Rise in corporate venture shows innovation is moving to startups

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Regular readers will know that for me the rising pace of change is one of the defining features of the early 21st century. Things are now changing so quickly that traditional structures are breaking down. Within a decade or so we will have adjusted to rapid change as the new normal, but in the short to medium term expect more disruption rather than less.

One example of traditional structures breaking down is that large companies are increasingly unable to keep up via internal innovation. Instead they are looking to partner with the startup ecosystem. Corporate sponsored accelerator programmes are one of the most visible aspects of that partnership, but whilst they command a lot of column inches they are small beer in terms of dollars committed.

The chart above (courtesy of Pitchbook) shows another aspect – direct investment by corporates into startups. Most striking is the rapid growth since 2009, but the dollars involved are also significant. The $26bn so far this year is the total deal value including the contribution from corporates, rather than the contribution itself, but I would guess that the actual corporate contribution will easily top $10bn this year.

Cars with no steering wheels and real time translation

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My news feeds were buzzing this morning with talk of two product demos at codecon yesterday. Interestingly they were both from large, established companies, not startups:

  • Google co-founder Sergey Brin demonstrated a ‘built From scratch to be driverless’ car with no steering wheel, pedals or mirrors
  • Microsoft’s new CEO Saya Nadella demonstrated real time speech-to-speech translation on Skype (which he brilliantly described as fulfilling a dream that humanity has had for thousands of years)

Also of note is that both were by people in the top 1 or 2 slots at their companies. Big and bold innovation is a central plank for any decent tech company these days.

The final thing of interest here is that Brin said Google likes to work on only eight projects ‘moonshot’ projects at a time. Even a company as big as Google and as skilled at innovation as Google can’t run with more than eight projects and do them well. There are more than eight areas within the ambit of Google that are ripe for innovation and there is space for startup competitors in the areas on which they choose not to focus. Some of those areas will turn out to be big opportunities too. Social is a good example of something that Google chose not to focus on during the critical period of the market and that has gone on to take significant share internet advertising, Google’s core business.

Musings on Bitcoin following last week’s volatility

By | Innovation, Startup general interest | One Comment


The chatter around Bitcoin reached frenzy levels last week as the Bitcoin:US$ exchange rate shot up and then crashed by over 50%. The chart above shows just how much volatility there was.

As many people have observed, one of the functions of a currency is to store value, and with this level of volatility Bitcoin is doing a very poor job of that. I can’t see many people choosing to own Bitcoins if the value of them might halve over a couple of days. Fiat (i.e. state sponsored) currencies experience volatility on the foreign exchange markets, of course, but not at this level, and they have the additional advantage that changing FX rates take a little while to filter through to changing prices in retail which means real world value changes more slowly. Because Bitcoins (generally) have to be changed to fiat money before they can be spent the pain is felt immediately.

My view is that if Bitcoin is to grow much from where it is today something needs to change about Bitcoin to bring more stability to the price. Put differently – the current volatility is an existential threat.

What is also becoming increasingly clear to me is that there is demand for a virtual currency, and that if Bitcoin fails we will most likely see something else rise in its place. This quote from Robert MacMillan, a former economist with the U.S. Federal Trade Commission and Stanford economist,currently Head of Portfolio Management and Director of Quantitative Research at HNC Advisors AG explains why (hat tip to Techncrunch):

The value of having an easy-to-store, hard-to-steal, and hard-to-counterfeit medium of exchange is substantial.

I would add one additional value which MacMillan doesn’t list, and that is ‘not state controlled’. I think we have seen enough examples of government mistakes undermining currencies to think it is a reasonable bet that a virtual currency controlled by a transparent set of rules and protocols that aren’t open to manipulation can have a place in the world, assuming the rules and protocols are such that it doesn’t suffer from the volatility and other problems Bitcoin is experiencing.

Finally – much of the talk about Bitcoin is of an apocalyptic nature. Most opinions are polarised, either thinking Bitcoin will fail or will amount to an amazing revolution. Whether it be Bitcoin or another virtual currency it seems to me that there is space for it to co-exist with existing currencies. If it only takes a very small percentage of the market there will be space for substantial disruption. As an example, there are a large number of startups at the moment pursuing the consumer forex market. If Bitcoin was just used for a small percentage of those transactions – e.g. salary remittance for migrant workers – then substantial value would be created. There are many small examples like this which would be good Bitcoin use cases and if they all came to pass Bitcoin would still only represent a small fraction of currency flows.

The real disruption in education is taking kids out of the classroom

By | Innovation | 6 Comments

The news in the FT this morning (paywall, sorry) is that Amol Bhave, a 17-year-old from Jabalpur, India has been accepted into MIT based on his results in online courses offered by edX, a non-profit online education venture founded by Harvard and MIT. Amol said the following about his decision to take online courses rather than go to a local school:

I really felt that the quality of education online was far, far better than [my] school. It opened doors to me for getting into colleges such as MIT which I could never even have dreamt of getting into from my town.

I think the same will increasingly be true for kids in the developed world. Established educational establishments and curricula were designed in and for a bygone age and the pace of change is so fast now that they are unlikely to catch up.

The alternative of parents and children taking charge of their educations has many cultural and legal barriers to overcome but I think some of the best and brightest will start to go down this route so they can get the best education and the best start in life. Making it work will take real commitment from both parent and child though, at least in the early years, so what is effectively home schooling won’t be for everyone. I still have a few years to work it out, but I’m starting to think about whether it might make sense for our kids.

The Queen Elizabeth Prize for Engineering

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Yesterday saw the first awards for the new Queen Elizabeth Prize for Engineering. The £1m prize was split between Tim Berners-Lee, Bob Kahn, Vint Cerf, Louis Pouzin and Marc Andreessen – five of the key guys responsible for creating the standards and software that run the web.

This prize will now be awarded every year to one to three individuals “responsible for ground-breaking innovation in engineering that has been of global benefit to humanity” and presented by the Queen. This is one of the paragraphs from their website:

During the search for a winner, the Queen Elizabeth Prize for Engineering will discover and celebrate stories of engineering success, raise the international public profile of engineering and inspire new generations of engineers to take up the challenges of the future.

I think that’s great. Celebrating engineers in the hope of inspiring future generations is exactly what we should be doing. The great challenges ahead of us are increasingly engineering challenges rather than science challenges yet fewer and fewer people are choosing to study engineering (I recently heard that computer science applications to Cambridge University have fallen by 50% over the last ten years). Apparently the organisers want the Queen Elizabeth Prize to become as important and well regarded as the Nobel Prize – I have to believe that would encourage a few more smart people to pursue careers in engineering.

Finally, kudos to the companies that have funded the prize: BAE Systems, BG Group, BP, GSK, Jaguar Land Rover, National Grid, Shell UK, Siemens UK, Sony, Tata Consultancy Services, Tata Steel, and Toshiba.

The coming legislative, political and philosophical challenges

By | Innovation, Startup general interest | 3 Comments

There is an interesting article by Om Malik on GigamOM today about disgruntled Uber drivers and how they represent the thin end of the wedge of a change in labour relations. It seems these Uber drivers were dropped from Uber because they weren’t highly rated. It is easy to say that good service should be valued and hence this is fair enough, and I think that is the dominant narrative here, but the employment regime has shifted for these drivers reducing their job security and making them vulnerable to user feedback in a way that they weren’t before.

Om’s point is that there are an increasing number of Uber-like companies with on demand workforces that could also get disgruntled and that as a society we need to figure out what constitutes acceptable practice in this new world.

The same point can be made about the current battle raging between privacy advocates and big online advertising companies like Google and Facebook. As a society we need to figure out what constitutes acceptable practice for the harvesting and use of personal data for advertising purposes.

In both these debates there is much to be gained from getting it right and much to lost by getting it wrong. Regarding on demand workforces, on the one hand the promise of better utilisation of assets held out by Uber and other similar companies offers big productivity gains, but on the other hand we risk a wave of labour unrest. Regarding privacy, on the one hand using data to make advertising more effective can reduce waste freeing up money to spend on producing better content, whilst on the other abusing privacy risks undermining consumer trust and destroying long term value.

All of this leads me to the killer quote from the GigaOM article:

the challenges of the connected future are less technical and more legislative, political and philosophical

The article doesn’t offer any solutions, and I can sympathise with that. There is no answer that is ‘right’ in any fundamental sense, so all we have are ideas about what will be ‘best’, but best for me might not be best for you – e.g. if you are an Uber shareholder and I am an Uber cab driver. However, I think we might be able use the lens of efficiency or productivity improvement to judge which of these ideas of ‘best’ might in fact be best for society overall. These are complex questions and solutions will necessarily be both piecemeal and complex, but if we navigate towards solutions that unlock value then there should be many more winners than losers overall.

One of the reasons all of this is difficult is that technology is moving very fast whilst political and philosophical norms emerge slowly and legislation is best characterised as being a slow moving and blunt instrument.

For startups to be successful over the long term in this environment they need to win in the court of public opinion as well as in the market place. The best way to do that is to build products that people love and to try and act in the interests of all of your stakeholders, be they customers, employees, or an on-demand workforce. There is a bit of a tendency at the moment to treat on-demand workers as a flexible resource to be used and abused at will. I’m now wondering how sustainable that will be.

New nutrition index pushes food companies to do better

By | Innovation | 2 Comments

Accesss to Nuttrition have just published their inaugral Nutrition Index which ranks food companies according to improving nutrition. It is a thorough piece of work which takes the nutrtional value of companies’ products, the availability the availability of those products, corporate strategy, marketing practices, and product labelling into account.

I think this is great. The index will help consumers to buy more nutritious food and it will put pressure on the food companies to raise their game. I’m particularly enthused by the fact that thirty nine investment organisations managing more than $2.6 trillion in assets have signed a statement in support of the index. Even if companies don’t want to do the right thing for the right reason (i.e. in support of world health) then the pressure from shareholders and consumers should get them moving in the right direction.

Time will tell whether companies that score well in the index perform better on the stock market too, but I think there is a good chance they will. I have seen small scale studies showing that companies who rate highly on corporate social responsibility (CSR) generally have started getting rated more highly by analysts over the last five years, and I think this index is more powerful than bland CSR stats.

The bigger driver of share price will for these companies will, of course, be how well their products fare in the market, and here I think the trends are positive too. To make a very broad generalisation, in food and many other areas the 21st century consumer’s basic needs are sated and she or he is now increasingly looking to buy from companies that go beyond provision of goods and services to help them live a better life. In the case of food that means choosing to buy from brands that show they care about nutrition.

I think this is an important trend for startups to get their heads around. Taking the argument to it’s logical conclusion the successful consumer companies going forward will be the ones that think and care about the well being of their customers above and beyond the basic process of selling them goods and services. ‘Well being’ and ‘a better life’ are very broad statements, and I think the key will be understanding what consumer wants out of life and helping them to get there, across the full range of things that people are interested in. Eating better, getting healthier, sustainable sourcing and having better relationships are four obvious areas, but the full list includes the myriad of niche interests that people pursue. These niche interests might be good places for small companies to get started.

The physical dollars that turned to digital pennies are now becoming mobile pennies10^(-1)

By | Advertising, Innovation | No Comments

With all the press and analyst speculation last year that the transition to mobile might undermine Facebook’s revenues this isn’t new news but reading an FT article this morning titled Digital cinders spark mobile forest fire the penny finally dropped for me that after the transition to digital shrank many industries, the transition to mobile will now shrink them further.

For those unfamiliar with the ‘digital shrinks businesses’ argument my favourite example is encyclopedias which went from a circa £700m book industry dominated by Britannica, to a c£70m CD Rom industry dominated by Encarta, to a £0 industry dominated by Wikipedia. This is the most extreme example I know, but there are many other good ones, particularly from the music and newspaper industries.

The fact that mobile is shrinking industries doesn’t mean that mobile businesses aren’t viable of course, they just have to find another way to make revenues or get by with lower advertising revenues per user. For startups looking to build long term sustainable businesses I think that leaves three broad options – selling stuff, a subscription model, or shooting for massive scale and relying 100% on advertising.

One of the lessons most investors learned from the web2.0 era was that whilst success pays out big really huge scale is required to make social media pay and the odds of any given startup getting there are slim. That’s why investment dollars chase the few that are breaking out so aggressively. That same lesson applies twice over for ad based mobile models.

Mobile adtech businesses like our portfolio StrikeAd are still in good shape though – largely because mobile media consumption and mobile ad spend continue to grow quickly. If CPMs are low these businesses can make the same revenues by simply selling more ads, and the inventory is there.

That said, if somebody could find a mobile ad format that monetises better then the whole ecosystem would be better off. There are a number of companies working on this now, including Loopme in the UK. I hope they succeed.


Playing with the internet of things – my new Twine

By | Innovation | 5 Comments

My Twine arrived today and I’ve spent the last couple of hours trying to set it up to monitor how often our cat Polly goes in and out of the house.

For those that haven’t come across it Twine is a small box that  you can attach sensors to which then monitor things that go on in the real world. It can be temperature, dampness (to detect flooding), vibration, doors opening or closing, any manner of things in fact. The box is programmable via a web interface which lets you set up rules to email, text, or send an HTTP request when the sensor triggers.

Polly seems to be a very lazy cat (sweet, but lazy) and we often wonder how often she goes out, particularly at night. My thought when ordering the Twine was that it would be fun for the kids to plot her movements on a bar chart. The Twine sells itself on being dead easy to set up and do things with, so I thought this might be a reasonable ambition. I still think that might be doable by triggering an HTTP request every time the cat flap opens and then using an analytics service to plot the traffic, but simply getting the Twine working turned out to be quite involved so I decided to downgrade my ambition get started with an IFTTT based rule that creates a tweet on my brisbourne1234 account every time the cat flap opens and I get an email from the Twine.

I almost got it working. I had all the steps in the chain worked individually – the sensor trips when the cat flap moves, Twine sends email when the sensor trips, IFTTT rule sends a Tweet when my gmail gets the email from Twine. But it all fell apart when I was trying to string it together. I was lying on my back by the cat flap trying to Selotape the sensor to the side of the cat flap in a fixed position that would trigger every time, when the Twine lost connection with the dashboard making it impossible for me to see if the sensor was in the right place.

I searched all the forums and tried everything I could think of to get the connection back, changing the batteries, trying AC power, trying to set it up again, and I did come back eventually, but it’s still not updating frequently enough to properly test whether it’s working. I’ve just moved the whole arrangement to the fridge door where it is easier to fix the sensor in a position that looks like it will work and I’m going to cross my fingers call it a day now.

I think that maybe a slower moving target like the fridge door would have been better to have started with and that the cat flap might have been a bit ambitious anyway.

What do I think about all this?

I think I’ve had a glimpse of the future and it was quite fun whilst I was making progress trying to get the Twine to work. But it ended in frustration and I think we are going to have to step up a couple of levels in usability before a gadget like this goes mainstream. Additionally, the fact that monitoring the cat flap is the best thing I can think of to do with it suggests some work on use cases is in order….

Stakeholder value vs shareholder value

By | Business models, Innovation, Startup general interest | 2 Comments

Yesterday I wrote some early thoughts on progressive business. I finished the post by wondering whether we are seeing the start of a trend towards doing business in a better way and how far those changes can go.

The change to progressive business is multi-faceted and whilst we can see that if something is to happen, the direction is towards authentic customer value driven organisations which truly value their employees and part of that is a shift to focusing on broad stakeholder value rather than shareholder value.

I started my working life as a management consultant in the mid 1990s and I clearly remember my first manager convincing me that the purpose of companies is to maximise value for their shareholders. Prior to that I had a fuzzy view that companies should have a responsibility to employees and society as well as shareholders. The killer arguments for me were that it was the shareholders who owned the company and as it was their property it should maximise value like they wanted it to, and that the companies who had pursued a simple shareholder value maxim over the previous 10-20 years had outperformed the rest. Besides, when shareholders do well, employees and other stakeholders generally do well to.

What’s interesting now is that those to killer arguments may no longer hold true. It could be that from c1970-2000 a simple focus on shareholder value was the best strategy, but that something broader is required now. This is how the argument runs (largely taken from an article on Forbes by Steve Denning):

  • prior to around 1970 companies were focused on multiple stakeholders resulting in confused priorities and poor decision making
  • a simple unifying focus on shareholder value allowed management to galvanise workforces and improve results
  • but that focus has now distorted business and the improved performance has now come to an end, as evidenced by poor stock market performance over the last ten years

Examples of distortions that come from focus on shareholder value are short term focus on the share price, excessive pay in the C-Suite, and and de-motivated employees. Read the Denning article for more details.

I’ve long thought that an analogy with a pendulum is the best way to understand change in many walks of life is. Change always starts with a move away from an undesirable state of affairs, but then usually swings too far and has to come back towards a desired equilibrium position, which it will usually overshoot, and so on. Changes in direction are generally facillitated by a shift in thinking or ideology and are painful for practitioners who face the choice of changing their heartfelt convictions or losing relevance. In this case the pendulum swung from companies having bad decision making and results because they had too many overlapping objectives to poor results because the focus on a single objective of shareholder value is too narrow, and might now swing back to a broader set of objectives. Or at least so the argument goes.

It isn’t just Denning who is saying this stuff either. In 2009 Jack Welch called maximising shareholder value ‘the dumbest idea in the world’ and CEOs of companies like Unilever, Amazon, Google and Facebook have adopted policies and in some case shareholder structures which are designed to deliver long term value creation in a broad sense and ignore the vagaries of the stock market.