Innovation Isn't Dead

Innovation is alive and well.

Most people seem convinced that Silicon Valley has lost its way. They will tell you that we collectively have stopped focusing on disruptive innovation. That we have fallen into the trap of funding incremental innovation or solving meaningless problems. A minority of these folks actually believe that we’ve skipped over innovation at all and now just do anything we think might have a chance to sell to a greater fool. 

Many examples can be (and frequently are) cited here, each reader can probably easily list three from the past week. Even notable people immersed in the industry often feel intuitively like we’ve stopped innovating. Take Founder's Fund now infamous statement:

“We wanted flying cars, instead we got 140 characters.”
— Founder's Fund Manifesto

Yet their intuition turns out to be wrong, there are more ambitious ideas being pursued today, not less. If you were to re-write the Founder's Fund Manifesto today, it would probably look more like this: 

We wanted flying cars, instead we got:
private space travel, printable organs, instant global communication, cheap online education, self-driving cars, synthetic biology, Nano-satellites, digital currency, half the number of people who live under extreme poverty, and... Flying cars.

There are two primary reasons why we incorrectly feel like we’re losing ground.

The first stems from the way innovation works — you have to fund a large number of experiments in the hope that a few will emerge as wildly important. You can't tell which ones matter. In the early days of their lives, almost every important company looks either trivial or impossible.

“Trivial” things like desktop computers for normal people (Apple) or yet another search engine (Google), have gone on to become some of the most important companies in the world. These innovations often started with a sociological insight — the discovery of a new form of interaction that lots of people wanted, but didn’t know they wanted it until they saw it. 

If I asked what [people] wanted, they would have said faster horses.
— Henry Ford
I think there is a world market for maybe five computers.
— Thomas Watson (in 1943, alleged)

Usually, the initial insight allows the founder to show progress and convince some early believers that it isn't trivial. After that, this initial insight is then backed up by an incredible amount of hard work (both technical work and work on refining the sociological insight to amplify the signal of what people want) to actually build and deliver that new form of interaction to millions of people. 

Impossible problems are different — usually everyone agrees that solving the problem would be great, but everyone assumes that you’re delusional to try and do it. Innovations in this space tend to start with a deep technical insight into something that makes the impossible look merely difficult. SpaceX is an excellent example of this type of innovation. Before SpaceX, everyone knew that lowering space access costs by 70% would be incredibly valuable, but no one knew how to do it.

All new ideas sound either trivial or impossible. This makes it easy to dismiss all new ideas as not innovative, especially compared to established ideas which are now clearly meaningful. With gestation time, innovations mature and it becomes easier to identify which are truly important.

There’s also a second reason that we tend to undervalue the amount of innovation going on today — increased activity.

About 0.0005% of companies are meaningfully disruptive [1]. Increased rates of entrepreneurship mean that more companies are created (both meaningful and not meaningful companies). When so few companies are meaningful, increased activity exposes us to a dramatic number of new companies that aren’t meaningful and very few new ones who are. The total number of meaningful companies goes up, but the noise from all of the less meaningful companies drowns out their signal [2].

We now hear a lot more about new startups than we used to, many of which are often clearly bad ideas. Even the ones that aren't clearly bad ideas sound either impossible or trivial. Given that, the easiest conclusion to arrive at is that we've lost our way. That's the opinion we hear most often from friends, relatives, co-workers, journalists, etc. — which reinforces the conclusion in our mind.

There are many more examples. If you stop and look for them, there are lots and lots of people who are inventing the future [3]. And for each one that you hear about, there are easily ten more working hard in obscurity in their labs. Inventing the future is hard work. The inventors tend to spend lots of time working, and not much time doing PR.

It has never been a better time to be a techno-optimist. Today is better than yesterday, and with continued responsible cultural maturation, our future looks incredibly bright [4]. But if we want that future, we have to collectively invent it.

Our increased rate of technological advancement creates a lot of new insights at each fringe that could bear fruit if followed. This goes for both sociological and technical insights. Discovering and testing each of those insights takes hard work.

If an initial test seems to confirm the insight, it takes even more hard work to develop that insight into a meaningful contribution to our shared future. More potentially meaningful companies waiting to be discovered means that we need far more support from venture capitalists, engineers, businesspeople, politicians, educational institutions, philanthropists and you. 

Understanding the world through this realistically optimistic lens can motivate us towards increased action, but it can also encourage people towards apathy. Please do not let this essay make you a spectator on your path to improvement. Our future is bright, but it is not guaranteed - we have the raw materials for success, but we must do the hard work to make it so.

So, I'll leave you with a question that I hope we can all revisit frequently for inspiration:

 

what can you do to help invent a better future?

 
Our greatest responsibility is to be good ancestors.
— Jonas Salk
I believe we possess all the resources and talents necessary. But the facts of the matter are that we have never made the national decisions or marshaled the national resources required for such leadership. We have never specified long-range goals on an urgent time schedule, or managed our resources and our time so as to insure their fulfillment.
— John F. Kennedy



Footnotes:

[1]  250 companies out of 550,000 (source)

[2]  Similarly, increased number of investors has led to a dramatic increase in both good and bad investors. There’s no doubt that many venture firms deliver lackluster returns by trying to time the market and investing in un-meaningful companies that they hope Google will buy. But, there are also a large number of investors out there who work to profit “from [helping create] a wildly more advanced future.” My angel investments come out of a very small fund, but we certainly look at the world this way. VCs like Founders Fund, Andreessen Horowitz, and Khosla Ventures have all been very vocal about doing something similar. New funds like OS Fund and Obvious have started with this explicit purpose. There are many others; by looking at the companies they’ve chosen to fund, you can see DFJ, Accel, Sequoia, Floodgate, Lightspeed, Battery, Trinity, Greylock, Benchmark and many other top-tier VCs aren’t taking bets on “iterative” companies and then shooting for “safe” M&A exits.

[3] Lots of possibly meaningful companies are being built right now. Here are a few:

  • Planet Labs and Nanosatisfi are both building large networks of satellites that are more than two orders of magnitude cheaper than existing satellites, and they are doing it with small teams and small amounts of money from offices in downtown San Francisco.
  • Planetary Resources is building the ability to tow asteroids into near-earth orbit and mine them for natural resources.
  • Organovo prints functional human tissue using a 3D bioprinter.
  • Cambrian Genomics and Genome Complier are building tools to help you manipulate DNA and print out new organisms. 
  • J. Craig Venter Institute is trying to invent biological sources of energy that can lower the cost of creating energy and reverse climate change

[4] It deserves to be said that while I'm obviously a strong techno-optimist, I'm not blind to some of the key ways that other techno-optimists have failed on in the past. Our ideal future involves positive cultural change as well as technical innovation. Frankly, if cultural change doesn't accompany technical innovation, it's likely that the quality of our future will be worse than our present. I'm worried about this, especially noting the current climate in the US at the time that I'm posting this. That said, we've done a surprisingly good job of this historically and globally have done a good job of this over the past several decades. I am optimistic that we'll continue to improve here.

How to Be an Angel Investor

For several interesting macro-economic reasons [1], more and more people are becoming angel investors.

This is a good thing – it allows more investors to participate in a high-growth (but high-risk) area of our economy. That said, investing in private companies is very different from investing in public companies.

People who are just getting started in angel investing should get comfortable with the inherent risks and learn the strategies required to be successful angel investors. Without doing this, you run the very real risk of losing every dollar you invest in this market.

Two years ago, my first company was acquired by Oracle and four members of our early team, including myself, became part time angel investors. Before I started investing, I tried to learn as much as possible about angel investing. In all of the things I read and people I talked to, two posts stood out as particularly helpful: Paul Graham’s post How to Be an Angel Investor and Naval and Nivi’s How to be an angel investor, Part 2. These posts were helpful because they did away with the inside baseball and tried to present a comprehensive overview for a novice investor.

This year, several of my friends became accredited and asked for my advice on angel investing. Inspired by the opportunity to help them, I looked back on my first year of investing and tried to tie all of those lessons up in a comprehensive overview–think of it as Angel Investing 101. Drawing on the previous two posts, I called the presentation How to Be an Angel Investor, Part 3.

Success as an angel investor boils down to whether you can pick the right companies. The information in this presentation won’t make you a successful angel investor on it’s own, but it can help you avoid the common pitfalls and develop a better understanding of how this market works and whether you’re ready for it.

Because these investments are illiquid, you won’t know for many years whether you are doing a good job of picking the right companies. My best advice is to focus first on learning as much as you can so you can avoid common pitfalls. Once you’ve done that, budget money you can afford to lose and start slowly. You’re generally going to be better served by spreading your initial investment budget over several years, rather than trying to invest it all in a short period of time.

If you find this useful, I intend to create more free resources for angel investors (including video interviews with successful investors sharing their best advice). If you’re interested in more information like this, check out adviceforangels.com.


[1] Broadly, we’re creating a much more affluent upper middle class. Tyler Cowen’s book Average Is Over is a good read about this if you’re interested.

Specifically, there are a few big changes that have created more angel investors.

  • Startups provide equity compensation by default, so the influx of new startups means that more people employed under this model.
  • Companies are staying private longer, which incentivizes investors to move to private markets in search of good returns.
  • It seems likely that startups will share more equity with employees than they have historically (this is a prediction, but we’re starting to see early examples of this)

The Law of Accelerating Media

From print advertising and the Mad Men era, to the new world of digital and social media marketing, advertising has been getting more complicated for marketers every decade for well over 100 years.

In the last decade, it’s gotten even worse.

The industry has crossed a tipping point – complexity and change are now evident in every marketing department. The growth of the Internet and rise of social media has been a disruptive force that is tearing apart and remaking marketing strategies all around the world.

The cause of this complexity is a simple but powerful trend rarely discussed in the boardroom: The Law of Accelerating Returns.

Defined as “the exponential growth patterns of information technologies,” the Law of Accelerating Returns can be summed up simply: media that compete for our attention grow the same way compound interest grows – every year gets faster. From print media to the Internet, we’ve seen this accelerating growth rate for centuries.

Studying this, two patterns become clear:

  • Exponential Growth: New mass-media technologies get consistently better at reaching cultural relevance quickly.

Information technologies follow an exponential growth pattern – and media platforms are no different. The time between the popularization, or mass-media acceptance, of print and audio recordings was 377 years; between radio and television it was 71 years; between television and the Internet, it was 42 years, and between the Internet and the next two platforms, social media and mobile phones, it was only 10 years.

If you are in the business of getting people’s attention, this trend means that every new decade will give you more new ways of reaching people than the last decade did. If it seems like the number of channels you can reach your customers on is growing faster than ever, that’s because the relative growth rate is always increasing.

  • Fractured Attention: Human attention doesn’t migrate to new platforms – it fractures across them.

When new technologies become popular, they don’t kill the preceding technology; each technology ends up attracting a share of the population’s attention. The new technology may siphon off a good amount of the previous technology’s reach, but it never fully replaces it.

You can see this time and again: Books and newspapers are still alive well past the popularization of radio, the radio still entertains Americans during their commutes and work-days despite the dominance of television, and the average American watches 2.73 hours of TV per day more than twenty years after the invention of the ‘Net.

The rate of change was hardly noticeable until just over 20 years ago, but now it’s moving at an uncomfortably quick pace, and thanks to the law of accelerating returns, it’s speeding up instead of slowing down. The splintering of human attention hits home for marketers. They have to constantly reach more prospective consumers across more channels; and more often than not, they have to do so with the same or fewer resources.

Solving the Problem

Marketers are investing in developing strategies to cope with this new reality. The popularity of Agile Marketing and its focus on iterative measurement and improvement is a fantastic example of a strategy that has evolved to help.

Under Agile methodology, marketers are deploying their budgets and resources more intelligently, and looking actively for the best performance against their campaigns: taking advantage of the ever-expanding number of social media sites, targeting users on mobile phones, and even exploring very early technologies like augmented reality.

Strategies like Agile have given CMOs a powerful way to thrive in the new reality, but have also required adopting unfamiliar job responsibilities. In many cases, they are building out an entire technology stack to manage their efforts. Historically an under-spender, marketing is beginning to rival the IT budgets of other departments. Some of the most forward-thinking technologists are starting to bring technologists into their departments, often reporting to both market and IT.

The Marketing Technology Stack

These new marketing technologists are tasked primarily with architecting, building and supporting the marketing technology stack – which is a combination of applications and software that can work in concert to empower the marketing team to run more efficient campaigns and extract actionable insights for use in future marketing efforts.

Marketing technology as a category is growing very fast, and individual companies have done very well by building components of the enterprise marketing technology stack:

  • Marketing Automation allows teams to be much more efficient by creating repeatable marketing programs
  • Web Analytics helps provide actionable insight that can be used to redirect inefficient marketing efforts
  • Authoring tools allow marketers to make interesting ads, and other brand experiences, that work in multiple channels very quickly
  • There are dozens of other examples. Scott Brinker at ion interactive has kept a running list of more than 40 categories of Marketing Technology.

There’s never been a harder time to be a CMO, but there’s never been a more rewarding time either – the marketing profession is in the process of re-defining itself and now has the opportunity to lead the rest of the business into a new era.