Steve Case, the 3rd Wave & Taxis Going Uber

Last week, Steve Case, the legendary founder of AOL spoke at the NY Media conference about his investment group Revolution Growth, which is focused on 3rd Wave investments.

He sees this as the next frontier for the digital revolution: transforming older, traditional and infrastructure industries. This is not sexy and it requires partners in disruption. Often, the required partners are those who would reflexively resist progress with all their might.  Therefore changes are likely to be slower and more complex but they also run deep.

These changes are also likely to be more transformative than anything we have seen before. Or perhaps not. They just might become the new normal for traditional industries – adapt or die. The floor has just risen. There may be a race for who is most innovative and so the stumbles may be in the direction of innovation and not resistance.

The perfect example is Uber, which has been rocking the transportation industry worldwide. For years, the taxi industry fought them in courts, legislation and in street riots. But never with technology. Until now. New York now has two apps than can order your yellow cab exactly the same way as Uber. The cabs come at about the some time, you pay less and maybe the taxi industry has chance to survive, sending the value of medallions back up – just a little if too late.

The two apps Way2ride and Arro take Uber head on. Arro is said by the Wall Street Journal to be better than Way2ride and seems to be more of startups product while Way2ride has more of the corporate development origin. This is probably the signature story, the public case study of the old empire taking adapt and survive via technology vs. the old Luddite sue ‘em, legislate and agitate approach.

We could compare this to VW’s diesel division which used adapt and die via technology the wrong way. Instead of fixing their diesel emissions they simply faked it through software. That was a devastatingly bad idea that only an entrenched company might come up with. But they would not be alone in trying to rig the system rather than fix the problem. U.S. Railroads, are mandated to fix their safety system by 2015 through a technology paradigm called Positive Train Control. The vast majority of railroads including most of the commuters either couldn’t do it or just didn’t try. So they went back to Congress and told them to push back the deadline and in some cases threatened to halt their trains and cause and estimated $30 billion in economic damage.

In the Railroads case, which may be emblematic of most infrastructure fixes, the protocols were so overdesigned and obsoleted by the time they came out in 2010, that they we overpriced beyond reason. Today, they could simply leverage existing technology, Elon Musk-style and do everything plus a few extra things like adding genuine safety to their antiquated railroad crossings, for pennies on those federally mandated dollars. Smart sensors with WiFi, Bluetooth, RFID, webcams and communications are cheap tech commodities now. A group of enthusiasts from Maker Faire with $40 Raspberry Pi's could fix almost everything in about a month.

So it goes for bridges and roads. Do we not have new liquid graphene technology that can shore up rusting old bridges? Is there no new polymer that can resurface roads or fix potholes so that post-winter driving is no longer driving through the jungle?

I’ll bet there is a startup in some remote part of country with a laptop full of solutions and none of the right connections. Naturally, government isn’t looking there - they want their familiar suppliers and their trusty old pals. Then they have entrenched stakeholders, union members and civil servants whose main mission is to rack up overtime and accumulate pensions. Not all, of course, but enough that they have zero interest in improvement for the public interest.

The good news, if we have any, is that innovators are running out of new Social Media and Ad Tech wrinkles and will be forced to look at real industrial issues. For example, when we run our Startup events in Boston we see some of this - like Concrete Sensors, a startup that puts sensors into poured concrete so engineers get a real time readout of its curing rate – essential before proceeding to the next stage - which is currently being done with expensive pilot drillings. Innovations like these could push the entire industry forward.

Typically, these ideas are resisted at first. The big players don’t think they need them or fear disrupting their systems. Then, a competitor somehow breaks through. The old-timers pull off every dirty trick they can think of to resist it. Finally, they capitulate and start begging for innovation. That is generally when they lose leadership, go under or get acquired.

If we don’t learn how to introduce innovation into public works, we will become a new kind of  economy – an ex-first world country with an antique infrastructure, a massive public payroll and a culture that lost its way.

© Alan Brody 2015

"Salting the Monkey": What Bushmen Teach us about Bootstrapping & Finding Money.

As the long-awaited Are You Fundable? is about to be released, here are some excerpts.
(This is not your typical Entrepreneur how-to book.)

How Startups can Survive the Drought and Find Investors

The more you can successfully bootstrap the company, and progress through your own financing or machinations, the more you impress Investors with your ability to deliver. So consider this a test you must pass – whether you get funding or not. If you want to know how to endure “the drought” and go on to find money, think of the Bushmen. Now generally referred to as the San, they live in the Kalahari Desert where there are no camels and few oases with springs or even wells where they can pump water out of the ground. They get rain during one season of year, and conserve what they can with little technology beyond filling ostrich egg with water and burying them in the sand.

For the rest of the time, they find water through alternative sources.

San drinking from a tuber

It turns out that water can come from many places other than a faucet or a pump. After they have run out of watering holes, wet sands and water stored in buried ostrich eggs, the San extract moisture from tubers growing beneath the ground. It is about as close as this desert comes to a water cooler but only a native could find its sublimely subtle shoots and live off the moisture they have to scrape from it. Anyone else would expire, which explains why Insiders – especially the pedigreed variety – has an advantage.

To Find Money and Business: “Salt the Monkey”

Since a real Entrepreneur may require the same ability to survive what is metaphorically a desert, how can they do it if they are an outsider or a visitor to this terrain? While the San have their proprietary ways of storing and finding these tubers, what would a newcomer – a disruptor - do? One famous example is how visiting non-San tribesmen from surrounding areas use other animals like baboons or monkeys in the desert to help them find these sources of water. They do this by trapping the monkeys and feeding them salt so they get thirsty enough to lead them to water.

How they do this is quite astounding. It requires finding a monkey hangout, an anthill, some seeds or any shiny object, twine and the aforementioned salt. First, the visitor drills a hole in the anthill at about crouching height. Anthills are built with a mixture of sand and mucus and have the virtual strength of cement, so making the fist-sized hole takes work. Next, the visitor appears near the monkey and plays with his seeds, making sure to get its attention. With great showmanship that ensures the monkey observes, he places his hand in the amply sized hole and drops the seeds. Then he walks away. The monkey, being a highly curious creature, will head for the anthill once the tribesman has left the scene put his hand in and grab the seeds. However, in making the fist, the monkey finds the hole is not big enough to remove his hand bulging with the seeds. Since the curiosity of monkey so consuming, he cannot let go of the seeds - and so he is trapped.

If all of this sounds eerily like the way you attracted your first customer, sponsor, corporate champion or Investor, so be it. But there’s more - the monkey is yet to do its real work. The patient visitor then walks up to the self-trapped monkey, attaches the twine to its neck and shakes the seeds loose from his hand, thereby freeing the monkey. He then ties the monkey to a tree and hands him the salt. The monkey devours the salt and quickly develops a hellacious thirst. At that point, the visitor undoes the leash and follows the parched monkey to his stored water source, which is typically an underground pond or lake.

That is how you survive the desert and “develop” a champion. With a little imagination, you can see that launching a Startup may not be all that different: you may have to find alternate sources of funding that can sustain you and ways to salt the monkey – that is, getting other people to lead you to the resources needed for sustenance. This is the kind of resourcefulness that tells Investors you belong in the business. It separates the Entrepreneur who will simply feast on the Investor’s money hoping for good fortune and the ones who will use that money to get up and go build a business!  http://bit.ly/1DNYIO4

iBreakfast Startup - Violin Memory - Makes Music on Wall Street

Violin Memory IPO’s at $800 million

Back in 2006 when the iBreakfast ran a workshop at NYU’s Entrepreneur Club, we were presented with arguably one of the worst pitches we had ever heard. But also the best.

Why?

Technically, the pitch was confused and mumbled – but it described a fantastically big market on the edge of a tectonic shift. Most of all, the presenter was authentic. Donpaul Stephens was an engineer masquerading as a marketer with a patent-pending tech solution for a transformational enterprise flash memory product. He could have been Bill Gates' younger brother - and I once had lunch with Bill, so I would know.

Violin's CEO shows off product

The amazing thing is that every investor I sent him to or heard about it in New York turned him down. The deal was tough – they needed $5 million to launch – and almost no one understood the actual technology. In fact, several claimed it wouldn’t work.

For those of you who will be reading my book Are You Fundable? and wondering how to overcome these odds, take heart. They went public on the NASDAQ on Friday at an $800 million valuation.

This was not a simple story but that is exactly why it matters. You learn more from a sleeper that kept going than an overnight success. Or to put it in Violin’s terms it is more like a symphony with a lot of movements than just a catchy tune. More often that not, this is the story of most big Startup successes. 

The first rule in Are You Fundable? is that credibility – the ability to instill a belief in others that you can deliver - is critical. It helps if you pick a market that is expanding or about to be transformed. Then you have to find the right kinds of investors.

This sounds easy enough but consider: market that is about to transform means that you are betting on a change in the industry and you hope the road will rise to meet you. Investors tend to be skeptical about these things. Silicon Alley prefers to talk about disruption - a cheaper approach to an existing business. That tends to be a little easier to predict just so long as the entrenched companies don’t fight back.

With transformations, you have to find the right kinds of Investors the ones who get it, because you can burn yourself out on all the ones who don't. Even then, the right investors are may not be ready for you. That means you have to break the idea down and build it up in steps.

The problem here was that they needed the large amount of money just to build the box to prove that it really worked. For whatever reason, they couldn’t simulate it on a computer the way say, Bill Gates did with his operating software in the early days of Microsoft when he used Harvard's mainframes to simulate the pioneering Mitts Altair - the first personal computer and port BASIC to it without ever actually seeing tit. To make matters worse this pitch was taking place in New York - a town that really doesn’t do hardware. 

While Stephens had two previous exits and so technically was a serial entrepreneur, he wasn’t known to the investment community and the deals weren’t really home runs. The big hurdle was the price tag – Startups in Silicon Alley rarely raised more than $500K and usually came in at the $50K – 200K range.

I could definitely convince investors that enterprise storage will always want faster processing, lower power, and less heat and that flash memory prices would drop. Even though the cloud hadn’t really kicked in – the iPhone had just launched at the time – and flash memory was 100x more expensive than hard disks, Investors understood how that would change and just how big the Enterprise market would be. But the price tag was in the VC range and simply out of reach for the Angels – even if they had believed in the solution.

How do you overcome these hurdles?

The answer is, find a champion. It needed a committed insider who knewa the memory business and is willing to put skin in the game. At that point the money requirement is relatively minimal - in the low $100K’s. The champion then has to call in favors from all his industry contacts. It also helps if you can find a big problem that someone with deep pockets needs to solve. Enter the Department of Defense which thirsted for fast memory to process battle pictures. That helped with proof on concept and eventually led to industry orders and VC money.

None of this was easy and the music stopped for Stephens last year when left the company – with founders stock of course - before it went public. The company itself had its share of the blues -fluctuating from a fantastic $2 billion valuation to a not too shabby either $800 million after they lost a big customer and the market suddenly got crowded. But it will be a long time before the proverbial fat lady sings - the enterprise flash market is just getting started and there will be plenty of hits to come. Stephens will cash out after the lock-up period and like any good Entrepreneur will be on to his next Startup.

We will be out there grooming our next crop of amazing Entrepreneurs at the iEvening, Startupalooza and the iBreakfast and you can read about our way of thinking when Are You Fundable? comes out next week. Or just come to our next workshop and experience it live.

Are You Fundable? eBook or Print eBook $10.00 USD Print $20.00 USD

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