Aaron Levie, co-founder of Box, was in London last week. I’m a fan of the pointed and insightful snippets he shares on Twitter and his energizing demeanor. So I popped over to Euston to listen to what he had to share.
While talking through the story of Box, what the future beholds, and his personal interests in startups, one thought stood out. It was the idea that truly innovative, ‘disruptive’ businesses are ones that re-imagine the way things are currently done as though existing frameworks didn’t exist. Here’s how Aaron captures this idea in a tweet:
Ideating a radical solution to a problem
How does the exploratory problem solving phase typically go? In broad strokes, one needs to understand:
- What exactly causes the itch (core pain point),
- In what circumstances is it felt (user psychology),
- Why is it that I’m itching at all (existing frameworks)?
- What might a differentiated solution look like?
Now, imagine two unrelated teams solving the same problem. Chances are they’ll ponder these four points and arrive at different answers. That’s the beauty of human creativity and entrepreneurship. But where I think trailblazers set themselves apart from those who only marginally improve the status quo is in the latter point. That is to say, do you have the insight and tenacity to launch a company that redefines the operational framework of your chosen market or will you instead comply to the legacy rules of engagement? Are you focused on the slow burn that leads to a quantum-leap or the quick (and inevitably) transient win? This question is fundamentally one of disruption. The term, however, is so often misused that it’s essentially become synonymous with launching any old product that will challenge incumbents by virtue of its more desirable design, usability, price, or feature set. That’s neither disruptive, nor innovative, nor does it mark a step-change in our lives. It’s just a new take on an existing way of doing business. A facelift, if you will. And it should be fairly clear that those don’t come with lifelong guarantees.
The solution is to think outside of the box. Beyond the rules of engagement written by generations before us. The world will only change incrementally if we don’t create new rules as though we operate with a blank slate. Sure, the risk is even higher than with traditional ventures. The time taken to give rise to a reproducible and efficient solution to a problem that is so far beyond what society is used to is tough. Setting out on the hunt to discover the unknown and make it available to the masses is even harder. No question. But if you think back in recent time, who are the people and what are the events that are etched into the history of our species? The Wright brothers as aviation pioneers? Watson and Crick, who (with the help of others along the way) deciphered the double helical structure of DNA? The first manned space expedition? The birth of the Internet? You get the point. We should be supporting those bold enough to dream a new future and improving the lives of people worldwide. Not only for the developed world, but for the 3 billion people living on less than $2.50 a day.
So why the aversion to bona fide innovation?
Why is it that so many of today’s startups aren’t truly original ideas, you ask? The answer, I believe, reminds me a lot of a piece I read last year entitled “Why Silicon Valley funds Instagrams, not Hyperloops”. There are a number of theses expressed by the author here, including heard mentality, exit-concerned entrepreneurs and risk-averse investors, a premium on funding traction over unproven ideas…Fundamentally, the author argues that the venture community (and to a certain extent entrepreneurs) believe that companies should be built and run a certain way for them to be investable and valuable. While it’s certainly true that successful companies share common threads, such as strong management and human capital, market-leading products, significant positive cash flows, etc, there is no one-size fits all model. If we’re imposing such a framework on startups, we’ll miss companies that are bold enough to adopt an orthogonal approach, pursue a ‘crazy’ idea, and invest deeply in research and development before going out to market prematurely. That’s a huge shame. A waste of talent and resources. A loss of long-term value creation for society. And no long term wins for man kind.
Another point that I believe is worth mentioning is the source of the capital that supports venture funds (VCs). It’s common in the industry for Limited Partners (LPs) to be pension funds, University endowments, foundations, fund of funds, high net worth individuals, and family offices. Most VCs operate on a 5 year new investing period and a 5 year managing/follow-on investment period, during which time the fund raising process usually begins all over again. The Internet took more than 10 years to build and it takes more than 10 years to fully develop and license a new drug against cancer. What’s more, LPs expect returns of circa. 3x and IRRs of 20–30%, meaning that their risk/reward profile is not one conducive to investing in long-term frame shifting technologies that impact society decades later. There are no quick wins here.
You might say that University or national basic science research centers are the place for taking punts on moonshots. But it’s evidently clear that the funding system that backs science, as well as the process by which academic research is conducted, is broken (don’t even get me started). Young, bold, and talented researchers aren’t winning grants. That’s largely because their favored recipients are established, tenured Professors on the brink of retirement who serve on the very committees that decide how to allocate funding. What makes life as an academic in the pursuit of knowledge even worse is the incentive structure in place that dictates progression up the career hierarchy. You’re rewarded on the basis of a publication record. Publish of perish is the motto. Hell, there’s even open source software by the same name that analyses your publication record to help you build the best case when applying for grants! As a result, researchers are incentivized to pursue projects that yield comparatively quicker, publishable results to pad their job and grant applications. These projects are, by their nature, less innovative, or disruptive. Notice the similarities with startups discussed above?
Where this leaves us
What source of capital exists that promises to back the visionaries? Those who stand out in the history books by writing new chapters for humanity? Ultimately, there are no shortcuts if one seeks to achieve the improbable quantum-leaps discussed herein. And I’m on the lookout for those who dare to take a chance on their dreams and leave a positive mark on the world.
As always, do reach out with comments and hellos @nathanbenaich