Going on a trip to Silicon Valley with your MBA program or government incubator? Don’t fool yourself into thinking that those weeklong Silicon Valley immersion programs are anything other than startup tourism. Spending a week visiting Facebook and Uber and attending talks and events, while interesting and potentially educational, will not teach you what it’s like to build a startup.

Sure, you might make some connections and come closer to figuring out what you really want to do for a living. But if you really want to benefit from a trip to Silicon Valley, you are better off reaching out to one of the several early-stage startups here and asking whether you can intern for a few weeks.

You’ll Understand How Startups Work

While immersion programs are designed to introduce you to the world of startups, they don’t go far enough when it comes to actually shining a light on the intricacies of Silicon Valley. Sure you can see the free food at Twitter, swimming pool at Google, and the hiking trail at Facebook, but that is like visiting Disneyland and thinking it is reality.

By reaching out to a startup instead and interning there, you will develop real relationships and potentially kickstart a career. You will understand how startups work behind the scenes, and you’ll be influenced by their way of doing business. Actual work experience is going to look a lot better on your résumé than spending a week hardly scratching the surface of the startup world.

Think of it like studying abroad. There are two ways to go about it. One is to study at a university where the classes are taught in English, you have no homework, and you can hop around to a bunch of different countries every weekend. You get a broad overview of another culture, but no lasting and profound understanding of it.

On the other hand, you could spend a year in another country, live with a host family, and learn the language. You’ll struggle and it will be challenging, but in the end you’ll have an in-depth understanding of that culture, and how it differs from yours. At the end, you’ll belong to two cultures, rather than just one.

It’s up to you, but I’d take the latter experience over the former any day.

You’ll Gain Unique Insights

When you attend a weeklong immersion program, you’ll get a light taste of what you could expect should you move to Silicon Valley at some point in the future.

But by interning with a company out there — and living and working in the environment itself — you’ll gain unique insights that you can’t get anywhere else. You need to experience them on your own, organically.

How to Find Startups to Work For

You might be wondering how you can actually get hired? Maybe you don’t have startup experience yet. Maybe you’re a developer who wants to work for Google, but you’ve only been coding for a year and you just don’t have the necessary expertise.

Head on over to AngelList, the best place to learn about which companies are hiring out in Silicon Valley. AngelList connects startups with jobseekers interested in working for them. The site provides you a clear view as to what you can expect should you land a gig (e.g., salary and equity is disclosed up front).

The best part? By sending out one application, you can apply to over 40,000 jobs in one fell swoop. Talk about efficiency.

How to Get a Startup to Hire You

Don’t think any startups will take you? Don’t be so hard on yourself.

Pitch attractive would-be employers a short project that utilizes your skills. For example, if you’re a communications major, offer to come in for two weeks to consult and intern with them for free, in exchange for a reference. Most startups don’t have any communications or PR plan, and are happy to take free labor.

Are you a political science major? Offer to come and do an analysis on the effects new policy or the upcoming elections will have on them. Think no startups care about this? Just ask Uber what they think.

If you don’t have any “practical” skills whatsoever? Offer to clean the coffee machines and work your way up.

Maximize Your Trip to Silicon Valley

Those weeklong programs aren’t the worst thing in the world. I’ve even hosted them before at my office in Palo Alto. But the payoff is much higher if you actually immerse yourself in the experience for an extended amount of time.

Remember, if you’re part of one of these programs, your trip doesn’t have to end once a week is up. Stay a little bit longer. You won’t regret it.

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Photo by flickr user christian.rondeau

Imagine if your startup meets with one of the world’s largest companies to talk partnership. You tell them about your latest product full of excitement and passion. What if the following week they have a team working on a copycat product?

Danger
Large corporates have become much more involved with startups during the past several years. Especially the ones from Asia. And yet it’s difficult for startups to successfully do reverse diligence on these large corporates. Especially the ones from Asia.

Fortunately for startups, we’re doing that work on their behalf. Core to our model is finding the right corporate partners, especially in Asia, to help startups scale into local markets and provide other strategic benefits.

When startups pick the wrong corporate partners, it’s worse than nothing. Because takers and fakers can suck your limited time, energy and resources like vampires and zombies. They simply bleed your startup to death. And then move on to their next victim.

There are actually plenty of fantastic makers who know that their success comes from building the future with you. But connecting with them is hard. Here’s a rough guide to finding these makers, ignoring the fakers and protecting yourself from the takers.

Fakers
The discussion with fakers tends to start off strong. They typically know how to work the media and get favourable press coverage. They love to attend networking events.

And they name drop. Right away they let you know that they know people. Not just any people but the people who know people and the people who people know. They are also always busy. This combination makes them seem like makers at first.

Except they’re not.

Because when it comes time to actually get things done, fakers gonna fake. They have convenient excuses, mostly related to schedule. Because fakers are very busy…doing not very much at all. Fortunately, that reduces their ability to inflict serious damage. They’re so busy doing nothing that their main negative impact is the opportunity cost of missing out makers.

As long as you don’t get stuck in a long-term zombie relationship, the downside of fakers is usually limited.

Takers
You should be much more worried about the takers, which come in various forms and sizes. Some are famous names. Some hide in the shadows. Some are shape shifters.

What all takers have in common is a zero sum philosophy that for them to win others must lose. These are the companies that meet with startups and have a team copying the product the next day. They negotiate complicated legal agreements and then find a backdoor. They suck your blood as quickly as possible because that’s how they stay alive.

So what can you do?

The main thing to remember is that, no matter what, takers gonna take. So when you start spending time with them, you’ll notice an odd pattern. They’re constantly finding ways to suck blood from others. The most obvious habit is to take from people who are weaker, so watch how they behave around people who can’t help them or hurt them. In the early stages of speaking with you, it may be less obvious because you have something they want. But even then you’ll notice hints of their desire to take.

The reality is that many takers are in positions of power and you will probably have to deal with them, so be prepared and keep your option open to walk away if needed because the downside could be deadly for you.

Makers
These are the ones who get stuff done. Once a maker becomes well known, their challenge becomes time allocation. They simply have too many opportunities and too little time.

First, you need to stand out. Because you’re not the only one who wants to get their attention. This does not mean coming up with gimmicks, sending them messages every hour or shouting louder at events. It means understanding what the maker truly needs or wants and only approaching them if you have the answer. Otherwise, you’ll be wasting your time and energy.

But there’s another kind of maker.

Instead of targeting the makers who are already famous around the world, consider looking at the large number of companies who are also makers but less famous. How do you find them? Especially in Asia? Through a trusted network. There are many amazing maker companies who quietly build huge value for their customers, partners and themselves and yet are not famous.

The best part of working with makers who are less famous is that they will actually have more time for you precisely because they don’t have to deal with as many distractions.

Shortcut
Sadly, there will never be a way to get rid of all the fakers and takers. But we’re in a fortunate position to give startups a shortcut to work with trusted partners. This creates a competitive edge for you to build more value faster.

We connect makers with makers so you avoid the fakers and takers.

In the early days of your startup, you might have heard you should have a hacker, a hustler, and a hipster on the founding team. That makes a lot of sense in the initial stages of your company due to the experimental nature of the business. Remember what Steve Blank says: a startup is not a “real” business but rather “an experiment searching for a business model.”

Once you start to move out of the coffee shop and build your initial team, you’ll have to make some careful hiring decisions. I’ve seen founders hiring for new “formal” positions right out of the gate when all they need are operators to validate the business and find product market fit. Instead of finding your next VP of whatever or Chief whatever Officer, you should have no titles until you have paying customers and a product market fit.

I advise all the founding team to call themselves “product” on slide decks and email signature (if you do that sort of thing). Early stage team members should not be going to conferences and don’t need business cards, so the title doesn’t matter.

Here are a few other ways to manage the early stage hiring processes, and run your startup more effectively.

Maintain Equilibrium

Last year, I wrote a piece called “The Holy Trinity of Product Development.” I argued that it’s important to maintain balance in a company. Often, a startup’s first hires (besides the founders), tend to skew either to the technology side (we need 5 developers!), or the marketing side.

Generally, if the founding team is more marketing-minded, they overhire engineers, and vice-versa. Instead, a company should be customer-centric. To achieve this “holy grail,” the company needs both technology and marketing expertise.

Be Well-Rounded

In another article, “Why CTOs Should Know Accounting,” I suggested that CTOs also need to understand the business side of your company. It’s important for all of the high-level employees in a company to be able to converse with the rest of the employees.

Just like the CEO of a company should be able to at least pronounce the word “kanban,” (con-ban not can-ban) and know the difference between Java and JavaScript, a CTO should be relatively familiar with balance sheets, income and cash flow, annual statements, and budgets.

How to Hire

I’d argue that it’s better not to even bother with interviews. Rather, have coffee first. Discuss why they want to work at such an early stage company and review their skills there.

If that goes well, then have the potential employee give a presentation to the entire team. It can be on any topic (Was “The Force Awakens a remake or not?” is a perfect choice), and it gives the team a feel for the candidate’s analytical skills, seriousness about the position, and ability to do something different, while it also provides a unique experience for the candidate.

If the person is successful on their hiring presentation, I’d suggest the “can we have a beer with them” final check. This one’s really complicated – take them out for a beer with the team (or another social engagement if team members don’t drink). Get to know them on a personal level. When companies scale to be over 25 people, it is much harder to do this with the whole company, but each functional area (marketing/sales, tech, backoffice) can do it with their group and a select few members from other functional groups to join.

Avoid Founder Disputes

Early stage companies sometimes have no cash and bring on someone as a “co-founder” with little to no pay. It’s also crucial that you do your best to avoid founder disputes. I wrote a piece on this called “Dynamic Founder Agreements,” but I’ll give you a short summary. I described this agreement like a typical IF/THEN/ELSE.

IF:

The CTO works full-time and performs all of coding and technical duties of V1, his equity is 50% vested over 4 years, 1 year cliff.

ELSEIF:

The CTO works part time, is disengaged, or we need to hire developers sooner than expected, his vested equity is reduced by half and he forfeits his unvested equity. Loses board seat.

ENDIF:

The CTO has to leave the company because he needs a job or a family emergency:  if the CTO built V1 then the buyout is a one time payout of $50,000 USD cash or 2% vested equity, if the CTO did not build V1, the buyout is 0.5% vested equity. Loses board seat.

While you might not avoid all disputes, this agreement will go a long way.

Hiring for Bigger Companies

Once your company grows and matures, deliberately hire slow. “Scale” and “move fast” does not mean “hire crazy fast.” Rather, hire for a role only when it is obvious the company is suffering without it.

There is a Silicon Valley secret that dictates that “you make a decision to join a company ONLY if they are resource-constrained. Once they have enough people, time to move on.” The idea behind this secret is that creativity needs constraints. Translation: if your plan calls for ten people, see what you can do with five.

Use these tips when building out your initial team. Don’t fall into the hiring trap.

Whether it’s the Oscars, the legal system, or hiring practices, diversity is a trending topic of conversation. While I’m excited we’re talking about diversity, the conversation often ends up being both boring and frustrating because it is most often raised in a moral context: “Hire more diverse candidates because you should, because it’s right, because it’s fair.”

In reality, however, I have found that context almost always trumps morals. You might think you know what is the “right” thing to do, but where you live, where you’re from, what your incentives are, who you’re answering to, when you have to answer to them, the opportunity costs — all of these factors convert our sense of “right” and “wrong” into a million shades of grey. So, instead of insisting on a black and white world, let’s acknowledge the spectrum and reframe the conversation.

When it comes to diversity, don’t do what’s right. Do what’s smart. Instead of guilt tripping homogenous organisations and giving out gold stars to anyone who has a “Diversity Initiative”, let’s talk about why anyone who doesn’t is just plain dumb. Diversity is not a moral imperative. It is a business imperative.

The Reality of Bias

As humans, we are hard wired to trust people that are like us. It’s normal. It’s an instinct. It’s a tribal thing. And it makes sense. After all, we are biologically designed to perpetuate our genes. This is why most humans are naturally attracted to people that look like us. Really, look closely at your married friends. It’s kind of creepy.

When it comes to business and we are faced with dealing with another person or entity, smart people want to reduce risk. If you can predict someone’s behaviour, you will have less risk than if you cannot predict their behaviour. If you know what they will do, how they will act, you can prepare accordingly and thus ensure a positive outcome.
Unfortunately, people often prove to be unpredictable. But, we do have the perception that we can control our own behaviour. So, naturally, it follows that if we believe someone is like us, we believe we can more accurately predict their behaviour.

Working with people like you = more predictable = less risk = more control. Boom. I do it, too. I meet someone with an equally terrible Chicago accent, another young American in business in Asia, another Harvard graduate, someone else who wears tortoise shell glasses…. yes, I am instinctually predisposed to like them a little bit more. I’m not going to deny it. Instead, I prefer to acknowledge it, embrace it, and figure out how to turn it into an opportunity.

The Opportunity

As a venture capital fund, there are three key aspects that contribute to our success: sourcing the best deals, adding value to our existing investments, and fundraising. Diversity provides a competitive edge in every part of our business.

1. Source Better Deals

One of the first lessons I learned as a VC is that the worst investment you will ever make is the one you don’t. Our biggest risk is passing on the next Facebook. As such, it is to our benefit to leave no stone unturned, to reduce bias when evaluating investments, to look at every startup as if it could be the next world-changing, billion dollar business.

While I can train myself to reduce my own bias, we’ve already established it is unavoidably embedded in my instincts thanks to millions of years of natural selection, so it might take a while. In the meantime, what I can do is build a team that, collectively, is equally open to all entrepreneurs and technologies.
In addition to our 3 Managing Partners, we also rely on our 3 Venture Partners and our network of 23 Impact Partners to channel quality deal flow. Collectively, our team spans the US, Europe, Asia, Africa, and the Middle East, they have experience in technology, sales, marketing, enterprise, consumer, education and healthcare. They are college dropouts and Ivy League grads. They are Millennials and Baby Boomers. If there is an interesting entrepreneur doing something remarkable somewhere in the world, it is very likely they will look at our team and either know someone, or see themselves in someone.

2. Work More Effectively with Your Teams

The second key element of being a successful VC is working with your portfolio companies to ensure their success. This requires close relationships with founders. Open and authentic communication allows us to stay ahead of potential roadblocks, to properly leverage our network and our resources, and to make high quality connections that help our teams grow their businesses.

We invest in all types of founders — approximately 50% of our portfolio companies are co-founded or run by women. We have teams based in Canada, the US, Europe, and Asia. We work with experienced entrepreneurs, as well as first-time founders. Each founder has a unique chip on their shoulder, has their own communication style, and thus naturally connects with different types of people. Because we have a diverse team, founders tend to gravitate toward one of us, and thus are more likely to be open with us, to ask for help, to raise potential issues as they arise. This gives us a significant edge in terms of our ability to add value to our investments.

3. Raise More Money

As an emerging VC fund, we are constantly fundraising. Similar to what we experience as investors ourselves, our Limited Partners (LPs) want to mitigate risk by building trust with our team. Our LPs include family offices, corporates, and individuals from all around the globe. Canadians, Americans, Indians, Brits, Japanese, Chinese, ex-financiers, young entrepreneurs, family offices and 100+ year old corporations. While we have delivered, and will continue to deliver exciting returns, the reality is that investors write you a check because they trust you. And we trust people who are like us.

Sometimes, when we meet with potential investors, I don’t say a word. They take one look at me, make their assumptions, and only want to hear from my male partners. Other times, I get all the eye contact, and end up speaking the entire time. It just depends on what they’re looking for, what they care about, and who they are more inclined to trust. I can’t change what an investor wants or trusts (though believe me, sometimes, I would like to). However, if we have a diverse team, we are more likely to be able to connect with any given investor. Which means we have more opportunities to raise capital, which makes us more successful in the long run.

Don’t Be Dumb

At the end of the day, I do believe diversity and equal opportunity are the right thing to do. However, as a realist, I acknowledge that doing what is “right” is often not enough. We have a diverse team because it gives us a significant edge in every part of our business.

Even if you’re not an investor, chances are you’re still looking for innovative new ideas and fresh insight into how you need to evolve to grow revenue and avoid disruption. In order to that, you need to understand your customers and attract the best talent, and having a diverse team helps you do both of those things.
Build a diverse team not because you want people to think you’re “good”, you’re “right”, or you’re “progressive”. That’s bullshit. Build a diverse team because it gives you an edge. Because it’s the smart thing the do.

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.

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?

Dishwasher-as-a-Service

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.

 —

Photo from: https://pixabay.com/en/network-iot-internet-of-things-782707/

What is the best startup ecosystem? There’s no shortage of reports trying to answer that question. Take your pick for 2015.

We crave these lists because our education system, culture and business world have all taught us to appreciate the value of competition. And it does have some value.

My Answer
When asked personally, I would always start with the SF Bay Area as #1. Although some locals refer to it as three distinct ecosystems, it’s really a single ecosystem with bad traffic. The data supports the #1 ranking, but just as important is my personal experience on the ground. Things generally do work faster and better in this ecosystem.

But I was wrong.

The Nature of Networks
My change of heart started because I was constantly being asked to rank startup ecosystems in Asia, where the answer is not obvious and the competition is intense. Beijing, Singapore, Hong Kong, Bangalore, Tokyo, and many more contenders. Which is the best?

To answer that question, first let’s take a detour to discuss networks. Twitter is not about 140 characters, it’s about the network of people. A smartphone can be used on its own, but the real value is being connected to the network. Uber could not exist without a network. We automatically understand the power of network effects for companies and people.

Most of the energy in building startup ecosystems right now is focused on local optimization in order to be better than the competition. To climb up the rankings. But this quickly reaches diminishing returns precisely because of local constraints. Opposition to immigration. Housing prices. Traffic. If this starts to sound familiar in your city, it’s because these are common challenges in almost every major startup ecosystem in the world.

A New Perspective on Ecosystems
Instead of focusing primarily on local optimization, startup ecosystems should spend more energy on building connections to other ecosystems. Fortunately, this process is already happening and startups are leading the way by growing their teams remotely, connecting with cross-border capital and finding global customers. But it’s still the early days in this trend and more can be done at the overall ecosystem level.

As we know from personal and business experience, becoming more connected across diverse worlds is a powerful way to increase value.

Similarly, when two startup ecosystems are more connected, they both receive more value because it is not a zero sum game and those connections will then feed back into the local ecosystems. They will both be better off on an absolute basis, and of course also move up in the rankings.

We know that network effects don’t stop at the local level. Instead, positive feedback loops continue to increase across the network as it scales.

This system perspective exposes the reality that our current ranking system is missing an obvious point. The #1 startup ecosystem in the world is not the SF Bay Area, or any other individual ecosystem, but instead the overall network of connected startup ecosystems.

The network is the ecosystem.

A few years ago I was sitting in a classroom at the London School of Economics debating unemployment with my nobel prize winning professor. The conversation was centered around another LSE nobel prize winner, Ronald Coase, who in 1937 observed in his scholarly paper, The Nature of the Firm, that firms exist in order to reduce transaction costs and take advantage of economies of scale. Barring external forces, firms will tend to grow larger and larger over time. This is the fundamental economic framework powering the world economy since the industrial revolution, driving corporate behaviors such as: corporate structure, the rise of M&A, and 20th century management theory.

A few weeks later, Ronald Coase at 101 years old, would go on a podcast and declare his 80 year old nobel winning thesis obsolete. No longer do you need to scale the size of a firm just to obtain efficiency, with modern technology and today’s demographics, you can capture the same value with much smaller firms. Companies will still grow to be larger over time, however, they won’t grow as large as they have in the past.

Since then I have been thinking deeply about what has broken down Coase’s theory which was the fundamental underpinning of the world economy since the Industrial Revolution. After several years of reflection on this, I have come up with four forces:

• The rise of the freelancer economy
• Millennials’ behaviors and impact
• IoT and lean hardware
• SaaS economics and the democratization of IT

The Rise of the Freelancer Economy

According to a report by Intuit, by 2020 approximately 40 percent of the U.S. workforce will be working as freelancers. Another study predicts 50% by 2025. As more members of the workforce decide to freelance, the number of marketplaces to facilitate them will proliferate. In the past you would hire the reputation of a Brand. Tomorrow freelancers will build a reputation on a marketplace and the marketplaces will build a brand.

This trend will lead to more commodity based and strategic outsourcing. Commodity based outsourcing will consist of outsourcing HR, legal, accounting/finance, manufacturing, and software development. Strategic based outsourcing via the freelancer economy will outsource product development, design, and even management.

Millennials’ Behaviors and Impact

By 2020, Millennials will consist of 20% of the workforce, and by 2025, 75%.  Millennials were born mobile and digital; their behaviors will change the way companies interact with their customers as well as how companies interact with their employees. Everything changes from preferred methods of communications (messaging) to marketing (social media) to commerce (mobile first). Traditional management models start to break down with Millennials managing Millennials and selling to Millennials.

IoT and Lean Hardware

At the same time the Millennials are taking over the workforce, we will have 26 billion IoT sensors in production and connected to the internet by 2020. Cheap sensors and widespread availability lead to more big data driven analysis about everything from the lighting in your office, self-driving cars, the temperature of your home, to how your dishwasher runs. Abundant sensors combined with cheaper and small batch manufacturing will drastically change business models, pushing them to be more service oriented. Robotics and AI will eliminate most unskilled jobs, driving employment to be more skilled and knowledge based.

SaaS Economics and the Democratization of IT

While the move to the cloud has already begun, over the next few years, it will be massive. The economics of SaaS software has shifted the decision making power to the line worker from the management and IT. Since you can swiftly deploy cloud-based software within your organization with a free trial, cheap monthly credit card payment, and no physical installation, employees are now making the purchasing decisions, not the IT department. This is breaking down siloed data, enabling remote/distributed teams, and creating more capital efficient companies.

The Next 10 Years

As we enter the post-Industrial era, the dynamics of the firm and the workforce are going to change radically. As the forces that are breaking down Coase’s model only grow stronger, many companies are remaining stagnant. The success of a company no longer depends on growing larger, but now depends on being the optimal size in order to fend off the disruptive smaller companies. Google figured this out when it broke the company into smaller pieces and formed the parent holding company, Alphabet.

The larger this gap between big and optimal sized companies grows, the less chance there is of survival for companies trying to grow by growing bigger, opening up great opportunities for disruptive startup companies. Even more interesting is that this transformation will happen in the next ten years. How tomorrow works is radically different than it is today.