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February 2010
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April 2010

Investing in Disruption

Innovator_solution
 
 I'm an advisor, investor and board member to several startup software companies including Revolution Computing, Pentaho and most recently Erply a new Software as a Service (SaaS) company.  One of the common threads I look for is the opportunity to disrupt a large market.

One of the things that made MySQL successful was its use of open source technology to disrupt the multi-billion dollar database market.  In Silicon Valley, people often talk about disruption, but usually what they mean is they have some new feature or a new way to do things that is 10x faster or 10x cheaper.  Those are good things, but that's not necessarily sufficient to make a business truly disruptive.  

The classic disruption model as defined by Clayton Christensen comes down to 4 important factors:

  1. There's a proven market with large incumbents
    This demonstrates that customers are willing to pay money to solve this problem

  2. There are underserved customers whose needs are not being met by the incumbents
    They may be receptive to a "good enough" product that is easy to access

  3. The incumbents cannot profitably meet the needs of this market
    Ideally, their entry into this market would hurt their core business 

  4. To disrupt market, you need to disrupt all the players, not just some of them
    If there are other players, you need to disrupt all of them

If you have all of those things, then your business could be disruptive.  But typically many startup companies ignore the third point.  It's not enough to do something the incumbents don't do today, you want to do something that they cannot do, because it would hurt their existing business.

In the case of MySQL, the product targeted the underserved web developer market.  MySQL was not only a better fit technically in that area, but due to its open source model, it was a business that was unattractive to the incumbents. (Or it was, until it grew to beyond $100 million in revenue.  Now Oracle will leverage this force to compete against Microsoft SQL Server.)  

There are plenty of great businesses out there that are not disruptive; perhaps you're creating a new market, or you're introducing a new innovation that the incumbents have not discovered.  Disruption isn't the only strategy, but if you can make your business disruptive, you gain a significant advantage in the market place.


O'Reilly Where 2.0 Conference in San Jose

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Location based applications and services was all the rage at the South By Southwest interactive conference earlier this month.  Now O'Reilly brings their Where 2.0 conference to the bay area this week from March 30 - April 1.

There will be keynotes by location dudes from Microsoft, FourSquare, TechCrunch, FaceBook, Google, Yelp and, of course, Tim O'Reilly among others. Technical workshops are held on tuesday and the exhibit hall is open wednesday and thursday from mid mornign to late afternoon.  

Where?  San Jose convention center. 


European Startup Situation

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I attended a panel session at the South by Southwest Interactive conference recently on the topic of high-tech startups in Europe.  The panel included Marten Mickos (former CEO of MySQL, now at Eucalyptus), Resham Sohoni (CEO of Seedcamp), Peter Robinett (Bubble Foundry) and Felix Petersen (Nokia).  It was interesting to learn about some of the initiatives, like Seedcamp, which are investing in and promoting startup companies like Erply, and Codility coming out of eastern europe. These companies are small, but they have big ambition and are leveraging open source and cloud infrastructures to keep their costs low.

Here's some video from the panel...


Piper Jaffray on the Cloud

Piper Jaffray has published a 300+ page study on the cloud computing industry based on a recent survey undertaken of 100 CIOs. Bottom line, cloud computing is expected to grow significantly over the next five years. 

    Survey respondents expect the mix of cloud computing to escalate strongly to 13.5% in five years. This equates to a five-year CAGR of 19.2%, or 23.9% when we also incorporate IDC’s forecast that total software budgets will grow 4.7% annually. In other words, software spending will grow gradually in the next five years, but the mix of spend allocated to cloud-based applications will likely surge rapidly. Another way to think about the data is that the Cloud Computing market is expected to grow five times as fast as the broader software market: 23.9% vs. 4.7%.

If anything, I think the prediction is conservative and the impact could be much larger in magnitude when mainstream adoption occurs.  But the risk is that adoption takes longer, just as it did for open source software.  And as the report indicates, open source is powering much of the cloud computing that's going on:

    The next-generation Cloud Computing data centers are NOT running Microsoft Windows; they are increasingly leveraging the compelling economics of open source components. For example, the data centers powering Amazon, Google, and salesforce.com all run on Linux and other open source technologies. In fact, Red Hat’s operating system and the MySQL database are key components to many of the leading-edge Clouds being developed today. 

Why is this occurring? Because open source leverages a global community development process which results in a product that evolves rapidly, provides transparency into the source code dynamics, and surpasses other products in terms of security and reliability – all at a lower total cost of ownership (TCO) than traditional offerings.


Scobelizer: Location Services Hot at SXSW

I happened to run into Robert Scoble at the South by Southwest tech conference and did a quick video interview to find out what he thinks is hot technology these days.  No surprise, it's location, location, location with services like FourSquare, GoWalla, twitter and others.  Check out this video to get @scobelizer's thoughts on mobile computing, the iPhone, Android, Windows Phone 7 and more.


Management Secrets of the Grateful Dead

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I'm not the biggest deadhead around --I've seen way fewer dead shows than top-ranked VCs I know. But I've always admired the way the Grateful Dead cultivated their fan base.  While they really only had one hit record over a career of more than 30 years, they had a cult-like following thanks to their constant touring and a novel approach to live concert recordings.

The Atlantic has recently published an article called "Management Secrets of the Grateful Dead" which covers some of the main points of how the dead grew their audience.  In a model that was prescient to open source software and internet startups, they did so by giving away their core product.  The dead were one of the first bands to not only allow, but to encourage, fans to tape concerts and give away recordings:

Much of the talk about “Internet business models” presupposes that they are blindingly new and different. But the connection between the Internet and the Dead’s business model was made 15 years ago by the band’s lyricist, John Perry Barlow, who became an Internet guru. Writing in Wired in 1994, Barlow posited that in the information economy, “the best way to raise demand for your product is to give it away.” As Barlow explained to me: “What people today are beginning to realize is what became obvious to us back then—the important correlation is the one between familiarity and value, not scarcity and value. Adam Smith taught that the scarcer you make something, the more valuable it becomes. In the physical world, that works beautifully. But we couldn’t regulate [taping at] our shows, and you can’t online. The Internet doesn’t behave that way. But here’s the thing: if I give my song away to 20 people, and they give it to 20 people, pretty soon everybody knows me, and my value as a creator is dramatically enhanced. That was the value proposition with the Dead.” The Dead thrived for decades, in good times and bad. In a recession, Barnes says, strategic improvisation is more important then ever. “If you’re going to survive this economic downturn, you better be able to turn on a dime,” he says. “The Dead were exemplars.” 
So maybe there's more in common between open source software and psychedelic rock than is obvious at first glance.  Deadheads, feel free to check out some photos and videos from last year's appearance of The Dead at Shoreline

Note: I've also posted a version of this story at GuitarVibe.com


Is Talent Overrated?

Talent_is_overrated 


Recently, I've been reading Geoff Colvin's terrrific book "Talent Is Overrated." It's an exploration of how individuals (and organizations) learn and innovate.  And in particular, Colvin uncovers several myths about talent. Many consider talent, especially in music or sports, to be innate.  You either have it or you don't.  But studies indicate that that's just not the case.  And more importantly, these lessons also apply in science and business.  Did Anders Hejlsberg or Linus Torvalds just wake up one day and decide to be brilliant programmers?  Or was it because they spent years programming from an early age, learning skills and developing their technical curiosity?  Colvin makes a compelling case that it's the latter.

Instead, skills are developed over many years through what Colvin calls "deliberate practice." That's the focused manner in which people challenge themselves mentally (or physically) to become experts at new tasks.  And not only can individuals tap into the ideas here, they can also be put in place by organizations to foster innovation and creativity.  

The important point is that you have to set up opportunities to continually learn new things and develop new skills, rather than just continue to do the same thing over and over again. That's why some careers plateau and others continue to accelerate over a long period of time.  

There's been a recent study by TechCrunch that reinforces the idea even further.  Despite the popular myth that you're either born an entrepreneur or not, it seems that entrepreneurship can be learned, just like most other skills.  

What do you think?  Can learning match innate talent?  Let me know...

You can read an excerpt of Colvin's book at Fortune magazine.