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Five
years ago, or roughly May 2000, boo.com went under as
a business. If the European internet scene needed one
catalyst for following the US market downturn, it was
probably that. Venture Capitalists put away their wallets,
and those who were smart either sold or slashed fixed
costs and steeled themselves for what next? It's true
that some European tech firms managed to squeeze out
yet to go public - Infovista comes to mind, and a couple
of new funds managed to close their funds, Gemini in
Israel comes to mind. But overall, the door was slammed
shut, and only opened very selectively.
In late April 2000, I
remember well sitting in my room on Instant Messenger
with a friend based in San Francisco who by virtue
of being in the Valley had an earlier glimpse of what
was going on, and he said, "how's the funding
round coming?", and I said, "it's coming,"
and he responded, "try to get it done by the
end of the week." Now he knew and I knew that
that was impossible. I stood up from my desk, and
thought about that for a long while. He was basically
telling me that everything was shutting down, and
I should take out the emergency contingency plan.
If you have read some
of Carlota Perez's work - http://www.carlotaperez.org,
you know that history repeats itself when it comes
to innovation, and that there are these huge creative
spurts of activity followed by the settling in of
that technology over time.
Somehow it's reassuring
to know that it's all part of a cycle. However at
the time, a boom is frenetic. I remember going to
Israel at the Millennium because it was the only place
I thought would be open for business over Christmas
and I could keep working. I think about that mindset
now, and wonder if I was the same person.
I'm going to take you back in time a bit if I may
to August 1995 when I was living in Boston, and a
Marketing Director for the Motorola Semiconductor
Products Sector's new initiative - the PowerPC chip,
which became the microprocessor in all Apple Computer's
PCs in the late 1990's. To put this into context,
these were the early Internet days. In 1993 - Mosaic,
the first graphics-based Web browser, becomes available.
Traffic on the Internet expands at a 341,634% annual
growth rate. In 1994 - Marc Andreesen and Jim Clark
form Netscape Communications Corp. Pizza Hut accepts
orders for a mushroom, pepperoni with extra cheese
over the net, and Japan's Prime Minister goes online
at www.kantei.go.jp. Backbone traffic exceeds 10 trillion
bytes per month.
As 1994 turned in 1995, Microsoft was set to launch
its new and long-awaited Operating System, Windows
95, to much industry anticipation. They delayed all
year long. Eventually, it was launched to great fanfare
at Windows World 1995 to the Rolling Stones' song
"Start Me Up". Coverage in all the business
and trade press as Windows 1995 really cemented Microsoft's
total grab of all that once differentiated the Apple
Macintosh.
No sooner had Windows
95 launched, than Microsoft realised, the real war
was being waged elsewhere - not on the Desktop, but
on the Internet.
What I witnessed between August 1995 when Microsoft,
based significantly in Seattle, not Silicon Valley,
and December 7th, 1995, only 4 months later, was a
complete repositioning in the market of a company
which dominated the desktop, a repositioning of that
desktop software company to engage with, pursue, and
eventually position itself to dominate the Internet
- a disruptive, new technology of unknown impact.
By early December, only 4 short months later, when
Microsoft announced its Internet strategy, Windows
95 had been long forgotten, and Microsoft worked feverishly
not to become obsolete as the industry move to the
next curve, with or without Microsoft, leaping from
the inflection point called the Internet. Bill Gates
released his book, "The Road Ahead", which
sought to outline what they would need to do to say
ahead of the curve.
The experience of seeing
an industry giant such as Microsoft shift into overdrive
mode, move all of the deck chairs from one side of
the ship to another, in a very large organization
was an experience that has made a permanent impression
in my mind. It was the lack of proximity to the ideas
brewing and exploding in Silicon Valley which many
credited with Microsoft's missing of the early signs
that the Internet was going to change our lives and
businesses forever. Regardless, even if they weren't
the first to internalize the widespread change upon
us in early 1994, they moved swiftly to reposition
themselves in the game. And due to the enormous advantages
they had, they were able to catch up and lead.
Netscape which had come
to symbolize the Internet as the first browser surged
through 1995, but then Microsoft Internet Explorer,
a competing browser, dramatically usurped Netscape
Navigator's position as the de facto browser throughout
the late 90's until Netscape was swallowed up by AOL.
Nobody talks about Netscape these days at all. Microsoft's
enemies took the battle to court with many lawsuits
but Microsoft's position was that it couldn't be stopped
from innovating its own platform.
FAST FORWARD
In the spring and summer
of 1999, Internet businesses became fundable for the
first time on a widespread basis by London-based venture
capitalists. I know as I raised the initial round
of finance for lastminute.com, and decided to take
what was a cocktail party/meeting ground for entrepreneurs
and investors to meet, called First Tuesday, and build
from that nexus of people a global network of entrepreneurs,
and a business centered on matchmaking those start-ups
to the sources of capital, sales, talent, and knowledge
that they would need to mature. First Tuesday became
a global network in 140 cities, with a database of
500,000 individuals, and a brand, widely written about
at the time. It was ultimately sold in July 2000.
I suppose because I was
living in the US from 1993 to 1996 the flash of the
dot com bubble in Europe was not surprising. I had
seen this groundswell in the US, and I knew that it
would come to Europe. Indeed so many people like David
Rowe of EasyNet and Eva Pascoe of Cyberia cafes were
the early ones building out the infrastructure of
the Internet generation from 1994 onwards in the UK.
Value can be created
accidentally - from a cocktail party to a global network
-, but then must be channeled and refined deliberately.
And that's what I attempted to do. You've all heard
of Metcalfe's Law - the value of a network is basically
the number of nodes in the network squared. That explained
why investors were feverish about what I had with
First Tuesday in the fall and winter of 1999. Investors
saw First Tuesday as having an Unfair Advantage in
terms of the Deal Flow, the investment opportunities,
that it accessed across Europe.
I called First Tuesday
my "Revenge on Socialism". What I meant
was that the convergence of the Internet/Technology,
Venture Capital and Entrepreneurship were creating
such opportunities in the market [or so we thought
at the time] that people who had never before had
the "bug" to become an entrepreneur were
gradually and suddenly "bitten".
If each of us fall at
a different point on the Risk/Reward continuum, there
was a new group of people who felt equipped to take
risks, become entrepreneurs, and the access to capital
at that time meant that all boats floated for a while.
As an "Outsider"
in Europe, European in spirit, but not by birth, and
travelling constantly through 20 countries building
the First Tuesday network for 15 months, I had countless
examples which seemed to underscore a shift of power
from 1] the Corporate, 2] Government, or 3] Family,
to the Individual and the empowerment that he/she
felt due to the access that the Internet granted to
information, commerce, wealth creation. The Internet
seemed that it was the ultimate level playing field,
and would render all markets efficient.
By early 2000, companies
such as Reuters and other established players were
inviting me in to meet with their Senior Executives
in the firm and "do a First Tuesday"
inside Reuters to release ideas, energy, innovation
which the management was smart enough to realise,
or at least hoped, would lead to earning and maintaining
an "unfair advantage" in the market.
My experience meeting
the founders and CEOs of hundreds of start-ups day
- in and out across every European country for 3 +
years led me to realise that there was a tremendous
Arbitrage Opportunity in Europe because of the geographical
fragmentation, resulting in an inefficient marketplace
for technology innovation and ideas which must achieve
critical mass.
As an Outsider as well,
I found myself more able to navigate cultural divides
as I encountered the subtlies of Danish/Swedish rivalries,
or German/French rivalries.
In my 13th year living
in Europe now, I become more and more convinced of
the inherent opportunity in Europe due to the rather
classical inefficiency of the market which makes it
more difficult to become a pan-European player [than
say a North American player] in almost any industry,
but just as inefficient markets create exceptional
returns, for those in a position to leverage the inefficiency,
there are exceptional returns in Europe by becoming
radically open to Innovation in arenas and by people
that one wouldn't otherwise rate, know about, or be
able to engage with.
Now if you live between
Highway 101 and 280 in Silicon Valley where my family
does, somewhere between San Jose and San Francisco,
you understand what Connectivity means. That
stretch of the Earth is wired and connected and efficient
and tuned into every capitalist idea possible. The
kind of Connectivity needed to enable great companies
to thrive in Europe will just happen different. There
are 25+ countries, and a fragmented market history
and regulatory environment, and yet the ambitions
of the European entrepreneur and Chairman of major
European multinational are the same - to grow and
build a great company.
The talent and innovation
that you are seeking as the Chairman of your company
may be "out there", not inside your company.
Inertia could be dangerous if you don't identify a
way to stay open and attracting Innovation to your
company from elsewhere. What you don't know can hurt
you.
This is what Bill Joy,
the guru from Sun Microsystems, is getting at when
he says, "Assume Innovation Occurs Elsewhere".
Assume that what you need - what could be core to
your business next year - you either can't develop
internally, or can't develop internally fast enough,
or are operating on flawed assumptions, or assumptions
with a shelf life, or that somewhere someone in the
world is already 2 steps ahead of you.
The Knowledge Economy
has created a global idea/innovation market which
operates above corporates. Ideas and innovation and
technology and talent can't be "owned" as
easily as they once were, and so remaining or getting
plugged into networks which give you awareness and
an ability to draw from the latest thinking and developments
and technologies which could affect your business
is more vital today than 10 years ago. The speed with
which Innovation could affect your very healthy company
is accelerating. Being blind-sided is every good CEO's
panic. As Andy Grove, the founder of Intel says, "only
the paranoid survive." It is very easy to find
examples of companies that dominated an era with a
product or service which was unable to leap to the
next curve.
If we "assume that
Innovation is elsewhere", there are a couple
of corollaries:
I must have reliable means to continually pull
in what's relevant and potentially threatening to
my business
I must incentivise my management and the people
in my company to be as externally focused and obsessed
on what could be out there as I am
I must become better at picking up on the small
things which indicate that large change is about to
happen
The gap between my large mature business and
the young start-up business that I may want and need
to work with, acquire, partner with, integrate - must
close
All of this has an impact
on the Role of the Leader. A leader - a Chairman or
CEO - more than ever than must focus on:
Seeing the Icebergs before they take out the
ship
Seeing the Horizon
My views have really
moved towards the middle over the past 3 years as
my start-up, First Tuesday, came to represent the
start-up culture in its pain and glory, and now as
my current investment firm, Ariadne Capital focuses
on bridging start-up innovation to the corporate sandbox.
What did we/I learn from
what has been described as "the greatest legal
wealth creation era":
Collectively, that the Internet is a Channel
to your Customer, not a Business Model
I learned the difference between Speed and
Timing
And fundamentally, "I don't believe that
anyone has the right to a vision that they can't execute"
There's been a tremendous lack of accountability
over the past 5 years in business:
Entrepreneurs gleefully spending others' money as
they would never spend their own
Investors who thought that young start-ups could
mature on their own, as if children magically grew
up without adults to guide them.
Abundance Mentality -
I have always believed in investing in the success
of others. It's the way that I was raised, and it
has always seemed to bring good things to me as a
person and as a business person. I feel that by having
focused on what I can give first, rather than taking
first, I've had returns far in excess of what I could
have earned by all metrics.
A good recession does
a lot to confront you with people operating with a
Scarcity Mentality however. A good leader probably
knows how to shift from growth to restraint and back
again, and from an abundance mentality to one of scarcity
reasonably well, all the while, preserving the assets
of the company. And those assets in a Knowledge Economy
are not shrink-wrappable. It is the Intellectual Capital
of your team, your executives, your managers, your
junior staff who either care enough to pull with you
and me as we build our businesses, or they don't.
How does one get them to take considered risks, to
release their energy for the company, to feel and
act like an owner? The new corporate contract even
in a recession is driven by individuals as much as
companies.
Trust is what fuelled
the boom, and it is efficient.
Leadership is about creating
the conditions of trust, and the combination of building
counter-cyclically, pay attention to small change
which indicates that large structural change is about
to happen, seeking out inefficient markets, and investing
in the success of others, leads to businesses that
are both valuable and sustainable.
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Ariadne
Capital Journal - Through the Maze Volume
5, Edition 2
