Forbes.com, Cheryl Conner, 7/16/14
Here’s the question of the day (or more accurately the question of every day) in the venture business: What’s the next big thing that’s going to change everything?
If only we knew. Recently I met and interviewed Dr. Carl Ledbetter, the Managing Director of Salt Lake City-based Pelion Venture Partners. (I shared other parts of that interview in this article about the new AMC show Halt and Catch Fire. Ledbetter is the show’s technology advisor.)
Ledbetter’s career spans more than three-and-a-half decades and he’s served on the boards of more than 20 technology companies, so far. “Daily we hear pitches for businesses and technologies that are claiming to be the Next Big Thing,” he remarks, “And they almost always get it wrong.”
In fact, here’s a word to the wise for those who pitch Ledbetter’s team: “As soon as I hear ‘We’re going to be the next Microsoft,’ ‘the next Google,’ ‘the next Facebook,’ the meeting is over. There is never ‘another XXX’. Ever.”
Every NBA manager is out looking for the “next Michael Jordan,” Ledbetter notes. Not “another.” The next great player will surely not be the same size, didn’t go to the same school, and doesn’t have the same strengths or position. “Shaq O’Neal couldn’t look any less like another Michael Jordan,” he says. “Nor could Steve Nash, one of the greatest NBA players in assists, free throws, and 3 point shots, but he’s a Canadian who played at Santa Clara University. He is as different from Jordan as you could possibly be. And none of the multiple MVPs in the league after Michael Jordan—Karl Malone, Tim Duncan, and LeBron James—even play the same position.”
Great investors and entrepreneurs learn to recognize that the next big thing is never like the old big thing. However, it is vital to look at patterns and most especially to recognize the right patterns that accurately predict where success will emerge. For example, Ledbetter notes a 1960 issue of Popular Mechanics magazine that predicted what the future would like in 2000. It was written by the best science writers in the world. They predicted bubble cars, and robots vacuuming. But none of it happened. That’s one of the ways we miss, by guessing wrong what will happen. But we also miss on these prediction in two even more important ways when we’re right.
“Even when we predict correctly what will happen, we usually miss with a guess so low that it’s laughable,” Ledbetter says. (Does anyone remember Bill Gates musing about how anyone could ever need more than 640K of RAM?) “The ENIAC computer was as big as a room and weighed six tons. In 20 years, we expected the size of this computing beast to come down to a ton and a half. Really? Now look at the size of your current iPhone. When we miss on scientific predictions, we are off by miles and we are nearly universally low. But most interesting of all, we just miss something that’s already here.”
The transistor was patented by Bell Labs in 1947. Three people won the Nobel Prize. At the time of the 1960 Popular Mechanics publication, integrated circuits by Texas Instruments and Fairchild Semiconductor were 13 years old and 4 years old, Ledbetter notes. But nowhere in the magazine did it talk about what was happening in integrated circuits and chips, even though the occurrence was “hours away” from happening.
“The best scientific minds in the world didn’t see the one thing coming that would leave our lives fully changed (and had actually already happened) Ledbetter said. “The future is already here. It’s just not evenly distributed. A 13-year-old idea was about to change our lives and we didn’t know what it was.”
And here’s another clue: You have to look really far into the past to see the future more clearly. If you go back to the Renaissance in the 1400s, everything went through Florence, Italy, he recalls. “What an amazing thing for that country. They led the world out of the Dark Ages. Why weren’t they the leaders during the Enlightenment and the Industrial Revolution, which pretty much bypassed northern Italy?”
Because a few years after the Renaissance, Ledbetter notes, Guttenberg invented the printing press with movable type in Germany and one of the first book he printed was the Bible, in the vernacular. Almost every city in Europe noticed and entrepreneurs started other printing presses. But not Florence. Florence was filled with artists. They didn’t like the clunky fonts these presses used. The Florentines looked at the wrong pattern, in their quest for all things being beautiful, Ledbetter says. “These are ugly,” the artists said. “Our illuminated scripts are more beautiful.” So it took 38 years beyond the invention of the moveable type press for Northern Italy to acquire its first. For perspective, this would be like seeing the Apple emerge in 1975 and waiting to buy your first until 2013; that’s a little late if you’re in the technology business.
The Northern Italians missed the pattern that mattered, just like the scientists in 1960 missed the semiconductor and the revolution that was about to explode from it. They were seeing a different pattern. It was a legitimate pattern they saw–just not the pattern that would change the world. Northern Italians changed the world of art, but they missed the change that would revolutionize the industrialized world.
What Should VCs and Entrepreneurs Do?
“Here’s my biggest warning to both VCs and entrepreneurs,” says Ledbetter. “When you walk in spouting the buzzwords picked up by the press, you’re already too late. The thing that will change everything is the thing you don’t see coming. So skip the buzzwords and open your eyes.”
“If you announce ‘it’s all about Big Data in the cloud,’–Say what? I have a PhD in Mathematics, I’ve been a VC for 20 years, and have run technology business for decades, and I don’t have a clue what you’re talking about, and it’s likely not because I’m stupid,” he says. “So if you’re relying on buzzwords to explain your business, it’s probably because you don’t know what your business does yourself.”
Ledbetter recalls Intel CEO Andy Grove famously walking into a conference room that contained a new product an entrepreneur wanted him to see. He shoved two business cards across the table to the inventor. He said, “Keep one, and write what your product does on the back of the other one; you have 90 seconds. I’ll look two of your charts, and your opening screen is one of the two. If you can’t make me understand your message that fast, you have no chance.” For the entrepreneur, it’s about making an immediate bridge to the right connection.
As VCs, we make the entrepreneurs provide our connection, Ledbetter says. For example, what is the pattern you should recognize in Google? “Google is an auction company,” he tells me. “It has nothing to do with search. Search is the mechanism by which Google finds out what they can auction about you to sellers.” For any service, Ledbetter says, the business is about who pays, and you don’t pay Google for search, even if you use it 100 times a day. If you can’t figure out what it is they sell and if you don’t pay them money—here’s the connection you should recognize: Auctioning information about you is the product. (The product is your eyeballs, your attention, the data about your patterns and opinions, and perhaps it’s even your personal data as well.)
“And Google is not an advertising company either. They don’t write ads, or make boots or backpacks,” he says. “And what is the pattern that matters in EBay? EBay is an engine for automating reputation, for solving the ‘Caveat Emptor’ problem in an era where the buyer never sees the seller.” Always, look for the right pattern. If you find it, you can claim a piece of the future. But if you fail to make the right connection, you’re too late. The opportunity is gone; the investment is not forthcoming.
“Did a company without a product to merchandise account for a huge valuation?” Ledbetter asks. “Then they figured out a way to sell the information they’ve obtained about you. They are digital stalkers, private investigators hired by the companies that want to target you to sell to. The pattern in any commerce transaction is who pays whom,” he concludes. “If you miss that nuance, you miss the entire ballgame. There are many things we can access online in which we are not the payer. That means we are the product.”
It is, I conclude, an insightful way of viewing the technology world. But what does this awareness mean for the future of your own current company? For your future career? The secret is in the patterns you see. To reach Ledbetter directly, or to observe the patterns (and the outcomes) of the 83 organizations Pelion has funded so far, visit www.pelionvp.com.