Tag Archives: Innovation

Peter Thiel – Zero to One (part 2)

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I just finished Zero to One and here are a few more comments, less about entrepreneurship than about social issues. Whatever the reputation of Thiel in Silicon Valley as a possible Libertarian, there were a couple of topics he addresses very convincingly. He is not a pure Contrarian. He disagrees with mainstream fashion in a very serious manner. Here are a couple of examples:

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– The machine will not replace humankind
Yes computers have made impressive progress in the recent decades, but not to the point of replacing mankind. He shows very convincingly through the cases of Paypal and Palantir [pages 144-148] that computers cannot solve automatically tough issues but are only (excellent and critical) complements to human beings. Even the Google experiment of recognizing cats “seems impressive – until you remember that an average four-year-old can do it flawlessly” [page 143]. He finishes his chapter about Man and Machine this way: “But even if strong AI is a real possibility rather than an imponderable mystery, it won’t happen anytime soon: replacement by computers is a worry for the 22nd century. Indefinite fears about the far future shouldn’t stop us from making definite plans today. Luddites claim that we shouldn’t build the computers that might replace people someday; crazed futurists argue that we should. These two positions are mutually exclusive but they are not exhaustive: there is room in between for sane people to build a vastly better world in the decades ahead. As we find new ways to use computers, they won’t just get better at the kinds of things people already do: they’ll help us to do what was previously unimaginable” [pages 150-151]. You will not be surprised I prefer this to Kurweil views.

– Greentech was a bubble and it was obvious from day 1.
I was always puzzled with greentech/cleantech. Why are people so excited about the promise to solve an important problem when we do not have any solution. Thiel is far tougher. First he shows the obvious: it was a bubble.

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Then he analyzes this industry through his “zero to one” arguments.
“Most cleantech companies crashed because they neglected one or more of the seven questions that every business must answer:
– Engineering: can you create a breakthrough technology instead of incremental improvements?
– Timing: is now the right time to start your particular business?
– Monopoly: are you starting with a big share of a small market?
– People: do you have the right team?
– Distribution: do you have a way to not just create but deliver your product?
– Durability: will your market position be defensible 10 and 20 years into the future?
– Secret: have you identified a unique opportunity that others don’t see?
If you do not have answers to these questions, you’ll run into lots of “bad luck” and your business will fail. If you nail all seven, you’ll master fortune and succeed. Even getting five or six correct might work. But the striking thing about the cleantech bubble was that people were starting companies with zero good answers – and that meant hoping for a miracle” [page 154]. What’s next? Fintech?

How do you measure your entrepreneurial ecosystem?

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The title of this post is the first sentence of the report published by the Kauffman foundation entitled Measuring an Entrepreneurial Ecosystem. And it is a critical question. For years, universities, cities, regions, countries try to assess if they are innovative and entrepreneurial enough. And unfortunately, this is often measured through inputs and not outputs. Sometimes for good reasons, because stakeholders can offer favorable conditions but in the end entrepreneurs perform and stakeholders help but do not act…

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The Kauffman foundation is proposing a set of metrics to help in assessing your ecosystem. It is an ambitious proposal as these are not easy to obtain, but they look very interesting and I thought it would be worth describing them here. They are classified in 4 topics:

DENSITY

1- Number of new and young companies per 1,000 people,
where “young” can mean less than five or ten years old. This will tell you, in the most basic way, how the level of entrepreneurship changes over time relative to population.

2- Share of employment accounted for by new and young companies.
Entrepreneurial vibrancy should not just be measured by the number of companies — it also should include all the people involved in those companies. This will capture founders and employees.

3- Density of new and young companies in terms of specific sectors.
Some places already may have a particular economic sector that has been identified as the centerpiece of an ecosystem, such as “creative” industries or manufacturing. Again using population as a denominator.

FLUIDITY

4- Population flux, or individuals moving between cities or regions.
Entrepreneurial vibrancy means people both coming and going. From an ecosystem perspective, this means that the entrepreneurial environment must be fluid to enable entrepreneurs to engage. The obverse, of course, is that limits on fluidity will suppress entrepreneurial vibrancy.

5- Population flux within a given region.
Individuals also need to be able to find the right match with different jobs within a region. The pace at which they are able to move from job to job and between organizations should be an important indicator of vibrancy.

6- The number (and density) of high-growth firms,
which are responsible for a disproportionate share of job creation and innovation. A concentration of high-growth firms will indicate whether or not entrepreneurs are able to allocate resources to more productive uses. Importantly, high growth is not necessarily synonymous with high tech.

CONNECTIVITY

7- Connectivity with respect to programs, or resources, for entrepreneurs.
A vibrant entrepreneurial ecosystem is not simply a collection of isolated elements — the connections between the elements matter just as much as the elements themselves. The diversity of your entrepreneurial population is likely to be high, and a one-stop shop for serving entrepreneurs is unlikely to do much good in serving all of them. Entrepreneurs move through an ecosystem, piecing together knowledge and assistance from different sources, and the connectivity of supporting organizations should help underpin the development of a strong entrepreneurial network.

8- Spinoff rate.
The entrepreneurial “genealogy” of a given region, as measured by links between entrepreneurs and existing companies, is an important indicator of sustained vibrancy.

9- “Dealmaker” network
Individuals with valuable social capital, who have deep fiduciary ties within regional economies and act in the role of mediating relationships, making connections and facilitating new firm formation play a critical role in a vibrant entrepreneurial ecosystem.

DIVERSITY

10-Economic diversification,
an important concept because no city or region should be overly reliant on one particular industry. At a country level, research has shown that economic complexity is correlated with growth and innovation.

11- Attraction and assimilation of immigrants.
Historically, immigrants have a very high entrepreneurial propensity.

12- Economic mobility,
i.e. the probability of moving up or down the economic ladder between different income quintiles. The purpose is to improve the quality of life for your citizens, to expand opportunity, and to create a virtuous circle of opportunity, growth, and prosperity.

Invention is the Mother of Necessity!

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I am reading the remarkable Guns, Germs, and Steel: The Fates of Human Societies by Jared Diamond.

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I did not think initially that I would have anything to extract from it related to entrepreneurship and innovation. And I was wrong. I just read a section about human inventions and innovations, which I liked very much. Here it is.

THF STARTING POINT for our discussion is the common view expressed in the saying “Necessity is the mother of invention.” That is, inventions supposedly arise when a society has an unfulfilled need: some technology is widely recognized to be unsatisfactory or limiting. Would-be inventors, motivated by the prospect of money or fame, perceive the need and try to meet it. Some inventor finally comes up with a solution superior to the existing, unsatisfactory technology. Society adopts the solution if it is compatible with the society’s values and other technologies.
Quite a few inventions do conform to this commonsense view of necessity as invention’s mother. In 1942, in the middle of World War II, the U.S. government set up the Manhattan Project with the explicit goal of inventing the technology required to build an atomic bomb before Nazi Germany could do so. That project succeeded in three years, at a cost of $2 billion (equivalent to over $20 billion today). Other instances are Eli Whitney’s 1794 invention of his cotton gin to replace laborious hand cleaning of cotton grown in the U.S. South, and James Watt’s 1769 invention of his steam engine to solve the problem of pumping water out of British coal mines.
These familiar examples deceive us into assuming that other major inventions were also responses to perceived needs. In fact, many or most inventions were developed by people driven by curiosity or by a love of tinkering, in the absence of any initial demand for the product they had in mind. Once a device had been invented, the inventor then had to find an application for it. Only after it had been in use for a considerable time did consumers come to feel that they “needed” it. Still other devices, invented to serve one purpose, eventually found most of their use for other, unanticipated purposes. It may come as a surprise to learn that these inventions in search of a use include most of the major technological breakthroughs of modern times, ranging from the airplane and automobile, through the internal combustion engine and electric light bulb, to the phonograph and transistor. Thus, invention is often the mother of necessity, rather than vice versa.
A good example is the history of Thomas Edison’s phonograph, the most original invention of the greatest inventor of modern times. When Edison built his first phonograph in 1877, he published an article proposing ten uses to which his invention might be put. They included preserving the last words of dying people, recording books for blind people to hear, announcing clock time, and teaching spelling. Reproduction of music was not high on Edison’s list of priorities. A few years later Edison told his assistant that his invention had no commercial value. Within another few years he changed his mind and did enter business to sell phonographs but for use as office dictating machines. When other entrepreneurs created jukeboxes by arranging for a phonograph to play popular music at the drop of a coin, Edison objected to this debasement, which apparently detracted from serious office use of his invention. Only after about 20 years did Edison reluctantly concede that the main use of his phonograph was to record and play music.
The motor vehicle is another invention whose uses seem obvious today. However, it was not invented in response to any demand. When Nikolaus Otto built his first gas engine, in 1866, horses had been supplying people’s land transportation needs for nearly 6,000 years, supplemented increasingly by steam-powered railroads for several decades. There was no crisis in the availability of horses, no dissatisfaction with railroads.
Because Otto’s engine was weak, heavy, and seven feet tall, it did not recommend itself over horses. Not until 1885 did engines improve to the point that Gottfried Daimler got around to installing one on a bicycle to create the first motorcycle; he waited until 1896 to build the first truck.
In 1905, motor vehicles were still expensive, unreliable toys for the rich. Public contentment with horses and railroads remained high until World War I, when the military concluded that it really did need trucks. Intensive postwar lobbying by truck manufacturers and armies finally convinced the public of its own needs and enabled trucks to begin to supplant horse-drawn wagons in industrialized countries. Even in the largest American cities, the changeover took 50 years.
Inventors often have to persist at their tinkering for a long time in the absence of public demand, because early models perform too poorly to be useful. The first cameras, typewriters, and television sets were as awful as Otto’s seven-foot-tall gas engine. That makes it difficult for an inventor to foresee whether his or her awful prototype might eventually find a use and thus warrant more time and expense to develop it. Each year, the United States issues about 70,000 patents, only a few of which ultimately reach the stage of commercial production. For each great invention that ultimately found a use, there are countless others that did not. Even inventions that meet the need for which they were initially designed may later prove more valuable at meeting unforeseen needs. While James Watt designed his steam engine to pump water from mines, it soon was supplying power to cotton mills, then (with much greater profit) propelling locomotives and boats.

THUS, THE COMMONSENSE view of invention that served as our starting point reverses the usual roles of invention and need. It also overstates the importance of rare geniuses, such as Watt and Edison. That “heroic theory of invention,” as it is termed, is encouraged by patent law, because an applicant for a patent must prove the novelty of the invention submitted. Inventors thereby have a financial incentive to denigrate or ignore previous work. From a patent lawyer’s perspective, the ideal invention is one that arises without any precursors, Like Athene springing fully formed from the forehead of Zeus.
ln reality, even for the most famous and apparently decisive modern inventions, neglected precursors lurked behind the bald claim “X invented Y.” For instance, we are regularly told, “James Watt invented the steam engine in 1769,” supposedly inspired by watching steam rise from a teakettle’s spout. Unfortunately for this splendid fiction, Watt actually got the idea for his particular steam engine while repairing a model of Thomas Newcomen’s steam engine, which Newcomen had invented 57 years earlier and of which over a hundred had been manufactured in England by the time of Watt’s repair work. Newcomen’s engine, in turn, followed the steam engine that the Englishman Thomas Savery patented in 1698, which followed the steam engine that the Frenchman Denis Papin designed (but did not build) around 1680, which in turn had precursors in the ideas of the Dutch scientist Christiaan Huygens and others. All this is not to deny that Watt greatly improved Newcomen’s engine (by incorporating a separate steam condenser and a double-acting cylinder), just as Newcomen had greatly improved Savery’s.
Similar histories can be related for all modern inventions that are adequately documented. The hero customarily credited with the invention followed previous inventors who had had similar aims and had already produced designs, working models, or (as in the case of the Newcomen steam engine) commercially successful models. Edison’s famous “invention” of the incandescent light bulb on the night of October 21, 1879, improved on many other incandescent light bulbs patented by other inventors between 1841 and 1878. Similarly, the Wright brothers’ manned powered airplane was preceded by the manned unpowered gliders of Otto Lilienthal and the unmanned powered airplane of Samuel Langley; Samuel Morse’s telegraph was preceded by those of Joseph Henry, William Cooke, and Charles Wheatstone; and Eli Whitney’s gin for cleaning short-staple (inland) cotton extended gins that had been cleaning long-staple (Sea Island) cotton for thousands of years.
All this is not to deny that Watt, Edison, the Wright brothers, Morse, and Whitney made big improvements and thereby increased or inaugurated commercial success. The form of the invention eventually adopted might have been somewhat different without the recognized inventor’s contribution. But the question for our purposes is whether the broad pattern of world history would have been altered significantly if some genius inventor had not been born at a particular place and time. The answer is clear: there has never been any such person. All recognized famous inventors had capable predecessors and successors and made their improvements at a time when society was capable of using their product. As we shall see, the tragedy of the hero who perfected the stamps used for the Phaistos disk was that he or she devised something that the society of the time could not exploit on a large scale.
 [Pages 242-245]

My coming out – in the world of start-ups

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No it is not a true coming out à la Tim Cook, but a much less spectacular message… I woke up early this morning very disturbed. As you can see below, the ecosystem to support entrepreneurs at EPFL (finance, coaching, exposure and office space) is rich and complex. Yet our results are average not to say mediocre… all this is in fact useless without the ambition and risk-taking of enthusiastic and passionate individuals.

I’m not talking about people, but the system. A few days ago, I said to colleagues I was a matchmaker. I encourage meetings and I put the oil in the wheels. Then I smiled, thinking – I’m usually not too vulgar – that I offered vaseline for introducing investors. Fifteen years ago, an entrepreneur who had enjoyed a chat told me that I made him think of a prostitute but hidden behind me, there were nasty pimps…

Two days ago, I was lucky to listen at EPFL to a Nobel Prize in economics who explained that the Western world is in decline, that the crisis can be explained in part by a weak innovation. Corporatism and financiarization are some reasons of this. Then there was a shocking message from another speaker. Switzerland would be fine because it is hard-working while its neighbor would go wrong because its workers start their weekend on Wednesday at noon. Who can believe that unemployment and bankruptcy in Detroit would come from the laziness of the automobile workers and the success of Silicon Valley because of workaholic nerds. Things are much more complex! Just see in particular the recent analysis of Thomas Picketty or the related MIT Technology Review Technology and Inequality.

Four days ago, I listened to the US ambassador to Switzerland and Liechtenstein. Suzi Levine knows the world of start-ups. She is therefore interested in the situation in Switzerland. I noticed two of her messages:
– First “you have a lot of money but little capital”, I leave you to think about the message that was given to her at EPFL I think, “you have a lot of money but little capital”.
– Second, the weakness of the female presence in this entrepreneurial world. She therefore particularly appreciated that the Prix Musy be created this year. But our efforts will be useless, if we do not encourage and allow the emergence of passionate and adventurous entrepreneurs that create wealth and value… it’s not just about women, but diversity in general which should not be hindered by corporatism and financiarization.

EPFL-VoD-funding

More on the EPFL support to entrepreneurs

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What has Silicon Valley to do with Capitalism?

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(this is a quick and dirty translation of a French post as it is linked to a French radio broadcast – sorry for the bad english if any)

I was a guest yesterday of French radio Culturesmonde France Culture in a series about capitalsim entitled Des capitalismes (1/4) – Silicon valley: l’émancipation par l’argent. I had to give my views abotu SV and capitalism. Is it unique or extreme? Does the area care, does it have an ideology or is it indifferent to capitalism?

FranceCultureMondes-SiliconValley

The topic is rich and complex because with 7 million people, opinions in SV are also diverse and were built over 50 years. Each decade brough a new generation of entrepreneurs and investors. You can listen to the broadcast (in French) who also involved Yann Moulier-Boutang, who talked about « cognitive capitalism » and Sébastien Caré, a spécialist of libertarian thinking.

A big thank you to Clémence Allezard who prepared the series, pushing me to think about the region in a manner I was not used to. 🙂 So I thought about it as follows. Is SV an extreme form or a unique form of capitalism? or as I have a tendency to think a region quite indifferent to capitalism? On the one hand you have large powerful firms who do not really pay taxes, you have a fast Schumpterian creative destruction, the government is not active as it is in Europe (health, schools, transportation) so that firms (at the anecdote level or not?) do the work (Google buses, Apple And FB recent initiative about freezing women eggs, Peter Thile encouraging school dropouts) and even induce the SF authorities in changing housing laws. One the other hand, it is not just extreme, it is unique, SV created venture capital, systematized stock options, and has active co-opetition. Richard Newton was saying SV is the firm and all the companies are its divisions. People move from one to the other easily with market dynamics.

Finally, it is the “revenge of the nerds”. They are problem solvers, and do not care about society (hence the libertarians) and even about capitalism (making money is a by-product and if an objective, far from being the only one). I read a great New Yorker article where George Packer explains that these nerds hate the friction created by negotiation and compromises politics and society necessarily induce. So they avoid it as long as they can. And do more when they feel limited by the government but are quite neutral about it. They are selfish. But i doubt “changing the world to make it a better place” is totally convincing at the same time. It is more selfish than generous. These people are mild versions of Asperger and are obsessed by solving their problems. If it solves others’, good, not critical. (Of course SV is 7 million people and is a diverse region, I am focusing on what is visible). I was saying to the journalist when we prepared the talk, that I see more indifference than real strategy, I see some lobbying in SF or Washington, but rather limited compared to general lobbying in the USA.

Another way to summarize is: is there a particular ideology of capitalism in Silicon Valley? I would say that rather than a strategy, there has been a practice that was put in place over decades, by iteration, by trial and error. Ultimately, Silicon Valley is the meeting of ideas (entrepreneurs, and academics sometimes) and money (investors). But unlike the rest of the world where investors are bankers who lend money, in SV they are often former entrepreneurs who “give” money (in the sense that they take the risk of not finding it back), in fact they take shares in the company (often around 50%). They literally invented venture capital, which has found its final form in the 80’s. In addition, the “stock options” decried in Europe are recognized in the SV as a motivation. Secretaries at Apple or Microsoft did sometimes become millionaires, something unthinkable at home in Europe. I have also said, there is an optimism that encourages risk-taking. Moreover, there is no real risk because the skill allows you to find a new job quickly. The risk lies in the possible error in the choice of the project and nobody is ever ruined normally, except one’s health. And as the model works, it is enriched in new areas beyond which the electronics is the root, through the electric car (Tesla Motors), aeronautics (SpaceX) and even the food 2.0 movement (for synthetic food). And the last frontier, aging, death, trans-humanism … which seems to me personally crazy, but …

As a post-scriptum, some comments I got… very interesting! i think SV is more diverse these days. there are the really old school types, like intel, cisco, even apple. then there are places like google and Facebook, that actually do something valuable. and then there are the startups with a hand full of 20 year olds that do not much, but have valuations measured in billions. i think the question should be answered differently for the different groups. and it’s important to not lump cisco in with, say, whatsapp or snapchat.

i’d say for many of them, it’s indifferent to mildly positive feeling abotu politics, as you say. for some (many of the VCs) it’s definitely capitalism on steroids. (or at least, they like to think of themselves that way; they blabber all the time about “wealth creation”, making sure that much of that new wealth goes to them.) more than capitalism, i think what’s concentrated in SV is talent, especially, technical talent. creative destruction resonates *very strongly* with people here; the whole idea of SV is that a handful of kids can change an entire industry, or even create a new one. they usually fail, and sometimes they succeed. imagine how steve jobs or the google guys would have done in europe. the google guys would have gone to the librarians and asked, how can we help you find information? steve jobs would have run long, extensive marketing tests to determine what people want. or maybe he’d go to siemens to try to convince some high level manager that a smart phone was a good idea. of course what happened is way cooler. steve jobs had better taste than everyone else, so he made stuff he liked, period. and the google guys just forged a new path, without seeking the endorsement or buy in of the librarians. in europe, a startup would try to get some giant company to use their product/technology, a long, boring, and tedious process.

typically, a handful of EPFL students would not imagine/believe that they can change the world. stanford students (who are not more talented) do. so, i think it’s mostly a cultural difference, and not something that has to do with capitalism.

Was Christensen wrong and is Disruptive Innovation a shaky theory?

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Clayton Christensen has been one of my heroes. Will I have to kill this father figure? The often excellent New Yorker magazine published recently The Disruption Machine with subtitle What the gospel of innovation gets wrong. Author Jill Lepore knows a lot about the Innovation gurus from Schumpeter to Porter and Christensen and what she has to say is at least very disturbing.

NY-Disrupt
“Disruption is a theory of change
founded on panic, anxiety,
and shaky evidence.”

You have to read the article: Lepore seems to have strong arguments about the weaknesses of Christensen’s. In the Disk Drive industry, she claims, Seagate Technology was not felled by disruption. Same with Bucyrus and Caterpillar for the mechanical-excavator industry or “Today, the largest U.S. producer of steel is — U.S. Steel”. Difficult for me to assess the claims. I have to admit I had read more recent books of Christensen which were really disappointing but I thought his first breakthrough remained strong.

Funnier: “The theory of disruption is meant to be predictive. On March 10, 2000, Christensen launched a $3.8-million Disruptive Growth Fund. Less than a year later, the fund was quietly liquidated. In 2007, Christensen told Business Week that “the prediction of the theory would be that Apple won’t succeed with the iPhone,” adding, “History speaks pretty loudly on that.” In its first five years, the iPhone generated a hundred and fifty billion dollars of revenue.”

There has been a debate following Lepore’s claims which I will let you discover:

– Business Week: Clayton Christensen Responds to New Yorker Takedown of ‘Disruptive Innovation’: here.

– Forbes: What Jill Lepore Gets Wrong About Clayton Christensen and Disruptive Innovation: here.

– Slate: Even the Father of Disruption Thinks “Disruption” Has Become a Cliche: here.

PS: thanks to Martin for pointing that amazing article to me!

Innovation and Society: are the Returns and Benefits Sufficient?

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Here is my latest contribution to Entreprise Romande. I return to a subject that is dear to me, Innovation and Society. (If you read French, the original version is certainly better…)

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The Enterprise is more than ever at the core of the political debates through its role in the creation of jobs and wealth – both individual and collective. It is indirectly the source of populism and of protectionist temptations. Inside and outside of its walls, innovation is the subject of similar tensions: are the returns and benefits of innovation sufficient for society?

Mariana Mazzucato and the Entrepreneurial State

A recent book tackles the topic of the respective roles of business and government in innovation: Mariana Mazzucato, a professor at the University of Sussex, develops in The Entrepreneurial State [1] – a fascinating and quasi-militant book – the argument that the States have not collected the fruits not only of direct investments in their universities, and even indirectly from the help and support provided to businesses, investments and supports that are at the origin of the major innovations of the last fifty years.

Mazzucato brilliantly illustrates this through the example of the iPhone and the iPad, which integrate components initially financed by the public bodies: from electronics developed for the space and military programs to the touch screen or GPS, or even Siri, the voice recognition tool (which has sources at EPFL), the author shows that Apple has masterfully integrated technologies initiated by public money. Google is also the result of research done at StanfordUniversity. Mazzucato adds that clinical trials for new drugs are mainly made ​​in hospitals funded by public money, from molecules equally discovered in university laboratories.

Mazzucato therefore advocates major reforms both on the governance of the initial support and on taxation. She fights for a new tax system that would compensate the absence or insufficiency of direct returns to universities or from businesses, all the more that it is indeed undeniable that multinational companies easily optimize their taxation. She shows how Apple has taken advantage of international rules to create subsidiaries in Nevada or Ireland to minimize its taxes.

The English researcher is convincingly claiming that Apple has to pay more. But how to pay? Paying a license for the GPS, but to whom? I’m not even sure that the GPS is patented. And if the Internet had been patented, it would probably not have had the same development – I do not ned to go over the limitations of the French Minitel. By seeking more direct financial returns (which are not as insignificant as one might think – Stanford has received more than $300M for its equity shares in Google and over $200M of the first patents in biotechnology), the risk would be very high to discourage creators and stifle innovation. I doubt that the solution lies in more rigorous national rules.

Peter Thiel and the Individual Entrepreneur

Peter Thiel, an libertarian entrepreneur and investor, is so opposed to such views that he encourages youung people motivated in entrepreneurship to abandon their studies by providing them with $ 100,000 grants and he even imagines moving businesses to offshore vessels off California so they totally escape tax. He is afraid of any form of public support which, he considers, quickly becomes bureaucratic. It is worth adding that Thiel’s motto also shows his skepticism about the social benefits of innovation: “We wanted flying cars; instead we got 140 characters.” [2]

Upstream, there is therefore the question of direct returns and the actual role of the state. But without the incredible creativity of Steve Jobs at Apple, without the extraordinary ambition of Larry Page and Sergei Brin at Google, without the vision of Bob Swanson, a co-founder of Genentech, the world would probably not have experienced the same technological revolutions. Downstream, the question arises of how to create international rules on innovation. Let me make a wide digression. The Internet, another innovation initiated by public authorities, has become a major topic in the political, economic and fiscal fields. But “neutrality and self-organization are part of the libertarian options […] and are inconsistent with politics. Humanity must seize this opportunity to revisit what is considered important. […] The Internet enables the emergence of a global political space, but it is still to be invented. At the time of this invention, the Internet will probably be gone!” [3]

If from experience I lean more toward Thiel’s view on innovation as an individual act of exception, actually quite far from the public investment, even if it is its seed, yet, I cannot agree with abandoning the public good. It is the soil that allows the emergence of exceptional talent. Companies also have their share of responsibility in discounting the importance of the collectivity. Just like in any complex human activity, innovation is a delicate balance between private and public actors. But especially today, issues have become global. The question is not so much as Mazzucato says that the role of the state has been largely underestimated in this process, but rather that the tax return has largely been decreased by globalization and the lack of economic governance.

Tax as a single global solution?

Does society receive any return from the public money spent on schools, roads, security? No, because it’s not an investment in the true sense of an objective of financial gain. These are infrastructure provisions that allow citizens and businesses to exist and develop properly. And they 8should) pay taxes in return. When Darpa funds Stanford, it is not sure that a student from Korea will not benefit from it and later work for Samsung. The concept of ​​supporting national champions seems of another age.

We are left with Tax, in a renewed vision of its global governance. Whether innovation is in the public or private domain, the world globalization will soon prevent from hiding behind the argument of whom is basically at its origin. Not only individuals but states also must agree upom a greater share of its profits, at the risk of serious crises. At a time when Switzerland reviews its tax policy and its citizens think they can create barriers from its neighbors as its borders, it is important to be aware that the current tensions are an opportunity to revisit the status of innovation in society before new major crises emerge. Wishful thinking?

[1] The Entrepreneurial State – Debunking Public vs. Private Sector Myths. 2013, Anthem Press, http://marianamazzucato.com
[2] Peter Thiel. Zero to One – Notes on Startups or How to Build the Future. Sept. 2014, Crown Business press, http://zerotoonebook.com
[3] Boris Beaude. Les fins d’Internet. 2014, FYP Editions, http://www.beaude.net/ie

When Peter Thiel talks about Start-ups – Final Thoughts: Human After All

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As you noticed if you read my previous posts, I’ve been quite impressed by Peter Thiel’s notes about start-ups. I’ve written 7 long parts. I had been similarly impressed by Mariana Mazzucato’s The Entrepreneurial State even if with only 5 posts!

Thiel-Mazzucato

I said it already, I would have loved to attend their debate in a few days at the conference Human After All, Toronto 2014. But apparently they do not participate to the same roundtable anymore… (After reading what follows, I see that Taleb would have been a great addition).

– He will discuss “The Economics of Radical Uncertainty.”
How do human beings truly react when confronted with conditions of genuine “unknown unknowns”? According to Frank Knight, “Uncertainty must be taken in a sense radically distinct from the familiar notion of risk, from which it has never been properly separated…The essential fact is that ‘risk’ means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far – reaching and crucial differences in the bearings of the phenomena depending on which of the two is really present and operating… It will appear that a measurable uncertainty, or ‘risk’ proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all.” The economics literature from Knight onward is very good at laying out the propensity of markets to greatly overshoot and undershoot the fundamentals. However, economics does not adequately address the implications of “Knightean” uncertainty, because the discipline finds it hard to model this phenomenon. To get a full measure of this, one has to enter into the realm of psychology and neuroscience. That’s where the definition lies. Radical uncertainty, like so much else, is too important to be left to the realm of economics alone.

– She will be part of “Innovation: Do Private Returns Produce the Social Returns We Need?”
The machines of the first age replaced and multiplied the physical labour of humans and animals. The machines of the second age will replace and multiply our intelligence. The driving force behind this revolution will, argue the “techno-positivists,” exponentially increase the power (or exponentially reduce the cost) of computing. The celebrated example is Moore’s Law, named after Gordon Moore, a founder of Intel. For half a century, the number of transistors on a semiconductor chip has doubled at least every two years. But the information age has coincided with – and must, to some extent, have caused – adverse economic trends: stagnation of median real incomes; rising inequality of labour income and of the distribution of income between labour and capital; and growing long – term unemployment. Are the great gains in
wealth and material prosperity created by our entrepreneurs in and of themselves sufficient to produce desired social returns demanded in today’s world?

Start-ups are a great area to study the tension between individuals and society. A kind of chicken and egg situation… Indeed they might explain the growing gap between the USA and Europe in many dimensions. Mazzucato would be on the social side, Thiel closer to the individual. But do not see any provocative statement here. The thoughts of Thiel and Mazzucato are profound. I agree with most of what they say, disagree with smaller pieces, though most people could think their thinking can not be reconciled. I really think that combining their point of views is an interesting approach to what innovtaion really is…

PS (May 8, 2014): I just found that video of Thiel at SXSW.

When Peter Thiel talks about Start-ups – part 7: luck & uncertainty

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This is my last post about Thiel’s class notes at Stanford and it is about Class 13 – Luck. Now I need to wait for his book to be published…

zerotoone

I love accidents. I mentioned it in a post which has nothing to do with start-ups (related to Street Art). The accident here is funny: I totally forgot to copy-paste Thiel’s class 13 and it is only when I began to read class 14 that I noticed my mistake. Now let me quote Thiel: “Note that this is class 13. We are not going to be like the people who build buildings without a 13th floor and superstitiously jump from class 12 to 14. Luck isn’t something to circumvent or be afraid of. So we have class 13. We’ll dominate luck.” Strange, right? I had to call this final part, part 7…

So what does Thiel say about luck? Well it is a debated topic, as I experienced in my activity at EPFL. Thiel feels the same. He begins with: “The biggest philosophical question underlying startups is how much luck is involved when they succeed. As important as the luck vs. skill question is, however, it’s very hard to get a good handle on. Statistical tools are meaningless if you have a sample size of one. It would be great if you could run experiments. Start Facebook 1,000 times under identical conditions. If it works 1,000 out of 1,000 times, you’d conclude it was skill. If it worked just 1 time, you’d conclude it was just luck. But obviously these experiments are impossible.” adding the famous Thomas Jefferson’s line: “I’m a great believer in luck, and I find the harder I work the more I have of it.”

Thiel is not so much interested in luck as in determinism vs. indeterminism. “If you believe that the future is fundamentally indeterminate, you would stress diversification. […]. If the future is determinate, it makes much more sense to have firm convictions. […] Overlay this diversification/conviction dynamic over the optimism/pessimism question and you get further refinement. Whether you look forward to the future or are afraid of it ends up making a big difference. And here is his vision of the world:

Thiel-World1

With an even more surprising and quite convincing:

Thiel-World2

“But the indeterminate future is somehow one in which probability and statistics are the dominant modality for making sense of the world. Bell curves and random walks define what the future is going to look like. The standard pedagogical argument is that high schools should get rid of calculus and replace it with statistics, which is really important and actually useful. There has been a powerful shift toward the idea that statistical ways of thinking are going to drive the future.”

But here I’d love to ask Peter Thiel what he makes of Black Swans if he believes in 0 to 1 more than in 1 to n. 1 to n belongs to statistics, not 0 to 1… (read again my part 1 if this is cryptic)

Thiel-World-SFBA

Thiel likes crazy ideas, like Reber’s project for the Bay Area in the 1940s above. He also still believes in finance despite its excesses: “In a future of definite optimism, you get underwater cities and cities in space. In a world of indefinite optimism, you get finance. The contrast couldn’t be starker. The big idea in finance is that the stock market is fundamentally random. It’s all Brownian motion. All you can know is that you can’t know anything. It’s all a matter of diversification. There are clever ways to combine various investments to get higher returns and lower risk, but you can only push out the efficient frontier a bit. You can’t know anything substantive about any specific business. But it’s still optimistic; finance doesn’t work if you’re pessimistic. You have to assume you’re going to make money. […] Indeterminacy has reoriented people’s ideas about investing. Whereas before investors actually had ideas, today they focus on managing risk. Venture capital has fallen victim to this too. Instead of being about well-formed ideas about future, the big question today is how can you get access to good deals. In theory at least, VC should have very little in common with such a statistical approach to the future.“

And he might agree with Mariana Mazzucato during his debate to come with her (at Human After All, Toronto 2014 – program in pdf) : “The size of government hasn’t changed all that much in the last 40-50 years. But what the government actually does has changed radically. In the past, the government would get behind specific ideas and execute them. Think the space program. Today, the government doesn’t do as many specific things. Mainly it just shifts money around from some people to other people. What do you do about poverty? Well, we don’t know. So let’s just give people money, hope it helps, and let them figure it out.”

Darwinism and design.

And all of a sudden, while reading this class 13, Thiel again surprises me! Obviously, the indeterminate optimism can be quite easily linked to Darwin’s theory of evolution. Accidents happen, but there is general positive evolution. And “Applied to start-ups, obsession with indeterminacy leads to the following phenomena:
• Darwinistic A/B testing
• Iterative processes
• Machine learning
• No thinking about the future
• Short time horizons”

Typical Blank’s messages! But Thiel envisages another possibility: “Apple is absolute antithesis of finance. It does deliberate design on every level. There is the obvious product design piece. The corporate strategy is well defined. There are definite, multi-year plans. Things are methodically rolled out.” (I do not think Thiel talks here about intelligent design which is opposed to Darwinian theory, but the coincidence is a little puzzling!

“On the heels of Apple has come the theme of well-designed products being really important. Airbnb, Pinterest, Dropbox, and Path all have a very anti-statistical feel. […] That link—great design—seems to work better and faster than Darwinistic A/B testing or iteratively searching through an incredibly large search space. The return of design is a large part of the countercurrent going against the dominating ethos of indeterminacy. Related to this is the observation that companies with really good plans typically do not sell. If your startup gets traction, people make offers to buy it. In an indefinite world, you will take the money and sell, because money is what you want. […] But when companies have definite plans, those plans tend to anchor decisions not to sell.[..] In an indefinite world, investors will value secret plans at zero. But in a determinate world, robustness of the secret plan is one of the most important metrics […] It’s important to note that you can always form a definite plan even in the most indefinite of worlds. […] We’re falling downwards towards pessimism. Can we shift instead to definite optimism?”

This is the end of my notes on Thiel’s great vision about start-ups.

When Peter Thiel talks about Start-ups – part 6: founder uniqueness, technology singularity

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Thiel’s concludes his Class Notes Essays (CS183 —Stanford, Spring 2012) with philosophical considerations about the uniqueness of founders (class 18) and the singularity of technology (class 19). Founders are a topic I regularly covered, for example with European Founders at Work or Founders at Work.

Again Thiel presents unusual ideas about founders. He sees them as a combination of extreme outsiders and extreme insiders.
Thiel-extreme-in-out
which he reinforces with this virtuous/vicious circle:
Thiel-extreme-in-out-circle

If this is not clear, two examples may help:
– “All [these] questions apply to Gates. Was it nature or nurture? He was a Harvard insider but a dropout outsider. He wore big glasses. Did he become a nerd unwillingly? Did he prosper by accentuating his nerdiness? It’s hard to tell.”
– “And then there’s the Steve Jobs version. […] He had all the classic extreme outsider and extreme insider traits. He dropped out of college. He was eccentric and had all these crazy diets. He started out phreaking phones with Steve Wozniak. He took LSD.”

Thiel is convincing when he explains that a start-up is not a democracy. Founders are Kings, and Thiel may have followed René Girard at Stanford since he then develops a theory of scapegoats. The god may become a victim.
Thiel-monarchy

Thiel is a little short about the dual-founder situation: “The dual founder thing is worth mentioning. Co-founders seem to get in a lot less trouble than more unbalanced single founders. Think Hewlett and Packard, Moore and Noyce, and Page and Brin. There are all sorts of theoretical benefits to having multiple founders such as more brainstorming power, collaboration, etc. But the really decisive difference between one founder and more is that with multiple founders, it’s much harder to isolate a scapegoat. Is it Larry Page? Or is it Sergey Brin? It is very hard for a mob-like board to unite against multiple people—and remember, the scapegoat must be singular. The more singular and isolated the founder, the more dangerous the scapegoating phenomenon. For the skeptic who is inclined to spot fiction masquerading as truth, this raises some interesting questions. Are Page and Brin, for instance, really as equal as advertised? Or was it a strategy for safety? We’ll leave those questions unanswered and hardly asked.”

Thiel-dual-founders

Thiel’s vision (as well as the visions of his guests – I mixed them here) of technology was mentioned in my previous post. Again quite fascinating. “People do tend have some view of the future. They usually project relative stagnation. People tend to believe that, not only will most things not change, but what will change won’t change very quickly.” But “there’s a compelling case that we’ll very likely see extraordinary or accelerated progress in the decades ahead.”

One guest: “My take is that innovation comes from two places: top-down and bottom-up. There’s a huge DIY community. These hobbyists are working in labs they set up in their kitchens and basements. On the other end of the spectrum you have DARPA spending tons of money. Scientists are talking to each other from different countries, collaborating. All this interconnectedness matters. All these interactions in the aggregate will bring the change.

Another guest: “I disagree. There are a very few visionary people who can make a real difference at the formative early stage. This is why mainstream opinion formers are absolutely pivotal. Perhaps no other subset of people could do more to further radical technology. By overpowering public reluctance and influencing the discourse, these people can enable everyone else to build the technology. If we change public thinking, the big benefactors can drive the gears.”

The third guest: “I do not think that progress will come from the top-down or from the bottom-up, really. Individual benefactors who focus on one thing, like Paul Allen, are certainly doing good. But they’re not really pushing on future; they’re more pushing on individual thread in homes that it will make the future come faster. The sense is that these people are not really coordinating with each other. Historically, the big top-down approaches haven’t worked. And the bottom-up approach doesn’t usually work either. It’s the middle that makes change—tribes like the Quakers, the Founding Fathers, or the Royal Society. These effective groups were dozens or small hundreds in size. It’s almost never lone geniuses working solo. And it’s almost never defense departments or big institutions. You need dependency and trust. Those traits cannot exist in one person or amongst thousands.”

Peter Thiel: “That’s three different opinions on who makes the future: a top-down bottom-up combo, social opinion molders, and tribes.”

To be honest, I was more convinced with his analysis of founders than of technologies. His conclusion is worth reading as inspiration: “This course has largely been about going from 0 to 1. We’ve talked a lot about how to create new technology, and how radically better technology may build toward singularity. But we can apply the 0 to 1 framework more broadly than that. There is something importantly singular about each new thing in the world. There is a mini singularity whenever you start a company or make a key life decision. In a very real sense, the life of every person is a singularity. The obvious question is what you should do with your singularity. The obvious answer, unfortunately, has been to follow the well-trodden path. You are constantly encouraged to play it safe and be conventional. The future, we are told, is just probabilities and statistics. You are a statistic. But the obvious answer is wrong. That is selling yourself short. Statistical processes, the law of large numbers, and globalization—these things are timeless, probabilistic, and maybe random. But, like technology, your life is a story of one-time events. By their nature, singular events are hard to teach or generalize about. But the big secret is that there are many secrets left to uncover. There are still many large white spaces on the map of human knowledge. You can go discover them. So do it. Get out there and fill in the blank spaces. Every single moment is a possibility to go to these new places and explore them. There is perhaps no specific time that is necessarily right to start your company or start your life. But some times and some moments seem more auspicious than others. Now is such a moment. If we don’t take charge and usher in the future—if you don’t take charge of your life—there is the sense that no one else will. So go find a frontier and go for it. Choose to do something important and different. Don’t be deterred by notions of luck, impossibility, or futility. Use your power to shape your own life and go and do new things.”

Reading these last lines, I remembered the conclusion of my book: “And I suddenly remembered an essay by Wilhelm Reich, the great psychoanalyst, which he wrote in 1945: “Listen, Little Man”. A small essay by the number of pages, a big one in the impact it creates. “I want to tell you something, Little Man; you lost the meaning of what is best inside yourself. You strangled it. You kill it wherever you find it inside others, inside your children, inside your wife, inside your husband, inside your father and inside your mother. You are little and you want to remain little.” The Little Man, it’s you, it’s me. The Little Man is afraid, he only dreams of normality; it is inside all of us. We hide under the umbrella of authority and do not see our freedom anymore. Nothing comes without effort, without risk, without failure sometimes. “You look for happiness, but you prefer security, even at the cost of your spinal cord, even at the cost of your life”.