PALO ALTO: THE NEW HUB FOR ENTREPRENEURS

In the past week I was asked to comment on CNBC about the $25bn valuation of the recent Airbnb funding round, and the world received the news that Volkswagen had cheated emissions tests a month after its results positioned it as the number one car company in the world. I wondered if these two items might be related. And I found the answer in Palo Alto.

If you want to get to Palo Alto, you fly into San Francisco International, an airport that I know very well. On 10 September 1988, I left it to fly to Paris, hoping to make my fortune in Europe as a 21-year-old. So I have gone home to see my parents many a time flying back to SFO from Paris or London. It’s a long flight between the worlds — and they really are two worlds.

What’s happening in San Francisco right now can best be understood as what later born children do (as opposed to the eldest): they want to begin anew. They want to disrupt the established order. They intend to create a new hegemony, instil a new establishment, and assert themselves as the legitimate heir to the financial and economic rewards of industrial and entrepreneurial initiative.

In the past week I was asked to comment on CNBC about the $25bn valuation of the recent Airbnb funding round, and the world received the news that Volkswagen had cheated emissions tests a month after its results positioned it as the number one car company in the world. I wondered if these two items might be related. And I found the answer in Palo Alto.

If you want to get to Palo Alto, you fly into San Francisco International, an airport that I know very well. On 10 September 1988, I left it to fly to Paris, hoping to make my fortune in Europe as a 21-year-old. So I have gone home to see my parents many a time flying back to SFO from Paris or London. It’s a long flight between the worlds — and they really are two worlds.

What’s happening in San Francisco right now can best be understood as what later born children do (as opposed to the eldest): they want to begin anew. They want to disrupt the established order. They intend to create a new hegemony, instil a new establishment, and assert themselves as the legitimate heir to the financial and economic rewards of industrial and entrepreneurial initiative.

This translates into bold statements about rebuilding the universe by starting with the power of a clean sheet of paper. The entrepreneurs of San Francisco and Palo Alto know how to tell a big story, secure big capital and convert anyone in their path to their belief that money creates markets for the ventures that they are building. Have enough money, and you own the world.

Companies such as Airbnb, which is valued in the multi-billions of pounds, are disrupting existing industries, and the empire — that is to say, Europe — has yet to strike back.

But what if, at the exact same time that Travis Kalanick set up Uber, saying: “Rip the taxi industry to shreds, consumers unite, the money required is $10bn, go big or go home”, a European entrepreneur had said, “Let’s enable and extend the existing taxi industry and infrastructure across the continent, transforming it into a P2P mobility platform where Europeans can use their smartphones to order up transportation à la Uber by using whatever taxis and minicabs exist locally.” This ‘EuroUber’ could have accomplished multiple milestones in one fell swoop: attracted new taxi drivers to a new platform-driven transportation industry; secured the employment of the existing taxi drivers; facilitated better transportation for consumers across the continent; and made money for the investors who backed the whole gig in the form of free cashflows from a very healthy, cash generative, network-driven, exponential growth supernova.

So everyone wins. But what’s wrong with this picture? What would have happened is the following, if a young European entrepreneur had dreamt that dream: the regulators would probably have stepped in to protect people from the future, therefore making it more difficult to get to the future; and the European VCs would have looked at the US-based entrepreneur and assumed he/she would be more successful.

In fact, the European entrepreneurs who dream that dream of enabling and extending their industries into ecosystems — rather than disrupting industries in the name of a future IPO that cashes everyone out — do exist. The capital does not rush to back them, so they have to be much smarter to give investors a proper return by leveraging existing infrastructure rather than rebuilding it from scratch.

No one today would believe that Volkswagen is at the centre of the transportation industry. The likes of Uber, Tesla and Zipcar are. The way to secure exponential growth and a market leadership position in 2015 is to embrace the App Economy and to become a platform as Uber, Tesla and Airbnb have.

Volkswagen and other large European nontech enterprises are competing with Palo Alto and the disruptive economics that come from there. If they do not understand the economic model whereby the Facebooks, Googles, Ubers and Airbnbs are reshaping the world into ecosystems, they should take the next flight out to San Francisco.

Europe, a classic first-born child, believes that the existing infrastructure has a value (jobs, history, way of life), and that there is an established order that needs to be extended, not destroyed. And Europe will win by applying what I call Ecosystem Economics to itself and by understanding why the San Fran-based digital winners are winning the first round.

Every entrepreneur knows that you can’t win by playing by someone else’s rules, and Europe’s ‘rules’ are fundamentally different to those coming from San Francisco.