Startups Should Revolve Around Their Founders if They Want to Succeed Big

I read a recent Harvard Business School blog post titled “Startups Can’t Revolve Around Their Founders If They want to Succeed“.  The authors make a general argument that founders are the biggest obstacles to long-term startup growth, citing a new research paper (paywall, sorry) that hypothesizes:

For a given startup, the value of the startup varies inversely with the degree of control retained by founders.

From a statistical analysis of over 6,000 startups, the paper (and article) argue (roughly) that founders with board control, the CEO position, or both, can “harm the firm’s prospects, reducing pre-money valuation by up to 22%.”


While “founder scale-up” problems are real management issues that can put significant stress and strain on any startup team (I’ve lived it), the argument has a significant flaw:  it’s based on an unweighted startup data set.  If Uber’s value creation (for all stakeholders) is considered equal to Fred’s Wrecking, Storage and App Development, I’m skeptical we can conclude anything really useful.

For example, a full half of the top ten US companies had or have founder leadership to significant significant scale:  Apple, Google, Microsoft, Facebook and Amazon.  These five alone companies represent $1.5 trillion of value — over 8% of the total value of all public US companies!  And all of the top US companies founded within ~30 years are/were founder led.

Furthermore, while I’m quite skeptical of private “unicorn” valuations, all but one at the top of that list have founder CEOs: Uber, Airbnb, Palantir, Snapchat, SpaceX, Pinterest, Dropbox, WeWork, Theranos, Lyft, and Stripe.

So, here’s a completely different hypothesis:

Most startup value creation, by a wide margin, accrues to founder-led companies. (esp. in technology) 

Stated differently: would you rather have a portfolio with 7 out of 10 companies successful, or a portfolio with Facebook?

If You’re Developing Any 3D Printing Tech, Don’t Buy A Stratasys Printer

I’ve written before about the risks of building on various Internet platform APIs (e.g. Facebook, Google, etc.) — many SDK agreements let the platform copy anything they want, while you have no recourse.

I just learned about a similar example in the hardware world. From Stratasys’s licensing agreement:

Customer hereby grants to Stratasys a fully paid-up, royalty-free, worldwide, non-exclusive, irrevocable, transferable right and license in, under, and to any patents and copyrights enforceable in any country, issued to, obtained by, developed by or acquired by Customer that are directed to 3D printing equipment, the use or functionality of 3D printing equipment, and/or compositions used or created during the functioning of 3D printing equipment (including any combination of resins, such as combinations relating to multi-resin mixing, color dithering or geometrical resin-mixture structure of the resin) that is developed using the Products and that incorporates, is derived from and/or improves upon the Intellectual Property and/or trade secrets of Stratasys. Such license shall also extend to Stratasys’ customers, licensors and other authorized users of Stratasys products in connection with their use of Stratasys products.

In simpler terms, if (a) you own a product subject to this license, and (b) invent something related to 3D printing, Stratasys and all of their customers have a right to use your invention without paying you.

(Technically, it says that your invention must incorporate, or be derived from, or improve upon their IP.  Given the breadth of their patents, they will argue anything in 3D printing meets this test.  They also include “trade secrets”, which are, well, secret.)

I’ve seen some audacious licensing agreements, but this one takes the cake!

Stratasys’s “Heated Build Enclosure” Patent

I gave a talk on patents at Bolt last month.  I covered the patent process and strategy for startups, but one of my key points was: don’t get too excited about a patent until you read the claims. The claims describe, very specifically, what the patent covers.

So it was interesting to hear several references to Stratasys’s 3D printer “heated build enclosure” patent recently.  (Background:  in certain 3D technologies, there’s less warping if printer chamber is toasty warm).  The 3D community refers to the “broad applicability” of this patent and is waiting for it to expire.

Intrigued, I studied the claims.  Here’s claim 1:

A three-dimensional modeling apparatus comprising a heated build chamber in which three-dimensional objects are built, a base located in the build chamber, a dispensing head for dispensing modeling material onto the base, the dispensing head having a modeling material dispensing outlet inside of the build chamber, and an x-y-z gantry coupled to the dispensing head and to the base for generating relative movement in three-dimensions between the dispensing head and the base, characterized in that:
the x-y-z gantry is located external to the build chamber and is separated from the chamber by a deformable thermal insulator.
(Emphasis added).  Note the gantry is external to the build chamber and all other claims specify this.  In fact, the specification highlights the disadvantages of putting the gantry inside:
Placing the extrusion head and the x-y-z gantry in this heated environment has many disadvantages. The x-y-z gantry is comprised of motion control components, such as motors, bearings, guide rods, belts and cables. Placing these motion control components inside the heated chamber minimizes the life of these components.
The implication is simple:  a chamber with the gantry inside or partially inside would not be “external” and would not infringe this patent.
Read the claims!

The Attention Gatekeepers

I’m seeing interesting cases where Facebook, Google or other gorillas tweak content presentation, and then some other company’s business is directly impacted.  The gorillas have increasing control (and power) over user attention.

For example, Demand Media took a huge hit after Google’s search engine updates lowered rankings for low-quality content.  (DMD is down 80%).

Zynga enjoyed spectacular early success with some of the first social games on Facebook.  But as game updates clogged feeds, Facebook made presentation changes to improve feed quality, and Zynga suffered.  (ZNGA is down 60%).  Facebook continues to tweak how feed content is selected and presented.

More recently, Google added a “Promotions” tab to Gmail, moving most marketing emails out of the main inbox view.  That directly affected Groupon, who’s trying to rely less on the daily coupon.  (GRPN down 20% so far).

And now, Gmail added a prominent “unsubscribe link” to the top of promotional emails, which will impact email marketing performance even more.  (Unsubscribe is one of many “quick action” buttons that Gmail has been rolling out.)

It’s a never-ending battle between those who want user attention, and those who manage it.

There’s an Internet Showdown Brewing

Back home in West Virginia, our Verizon phones have no 3G service. There’s no fundamental technical issue; Verizon and US Cellular just won’t enter a 3G roaming agreement.

This scenario captures a core net neutrality concern: are we moving to an Internet where our access is determined more by business agendas and less by technical issues?

Recently, streaming video demand has been forcing this issue. Netflix’s traffic has been growing, and measured throughput has dropped for some major ISPs (e.g. down 14% for Verizon in one month). Verizon is seeking payment to carry Netflix’s traffic, and Craig Silliman (Verizon’s head of public policy and government affairs) has said that Verizon’s policy is to require payment from networks that send more data than they carry in return. “When one party’s getting all the benefit and the other’s carrying all the cost, issues will arise”.

This is going to get more interesting.

Clearly, ISPs are maneuvering to “double dip”: subscribers pay for access to content, and now ISPs want content providers to also pay for access to subscribers. That’s not bad business if you can get it, but it makes you wonder if the ISPs are merely leveraging their powerful position. After all, Netflix is sending data to Verizon’s network because a paying Verizon subscriber asked for it!

The problem is ISPs sell “unlimited data” (effectively), but their networks are nowhere near the capacity needed for all subscribers using full bandwidth. The ISPs bet subscribers use only a small average bandwidth fraction. In the past, this model has worked well: legacy telephone and cable networks have relatively stable demand patterns.

Now, for the first time, these providers are surfing Moore’s Law and Metcalfe’s Law. Advances in computation and network performance (not to mention billions of people on-line) are driving exponential demand for bandwidth, as well as an expectation that services will be better, faster, and cheaper over time.

Worse, ISPs have been famously unimaginative about future applications and bandwidth demand (e.g. comments by Time Warner’s CFO that customers don’t really want gigabit speeds). Your next TV will likely be 4K with IP-delivered video. Don’t forget video conferencing: HD-quality cameras are cheap and 4K cameras are a few hundred dollars. At some point, we’ll be able to look around a remote location with VR goggles.

Even worse, most ISPs are fundamentally conflicted: IP-streaming video competes with their own proprietary video offerings. However, should they be allowed to slow down and tax these new competitors? And if they charge content providers like Netflix, can they discriminate or must they offer identical terms to any content provider?

As I said, it’s going to be interesting.

It’s Not the Wild West Anymore

A recent Facebook post by David Sacks is worth reading.  He said:

I think silicon valley as we know it may be coming to an end. In order to create a successful new company, you have to find an idea that (1) has escaped the attention of the major Internet companies, which are better run than ever before; (2) is capable of being launched and proven out for ~$5M, the typical seed plus series A investment; and (3) is protectable from the onslaught of those big companies once they figure out what you’re onto. How many ideas like that are left?

As you might expect, his note sparked a fierce debate in the comments (and a TechCrunch article).

I think he’s more right than not:  the unbounded “wild west” days of the Internet are winding down.   I’ve written before about the GAAF ecosystem, and how much of the Internet is now controlled by Google, Apple, Amazon and Facebook.  Those gorilla incumbents have taken a lot of friction out of the system, but they also tax, manipulate, control, and limit success at the upper-bound.  You’re not going to build the next Facebook on Facebook.

(The incumbents will get replaced, but it will be a LONG timeframe — they’re too deeply entrenched.)

However, the Facebook discussion suggests a nice framework for evaluating opportunities.  Ideas within the incumbent ecosystem (especially pure Internet software ideas) will be limited.  But stepping outside that ecosystem makes things much, much more interesting.  Uber (mentioned in one comment) is a great example:  they solve a messy, real-world problem — they’re a lot more than just a app.

Markets are smart:  Silicon Valley will figure it out, but it might take a while.

How I Use Siri

I use Apple’s Siri a lot, but I’m surprised by the number of my friends that don’t use it at all.  I think Siri is a lot like the first Blackberry keyboards — it’s hugely useful, but you need to stick with it a bit to get used to it.

To be clear, I rarely use Siri as the “personal assistant” that Apple highlights in their commercials.  Most of my usage (90%) is straight text input (i.e. the microphone icon on the keyboard) for emails, text messages, Facebook status updates, and Google searches.  For example, I’ll set up a new email through the standard touch UI, then use Siri to dictate the text body.  The speech recognition is quite good, and I’ve learned to speak a little more clearly to make it even better.

For the personal assistant features, Siri is the fastest and easiest way to get meetings into my calendar.  Just say, “Schedule Rob at 9am on Wednesday for an hour” and it’s done.  It’s also great for dialing in the car.

Try it!

It’s All Fun Until You Become an OS Feature

Catching up on my reading, I liked what Fred Wilson recently wrote about the cloud storage space:

It’s not a space I like very much because I don’t think we’ll be using files in the cloud. Now Dropbox is a brilliant company and an amazing service and they are doing very well, but will we need a service like Dropbox when everything is in the cloud? I don’t think so.

He’s absolutely right:  cloud storage/file sharing is not the end-game.  It’s just an intermediate step to what users ultimately want:  (a) having their documents and “stuff” everywhere, and (b) being able to easily share things, with manageable security and access control parameters.

Eventually, these capabilities will be built directly into apps and operating system platforms, as we’re starting to see with Apple’s iCloud.  This will severely threaten third-party providers, such as Dropbox.  Remember FTP Software and Stacker?  They were hot products until they became operating system features, and then their revenues fell off a cliff.

Update on Search Query Hijacking

Earlier this year, I wrote about Frontier Communications hijacking Google searches (and documented the technical details).  I wrote Maggie Wilderotter, Frontier’s CEO.  I immediately heard back from her, and by May, her team asserted to me that they were no longer “proxying” queries.  I was disappointed Frontier was doing this in the first place, but impressed at how they followed up.

Yesterday, New Scientist published an excellent article by Jim Giles that outlines the hijacking business practice (and associated customer lawsuits) in much more detail.   His article includes a link to a tool developed at Berkeley that screens your Internet connection for a variety of ISP manipulations.  If you’re suspecting your ISP, you should try it out.

The Entrepreneurial Lottery

A recent Financial Times article about Facebook’s stunning growth struck a chord with me:

… I am concerned that he [Zuckerberg] sets an example of meteoric success that virtually no one else will ever be able to repeat. But wannabes are trying to copy him, and consequently squandering their careers on false hopes.

For pure-software/Internet/mobile ideas, the low barriers to entry have created a very crowded, “weedy” ecosystem.   It’s a great time to be a consumer (e.g. look at the number of mobile apps and free Web sites), but a very tough time for entrepreneurs in these segments.  More and more projects look like lottery tickets:   long odds, with a slim chance of payoff.

Why do entrepreneurs do it?  It’s partially the psychology of poverty, where entrepreneurs hungry for success (financial or otherwise) make irrational decisions. Worse, a startup career commitment, unlike a lottery ticket, has an especially high opportunity cost.   The other element is a belief that skill can influence the outcome.  This is generally true, but is much less so in these segments:  competition is fierce, copying is rampant, and success often comes from quirky combinations of factors that are difficult to plan.

We will have more big Facebook-scale lottery outcomes, and that will spurn more entrepreneurial career bets.  But I think the smartest entrepreneurs will avoid the lottery.