A version of this article appeared in the Harvard Business Review
Elon Musk, Alfred Sloan, and entrepreneurship in the automobile industry.
The entrepreneur who founded and grew the largest startup in the world to $10 billion in revenue and got fired is someone you have probably never heard of. The guy who replaced him invented the idea of the modern corporation. If you want to understand the future of Tesla and Elon Musk’s role – something many want to do, given the constant stream of headlines about the company — you should start with a bit of automotive history from the 20th Century.
Alfred P. Sloan and the Modern Corporation
By the middle of the 20th century, Alfred P. Sloan had become the most famous businessman in the world. Known as the “Inventor of the Modern Corporation,” Sloan was president of General Motors from 1923 to 1956 when the U.S. automotive industry grew to become one of the drivers of the U.S. economy.
If you asked me why I gravitated to startups rather than work in a large company I would have answered at various times: “I want to be my own boss.” “I love risk.” “I want flexible work hours.” “I want to work on tough problems that matter.” “I have a vision and want to see it through.” “I saw a better opportunity and grabbed it. …”
It never crossed my mind that I gravitated to startups because I thought more of my abilities than the value a large company would put on them. At least not consciously. But that’s the conclusion of a provocative research paper, Asymmetric Information and Entrepreneurship, that explains a new theory of why some people choose to be entrepreneurs. The authors’ conclusion — Entrepreneurs think they are better than their resumes show and realize they can make more money by going it alone. And in most cases, they are right.
I’ll summarize the paper’s conclusions, then share a few thoughts about what they might mean – for companies, entrepreneurs and entrepreneurial education. (By the way, as you read the conclusions keep in mind the authors are not talking just about high-tech entrepreneurs. They are talking about everyone who chooses to be self-employed – from a corner food vendor without a high school diploma to a high-tech founder with a PhD in Computer Science from Stanford.)
The authors’ research came from following 12,686 people over 30+ years. They found:
I just received a thank-you note from a student who attended a fireside chat I held at the ranch. Something I said seemed to inspire her:
“I always thought you needed to be innovative, original to be an entrepreneur. Now I have a different perception. Entrepreneurs are the ones that make things happen. (That) takes focus, diligence, discipline, flexibility and perseverance. They can take an innovative idea and make it impactful. … successful entrepreneurs are also ones who take challenges in stride, adapt and adjust plans to accommodate whatever problems do come up.”
Over the last decade I’ve watched hundreds of my engineering students as well as ~1,500 of the country’s best scientists in the National Science Foundation Innovation Corps, cycle through the latest trends in startups: social media, new materials, big data, medical devices, diagnostics, digital health, therapeutics, drones, robotics, bitcoin, machine learning, etc. Some of these world-class innovators get recruited by large companies like professional athletes, with paychecks to match. Others join startups to strike out on their own. But what I’ve noticed is that it’s rare that the smartest technical innovator is the most successful entrepreneur.
Being a domain expert in a technology field rarely makes you competent in commerce. Building a company takes very different skills than building a neural net in Python or decentralized...
I just read Brotopia: Breaking Up the Boys’ Club of Silicon Valley. It was both eye-opening and cringe-worthy. The book explores the role of gender in the tech industry – at startups and venture capital firms – and the interaction between men and women in the two. While Silicon Valley has grown to have global influence, in many ways the cultural leadership from the venture community has dramatically shrunk in the last decade. Chasing deal flow has resulted in many VCs leading the race to the bottom in startup ethical behavior.
Among other things the book reminded me how important leadership is in setting startup culture – both consciously and implicitly.
Here was the day I got that lesson.
With the reckless and naïve abandon of founders who had no clue what they were about to tackle, we had just started Ardent, a supercomputer company. Ben Wegbreit, the VP of Engineering (one of my mentors and then co-founder of Epiphany), broke his foot skiing just as the company started. So every day Ben hobbled into our very small office nattily dressed in his suit but wearing sneakers over his cast. (Yes, in the dim past of Silicon Valley the execs really wore suits.)
At first the company just consisted of the founders, but Ben soon started to hire his engineering team. Since this was the pre-Hoodie era, they interviewed in various types of then engineering attire – most with jeans, some with khakis, etc. (And back then...
It’s always fun to see what happens to my students after they leave class. Jeff Witten started CoinOut four years ago in my Columbia University 5-day Lean LaunchPad class. CoinOut eliminates the hassle of getting a pocket full of loose change from merchants by allowing you to put it in a digital wallet.
Jeff just appeared on Shark Tank and the Sharks funded him. We just caught up and I got to do a bit of customer discovery on Jeff’s entrepreneurial journey to date.
What was the Shark Tank experience like?
It was surreal. We were not prepped or told what to expect, and really just thrown into the “tank” like a baby in the deep end. Given the stage and possibility of embarrassment, it was very intimidating. With that came a ton of adrenaline – it felt like a gallon of it was pumped into my veins – and it allowed me to focus and defend the business/myself as if there were no tomorrow. Looking back I can barely remember what went on in there, but just that I went in with a fighter’s mentality of not letting them speak over me, bully me or misrepresent what we are doing.
Over the last year we’ve been rolling out the Hacking for X classes in universities across the U.S. – Hacking for Defense, Hacking for Diplomacy, Hacking for Energy, Hacking for Impact (non-profits), etc.
All are designed to allow students to work on some of the toughest problems the country has while connecting them to a parts of the government they aren’t familiar with. When they leave they have contributed to the country through national service and gained a deeper understanding of our country.
Here is the view from Columbia University.
If you can’t see the video click here.
Success no longer goes to the country that develops a new fighting technology first, but rather to the one that better integrates it and adapts its way of fighting…Our response will be to prioritize speed of delivery, continuous adaptation, and frequent modular upgrades. We must not accept cumbersome approval chains, wasteful applications of resources in uncompetitive space, or overly risk-averse thinking that impedes change.
If you read these quotes, you’d think they were from a CEO who just took over a company facing disruption from agile startups and a changing environment. And you’d be right. Although in this case the CEO is the Secretary of Defense. And his company has 2 million employees.
In January, Secretary of Defense Mattis released the 2018 National Defense Strategy. This document tells our military – the Department of Defense – what kind of adversaries they should plan to face and how they should plan to use our armed forces. The National Defense Strategy is the military’s “here’s what we’re going to do,” to implement the executive branch’s National Security Strategy. The full version of the National Defense Strategy is classified; but the 10-page unclassified summary of this strategic guidance document for the U.S. Defense Department is worth a read.
Since 9/11 the U.S. military...
Janesville, tells the story of laid-off factory workers of a General Motors factory that’s never going to reopen. It’s a story about a Midwest town and the type of people I knew and worked alongside.
When I got out of the Air Force after Vietnam, I lived in Michigan and I installed process control systems in automobile assembly plants and steel mills across the industrial heart of the Midwest. I got to see the peak of America’s manufacturing prowess in the 1970s, when we actually made things – before we shipped the factories and jobs overseas. I hung out with the guys who worked there, went bowling and shooting with them, complained about the same things, wives, girlfriends, jobs, the union and bosses, and shared their same concerns. Janesville is their story.
On the surface the book is an incredibly well written narrative over the course of five years, from 2008 to 2013, that connects the laid off auto workers, job center retraining, union organizers, community and business leaders, and politicians. Five stars for the reporting.
But what makes the book great is that the story is deeper than just the people it follows. On closer reading it busts the shared delusions about our economic system that requires our faith in order for it to survive.
First, America was built on...
Jeff Immelt ran GE for 16 years. He radically transformed the company from a classic conglomerate that did everything to one that focused on its core industrial businesses. He sold off slower-growth, low-tech, and nonindustrial businesses — financial services, media, entertainment, plastics, and appliances. He doubled GE’s investment in R&D.
In his Harvard Business Review article summing up his tenure, Immelt recalls that the two things that influenced him most were Marc Andreessen’s 2011 Wall Street Journal article “Why Software Is Eating the World,” and Eric Ries’s book The Lean Startup.
Andreessen’s article helped accelerate the company’s digital transformation. GE made a $4 billion bet on connecting industrial equipment via the Internet of Things (IoT) and analytical software with a suite of products called the “Predix Cloud”.
In response to reading Eric Ries’s The Lean Startup, GE adopted Lean and built their Fastworks program around it. Beth Comstock, GE vice chair responsible for creating new businesses, embraced the lean process. Over a period of years, every GE senior manager would learn the Lean Startup, and GE would be the showcase for how modern companies use entrepreneurial management to transform culture and drive long-term growth.
Innovation at GE was on a roll.
Then it wasn’t.
Automobile manufacturers shipped 88 million cars in 2016. Tesla shipped 76,000. Yet Wall Street values Tesla higher than any other U.S. car manufacturer. What explains this more than 1,000 to 1 discrepancy in valuation?
Too many people compare Tesla to what already exists and that’s a mistake. Tesla is not another car company.
At the turn of the 20th century most people compared existing buggy and carriage manufacturers to the new automobile companies. They were both transportation, and they looked vaguely similar, with the only apparent difference that one was moved by horses attached to the front while the other had an unreliable and very noisy internal combustion engine.
They were different. And one is now only found in museums. Companies with business models built around internal combustion engines disrupted those built around horses. That’s the likely outcome for every one of today’s automobile manufacturers. Tesla is a new form of transportation disrupting the incumbents.
Here are four reasons why.
Electric cars pollute less, have fewer moving parts, are quieter and faster than existing cars. Today, the technology necessary (affordable batteries with sufficient range) for them to be a viable business have all just come together. Most observers agree that autonomous electric cars will be the dominate form of transportation by mid-century. That’s bad news for existing car...
We just finished our second Hacking for Defense class at Stanford. Eight teams presented their Lessons Learned presentations.
Hacking for Defense is a battle-tested problem-solving methodology that runs at Silicon Valley speed. It combines the same Lean Startup Methodology used by the National Science Foundation to commercialize science, with the rapid problem sourcing and curation methodology developed on the battlefields in Afghanistan and Iraq by Colonel Pete Newell and the US Army’s Rapid Equipping Force.
Goals for the Hacking for Defense Class
Our primary goal was to teach students entrepreneurship while they engaged in a national public service. Today if college students want to give back to their country they think of Teach for America, the Peace Corps, or Americorps or perhaps the US Digital Service or the GSA’s 18F. Few consider opportunities to make the world safer with the Department of Defense, Intelligence Community or other government agencies.
Our second goal was to teach our sponsors (the innovators inside the Department of Defense (DOD) and Intelligence Community (IC)) that there is a methodology that can help them understand and better respond to rapidly evolving asymmetric threats. That if we could get teams to rapidly discover the real problems in the field using Lean methods, and only then articulate the requirements to solve them, could defense acquisition programs operate at speed and urgency and deliver timely and needed solutions.
Finally, we also wanted to show our sponsors in the Department of Defense and Intelligence community that civilian...
Light a path for the better angels
Thank you, Chancellor McLellan, President Florizone, Dean Charlebois, Dr. Hewitt, and Dr. Kilfoil for the invitation to speak today and thank you for the honorary degree.
I’m honored to speak at a university whose motto is: Pray and Work.
It’s pretty close to the one I had as an entrepreneur, which was – Pray it Will Work.
First, my congratulations. Your degree is a big deal. This is your day, not mine.
At worst, a commencement speaker is all that stands between you and lunch. At best, I can give you something to think about as you embark on the next chapter in your life.
What, I wondered, would I have said to a group of graduates living on the edge of a revolution the day writing was invented, or the year after Gutenberg printed the first book, or when radio reached into the homes of millions. What advice would I have given to those about to enter a world no one had ever experienced?
Whether you like it or not, or know it or not, you’re coming of age at just that extraordinary time in human development.
Let me be honest about my bias. I love technology. I’ve spent my life at the center of innovation in Silicon Valley – doing eight startups in 21 years,...
I did a fun fireside chat with one of my most favorite people – Sebastian Thrun – at the Udacity conference. Sebastian is the embodiment of a renaissance person. I first heard about him when his driverless car won the 2005 DARPA Grand Challenge. He founded Google X and led the development of the Google self-driving car. He was a Professor of Computer Science at Stanford and before that at Carnegie Mellon University.
And he asks great questions.
If you can’t see the video click here
1:17 Hacking for Defense (Why did we create it? What is it?)
3:30 Lean Startup (What is it? How it started, How did the class get on Udacity)
5:30 Pricing (Customer Validation, Sales, Pricing)
8:30 Customer Discovery (What is the Lean Stack)
10:13 What Advice Would You Give to Yourself at 18?
12:37 Small Businesses vs. Scalable Startups (Should I take Risk Capital)
15:48 Can you Teach Entrepreneurship?
19:03 What’s the Craziest Problem I’ve Ever Seen? (The Navy SEAL’s)
21:25 How Do You Find Out What Customers Really Want? (Customer Discovery, Pivots)
I gave the Alumni Day talk at U.C. Santa Cruz and had a few things to say about innovation.
Even though I live just up the coast, I’ve never had the opportunity to start a talk by saying “Go Banana Slugs.”
I’m honored for the opportunity to speak here today.
We’re standing 15 air miles away from the epicenter of technology innovation. The home of some of the most valuable and fastest growing companies in the world.
I’ve spent my life in innovation, eight startups in 21 years, and the last 15 years in academia teaching it.
I lived through the time when working in my first job in Ann Arbor Michigan we had to get out a map to find out that San Jose was not only in Puerto Rico but there was a city with that same name in California. And that’s where my plane ticket ought to take me to install some computer equipment.
39 years ago I got on that plane and never went back.
I’ve seen the Valley grow from Sunnyvale to Santa Clara to today where it stretches from San Jose to South of Market in San Francisco. I’ve watched the Valley go from Microwave Valley – to Defense Valley – to Silicon Valley to Internet Valley. And to today, when its major product is simply innovation. And I’ve been lucky enough to watch innovation happen not only in hardware and software but in Life Sciences – in Therapeutics, Medical Devices, Diagnostics...
I was having coffee with the CEO of a new startup, listening to her puzzle through how to communicate to potential customers. She was an academic on leave from Stanford now selling SAAS software to large companies, but was being inundated with marketing communications advice. “My engineers say our website is old school, and we need to be on Facebook, Twitter and Instagram, my VP of Sales says we’re wasting our marketing dollars not targeting the right people and my board keeps giving me their opinions of how we should describe our product and company. How do I sort out what to do?”
She winced as I reminded her that she had gone through the National Science Foundation Innovation Corps. “Painful and invaluable” was her reply. I reminded her that all the Lean tools she learned in class–Customer Discovery, business model and value proposition canvases– contained her answer.
Define the Mission of Marketing Communications
Companies often confuse communications tactics (“What should my webpage look like or should I be using Facebook/Instagram/Twitter?”) with a strategy. A communications strategy answers the question, “Why are we doing these activities?” For example, our goal could be:
(Marketing communications is a subset of the Marketing department’s mission. Read the post about mission and intent here.)
Audience(s), Message, Media,...
When Colonel Peter Newell headed up the Army’s Rapid Equipping Force (REF) he used lean methods on the battlefields of Iraq and Afghanistan to provide immediate technology solutions to urgent problems.
Today, his company BMNT does for government and commercial customers what the Rapid Equipping Force did for the U.S. Army.
Pete and I created the Hacking for Defense class (with Joe Felter and Tom Byers.) One of the problems our students run into is that there are always multiple beneficiaries and stakeholders associated with a problem, often with conflicting value propositions and missions. So how do you figure out whose needs to satisfy?
Here’s Pete’s view of how you do it.
Unlike businesses, government organizations don’t sell products, and they don’t earn revenue. Instead, they have missions to accomplish and very hard problems to solve. They use a variant of the Business Model Canvas – the Mission Model Canvas – to map their hypotheses, and they get of the building to do beneficiary discovery. (A beneficiary can be a soldier, program manager, commanding general, government contractor, stakeholder, customer, etc.) And just like in a commercial business they are trying to determine whether the value proposition solves the problem and helps the beneficiary accomplish their mission.
Discovery for both business and government is similar in that the only way to...
If you don’t know where you’re going, how will you know when you get there?
I was having a second coffee with an ex student, now the head of a marketing inside a rapidly growing startup. His company had marched through customer discovery, learning about the customer problem, validated solutions and was now scaling sales and marketing. All good news.
But he was getting uneasy that as his headcount was growing the productivity of his marketing department seemed to be rapidly declining.
I wasn’t surprised. When organizations are small (startups, small teams in companies and government agencies) early employees share a mission (why they come to work, what they need to do while they are at work, and how they will know they have succeeded). But as these organizations grow large, what was once a shared mission and intent gets buried under HR process and Key Performance Indicators.
I told him that I had learned long ago that to keep that from happening, you need to on-board/train your team about mission and intent.
Why Do You Work Here?
I had taken the job of VP of Marketing in a company emerging from bankruptcy. We’d managed to secure another infusion of cash, but it wasn’t going to last long.
During my first week on the job, I asked each of my department heads what they did for marketing and the company. When I asked our trade show manager, she looked surprised and said, “Steve, don’t you know that my job is to take our booth to trade shows and set it up?” The other departments gave the...
Uber, Zenefits, Tanium, Lending Club CEOs of companies with billion dollar market caps have been in the news – and not in a good way. This seems to be occurring more and more. Why do these founders get to stay around?
Because the balance of power has dramatically shifted from investors to founders.
Here’s why it generates bad CEO behavior.
Unremarked and unheralded, the balance of power between startup CEOs and their investors has radically changed:
20th Century Tech Liquidity = Initial Public Offering
In the 20th century tech companies and their investors made money through an Initial Public Offering (IPO). To turn your company’s stock into cash, you engaged a top-notch investment bank (Morgan Stanley, Goldman Sachs) and/or their Silicon Valley compatriots (Hambrecht & Quist, Montgomery Securities, Robertson Stephens).
Typically, this caliber of bankers wouldn’t talk to you unless your company had five profitable quarters of increasing revenue. And you had to convince the bankers that you had...