In his most recent book, What Technology Wants, Kevin Kelly provides some colorful examples of the tendency for new innovations and scientific advancement to to be created by multiple individuals around the same time. Scientists at Bell Labs won a Nobel Prize for inventing the transistor in 1948, but German physicists independently created a transistor in Paris two months later. Charles Darwin and Alfred Russel Wallace both put forth the theory of evolution at approximately the same time. The light bulb encountered at least 23 inventors prior to Edison, according to Robert Friedel and Paul Isreal, making Edison “the very last ‘first’ inventor of the electric light.” A more systematic analysis of this phenomenon was conducted by sociologist Warren Hagstrom, who surveyed 1,718 U.S. academic research scientists. Over 60% said they believed that their worked had been anticipated, or scooped, by others.
We at SJF certainly see signs of this phenomenon in the venture capital industry. At times there are waves of new business plans around new themes, such as crowdsourcing, smart thermostats for the home, smart grids, collaborative consumption, group texting, etc.
The degree to which this tendency for simultaneous innovation indicates that certain technology developments are inevitable versus copycats is a topic of interesting discussion. But as a venture capitalist, I am struck by the reminder that unexpected competitors can burst on the scene with a frightening degree of frequency, making the development of a leadership position challenging. Serial inventor Danny Hillis put it to Kevin Kelly this way, “There might be tens of thousands of people who conceive the possibility of the same invention at the same time. But leass than one in ten of them imagines how it might be done. Of these who see who see how to do it, only one in ten will actually think through the practical details and specific solutions. Of these only one in ten will actually get the design to work for very long. And finally, usually only one of all those many thousands with the idea will get the invention to stick in the culture.” Whether Danny Hillis’ numbers are accurate, directionally they make a strong point.
The next logical thought, then, is “So, it’s all about execution.”
And the next logical thought after that is “It’s all about the entrepreneur.” A couple of recent books elaborate on this commonly held belief. In Jim Collins’ sequel to Good to Great, titled Great by Choice, Collins cites the attributes that allow companies to thrive despite the forces of uncertainty, chaos and luck. Those attributes include management’s fanatic discipline, creativity in gathering empirical information, productive paranoia, and “level 5 ambition.” In Making Ideas Happen, Scott Belsky writes that success is strongly linked to management’s strong organizational skills and ability to tap its community.
I think it certainly helps tremendously to have a management team that is highly intelligent and passionate, but I personally believe there is a tendency for venture capitalists to put too much weight on the “fanatical” and brilliant CEO. As illustrated above, management teams often face the reality that creating a product or service that sticks in the market is difficult, no matter how talented the entrepreneur may be. Market validation often speaks louder than management’s capabilities. Furthermore, there are a number of investment opportunities that do not rely on the next Steve Jobs for success. A successful company may be created because its founders have toiled away at an industry for years and come to dominate a niche market. A business may have created both a critical mass of users and fantastic network effects, driving self-reinforcing success. Or a company after several years may have developed a well-oiled machine that is difficult for others to replicate. Or a company may have created a lock on data assets that are tremendously valuable.
There are certainly other examples of ingredients that can lead to success. My point is that, yes, execution is hugely important, but I believe that successful venture investing means remaining open to the factors that can drive a company from the idea stage to the successful stage.
