels like when you were born with it hung around your neck. […] A deeply moving memoir with its share of humor and vividly colorful figures, Hillbilly Elegy is the story of how upward mobility really feels. And it is an urgent and troubling meditation on the loss of the American dream for a large segment of this country.


The Underground RailroadThe Underground Railroad: A Novel. Cora is a slave on a cotton plantation in Georgia. Life is hell for all the slaves, but especially bad for Cora; an outcast even among her fellow Africans, she is coming into womanhood—where even greater pain awaits. When Caesar, a recent arrival from Virginia, tells her about the Underground Railroad, they decide to take a terrifying risk and escape. Matters do not go as planned—Cora kills a young white boy who tries to capture her. Though they manage to find a station and head north, they are being hunted. […] Cora embarks on a harrowing flight, state by state, seeking true freedom. Like the protagonist of Gulliver’s Travels, Cora encounters different worlds at each stage of her journey—hers is an odyssey through time as well as space. As Whitehead brilliantly re-creates the unique terrors for black people in the pre–Civil War era, his narrative seamlessly weaves the saga of America from the brutal importation of Africans to the unfulfilled promises of the present day. The Underground Railroad is at once a kinetic adventure tale of one woman’s ferocious will to escape the horrors of bondage and a shattering, powerful meditation on the history we all share.


Riptide from the Third Wave

Were it left for me to decide whether we should have a government without newspapers, or newspapers without a government, I should not hesitate for a moment to choose the latter.

– Thomas Jefferson

In his new book, The Third Wave, Steve Case, the founder of AOL, makes the argument that we are entering a new era of digital technology that will call for new paradigms in business strategy and public-private partnerships.  To roughly summarize:

  • “The First Wave” happened in the heady early days of AOL, when governments were still laying fiberoptic cables and expanding Internet access to private citizens
  • “The Second Wave” happened in the late bubble days and early 2000s, when apps and sites helped power productivity gains from the Internet infrastructure
  • “The Third Wave” is starting right now, and involves the rise of IoT and platforms leading to disruptions of everyday living (e.g., hotels being replaced by AirBnB)

In his book, Steve Case lays out a vision for how the Third Wave will go more like the First Wave: requiring public-private partnerships to establish sensible regulations.  Because the Second Wave companies existed solely in the medium of traditional IT (Facebook is a website, Google is a website, Apple launched new categories of standalone devices), they could largely sidestep the issue of regulation.  But because the Third Wave companies are disrupting hotels, taxi cabs, refrigerators, speakers, lighting, home security, and much much more, consumers and regulators will demand more stringent protections.

Reading a piece in the Journal about Dara Khosrowshahi groveling to London regulators reminded me of The Third Wave. It proves his point.  Steve Case is right.  We are seeing more and more that governments are interjecting themselves into big tech and demanding that these global enterprises be responsive to the needs of the body politic.  In fact, Uber’s brash regulatory approach (which extended to recruiting, I can tell you personally), is probably the reason that it is the first major tech company to have approval ratings below 50%.  However, what Steve Case gets very wrong is his assertion that we have been here before and that we can use techniques from the First Wave’s playbook to succeed.  In fact, we have not been here and the same rulebook does not apply.

In his second term, the Clinton administration passed the Telecommunications Act of 1996.  This sweeping regulation represented the first major update to telecommunications regulation since before World War II, and was the first governmental framework for regulating the Internet[1].  Because the Internet was so new, it was important to establish guidelines and frameworks rather than specific implementation policies.  In fact, the bill’s opening paragraph speaks to this motivation, reading:

Begun and held at the City of Washington on Wednesday, the third day of January, one thousand nine hundred and ninety-six
An Act to promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies.

This is an important distinction from the battles being waged today! Regulators then were dealing with a greenfield technology, with few incumbent interests[2], in a sector that had no existing labor.  Today, Uber, AirBnB, TaskRabbit, Kiva, Instacart, Tesla and other Third Wave companies pose a direct challenge to vested interests in dozens of different industries that are already highly regulated.

In fact, this is the irony of Silicon Valley.  For years, start-ups have been preaching that they are the harbingers of change, ready to #Disrupt (clearly, my favorite hashtag) our entire way of being.  But what of the early 2000s tech companies? They largely produced technology that created new ways of communicating, gaming, shopping, or working at white-collar jobs.  The major IPOs in the past decade have been from companies like Zynga, Facebook, Box, Alibaba, TrueCar, and Twitter.  These companies did not transform existing aspects of our lives, they only added to it.

The truly disruptive companies have only sprung up in the last 5-10 years, and largely remain private.  These are the ones I mentioned above, and include many that are facing intense regulatory scrutiny.  These companies finally did it! #Disrupt! But that may have led to a quickening of governmental intervention.

Tech Companies Winning at #Disruption

I don’t know how this fight will shake out.  I don’t think there will be a solution (or even détente) in the next decade.  This is a long, slow fight that software engineers and technology leaders have never had to face.  Will this lead to the certification of software engineers as “automated vehicle engineers” to ensure safety standards? Will this lead to criminal suits against leadership at gig economy companies for violating federal minimum wage laws? The high-tech sector may wish for an Internet without the government, but as with Jefferson’s original quote, around the world we are starting to see the former more often than the latter.


[1] In fact, this resulted in subsequent litigation including Reno v. ACLUwhich invalidated portions of the Communications Decency Act (Title V of the Telecommunications Act).

[2] Existing telecommunications companies were lobbying hard against Internet deregulation because they stood to lose, but they also had active investments looking to capitalize on this opportunity and today major players like AT&T are still represented as cable/broadband carriers.



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.

Entrepreneurship, Software Development

Chopping Down Trees

Strategy is a system of expedients; it is more than a mere scholarly discipline. It is the translation of knowledge to practical life, the improvement of the original leading thought in accordance with continually changing situations.

– Helmuth von Moltke the Elder

Ages ago, when I was an intern at Microsoft, I attended a big open lecture given by the (then-president of Microsoft Windows) Steven Sinofsky.  Sinofsky waxed philosophical about the organization, his vision for the company, and why Windows 8 was going to crush it. Towards the end, he opened it up for questions.  Sitting in the back, my hand shot up and I asked, “Microsoft is famous for Waterfall software development, but these days (2011), all the rage is with Agile technologies.  What gives? Why aren’t we, Microsoft, great inventor of the modern software company, using Agile?”

Sinofsky, without missing a beat, answered: “If software development were building bridges, we’re at the point in history where people are chopping down trees to cross rivers.” He believed that it would cost too much to implement this change, and too much about software engineering was still ad-hoc and/or unknown magic, so he couldn’t be sure that the benefits would be worth it.

For years, that viewpoint of how we approach software engineering as a discipline has stuck with me.  Chopping down trees.  Looking around in the forest, finding something that can get the job done, doing it quickly and cleanly, then bravely walking across the flowing rapids.

Me Building SmarterCloud this Summer

Before getting back into coding this summer, I had decided that I was going to engineer our web application architecture from the ground up.  I was going to make plans for exactly how I wanted our project to be built and deployed.  In fact, it would be so perfectly documented, automated, and repeatable that all you would need was a repository with a README and a one-click AWS CodeStar environment, and SmarterCloud would work.

Getting back into it though, I’ve discovered that this is nearly impossible in modern software environments.   My intentions were good.  My start was promising.  But before long, I was adding custom configurations for my load balancers, downloading third party tools locally to my machine and invoking them in my build system, and doing all the things I promised I wouldn’t.

Don’t get me wrong, things have gotten much much better in the last decade (since back when I had to implement my own CSS grid system in college).  But one major irony I learned in my life as a software engineer was that I wasn’t really an engineer.  I mean, let’s be honest: what civil engineers can use multiple hemorrhaging-edge paving techniques to build our bridges? A lot fewer people would survive the daily commute if they did.

I’m encouraged by the open source movement and the stellar projects I’ve been using to help build SmarterCloud.  Projects like Galen and Codacy have great open-source support and the ability to be quickly and easily extended. These products have employed software strategy well, and combined it with strong leadership to keep quality high.  But still, with all the tools I’ve interacted with or built I’m reminded of Von Moltke’s other, more famous quote: “No plan survives contact with the enemy.”

So here’s my outlook: if you are building a product, or hiring developers to build it for you, understand that there is software engineering is still 90% art and only 10% science. Have patience with software, and put more of an emphasis on quality.  That way, if you aim high and provide ample time for work to get done, when tradeoffs inevitably have to be made the ramifications won’t be catastrophic.

EDIT: There’s a great piece from Dr. Dobb’s I encountered from HackerNews that speaks to this subject in a more scientific way that’s worth the read.

Entrepreneurship, Personal

In the Trough

What comes next? You’ve been freed. Do you know how hard it is to lead? You’re on your own. Awesome. Wow.  Do you have a clue what happens now?

– King George, Hamilton

Last month, I reflected on my experience in the UChicago New Venture Challenge.  Hopefully that gave you a deep cut into what people actually do in accelerators, and what kind of programming can help fuel a business startup.

But something I am grappling with now is different: what comes next? After all the cameras are put away, the free food eaten, and the coffee meetings taken, you have to get back to the business of building a business. So, what do you do?

Here are some things that I’ve done in the last month (in no particular order):

  • Ordered chairs and monitors
  • Hired accountants
  • Printed and signed more documents than I can count
  • Seen Hamilton with my wife
  • Gotten a haircut

It sounds silly to enumerate it, but I think it’s a really important topic that no one blogs about.  There are literally oh so many blog posts about the joys of fundraising and #StartupWinning that it’s easy to feel like the path to success is always up and to the right.  But did we all forget this?

Hopefully the Crash of Ineptitude is Not Literal

The period of time after the New Venture Challenge is what a lot of people have called “the trough of sorrow” or “the trough of disillusionment”.  Am I sad? Am I disillusioned?  Not really.  I’m very fortunate that I have a loving family and supportive peers.  But, I am definitely in a trough.  There is no way to sustain the breakneck excitement and pace of an accelerator like NVC.  In fact, you wouldn’t want to.  The point of accelerators is to temporarily accelerate development.  You make a trade-off, sacrificing things like technical debt and incomplete financial models for current growth or capital.

So after your TechCrunch moment, it’s important to realize when you may have entered the trough.  Being in the trough feels like checking emails multiple times an hour but your inbox doesn’t update.  Being in the trough feels like sending colleagues emails that they don’t respond to until they return from vacation.  Being in the trough feels like missing spontaneous phone calls that supportive peers and mentors might have made before.

Personally, I am dealing with this by reminding myself of things I have to be grateful for (not surprising, given the psychological research showing this is a vital part of wellness).  But another important part of this experience is to admit that you’re in a trough and just roll with it.  It does such a disservice to entrepreneurs nowadays that we expect everything to be #disruption, YCombinator, and massive massive massive fundraising rounds.

Building a business should, in my opinion, be about building long-term value for people for whom you want to change the world.  That often comes with periods of intense dedication and sacrifice to get your startup where it needs to be.  But the investor and entrepreneurial communities should present the situation with a little more balance.  Instead of expecting breakneck awesomeness that never stops (which can only lead to inevitable disappointment and schadenfreude), we should expect businesses to be punctuated by intense periods of deceleration to complement hard work. Acknowledging that reality is the first step.