It’s been an amazing experience to work with so many great people and learn so much. The best part of this industry is that it’s so interconnected. I’m excited to be able to join the broader Redpoint family and be a part of the portfolio working together in a new capacity.

VC is truly an infinite learning curve. Every day you meet passionate people trying to change the world in any number of markets with technology changing out from under everyone. I loved thinking about how the world is going to evolve. It is an incredibly intellectually stimulating job.

Looker was never far from my mind. I lived in and loved the product while at Hotel Tonight. Their board meetings were an opportunity for me to learn about well run SaaS businesses. Data driven decision making in any organization is near to my heart. I hope to increase their already impressive trajectory.

TL:DR; Context for WWDC: the big tech players want to own your user experience and the evolution of the browser.

[Originally published at correlatedcausation.com]

Heading into WWDC this week I’m eager to hear Apple’s vision for the future of mobile. We’ve come a long way since the advent of the smartphone which moved us beyond the web page, browser, mouse and keyboard. The iPhone opened up an entirely new technology and business model but it has reached a saturation point.Benedict Evans and Mary Meeker highlight this slowing growth. The industry needs to evolve. Smartphones are on a replacement curve, not an adoption curve.

This has enormous implications for the big tech players and the startups we invest in. Discovery and engagement on mobile is harder than ever. Distribution and retention is tough. People don’t engage with new apps. The average user downloads zero apps per month. SurveyMonkey uses their panel data todemonstrate the difficulties of building a business on mobile.

To solve this broken model, Apple and Google are both moving interaction and context technologies down the stack into the operating system itself. This allows the platforms to hold on to the value of mobile innovation, having learned hard lessons from desktop web mistakes of the past where Netscape and Internet Explorer couldn’t keep their users. Simultaneously, Google and Facebook are moving interaction into messengers — in essence behaving as Google did when it captured much of the value in the desktop web. Apple has made initial steps into third-party services within an app interface with updates to Messages, Maps and more.

OS Evolution: What’s next
Discovery

Outside of the App Store, the major platforms (iOS and Android) haven’t innovated on the engagement and distribution model so we’re seeing services come up with alternatives. Ahead of WWDC, Apple pre-announced app store ads which felt inevitable, as Google rolled this functionality out last year. It remains to be seen how viable the paid channel will perform for broader app distribution. Will this eat into Facebook’s mobile app install revenue, which continues to gain share from Google?

Apple has opened Siri to third-parties. This will be a new channel where apps can be invisible. The OS can broker information to a internet service that can then act on a user’s behalf. Services like Viv and Vurb1, aspire to be an independent discovery solution.

Engagement

Both the Apple and Google platforms have a framework for deep linking into apps. This enables interactions that more closely resemble the desktop browser, but we’re only at the early stages of exploring what deep linking technology can really do. There is still a massive opportunity in bringing context and information from the smartphone into the consumer services realm (see Button1).

Rich notifications and 3D Touch widget for apps allow users to interact with services without opening an app at all. Two years ago, we saw Apple open up to third-party keyboards to interact with services within other apps. These keyboards, like Android launchers and the notification screen, represent a valuable strategic position that lets developers have a relationship with a user effectively at the OS level, across other apps.

Apps themselves are fundamentally changing. At Google IO, streaming apps wereannounced bringing us a step closer to a web of apps that lets us search and move between apps as easily as on the web. This could lower barriers to adoption and be good news for app developers..

App Evolution:
The modern browser will actually be within the killer application for the smartphone, messaging. While WeChat demonstrates one way this might unfold (Connie Chan has a great writeup), we are beginning to see messengers in the west move beyond just lightweight text communication. Facebook’s Messenger platform opened up for agents / chatbots and will continue to develop toward more generic UIs (think of it like a browser). Core Facebook is embracing media distribution and building an incredible video product attempting to capture distribution and consumption of all media.

In a page from Facebook, Apple is allowing third-party developers to have direct interaction with users in Messages. This will be a strong platform and might allow for direct service discovery and interaction in a native and frictionless way.

Snapchat’s path is one of the most interesting. From minimizing communication friction with disappearing photos, Snapchat has evolved into content distribution and consumption platform. From Stories to Discover, Snapchat went from personal media communication to mass media consumption and discovery. With the most recent app update, Discover, Snapchat is poised to become the hub for content and communication.

Platform Evolution:
Further fanning the growth of mobile, hardware components are dramatically cheaper due to economies of scale in the smartphone supply chain. Amazon’s Echo success is in part driven by these cost curves. Connected hardware represents a novel platform for internet services. Whether it be Echo, Google Home or others, service discovery and engagement is taking new form with voice interface in broader context.
Takeaway:
If I was back to my days developing and distributing mobile apps while reading these tea leaves, I’d be focused on creating the best possible service irrespective of context. An app is just one distribution channel, as is the mobile web. Novel channels are being developed and could be key for fast moving startups looking to disrupt the status quo. May the best mobile platforms win.

1 Redpoint investment

Revolution or Evolution — Did Apple give us a post-mobile future this week? was originally published in Redpoint Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.

[Originally published at correlatedcausation.com]

Heading into WWDC this week I’m eager to hear Apple’s vision for the future of mobile. We’ve come a long way since the advent of the smartphone which moved us beyond the web page, browser, mouse and keyboard. The iPhone opened up an entirely new technology and business model but it has reached a saturation point. Benedict Evans and Mary Meeker highlight this slowing growth. The industry needs to evolve. Smartphones are on a replacement curve, not an adoption curve.

This has enormous implications for the big tech players and the startups we invest in. Discovery and engagement on mobile is harder than ever. Distribution and retention is tough. People don’t engage with new apps. The average user downloads zero apps per month. SurveyMonkey uses their panel data to demonstrate the difficulties of building a business on mobile.

To solve this broken model, Apple and Google are both moving interaction and context technologies down the stack into the operating system itself. This allows the platforms to hold on to the value of mobile innovation, having learned hard lessons from desktop web mistakes of the past where Netscape and Internet Explorer couldn’t keep their users. Simultaneously, Google and Facebook are moving interaction into messengers — in essence behaving as Google did when it captured much of the value in the desktop web. Apple has made initial steps into third-party services within an app interface with updates to Messages, Maps and more.

OS Evolution: What’s next

Discovery

Outside of the App Store, the major platforms (iOS and Android) haven’t innovated on the engagement and distribution model so we’re seeing services come up with alternatives. Ahead of WWDC, Apple pre-announced app store ads which felt inevitable, as Google rolled this functionality out last year. It remains to be seen how viable the paid channel will perform for broader app distribution. Will this eat into Facebook’s mobile app install revenue, which continues to gain share from Google?

Apple has opened Siri to third-parties. This will be a new channel where apps can be invisible. The OS can broker information to a internet service that can then act on a user’s behalf. Services like Viv and Vurb1, aspire to be an independent discovery solution.

Engagement

Both the Apple and Google platforms have a framework for deep linking into apps. This enables interactions that more closely resemble the desktop browser, but we’re only at the early stages of exploring what deep linking technology can really do. There is still a massive opportunity in bringing context and information from the smartphone into the consumer services realm (see Button1).

Rich notifications and 3D Touch widget for apps allow users to interact with services without opening an app at all. Two years ago, we saw Apple open up to third-party keyboards to interact with services within other apps. These keyboards, like Android launchers and the notification screen, represent a valuable strategic position that lets developers have a relationship with a user effectively at the OS level, across other apps.

Apps themselves are fundamentally changing. At Google IO, streaming apps were announced bringing us a step closer to a web of apps that lets us search and move between apps as easily as on the web. This could lower barriers to adoption and be good news for app developers..

App Evolution:

The modern browser will actually be within the killer application for the smartphone, messaging. While WeChat demonstrates one way this might unfold (Connie Chan has a great writeup), we are beginning to see messengers in the west move beyond just lightweight text communication. Facebook’s Messenger platform opened up for agents / chatbots and will continue to develop toward more generic UIs (think of it like a browser). Core Facebook is embracing media distribution and building an incredible video product attempting to capture distribution and consumption of all media.

In a page from Facebook, Apple is allowing third-party developers to have direct interaction with users in Messages. This will be a strong platform and might allow for direct service discovery and interaction in a native and frictionless way.

Snapchat’s path is one of the most interesting. From minimizing communication friction with disappearing photos, Snapchat has evolved into content distribution and consumption platform. From Stories to Discover, Snapchat went from personal media communication to mass media consumption and discovery. With the most recent app update, Discover, Snapchat is poised to become the hub for content and communication.

Platform Evolution:

Further fanning the growth of mobile, hardware components are dramatically cheaper due to economies of scale in the smartphone supply chain. Amazon’s Echo success is in part driven by these cost curves. Connected hardware represents a novel platform for internet services. Whether it be Echo, Google Home or others, service discovery and engagement is taking new form with voice interface in broader context.

Takeaway:

If I was back to my days developing and distributing mobile apps while reading these tea leaves, I’d be focused on creating the best possible service irrespective of context. An app is just one distribution channel, as is the mobile web. Novel channels are being developed and could be key for fast moving startups looking to disrupt the status quo. May the best mobile platforms win.

1 Redpoint investment

[Originally published at correlatedcausation.com]

Last week, Google launched the Gboard to stellar reviews. It’s a 3rd party iOS keyboard that allows for searching and sharing in context on the phone. It’s a brilliant strategy for ensuring that Google is central for information discovery. It has the potential to be more strategic than the default search deals Google has previously struck with iOS Spotlight and Safari. To top it off, after nearly a week of playing with it, I love it.

It’s a strong keyboard with and has a slew of delightful features like emoji autocorrect [search pizza], predictive searches [text want to get a drink tonight], and of course the core search and share card metaphors.

Up until now, first class keyboards that have done well on Android have had a hard time replacing the primary keyboard on iOS. It’s not an easy task for users (install keyboard, grant permissions, remove the primary iOS keyboard …) and is likely not a sound strategy for a business. Apple controls the keys to the kingdom.

We’ve seen success with Emoji, Gif Keyboard, Bitmoji and other media specific keyboards with dedicated use cases. While replacing the primary keyboard on iOS will prove challenging, Google has made a strong effort, stitching together best in class from a number of domains (in some cases partnering as with Riffsy / Gif Keyboard, a Redpoint port co).

Jonathan Libov shrewdly noticed that Apple enable split-screen multitasking on iOS with the inclusion of 3rd party keyboards in iOS8 nearly 2 years ago. If they can achieve sustained engagement and broad distribution for Gboard, or as I suspect bundle the keyboard into the primary search utility app, Google will insert itself above the OS and directly own the mobile user. For that matter, Google will also be on top of iMessage, Whatsapp, Kik, Facebook Messenger …

The killer application on desktop is the browser. Recall that much of Google’s initial distribution was from syndication deals first Yahoo and AOL, later Firefox and Safari. The closest analogy to keyboards is actually browser toolbars. They were 3rd party extensions that provided deeper functionality and experience than the core browser and were instrumental in cementing Google’s distribution and success on the desktop.

In attempt to look for second order effects, novel use cases enabled by mobile, I’ve hypothesized about the the killer company to own the mobile equivalent of a user’s home page. The keyboard may be that persistent utility. It’s why we invested in Riffsy, makers of the Gif Keyboard. A mobile first media network is primarily about sharing emotion in context. Enter the Gif Keyboard.

Information discovery may be about sharing in context. Google’s made a strong case for why they can own information discovery here.

[Originally published at correlatedcausation.com]

tl;dr Marketplaces extract value when they generate demand. The Booking.com low rake plus bidded auction model is the playbook modern marketplaces should follow.

Background

People know Booking.com as a behemoth in the travel industry but it wasn’t always the case. Priceline’s purchase of Booking.com in 2005 looks brilliantwith Booking.com driving > 2/3 of PCLN’s revenue and accounting for a large portion of their $60B market cap.

Booking.com path to success is a fascinating story (see How Booking.com Conquered the World). It was started in 1996 with a revolutionary new agency model as an OTA. The agency model is much lower friction vs the previous standard merchant model driving Expedia and Travelocity’s success. Booking.com lowered the reserve rake from 25–30% to 12% and innovated on a more favorable cash flow for suppliers. This low friction model allowed Booking.com to acquire nearly every small hotel in Europe as there was no reason for a hotel not to join. This resulted in comprehensive selection for consumers and aligned incentives with hoteliers.

The difficulty with a high rake model is that you introduce a selection bias. Good suppliers that can sell well independently don’t need to participate in the market and cannibalize organic sales. This bias results in a poor consumer experience with only bad suppliers. You can see this effect in markets like Groupon, where participation is a signal for supplier quality in itself.

Auction

After achieving supplier ubiquity, Booking.com introduced a bidded marketplace where hoteliers bid on margin competing for placement (and production). There are a number of variants for these auctions for example Google AdWord’s modified GSP or the efficient VCG that aligns incentives. The theory should be to rank based on expected value created where the rank is inversely correlated with likelihood of conversion.

The auction works to maximize platform revenue and both supplier and user value. Suppliers are efficiently allocated bookings based on implied value based on bidding a greater margin. Suppliers that are of high quality and more likely to book will be ranked highly and accessible to consumers. Booking is evidence of consumer utility.

Model

By starting with a low rake, the marketplace can reach ubiquitous supplier adoption. An auction format then allows for market-drive pricing allowing suppliers that value an incremental booking to bid their utility. The increase in margin isn’t ascribed to unfair platform behavior but rather competition with other subscribers. The incentives are aligned between the marketplace and suppliers and allows for the marketplace to capture the value they create with their demand generation.

Examples

Looking at Etsy’s successful public offering or OpenTable’s acquisition, we see successful examples of very low rake marketplaces with revenue growth coming from demand generation products.

[This post originally appeared at Correlated Causation]

tl;dr Startup risk allows for the potential for reward. Valuation only increases on mitigation of risk.

“Out of clutter, find simplicity. From discord, find harmony. In the middle of difficulty lies opportunity.”

― Albert Einstein

Startup are valued based on the overall market opportunity discounted by the risk associated with achieving a successful outcome. Therefore, valuation increases as the market increases or as risk is mitigated.

Successful companies level up. The team, product, business and process improve. The common successful venture backed path can look like a series of risks that are mitigated.

Stages:

1. Seed — product market fit
2. Series A — build team and business
3. Series B — scale the business
4. Series C — profitability
5. IPO — liquidity

These phases are made up of a variety of risks that vary across companies and markets.

Let’s take a look at risks that exist, examples where the risk determined an outcome and the questions VCs ask.

Risks:

• Execution / team risk — Google Video vs. YouTube — the incumbent with the benefit of vastly superior resources fell to better execution. Is this team uniquely able to execute on the opportunity?
• Technology risk — OnLive. ultimately failed due to the inability to create a desktop visualization technology with low enough latency. Can the right product be built?
• Business model risk — WebVan in 1999, Exec recently. At scale, will the unit economics support the proposed business?
• Financing risk — Everpix and Canvas. How much capital is required to get to a positive outcome? Will this be a category that can easily find follow on capital?
• Market timing risk — Friendster vs. Facebook. Too early and too late is just as bad as being wrong. Why now?
• Market adoption risk — Plancast. Will the market resonate with the product? Will the company suffer from a lack of product market fit, startup competition, or strong incumbents?
• Market size risk — Mochi Media. Is the market large enough to sustain growth and have a material impact on the fund?
• Scalability risk — Sonar. Growth is the only thing that matters. For enterprise is there a repeatable sales process, for consumer are there distribution channels with sufficient volume to create a big business?
• Legal risk — Aereo and Outbox. Are there IP, copyright, or other legal risks that have a material impact on the business?

Fund Raising on Risk Mitigation:

I’ve often had friends ask when to raise their first round of financing. The answer depends on the level of risk associated with the project. In many cases, former engineers and product managers with strong track records of building and shipping successful products do not need to build a MVP to generate investment interest. For these men and women, the risk isn’t whether they can create a product but can they create a business. This is demonstrated by generating traction. The valuation these teams can command wont change based on a product and as a result raising pre-product is ideal.

Conclusion:

Startup valuations are determined by a discount on the market opportunity due to risk. Startup valuations have step function increases with the mitigation of material risks discussed above. The best time to raise a round of financing is at these step function increases on risk mitigation.

[This post originally appeared at Correlated Causation]

“You have brains in your head. You have feet in your shoes. You can steer yourself any direction you choose. You’re on your own. And you know what you know. And YOU are the one who’ll decide where to go…”

― Dr. Seuss, Oh, The Places You’ll Go!

My son was born a month ago. It has been one of the most amazing experiences, nothing short of miraculous. One night while soothing him back to sleep, I reflected on how different a world he will face when he starts his family. The amount of innovation that has happened over the course of my lifetime is staggering. The cumulative nature of discovery, each invention building upon a growing base of knowledge, dictates that this innovation only continues to accelerate. From our seat in Silicon Valley, acceleration is readily apparent.

In the last 30 years, we’ve seen the mass adoption of personal computers, a global internet, and smartphones. Long the domain of only science fiction, technologies like 3d printing, virtual reality, connected devices, quantified self, consumer robotics, and self-driving cars are on the immediate horizon. A series of simultaneous parallel inventions served to create the modern information technology economy. Exponential growth of compute power (Moore’s law), storage capacity (Kryder’s law), and data transmission (Butters’ and Nielsen’s have driven unfathomable hardware advancement. The lasting effect of these inventions is still playing out.

Previous leaps in efficiency during the Industrial Revolution centered around augmenting physical processes and were limited by fuel and mechanical innovation. More so than anytime before, the technical innovation today serves to enable further innovation (whether explicitly with computer aided design, or implicitly changing how we learn). Information technology augments mental processes and allows the transformation of every facet of our world.

As a huge fan of science fiction I recognize I’m no Hari Seldon. Here are some thoughts about what the next 10 years may bring, looking at startups founded today.

Information Revolution

Information is being digitized, organized and made universally accessible. To quote the film Serenity, “You can’t stop the signal, Mal.” With the rise of connected devices and cheap sensors, data is increasing exponentially. Anything that can, will be quantified. Once quantified, it will be analyzed and understood. Put another way, every physical thing will become smart. Everything will be connected, measured and responsive.

The information revolution that is currently happening in this rapid digitization is what powers much of the modern innovation. As Google Research Director Peter Norvig says, the combination of rapidly increasing data and new methods to process this data means new and better models yielding increased information, relevance and personalization. Already, services are moving from comprehensiveness (10 blue links on a Google SERP) to curation. Limited form factors in mobile devices and information overload drive a paradox of choice. Services will take a point of view (with graceful degradation) like Google Now and push information without requiring a user to pull.

Privacy

The default in this data rich, connected world is subtly and importantly changing from default private (by virtue of the difficulty to share publicly) to default public. Youthful indiscretion will now be indexed and forever accessible.

The question of privacy immediately hit home for me. As a digital baby, my son has countless photos and videos. I’ve struggled with how much to share online.

Access

Connectedness will expand both horizontally (globally) and vertically (across use cases). Globally smartphone penetration is just at 29.5% and growth is still accelerating. From dial-up to broadband to mobile to the next generation of 5g access and fixed infrastructure, access expands for individual users.

The recent trend of consolidation in distribution notwithstanding, new technology, fiber, mesh networking, or future development in communication standards should lead to a continued increase in accessibility and speed.

Communication

With fast ubiquitous access, communication is instantaneous and constant. Through new mediums, the bar for content that is communicable has lowered while the friction to communicate has been removed.

Skype was international voice arbitrage, WhatsApp was international text messaging arbitrage, both backed by data pipes. Instagram utilizes cheap high quality camera sensors and allowed us to tap into visual communication. Snapchat’s ephemeral content lowers the bar, TapTalk removes all friction from the conversation.

Tremendous value is created by owning the next communication network due to the deep engagement and retention inherent. In the next 10 years, every permutation of communication medium will be explored.

These networks will remain fragmented. The barrier to recreate social graphs in the age of smartphones is de minimis. Each network can have a dedicated purpose. Snapchat for friends, phone and email for work, SMS and iMessage for instantaneous interaction and so on.

Media

It has never been easier to create and distribute media. Social media has built distribution networks with audiences in the billions. Content has become cheaper to create through advances in production technology and audience analysis seen on YouTube and Twitch with user generated content and on Netflix, Amazon, and Yahoo with the next generation of media models.

Consumption medium drives media creation. The rise of smartphones, tablets, and eventually VR platforms will shape the next generation of media. Content is increasingly personal and niche subjects can find mass markets.

Bundled subscriptions is the dominant business model. The rise of new distribution channels and windows outside of cable, movie theaters, book stores allow for ready a la carte consumption.

Commerce

Next generation, end to end, online marketplaces remove friction from transactions, bring together supply and demand efficiently, increasing utilization and volume. As an example, hotels typically observe 60 — 65% occupancy. Services like Hotel Tonight and AirBnb drive more efficient utilization and pricing improving both consumer experience and supplier profitability. Uber has transformed the taxi industry and will impact car ownership.

Improvements to the core commerce infrastructure via identity (mobile), fraud (chip and pin), decentralized transactions (cryptocurrency) further decrease transaction costs and enable new use cases.

When the transaction costs approach zero, ownership and renting assets start to look very similar over different time horizons. Renting starts to look like depreciation on a liquid asset with low transaction costs (neglecting ego).

The rise of on-demand marketplaces and managed services, enabled by aggregated predictable demand drive an economy of immediacy. with large fixed costs associated with locating in high value areas, on demand ecommerce should only accelerate the death of the mall, as Jeff Jordan argues.

Industry

Education

Universal digital access to information inevitably changes education. As the calculator eliminated the need for slide rules and logarithm tables, instant access to information will augment rote memorization changing what knowledge means. New digital models for learning like Khan Academy,Coursera, Udemy invert the lecture model. Teachers can engage, record, test and measure efficacy with services like Remind and ClassDojo.

Startups like Muse and Emotiv are creating consumer EEGs digitizing our brain behavior. This data will allow for better understand of learning techniques from direct observation of the brain.

Health

Quantified self will move from counting steps to actionable insight. Fitbitwill move from tracking steps to understanding fitness, Withings from tracking weight to understanding health, Ovuline from tracking fertility to understanding female health. DNA sequencing costs have fallen at a greater than exponential rate. With uBiome, we’re already starting to better understand the complex ecosystem that is a human body. The world is moving from tracking the first order of data to deriving actionable insight.

Power

Power consumption is strongly correlated with wealth and is required to enable future digital technology innovation.

Improvements to battery technology (Aquion, Imprint Energy[http://www.imprintenergy.com/], Sakti, power transmission (uBeam), sustainable cost-effective climate friendly power (uPower, Helion) all will drive more efficient generation and consumption.

Nest thermostats can self-optimize usage, efficiency and performance.OPower has shown how simply measuring consumption can drive more efficient utilization. Edyn and startups like them apply similar technology across a plethora of new domains. Measurement drives and improves action.

The New

Robotics

A combination of cheap ubiquitous sensors generating vast amounts of data (as a side effect of the smartphone wave), a series of algorithmic innovations (computer vision speech recognition…) have enabled a robotic revolution. From industrial manufacturing with Baxter, consumer robots with Jibo, to defense technology with Boston Dynamics(owned by Google).

These technologies also serve to enable markets like consumer drones withAirware and 3d Robotics and next generation satellites Planet Labs orSkybox Imaging(owned by Google). The world is being digitized throughdrone cameramen and up to date map imagery.

Google’s Streetview product and a decade of computer vision research means new and better models for parsing video streams in real time to enable driving decisions. Google’s self-driving cars not only know where to go, but where to look for traffic signals. Along with startup Cruise and existing manufactures, cars will become intelligent (although regulation will slow adoption).

Human Computer Interaction

In the process of digitizing everything, computer input is undergoing a similar revolution. From the touchscreen now ever present on smartphones, to Xbox Kinect and motion capture, Siri / Nuance speech recognition, and beyond Leap Motion.

Conclusion

From Google’s self-driving cars, to Apple / Nuance’s Siri voice recognition system, to IBM’s Watson, a series of simultaneous parallel inventions served to create the modern information technology economy. The pace of innovation is increasing, revolutionizing classic information industries like communications, media, commerce, reaching into old stalwarts like education, healthcare, and even agriculture (like Climate Corp predicting the weather), and creating new fields like robotics and new ways for us to interact computers.

I only hope to help influence this future to build a better world for Luke.

You don’t need to predict the future. Just choose a future – a good future, a useful future – and make the kind of prediction that will alter human emotions and reactions in such a way that the future you predicted will be brought about. Better to make a good future than predict a bad one.

― Isaac Asimov, Prelude to Foundation

[This post originally appeared at Correlated Causation]

At a wedding reception dinner recently, I engaged in a fascinating conversation with a good friend. The conversation was spurred by the report that Uber will replace drivers with self-driving cars. The debate was whether the self-driving cars will destroy taxi driver jobs. Here is the gist of my argument.

Recall that Luddites were first born in the Industrial Revolution’s as “textile artisans who protested against newly developed labour-saving machinery”.The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies, written by Erik Brynjolfsson an MIT economist, paints an interesting perspective for modern Luddites. Technology universally improves economic standard of living. The net effect can be difficult to understand, as the first order will be an automation of manual jobs.

Brynjolfsson argues that the key to growth and prosperity is to “race with the machines”. He presents many examples where continued progress with digital technologies fundamentally improves society. Technology creates wealth in the way Paul Graham defines it — “stuff we want: food, clothes, houses, cars, gadgets, travel to interesting places, and so on.”

But like the Industrial Revolution, which took generations to improve the steam engine, it will take time for industry to embrace new digital technology. Remember Time magazine declared the personal computer its “Machine of the Year” in 1982. For anyone interested, Professor Brynjolfsson’s TED Talk, The key to growth? Race with the machines is a provocative response to Robert Gordon’s The Death of Innovation and the end of Growth.

In Kevin Kelly’s 2012 Wired article, Better than Human: Why Robots Will — And Must — Take Our Jobs, highlighted the same premise. Embracing the technological changes and leveraging new abilities will create unimagined jobs much in the same way the Industrial Revolution transformed society.

Similarly, Marc Andreessen recently had a flurry of “robots eat the jobs”tweetstorms. His argument, as Milton Friedman, human wants and needs are infinite — driving ever increasing demand, automation and technology leverage is fundamentally good — driving costs down for everyone, and finally humans will always be able to do things that technology cant.

Technology creates efficiency and leverage. Just as a loom enabled a textile worker to create higher quality goods, faster, modern technology platforms create leverage for individuals. Open source technology, public cloud infrastructure like AWS, established distribution channels like app stores, web search and ad networks enable a small team of engineers to create new companies for increasingly less capital. Automated technology will continue to serve as a force for greater efficiency and leverage whether it is Amazon’s Drone delivery or Uber’s fleet of self-driving cars. For people who can understand and use it, technology gives the ability to create a leveraged amount of wealth beyond just manual labor.

In John Aziz’s Prepare Yourself for the Robot Economy Revolution, he argues “while robots may add exponential amounts of productivity to the economy, they will also cost human jobs, at least to begin with. Humans displaced from their jobs by robots will have to find new jobs in new fields, and that process may be slow and difficult. That means inequality between the rich and poor could remain stubbornly high as the rich capture the majority of the early gains from robotics.”

I’m less pessimistic. By 2020, nearly everyone will have a smart phone with a broadband connection to the internet. This technology means that there will be universal access to unlimited information and communication. Unfettered access to information and thus skill acquisition in a free market should drive new skilled labor, like the industrial revolution before.

[This post originally appeared at Correlated Causation]

Early when I was starting PrimaTable, a friend and mentor told me about the Stockdale Paradox. Described in Jim Collin’s Good to Great, the paradox is named after Vice Admiral Jim Stockdale, an American naval officer held captive for eight years in the Vietnam War.

Stockdale’s Paradox

When asked about about how he coped with captivity and regular torture, Admiral Stockdale responded:

“I never lost faith in the end of the story, I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining event of my life, which, in retrospect, I would not trade.”

When asked who didn’t make it home from Vietnam, Stockdale replied:

“Oh, that’s easy, the optimists. Oh, they were the ones who said, ‘We’re going to be out by Christmas.’ And Christmas would come, and Christmas would go. Then they’d say, ‘We’re going to be out by Easter.’ And Easter would come, and Easter would go. And then Thanksgiving, and then it would be Christmas again. And they died of a broken heart.”

Collin’s coined the Stockdale paradox as Stockdale’s summary:

“You must never confuse faith that you will prevail in the end — which you can never afford to lose — with the discipline to confront the most brutal facts of your current reality, whatever they might be.”

Startups

Creating a new product is hard, creating a new company is even harder. There are countless reasons why any given company doesn’t exist. Startup growth is a process of managing and mitigating risk.

In order to make the leap from Peter Thiel’s Zero to One, a founder must believe the technology is different, the market is different, her team is different, the business model is different and so on. This belief has been called a Reality Distortion Field but without balancing the ability to confront the brutal facts a startup often faces can lead a founder astray. Weathering the difficult challenges of a startup, requires the ability to see and navigate issues or Tom Tunguz’s Ruthlessness and Grit.

Like Stockdale’s paradox, starting a company and surviving requires a willful delusion. Delusion supporting optimism in face of that risk. Willfulness allows the management of risk through rational assessment. While a founder needs to be a rational, convincing and brilliant operator, at the same time, she must ignore the mountain of evidence that this company shouldn’t exist.