The New Talent Verification

The new reputation is moving away from flawed institutional inter-mediation (brand name of a firm for example) to crowd-sourced reputation and identity verification tied to sharing and search of knowledge.  Fred today:

The power of the GitHub model is not just a repository of work and version control in the cloud. It’s the public nature of much of that work. And the reputation and identity effects for those who publish some or all of their work publicly.

Tools like StackOverflow (a USV portfolio company) and GitHub allow programmers to see how other programmers have solved similar problems. I was at a hackathon up at Columbia University last weekend and one of the hacks was a development environment that automatically queried StackOverflow and GitHub as you are writing code so that you always have in front of you the answers to the questions you are most likely to ask. The developer who did the hack introduced it by saying something like “programming these days is more about searching than anything else”. That reflects how collaborative the sharing of knowledge has become in the world of software development as a result of these cloud based tools for developers.

Quick Entry and Exit

As an antitrust lawyer – like antitrust lawyers everywhere – we loved the entry weapon that we possessed in our arsenal as a cure to potential anti-competitive harm, even where it was not entirely appropriate or accurate.   It’s interesting to see this concept used in connection with the fracking of oil in the Economist this week (here and here, respectively):

Setting up an oil rig in the Gulf of Mexico can take years. But America’s frackers can sink wells and start pumping within weeks. So if the oil price spikes, they drill more wells. If it falls, they let old ones run down.

and

This all means that when oil prices rise, producers can quickly drill more holes and ramp up supply. When prices fall, they simply stop drilling, and production soon declines. In early 2009, after prices collapsed with the global financial crisis, Pioneer shut down all its drilling in the Permian Basin. Within six months, output in the affected areas dropped by 13%.

 

Disruptive Queasiness

Chris Dixon presents  some common characteristics of good startup ideas (h/t @fredwilson for video):

  • They have founders who either know the tools better (champion coders) and/or know the problem better than others.
  • They un-bundle functions done by other business, such as newspapers or universities.
  • They originate with hobbies., e.g. github and drones.
  • They often challenge social norms.  Early on, you get a queasy feeling around them.  For example, tweeting or flickr defaulting to public.

The last is the most interesting and vexing, perhaps leaving the most room for individual extinct, and they involve spotting human behavior that can be changed on a large scale.

Now versus Then

The difference between the last time in 1998-1999 and now by Scott Kapur of A16Z:

Why is that? My partner, Marc Andreessen, likes to recount a simple stat that sums it up quite nicely. When his company Netscape was sold to AOL in 1998, the total size of the browser market was roughly 55 million users, nearly all were accessing the Internet via those ear-screeching dial-up connections.

Fast-forward to today, largely as a result of broadband penetration and the growth of smartphones and tablets, and there are 2.5 billion people with virtually ubiquitous Internet access. And that number is likely to exceed 5 billion in short order.

Is it really any wonder then why so many of the 1999-2000 bubble-era Internet companies failed? The markets into which they were selling were simply too small compared with both the costs of acquiring customers and the costs of the technology infrastructure (remember that $50,000 box called a Sun server?) required to support these customers.

By contrast, not only are the end-user markets today vastly bigger, but the technology costs required to support these markets (think Amazon Web Services, open source software components, etc … ) have plummeted. The economics finally work.

Talent Stories: What Do You Get For $1000/Hour?

The talent matching problem by example.

A top firm recently added an antitrust partner, stating to the world, and I am paraphrasing here, that this person:

specializes in antitrust issues.

This same new partner advocated in front of the DOJ Antitrust Division on behalf of a client.  The DOJ staff attorney that he was negotiating with wondered and, quoting here, shared that this new partner asked:

the most basic and clueless questions that I began wondering whether he was purposely playing dumb to get information out of me.

Not an act.

This illustrates a fundamental information asymmetry.

The evaluation above by an expert is opaque to a client.  At one time, perhaps, the client could count on the top firm’s imprimatur of a person as partner.  Now, it cannot.

So what then?

Public and Private

Through college and law school, the defining distinction seemed to be public and private.

Besides the obvious constitutional and political questions there — whether seen the lens of political philosophy, American jurisprudence, or MSNBC or Fox News, there was the spillover into how one viewed economic efficiency and innovation.  The public and the private became shorthand for the government is inefficient and the private sector is efficient and innovative.

The latter needs to be re-thought as a full blown blanket statement.  The key economic distinctions might be bureaucracy/non-bureaucracy that in the aggregate leads to efficiency and innovation. Plenty if not most private workspaces are not innovative.   More on this elsewhere on the blog, but this quote by Steve Case is on point:

I realized the world of business really separates into…two groups. The attackers are the entrepreneurs who are disrupting the status quo, trying to change the world, take the hill, anything is possible, and have nothing to lose in most cases. They’re driven by passion and the idea and intensity. Large organizations — and it’s true of Fortune 500s and it’s also true of governments and other large organizations — are defenders. These guys aren’t trying to pursue the art of the possible, how to maximize opportunity. They actually are trying to minimize the downside, and hedge risk. They’re trying to de-risk situations. Entrepreneurs can’t even think this way. It’s not even a concept they understand.

The Traditional Notions and Modern Reality of Bank Debt

As familiar over the last few years as they have faced so much incoming fire, banks defend their necessary role in the economy by trumpeting out the role they play in the economy in diverting savings and other stores of capital into investment for business owners who provide jobs.

Yet, we know from reporting as well as first-hand stories, that so many smaller and medium-sized businesses don’t feel that they can get loans and bigger companies that can rely on the capital markets rather than bank lending for investment capital.

Some evidence from Britain as to why (quoting Buttonwood of the Economist discussing a speech by Lord Turner, a former head of the UK’s FSA, given in New Delhi):

Debt is useful, in theory, if it allows business to accumulate capital or consumers to smooth their consumption over their lives. In practice, however, debt is used to finance the purchase of existing assets, leading to bubbles. He cites an estimate that only 15% of British bank lending is used for capital investment.

I don’t know, but perhaps consumer debt is easier to score and securitize and lending to investors (which drives up asset prices) is more profitable.

The Good, Bad, and Bubbly

The example of China illustrates the ways that credit can flow through the economy: good investment, bad investment, and asset price inflation:

Some is spent fruitfully, on new capital and infrastructure, increasing the economy’s productive capacity. Because lending of this kind adds to both demand and supply, it should result in higher economic growth without higher inflation. Another chunk of credit is spent wastefully, either on consumption or on misconceived projects, such as bridges without destinations or coal mines without markets. These loans add nothing to the economy’s productive capacity, but they do add to demand. They make a claim on the economy’s goods and services, without adding anything to its ability to provide them. Credit of this second kind should, then, result in higher inflation, increasing nominal GDP but not real GDP. The surprising lack of inflation suggests that much of China’s credit is instead of a third kind. It is spent speculatively, on existing assets, real or financial, in the hope they will rise in value. Because these assets already exist, they can be purchased (and repurchased) without adding directly to GDP or straining the economy’s capacity to produce new goods and services. Credit and asset prices can chase each other higher, even as consumer prices remain flat.

 

It’s Technological Intermediation First, Stupid

Two recent Tweets resonated:

 @Balajis: Uber/Lyft are like Netflix: technological intermediation between present day and the future

@levie: Step 1: Better delivery of an existing service (“Oh neat”) Step 2: Using data to change the service altogether (“Oh shit”)

So many times, the future means “fully transformed by digital.”

The better actionable focus seems to be the bridge or the intermediate step, whether it is in the profitable opportunity right now, as well as having a seat at the table and credibility to change the service altogether.

So, red envelopes can help you push the world to digital and better delivery of black cars can be a bridge to a change in the use of cars altogether.

The Wolf Mentality

From a post by Scott Weiss of A16Z in Tech Crunch:

All of the successful entrepreneurs I know are part-scrounge, part-Wolf, with a good dose of calm-under-pressure space jockey thrown in. In other words, they are ridiculously resourceful. It’s this magical combination of wicked-smart, tenacious as hell, works harder and longer than most people think is humanly possible, thinks way outside the box and is also unbelievably passionate and compelling. In short, they have special tools to just get shit done.