Category: Innovation

3 Rules for Digital Health in a Digital Society

By Tytus Michalski,
Photo by Chris Barbalis on Unsplash

Digital society has already arrived for billions of people, but the implementation of digital health is just beginning.

We’re now starting to understand which digital solutions can help solve healthcare issues, like tracking digital biomarkers for example. We’re also realizing that our digital society can create new healthcare problems. Brain hacking?

If we ignore the critical gap between digital society and digital health, it will only grow over time. The ideas below put an emphasis on being proactive.

1. Prevent upstream digital health problems.

It took time, but we’re making progress in dealing with upstream problems such tobacco, environmental toxins, and food safety. There are also far-reaching challenges upstream when it comes to digital society.

This includes health issues related to social networks, digital devices, and artificial intelligence. When the business models of these industries conflict with healthcare outcomes of society, the business models will win.

While there are still not enough research studies, the ones that have been completed are coming up with some disturbing results.

“All screen activities are linked to less happiness, and all nonscreen activities are linked to more happiness. Eighth-graders who spend 10 or more hours a week on social media are 56 percent more likely to say they’re unhappy than those who devote less time to social media.” — Jean M. Twenge

The above analysis is related to The Monitoring the Future survey, designed to be nationally representative in the US, with more than 1,000 questions for 12th-graders every year since 1975 and eighth graders since 1991.

One of the additional challenges with the digital world is that we should expect legal rules to be consistently behind the curve. Regulators are currently not equipped with the right skills, incentives, and resources to keep up with changes in digital technology.

Thus it is up to the private sector, both consumers and businesses, to be proactive. Tech employees are starting non-profits focused on identifying potential harm of digital platforms. Business leaders are taking a stand about digital advertising. Investors are communicating that social purpose must be tied to profits. We need more of all of the above — being passive is not a solution.

2. Avoid private sector monopolies for public goods.

Healthcare companies save millions of lives every year. That shouldn’t stop us from identifying clear evidence of business model misalignment which can lead to adverse health outcomes, even death. This challenge already exists in healthcare, and it is absolutely relevant for digital health.

The history of patent law describes a very complicated balance between stakeholders. Most people want innovation. There is disagreement on the right mix of incentives.

As part of this debate, it’s always important to check on the final results. The story of rising insulin prices in the US is one example. A quick glance at the chart below makes it clear that the current mix of incentives is not leading to desired outcomes. The system is being gamed.

Image credit: Truven Health Analytics and Business Insider

It’s easy to blame the companies, and they are absolutely part of the problem. They are also responding to the incentives of the system.

With digital health, this challenge becomes even more relevant because digital health products and services should be highly deflationary over time. If we see rising prices for digital health services in the future, that would be a massive failure of incentives.

A single private company owning a patent on a multi-billion dollar revenue life-saving treatment is a private sector monopoly resulting in less competition. When the state uses its powers of coercion to enforce this patent, it makes a value judgement that society is better off in having a private sector monopoly instead of competition. Given the long history of abuse by private sector monopolies across a wide variety of businesses, we typically expect a high level of price regulation to accompany monopoly power, and healthcare should not be exempt.

Many life-saving drugs were initially supported through government funded research. The pricing of these drugs has a massive impact on the healthcare outcomes. And we know that a monopoly will naturally lead to overpricing precisely because of a lack of competition. So at the very least, the burden of proof should be on the company to maintain a monopoly, not society. Also, it would be incompetent for society to outsource the pricing of drugs to monopoly holders of patents.

This logic applies to the owners of digital health patents, except with even more potential for misalignment. The burden of proof for digital health patents should be extremely high, not low.

Moreover, once a digital health patent is granted, that monopoly pricing power needs to be regulated. In the digital world, it’s not enough to expect modest price inflation. We know that competition in the digital world results in severe price deflation and this should be the benchmark for any price regulation of digital health monopolies.

3. Ensure user friendly data portability.

Forgetting about distribution channels is easy. In the digital world, however, these channels have direct relationships with customers, and importantly also customer data. Digital super-aggregators enjoy some of the most influential market power ever witnessed in the history of business.

Image credit: Ben Thompson,

There are already problems in healthcare with the market power enjoyed by distribution channels. The potential for abuse of power in digital health distribution is even more significant. It’s mostly a good thing that companies like Amazon are entering healthcare aggressively. But let’s not assume that the company and others will be immune from increasing market power.

Specifically, we need to have more clarity about healthcare data portability. It’s tempting to use the word healthcare data ownership, but the topic is not that simple. There is a difference between ownership, control, and privacy. While the infrastructure and nuances of those issues will need time to sort out, the most obvious starting point is data portability.

Patients should have the right to access and transfer the data being gathered about their health. This will become even more important in the future as the amount of passively collected digital healthcare data will increase exponentially. If an algorithm is analyzing your health from a video camera recording, does the algorithm need your permission? Would you want the right to access that data output if you choose?

Regulators will be way behind the curve on this issue. In addition, most users of healthcare are likely to choose convenience over control. At the very least, we need to ensure that there is an option for user-friendly digital data portability if someone decides to switch health providers.

Moving forward

When it comes to digital healthcare, we can’t wave a magic wand and say “let the government deal with it, it’s not my problem.”

It would also be irresponsible to take the view that large companies will solve these challenges on their own.

All stakeholders have to work together for meaningful progress in digital healthcare. It’s part of Capitalism 2.0 where we all have a role as patients, healthcare specialists, caregivers, employees, public servants, non-profit leaders, business executives, startup founders, social impact innovators, and investors.

3 Rules for Digital Health in a Digital Society was originally published in Fusion by Fresco Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

Bringing Space Back to Earth

By Tytus Michalski,
Image credit: NASA

While it’s inspiring to think about becoming an interplanetary species, there’s plenty of opportunity in bringing space back to Earth.

Why bring space to Earth?

The dream of space has always been about leaving Earth. So it seems counterintuitive to focus on the opposite. It’s almost too practical.

And yet it’s already happening. Private sector innovation is leading to improvements in both launchers and satellites which monitor our planet from space — creating exponential growth in data back on Earth. Cost, variety, and most importantly, speed of iteration, have been transformed.

As an example, our portfolio company Spire went from no satellites in 2012 when we first invested to 40 by 2017, with applications in areas including shipping and weather.

The infrastructure is now at critical mass to start opening up to partners for building external applications. Instead of building and launching your own network of satellites, you can get access to the data directly.

There are also many under appreciated applications on Earth which will be critical to successfully becoming an interplanetary species. Take digital healthcare as an example: portable diagnostic devices, telemedicine, and augmented reality are just three of the obvious areas of overlap.

Can space eat the world?

The space ecosystem up until recently has been primarily focused on space infrastructure. The massive opportunity going forward is to connect this amazing group of innovators to other sectors of the economy and society.

20 years ago, the Internet was viewed as a separate industry by most people. Very quickly in the past few years, the consensus has come around to the idea that “software is eating the world”.

The space industry has a similar potential for impact across society. But whether that potential will be realized is still unclear. Whether that impact will be positive or negative is also unclear. It’s up to all of us to figure it out — together.

Start with talent

Our team at Fresco Capital recently held an event in Singapore about expanding the ecosystem, which included a panel about talent.

One of the panel participants was Lynette Tan, Executive Director at Singapore Space and Technology Association. After this panel she wrote an overview about some of the opportunities in the sector. Here is a key takeaway related to building the talent part of the ecosystem:

“The integration of space technology into our daily lives also means new modern disciplines are now required. With the avalanche of data from and flowing through space systems, programmers, computer scientists and big data experts are all likely to find increasing demand for jobs seeking to monetise these assets.”

The talent needs described above are clearly cross-disciplinary.

But that’s not all. If we’re going to build successful applications, there will be a need for design, user experience, and sales, to name a few obvious categories that are not traditionally associated with the space industry.

That’s great news in the current environment of concerns about technology replacing humans in jobs. Space applications are a potential growth driver of new jobs across the entire economy.

Of course, there’s the challenge of aligning our education system with these job opportunities, but that’s worthy of an entirely separate discussion on its own.

Practical public / private

At the International Astronautical Congress (IAC) just held in Adelaide, there were representatives of both the public and private sector from all over the world.

On one of the industry panels, a private sector member was the living embodiment of the entitled capitalist, saying something to the effect of “the only role of government is to get out of the way.” This view has the benefit of clarity, but it has the much larger drawback of being completely impractical.

At this same conference, I had a chance to share a panel with members of both the European Space Agency (ESA) and NASA, as well as give a presentation to an audience of country representatives from all over the world. Overall, I found these public sector members to be very self-aware of their organizational constraints and refreshingly open minded about finding creative solutions.

Our panel at IAC 2017 — public & private sector together

Here’s the reality: government to government space agreements and negotiations move at a snail’s pace. The private sector can move faster in theory.

Unfortunately, there are several roadblocks. Export restrictions. Import restrictions. Talent restrictions. Mostly because space is considered to be a strategic industry, which is understandable.

This creates an opportunity for private sector companies operating in applications because the regulatory environment is completely different from the traditional space industry. Obviously, there are still regulations and restrictions when it comes to data and applications. But the level of freedom for the private sector is significantly greater when operating in this application layer as compared to space infrastructure.

It’s important to recognize that governments will continue to play a key role in developing the space industry. At the same, the private sector has a unique opportunity to innovate around applications.

Connecting space to applications

It’s no accident that some of the most exciting private sector entrepreneurs in the space sector have an Internet background. But this cross-over shouldn’t be limited to billionaires who have the capital to start investing in space infrastructure.

One of the lessons from the development of the Internet is that eventually infrastructure and applications do get connected.

Sometimes this is through open standards and co-operation. HTTP is everywhere and yet invisible to almost every user.

Conversely, even a single company can dominate a key connection layer with regulators struggling to catch up.

We could all sit back passively and hope that things “just work” in the evolution of connecting space to applications. That when a billionaire decides to set up either a for profit or even a non-profit, they will be mindful of other stakeholders.

Alternatively, we could be proactive and intentional in building these connections with a mix of co-operation and competition. And in the process, just like the Internet, we may discover that the number of applications related to space are infinitely larger than we ever imagined, right here on Earth.

Bringing Space Back to Earth was originally published in Fusion by Fresco Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.

Unique Insights from Silicon Valley Bank for Successfully Entering China

By Fusion by Fresco Capital,

Can you list the names of Silicon Valley companies that have succeeded in China? Can you list the names of foreign banks that have succeeded in China? There is only one name on both lists: Silicon Valley Bank (SVB).

SVB operates in China through a joint venture with Shanghai Pudong Development Bank (SPDB), and one of the senior leaders is Oscar Jazdowski, formally with the title of Deputy Head of Corporate Banking. I first met Oscar in 2013 while we were speaking on VC and startup ecosystem panel together and quickly realized that he wasn’t your typical banking executive. Seeing the success of the JV over the years, I recently had a chance to speak with Oscar and ask him to share some of the unique insights from the SVB experience in China.

Can you tell us some of the things that Silicon Valley Bank did before entering China as part of the preparation and how that preparation made an an impact on what happened after entering the market?

In 2005 we brought a delegation of about 10 top VCs from Sand Hill Road to China (Shanghai and Beijing). Folks like John Doerr from Kleiner Perkins, Don Valentine from Sequoia Capital, Dick Kramlich of NEA and other leaders of the VC community. For most of them, this was their first time in China. They all knew that China was growing and the likely future of technology. SVB set up a week of meetings with entrepreneurs and government officials and other related parties. Our goal was to get these US VCs to set up shop in China so that they would start investing in China and thereby build the ecosystem for us, into which we could lend to startups. It worked.

SVB also rented impressive office space in Xintandi, right in the center of Shanghai. We rented more space than we needed and built out a number of ‘guest’ offices which we offered to our US VC friends to use. That made their exploration and ultimate transition to China much, much easier because they did not have to go and look for office space in a foreign non-English (more so then) city. We made it easy for them to work out of our office, and that allowed us to stay close to them and see what they were beginning to do and explore in China. It helped us develop even closer relationships with them.

Silicon Valley Bank has been using a JV structure in China. What are the key factors that can make or break the results of a JV in China based on your direct experience and what you’ve observed in the market?

Always staff your JV with the most senior person you can from the parent company. In our case the first President of the JV Bank was SVB’s retiring CEO and Chairman, Ken Wilcox. By sending such a high level executive to China, you demonstrate (by action) to your joint venture partner, the regulators and to the government that you are 100% serious about China and that you are prepared to devote your absolute highest, most senior talent to make this JV successful. You also want those senior sponsors to stick around. This is very often the un-doing of JVs because the executive sponsors either get promoted to another part of the company or leave, thereby leaving the new JV bereft of a loving parent. The two key executives who brought our JV together are still around and even sit on our Board.

You need to have senior level backing, but that’s a given. The success of a JV is not determined at the executive suite, but in the trenches. You have to have a strong determined working group that gets things done. But the real success of a JV is defined at the working level. At the beginning of our JV, we would have monthly working committee meetings with our counterparts at SPDB in order to work on specific deals and issues.

Be aware that the two parties in a JV will have very different motivations. Understand what each party wants and then work to achieve that for them and have them do the same for you…even though each parties motivations might be polar opposites. As example, China and the JV bank is extremely important to Silicon Valley Bank from a long term perspective. If we are to remain the main bank globally to the technology/innovation/life science/ clean tech/ VC and PE industries, then we have to be in China. What is important to SPDB is that they can show the government that they formed a JV with this quirky bank from California and were able to stimulate and invigorate lending and financial backing of the Chinese innovation ecosystem. Two very different goals but both achievable so long as both parties understand what is important to the other and work towards these goals.

How did you find your JV partner in the first place, and what sort of due diligence process should foreign companies use when evaluating potential JV partners in China?

I wasn’t involved in the search for the JV partner myself but I spoke to many of my colleagues about the process at length. The story there is that we spoke to a number of Chinese banks, and we were looking for a partner who would be responsive, creative, risk taking, innovative, etc., and we found those qualities in SPDB. It was also chemistry, which is key in any JV. Our CFO connected very well with their CFO, who is now the President of SPDB, so that was very helpful in terms of building the relationship.

We also realized that when we entered a JV with a Chinese bank, we’re really entering it with the government because the government has to approve it and support it. So it was understanding that we needed to work with both the government and SPDB.

What about you personally? You didn’t live in China before and many foreigners who come to China don’t stay very long. What helped you make the transition?

When I first came to China, I was flattered, excited, and also a little bit apprehensive. I came over in late 2012 to meet the JV bank in Shanghai. When I went around the bank and met these individuals who were now all my colleagues, I asked them all the same question, “what brought you to SPD Silicon Valley Bank and why do you like working here?”

They basically all answered the same way, “we like the culture of the bank”. Culture in SVB is very important, and they answered in a way that an employee in our Seattle or Israel or Denver or San Francisco office would have answered. So as soon as they answered that way, I said to myself ‘wow, I know who you are’ because they answered exactly the same way that my other colleagues would from anywhere else in the world. That made me much more comfortable that I was coming into a culture that was very familiar to me because it was an SVB culture.

The other thing to succeed in any overseas environment, especially one as unique as China, is as an individual you have to be curious, like to get out of your comfort zone, like to take risk and that is my individual personal profile. Having said that, I knew by the answers from colleagues that I knew who I would be working with, so that reduced the risk factor dramatically.

On the topic of culture, one of the challenges that foreign companies have in China is finding, recruiting and retaining top talent. Can you talk about these issues?

On the corporate banking side, it’s relationship management and analysts, with an average age of late 20s to early 30s, bi-lingual, with many who finished universities in the US or UK, and then have worked with other international companies. We’ve got a big advantage with them because we are an innovation bank. That is clearly the drum beat in China today. We also have the words ‘Silicon Valley’ in our name, and those two words are very powerful and attract a lot of people.

We actually find that we attract a high calibre of talent because they’re intrigued by our bank. Our retention rate has been very good. In the case of losing people, we’ve lost people to people starting their own business or to join a VC firm. So we don’t lose people to other banks because they like the culture and the sector, but we can lose them to the lure of entrepreneurship or venture capital.

On the operation side, we are about to open our Beijing branch very soon subject to the final regulatory approval, and we had to hire more operations staff. We’ve hired more mature people who have been successful in their careers and see our bank as very intriguing and different. So there’s an appeal there for these more mature people who have worked in traditional banks for 15 years or more, and they’re saying that this is an interesting bank.

One of the things we’re criticized for is we put people through too many interviews. We also have written tests as well. We don’t do psycho-metrics type testing, it’s really based on understanding each individual as a person.

How do you think about the balance between the global culture of a company and the unique specifics of the local China market?

We put a lot of focus on culture. We focus on people who are creative and can enjoy an environment where everyone has a voice. So it’s a very similar culture to what is seen in our other locations. A lot of our employees in China like working for us and so our unique culture helps to differentiate. Of course, we’re very careful not to be arrogant about this and we recognize that we have to localize. We know many foreign companies have failed because they brought in their culture and they haven’t adapted and localized enough. It’s a balance, and that’s why the joint venture works well, because each side brings its DNA together. One thing I look back at now — had we had a local co-head, that may have been helpful to deal with local specifics. So even for us, it’s certainly possible we could have listened more to our local colleagues to understand the local marketplace.

Looking at localization in China, slogans are very popular. You have a new product, you give it a catchy name. You start a new year, and you have a slogan, like the ‘Golden Year’. Those sorts of slogans are important to employees for inspiration. It’s a very simple example but it’s important. We try and do things like sports days, hairy crab dinners, the regular Chinese New Year parties, and all the obvious things. We have social committees made up of Chinese employees who come up with ideas for building the culture.

In our early days, we would also ask the employees to put together skits, mini-plays, to our employees regarding things like ethics and customer relations. These would be funny skits but the underlying theme would be serious. The employees very much liked it. As we’ve scaled, there’s unfortunately not enough time to do it anymore, but it worked well.

Looking at the macro trends, are there specific themes that are particularly exciting?

The hot themes today are artificial intelligence, big data and virtual reality — those are hot everywhere, including China and Silicon Valley. People are noticing that China may be adopting virtual reality faster than other markets. Not just for entertainment and gaming, but also for enterprise applications.

The demographic shift in China is also driving a lot of themes as well. One venture firm is investing in amusement parks in shopping malls. Something we wouldn’t normally see but these are top tier VCs because families are going to shopping malls for entertainment.

In terms of business model, it’s now less about scale and more showing profitability over time. Not necessarily now, but at least the path to a profitable business model.

For the joint venture bank, what kind of company is interesting for you?

The same things that VC investors look for — a great team focusing on a large market with a defensible business, whether through intellectual property or some other unique edge, that can scale quickly. It doesn’t have to be deep technology.

For us, it’s also the quality of the investors and most importantly it’s management, management, management. You can have a great company and it can still fail with poor management. Our old CEO used to say to us that “cashflow doesn’t pay back the loan, people do”.

Most traditional banks are still focused on collateral, not people. What do you do differently?

It’s our focus on building relationships. We spend our time and energy deepening personal relationships.

Building a successful China JV starts with getting the people right. Oscar’s answers highlight that it is possible to have a strong and unique global company culture that also respectfully adapts to the local China market. While the specifics of each company are different, the lessons about finding the right partner and managing local talent are very relevant to all companies entering the China market.

Photo credit: Li Yang

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Behind the Scenes at Nanosatellite Company Spire

By Fusion by Fresco Capital,

I first connected with Peter Platzer in 2012 during the early days of Spire, before any of the company’s nanosatellites were actually in space. We hit it off immediately, and very quickly this led to an investment by us at Fresco Capital. There are many teams with big dreams, but Peter and the Spire team are one of the few teams that consistently execute those big dreams. In addition to launching and managing a constellation of nanosatellites, the satellite-powered data company has built a truly global business with offices across Asia, Europe and North America.

Here’s a recent Q&A I had with Peter.

When most people think of satellites, they think of very large and expensive projects that only governments can afford. What has changed in the past 15 years and why?

Nanosatellites are about the size of a bottle of wine and since 2014, there have been more nanosatellites launches than traditional large ones. With nanosatellite being far more affordable, this has dramatically changed the number of space faring nations, companies, and even individuals!

The two biggest reasons for that is the integration of new technologies from other industries and the creation of the CubeSat standard. Components from smartphones, drones, and robotics have made it possible to build an incredibly powerful satellite in a fraction of the time at a fraction of the price — it is still quite a bit or rocket science, but simply by replacing the need for lots of money with the need for lots of ingenuity and brain, it opened access for innovation from the private sector to space. Secondly, when it comes time to launch, there are now opportunities to share a ride in almost every space-faring country because the standard form factor is now a well-known and accepted by over a dozen launch vehicles.

Image Credit: Spire Global

You are originally from Europe and have lived in both Asia and North America. How does that influence your perspective of which country or countries Spire considers home?

When I was a teenager I came to my father with my passport and said “I’d like it to say ‘Peter Platzer, citizen of earth”. This was the time before the fall of the wall, my home town being just 45’ away from the Iron Curtain. An avid reader of both science and science fiction this separation between me in wealthy Vienna and others just 45’ drive away made no sense. Since then I travelled to over 60 countries and worked extensively in 7 countries on 3 continents. Clearly this has deeply influenced my thinking, curiosity, and appreciation for different cultures, norms, perspectives. And while I don’t think that my background influenced my perspective on Spire’s ‘home country’ it has certainly influenced the type of problem I want to solve and the type of company I would want to start. So from the beginning it was very clear that Spire needed to be a global company, with global customers, global operations, a global talent pool, solving global problems. Its home country is Earth.

Image credit: Spire Global

The transformation of the space industry is likely be a much needed catalyst for job creation in the future. What should governments, schools and parents be doing to make sure that their children are well prepared for these new job opportunities?

The best thing that schools can do is to keep kids engaged with technology. We need people who can code, build electronics, and understand complex systems. Thankfully there are great minds in ed-tech, like, working on this problem. We put an educational payload into every satellite because investing in children’s passion for science and technology is an investment in our future.

Image Credit: Spire Global

Anything related to space has a huge amount of global and national regulations. Recently, startups in other industries have been hurt by not following regulations. How do you approach the challenge of innovating in a highly regulated industry?

It’s always going to be difficult to deal with a highly regulated industry like aerospace but it is worth reminding yourself that the regulations were created for a reason. When we run into a roadblock, we talk with people. It’s often the case that no one even imagined a world with nanosatellites when they wrote the rules. So far we have found regulators to be very keen on understanding and supporting New Space, even though they often have to work with regulations that are anachronistic to today’s rapid pace of space technology development.

Image Credit: Spire Global

Many technology companies struggle with having diversity in the team. Spire, as a space company, is obviously working on some very advanced technology, so how does the company approach the issue of talent diversity?

Our approach to talent is to hire the best people and to build a heterogeneous team. Research has showed that heterogeneous teams consistently outperform homogeneous teams. Our team now consists of people from 18 countries and counting. It is also worth noting that from our perspective, diversity comes far more in the form of different personalities, approaches to problems, situations, desires, and aspirations, that differences visible on the outside. We measure diversity far more by the “content of the book” rather than “the cover of the book”, something that we think is often forgotten in the diversity debate.

Image Credit: Spire Global

What benefits do you think this new technology will be bringing to companies, government, and people in the next 1–3 years?

Nanosatellites are bringing about a sea-change in how much data is available from space to benefit mankind. Its like switching from a 1950 black and white silent movie to a 2015 4k 3D IMAX movie. Many of those benefits are yet to be discovered, but simply imagine a world were no airplane is ever lost again, global shipping is running on half the emissions because of route optimisation, our oceans are replenished in fish stock thanks to eradicating illegal fishing, and weather forecasts are as accurate as swiss train schedules, allowing you to never be late for a date (or miss a shipping to a customer). And those are just the areas that one company, Spire, is working on. We are certain that many more areas will be positively impacted by the wide-spread use of nanosatellites, similarly as the widespread use of the PC instead of the mainframe brought about the internet.

Thank you for reading!

Our portfolio companies including Spire are always on the lookout for top talent and also partnership opportunities. To learn more, get in touch.

Image credit: Spire Global

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Top 5 Signs Your Silicon Valley Innovation Outpost Is Just Innovation Theatre

By Tytus Michalski,

It’s no secret that global companies have been building Silicon Valley Innovation Outposts, but as Steve Blank cautions, many companies will find that they will simply get entertainment value in the form of Innovation Theatre instead of tangible benefits.

So for everyone involved in or thinking about global corporate innovation and Silicon Valley Innovation Outposts, below are the top 5 signs of Innovation Theatre with a suggested solution to fix each problem.

5. There is no fast track decision making and/or budgeting process for experiments.

A typical scenario is a large company speaking with a startup and saying all the right things. Then, once it comes time to actually close a pilot deal, the big guns from global headquarters (GHQ) are brought in with the 53 page due diligence questionnaire and the external legal counsel identifies 1,000 and 1 risks which need to be negotiated. Rightfully, the startup is thinking WTF. Big guns make sense when scaling up across your entire company but they are weapons of startup destruction at the pilot stage.

Create a fast track for pilot deals with startups. You have to go through the corporate process to create the fast track once, either using a pure internal approach or with an external partner. But once you go through this process, then when you engage with startups you can move at something resembling startup speed because the fast track is already in place.

4. You have no dedicated system for keeping track of startup ecosystem interactions and information.

Corporate and startup introductions are frequently made over reply all email chains with random unrelated subject lines like “Re: Running 5 Min Late”. In addition, companies commonly have various employees in different departments writing internal research reports at regular internals that nobody has time to read. That’s not a system, that’s Innovation Theatre.

You need a dedicated system, and hacking Salesforce for the purpose would most likely make a bad situation worse. There are now dedicated systems just for this, such as Kite, which focus on the needs of corporate innovation. If that feels like too much as a first step, keep it simple with a lightweight funnel tool like Pipedrive which can get you started for the cost of one meeting per month at a trendy coffee shop in SF (disclosure, we are investors in both Kite and Pipedrive because these are real tools solving real problems for real people like you).

3. Your front office team consists of people from a single ethnic group and gender.

Let’s say your front office team consists entirely of white men. This lack of diversity will leave you with a competitive disadvantage when it comes to finding true innovation. Put simply, it’s a dumb business decision. But lack of diversity is not limited to teams of white men. Many companies from other countries also have very homogeneous teams. A team of all Chinese or all Indian or all Japanese men is similarly challenged when it comes to diversity.

Diverse perspectives give you a competitive business edge. The obvious step is to hire from a more diverse talent pool. But if corporate hiring, budget or cultural hurdles are delaying the process to infinity, then at the very least find some external partners who have a diverse team to fill your gaps.

2. You manage tours of famous places and companies in Silicon Valley.

Even CEOs of global multinationals love selfies at famous places, famous events and especially with famous people. But if top leadership is spending time at tours of Facebook, Google and Apple campuses, unfortunately that’s simply startup tourism. Which came first at Google, world leading innovation or free food? Better not to confuse correlation with causation.

Spend more time in the trenches talking to actual startups. The reality is that you won’t have enough time to do everything directly yourself because there are simply too many options, so the most effective strategy is to find partners who can help guide you to the relevant startups for your specific needs. Your selfies won’t be famous now, but if you meet the right startups those selfies will be much more valuable in the future. And, more importantly, you’ll be much closer to the edge of innovation.

1. Getting distracted by the surface level Silicon Valley lingo.

The people in Silicon Valley have their own lingo. It starts with their speaking speed: faster than fast. They also randomly sprinkle in words like big data, machine learning and blockchain, which all started with some meaning originally but have become overused buzzwords with the passage of time. Finally, everyone picks up the habit of name dropping and can figure out a pathway of connections to at least someone from the PayPal Mafia. It’s all too easy to get distracted by this lingo and miss out what’s going on underneath the surface. Coffee shop lingo talk without any outcome is an all too common form of Innovation Theatre.

You need someone either on your team or an external partner who knows how to cut through the bullshit and find the brilliance because Silicon Valley has plenty of both. Someone who can connect you to the right people at the right time and, most importantly, people you can trust.

Beyond Entertainment

When building your Silicon Valley Innovation Outpost, make sure to avoid Innovation Theatre so that you can get tangible benefits. If you want entertainment value, go watch Silicon Valley, the show. It’s cheaper, and funnier.

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Stop Trying to Imitate Silicon Valley

By Stephen Forte,
HBO's Silicon Valley


Planners from all over the world try to replicate the success of Silicon Valley with varying levels of success. Everyone from New York City (Silicon Alley) to London (Silicon Roundabout) to Hong Kong (Silicon Harbour) to Moscow (Skolkovo) has mimicked Silicon Valley in an attempt to build their own version of the lucrative startup hub.

The problem is that Silicon Valley has unique features that have allowed the region to become the world’s center of gravity for innovation. Simply copying the things that allowed Silicon Valley to become such a success won’t work, as some regions have already discovered. The tech hubs need to play to their strengths and evolve in their own unique ways.

Silicon Valley’s Recipe for Success

It’s easy to see why governments want to create their own version of Silicon Valley when looking at the valuations the California region is blessed with. There are now at least 74 startups there valued at more $1 billion each. The total value of these so-called “unicorns” is $273 billion.

The reasons for Silicon Valley’s success are many and most of them can’t be easily copied. Geographically, the region is perfectly located near San Jose, San Francisco, and Oakland. Historically, Silicon Valley has experienced decades of success with well-established companies like Google, Facebook, Apple, Fairchild Semiconductors, Intel, Tesla, and other esteemed companies.

In Silicon Valley, everyone knows somebody who has gotten rich off of stock options they think they’re smarter than…which in turn propels them to take a risk at a startup. Perhaps most important for the region’s growth is this competitive and creative culture that continues to allow so many companies to thrive. Not to mention, an endless supply of elite students from Stanford and Berkeley graduate (and dropout) each year to create the next crop of potential tech giants right in the Valley.

But this formula can’t be bottled upon and shoehorned in anywhere. The wealthy people in San Francisco might work at Google and the likes, yet in Hong Kong and New York, the upper class tend to come from finance, and in Los Angeles it’s Hollywoodhopefully you get the idea. This still doesn’t stop governments and business people from trying to replicate Silicon Valley without taking culture and demographics into account.

Being Unique: Playing to Your Region’s Strengths

Every would-be tech hub has its own unique characteristics and features that need to be taken advantage of. If you go to a Starbucks in Los Angeles, you’re likely to bump into a celebrity or similar entertainment personas. For Hong Kong or New York City, odds are high that you’ll fall into a conversation around recent market performance and SEC developments.

Playing to a specific region’s strengths helps lead to success. Modeling a hub exactly from Silicon Valley in areas that don’t carry the same characteristics becomes a major disadvantage. New York, Hong Kong, and London are better suited to be fintech startup hub than Silicon Valley. Los Angeles is better suited to be an entertainment startup hub than Silicon Valley. Playing to those unique strengths make more sense than trying to replicate Silicon Valley.

Fostering Growth

Government benefits are a welcome way to help foster startups, yet they’re only the baseline and not the endgame. All those helpful benefits (friendly tax policies, real estate deals, subsidies, incubators, etc) only go so far. The barriers of entry to create a tech innovation center in the vein of Silicon Valley are so high that these benefits are simply the table stakes. A bigger, greater hook is needed for regions to succeed.

Regions need to embrace what makes them unique and build off of that. With everyone trying to copy Silicon Valley, there’s plenty of room for new players with their own strengths. Any place that simply tries to do exactly what Silicon Valley is doing will pale in comparison to the original.

Hardware Companies Are Really Software Companies

By Stephen Forte,

There has been an explosion of hardware startups over the past few years led by the Maker Movement and startup programs like Hax (where I’m an advisor). I’ve seen and worked with well over 100 hardware companies in the past five years. In that time, I have observed that hardware startups think differently than software startups. They shouldn’t. All hardware companies are software companies. The sooner they realize it, the sooner they’ll become successful.

Look at today’s most successful hardware companies. Apple and Tesla build amazing, innovative hardware. And at its heart, a Tesla is an iPad on wheels.

It’s okay if you don’t believe me. But I just upgraded to version 7.1 of their software, which includes self-parking and summon features. It means my car self-drives in parking lots. It’s not even software in disguise. It’s just software. They didn’t send me any new hardware, just an update over WiFi.

Software isn’t Second Priority

It’s tied for first. Obviously a hardware company needs an amazing design and has to worry about manufacturing. The economics of a hardware startup are different. But a great hardware solution needs great software.

If you were going to build the connected camera (as if your iPhone didn’t suffice), designing and engineering a perfect, beautiful camera wouldn’t be enough. People want to frame their pictures, or share them online. Your camera has to have a user-friendly social element or you’ve missed the boat. And if you don’t want to design your own social software, it needs to integrate deeply with Instagram, Facebook, and Twitter.

People, including me, are spoiled. We expect a great software experience wherever we go. If you’re building an IoT product, it’s not enough to connect something to the internet. Users need utility from your software too.

Software can never be an afterthought.

This area is where hardware companies miss out. If they don’t prioritize software, they’ll be unsuccessful. I saw this happen with a company in the pet space. After their successful Kickstarter campaign, they delivered an awesome hardware solution with so-so software. Once they upgraded their software and then built an app that augmented the experience, they were able to draw in new users to their hardware as well as keep the existing customers who purchased their hardware more engaged. Lastly, the additional software opened up way more monetization opportunities besides the hardware. (Nobody besides Apple makes money on hardware.) Only once the company realized that software was the key ingredient did their hardware solution become successful.

What Separates Leaders from Followers

Most fitness trackers do the same thing. They count steps, measure progress, and suggest goals. But if you use a tracking device, I’ll bet it’s a Fitbit.

It should be. Fitbit has the best solution for helping you stay fit and lose weight. It’s simple to compete against your friends (and yourself) as you work towards fitness goals. I find myself walking more so I can catch up with my competitive friends. I take particular pleasure (and taunt them) when I beat my friends on the the leaderboard.


Products are supposed to get a particular job done. The job isn’t to count steps, or else there’d be little distinction between the trackers. Fitbit has invested time, energy, and resources into building a data analytics solution to solve the real job: helping people lose weight. And why are they so successful? Because they invested in software that accompanies their hardware.

In my experience, I’ve never invested in a hardware company. I’ve only invested in hardware or IoT companies that are software or big data companies in disguise. It’s a massive differentiator.

Hardware’s Maturation

Consider this: Intel, a global hardware leader, has more software developers than Facebook. Intel is a software company that happens to produce hardware.

If it’s good enough for world-shaking market leaders, it’s good enough for your hardware startup. Go become a software company as well.

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How IoT Disrupts Traditional Business Models

By Stephen Forte,

The Internet of Things (IoT) changes everything.

That’s one of the least hyperbolic statements I can make. Existing businesses will be disrupted and their business models will be changed forever. In fact, IoT and the Lean Hardware movement are already a driving force behind why The Nature of the Firm is no longer a tenable thesis.

Let’s talk about why that’s the case.

Meet The Connected Dishwasher

Put yourself in the shoes of Philips, consumer products manufacturer. Philips makes dishwashers. One day, they’re going to throw a sensor and wifi chip into the newest dishwasher model and call it a “smart” appliance.

We’ll have the thing we never knew we needed: the connected dishwasher. (But trust me, I will buy one.)

It’s not so simple though. Philips can’t put some chips into an appliance and call the project complete. They need to design an app that consumers could conceivably use. Then, they need an API so that Smart Things or some other home automation software can control it.

Philips was a consumer hardware manufacturer. But with the connected dishwasher, is it still?? Or is it a software company? Is it an App and API company? Of course not. Philips will continue to build appliances and outsource that kind of work to someone else.

But there’s more work left. The dishwasher needs to communicate to the power grid if it’s going to be “smart” and cycle at the most opportune times. Does that make Philips a data communication company?

And what happens when the dishwasher needs servicing? Luckily, its sensors can determine when repairs are needed before something breaks. The dishwasher “calls” a service provider and tells them what part it needs. Or better yet, a technician could log in remotely and fix the problem with software. No in-person visit required.

Philips is now solving problems the same way Tesla “repairs” my car! Doesn’t that strike you as a big leap for a consumer appliance company?


I say “DaaS” only partly tongue-in-cheek.

Because when Philips walks down this path, it will transform how the company does business. Its existing models aren’t compatible with its business needs. The dishwasher company will become a service company.

Not only that, but Philips isn’t competing against its old peers anymore. The company enters a field where it doesn’t have any core competencies: home automation.

The consumer isn’t buying a dishwasher. In their mind, they’re buying another home smart device, no different from a new Beats Pill in their mind. Besides every other consumer appliance manufacturer, Philips now has to compete with Apple, Bose, and Samsung for the same top of mind and share-of-wallet.

The other dishwasher companies don’t seem like a big threat anymore.

Where Do We Go Now?

History repeats.

Today, we’re in a mobile-focused world. Before that, it was the web. Then PC, and then Mainframe. Right now, people think IoT is geeky. They believe it can change “infrastructure,” whatever infrastructure means to them. But what they don’t realize is that IoT is probably the driving force of the next era of computing. We already have more IoT sensors connected to the internet than people In the next five years, the number of sensors will outnumber people by a factor of 10.

Philips and companies like them will have their business models disrupted. They’ll walk down new paths, completely unprepared for the risks that they’ve introduced.

But that’s where the massive opportunities lay. Startups can fill the gap. Investors can finance them. Someone will profit from the demise of the Old Guard.

The next era is coming, and it will either be the IoT era or an era driven by it.

Keep your eyes peeled for opportunities.

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