Dalhousie University Commencement Speech – 2017

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, and the last 15 years in academia teaching others innovation and entrepreneurship. I was present at the creation of the first microprocessors, participated in the PC revolution, built video games, and shipped software on the first Internet browsers. And I’ve watched how, in a blink of an eye, technology went from products used by the very few, to ending up in the pockets of billions, bringing social change and corporate disruption.

But nothing, absolutely nothing, I’ve experienced, will come close to what you’re going to see.

Only a few generations have been granted the role of determining whether a revolution in communication will allow our better angels – or our darker angels – to win. You leave here with incredible opportunity, but also with immense responsibility.

Half the world now owns a smartphone. On an average day, you’ll look at your phone over 200 times. You’ve gone through college interacting with your friends and connecting to the world using Facebook, Instagram, WhatsApp, Snapchat, Twitter, Tinder, Pandora, Pinterest, Uber, YouTube and other apps I don’t even know. Living “phone forward” and connecting to the world through this software seems normal – to you.

You communicate, interact and network with each other in a way that’s unique in the history of our species. Faster, with infinitely more data, in shorter bursts, with more connections to more people and places.

We now know that the way we consume information changes our brains. Whether new forms of communication physically change our gray matter, or just cause us to use different parts of it, is still open to debate. But clearly, our brains process information differently depending on the form of communication we’re engaged in.

Your brains have been rewired to process all this Net-based information. Your brains are dealing with the world in a different way than humans ever have.

That kind of profound shift has occurred only six times in the entire 200,000-year history of Homo Sapiens. And you, here today, are the vanguard of the seventh wave.

Each time this happened, the human race made major leaps forward. Your generation, all of you graduating today, are our unintended science experiment. Have we have given you a gift or a curse?

Let’s look at what happened the six other times our brains were rewired.

If you remember from your anthropology class, modern humans emerged about 200,000 years ago, and with them, spoken language. For the next 195,000 years, we passed information on to one another via stories. You sat by a fire, looked at the stars and listened to a storyteller recount creation myths, hero myths and stories for entertainment, and your imagination was engaged as you filled in the details.

Over thousands of years, these storytellers rewired their own brains into something different from those who were simply listening. Storytellers trained to memorize outrageously long narratives, more than most humans alive today can.

Storytellers had new brains.

After more than 100,000 years of telling stories, something unprecedented happened. A few merchants in the Mideast created writing, at first to keep track of crops.

I think it’s appropriate to remind a university class that some of the oldest written inscriptions were not only about crops, but also the celebration of beer.

With written text, the minds of the readers required a whole new way of processing information. We now had to first learn how to read, and then we had to understand what the words were trying to tell us.

Readers and writers of language had new brains.

The written word also meant that information could now be standardized. Our better angels blossomed.

We could formalize laws, create religious texts, and communicate orders to coordinate activities farther than the spoken word could travel. Written language enabled the creation of large societies and with them, governments.

Our darker angels also found ways to use the written word – to dominate and oppress others.

But in 1440, Gutenberg rocked the world when he invented the printing press.

Until the middle of the 15th century, most people couldn’t read. The mass production of books changed that. Within 50 years, books created an information explosion across Europe – 10’s of thousands of titles, and 10’s of millions of copies of books. Our better angels soared as printed books became the Internet of the Renaissance.

Readers of books now had new brains.

And mass production of printed books fueled a reconfiguration of our society, not just our brains. With the printing press, it only took a couple of months to spread Martin Luther’s 95 Theses over much of northern Europe. The result was the Protestant Reformation, which ushered in a new era of political, intellectual and cultural change.

Our darker angels were frightened by the free and unfettered access to information – and banned books – and burned heretics that challenged church and state dogma.

It took about two centuries from the appearance of the book to the emergence of what we would now call newspapers – mass communication had arrived.

The first weekly newspapers appeared in Italy and Germany, and quickly spread through Europe.

In Canada, the first newspaper ever was right here – the Halifax Gazette.

By the end of the 19th century mass circulation papers had developed the characteristics that your parents would recognize today—headlines, illustrations, entertaining stories – all designed to shortcut critical thinking, and stir passion and emotion to sell newspapers and, of course, advertising.

Now, newspaper readers had a daily or weekly stream of “clickbait” headlines.

Readers of newspapers had new brains.

The next wave was Radio. It gave us instantaneous communication to national audiences.  Advertisers immediately figured out how to turn those engaged audiences into consumers. And some governments learned how to turn radio into a weapon of mass deception.

Radio meant that we could now hear the voices of storytellers again. As our brains were newly engaged, our imaginations were required to translate the spoken words into mental pictures.

Listeners to radio had new brains.

It wasn’t more than 30 years from widespread radio that television came onto the scene. TV was something different than just radio with voices.

Our better angels shined a light into homes and battlefields across the world. It changed for the better how we viewed race, gender and class.

But our darker angels dimmed our imaginations. We could gaze all evening and disengage our brains.

Viewers of television had new – and slightly diminished –  brains.

For decades, the phrase “As seen on TV” sold as many products as it obliterated much critical thinking.

Not only did this work for commercial products, but it also extended to politicians.  A handsome, young, telegenic politician could capture a country.

And that brings us to today.

I don’t have to explain the Internet to you. You live it, you’re immersed in it. But let me take a minute to contrast it with the world I grew up in. I spent my first seventeen years in a city where there were just three major TV channels, three major newspapers, and no Internet. If I wanted to look something up, I had to go to library.  If I wanted to connect with a friend, I used a hardwired phone at a desk at home, or paid for each call by physically putting money into a phone in a booth.  And that was in New York City.  The rest of the world had much, much less.

The Net is like we invented writing, the printing press, radio, TV and the Internet in the same decade.  That’s the world you’re graduating into – immersed in social media, with infinite facts and continuous news.

The seventh wave in communication and brain rewiring has arrived. You think and process things differently from how your parents, grandparents and any other humans who have ever lived.

When each of the other six waves initially arrived, the early adopters were the more agile outliers. But ultimately, governments and companies figured out how to master the new technology and individuals lost, as the power of the state, and power of profit, controlled the new media. The same is true for the Internet.

Today, China, Russia, North Korea and other countries have locked their citizens behind a great firewall. They control what their citizens can see and access. Yet at the same time, Facebook, Google, Twitter and the rest of social media capture more personal information on you than any government security agency — except their goal is to profit from your presence.

So, What Does This Mean For You?
You’ve been in a university where information distribution in your classroom was not a democracy. There were voices of expertise and authority, you had certified data providers called professors. You didn’t vote on whether you believed what you were taught; in fact, you were graded on how well you understood it.

But you’re entering a world where you won’t have such certainty. Let me give you an example of the challenges you are going to face in a 24/7 Internet world on a personal level, as a citizen, and in your career.

You deal in streams of short-form information – 140 characters, pictures and messages that disappear. The question for you is: how will you deal with issues that are more complex than soundbites, and require deep dives?

Every generation has had to deal with “fake news” – deliberate misinformation spread by storytelling, books, newspaper, radio and TV. It had different names in the past — “yellow journalism,” propaganda, misinformation.

But unlike in previous generations, fake news today is like a social disease – you catch it from your “friends.”

And the feeling of validity that comes from hearing something from someone you know makes social media much more powerful than what you see on TV or read in a newspaper.

In your generation, Facebook is one of the leading sources of fake news. And that’s a shame, since Facebook is not a news source, it doesn’t originate news, it’s just a distributor of news – one designed to get you to spend time on their site, click on their ads and gather your personal information.

Today, AP and Bloomberg already have bots that write sports stories and earnings reports. Soon machines will make the news by optimizing stories for clicks. Before long computers will create fake videos – and we won’t be able to tell the difference between what was created by a human and what’s computer generated.

What kind of skills will you need to operate in a world of real and fake manufactured data coming from friends? Will you vote for people who value facts or manufacture them?

Will you let darker angels win as you add fire to the flame, or will you seek out and spread real news?

We’ve become digital junkies.
Information consumption and engagement with social media means these platforms have become your emotional drug dealers. “Likes” and thumbs up and posting on social media are addictive, at times like a chemical dependency. They provide immediate rewards after each interaction. They prey on the “fear of missing out” – of the moment or event. Your sense of identity and your values are now validated by a crowd.

Research shows that talking about your own views generates more emotional rewards than listening to conflicting ones. This becomes a self-reinforcing system as you seek out sources of information and other people that support your world view.  It creates a polarized world.

Addiction is one of our perpetual dark angels. You need a purpose-driven life to survive in a world where social media is monetizing both your emotions and your time spent looking at ads.

Finally, the Net has the power to pull us apart as well as bring us together
Each wave in the last 200,000 years – storytelling, writing, books, newspapers, radio, TV and the Net – started with the optimistic view that if we could communicate faster and more efficiently it would bring out the better angels of our nature. We could be more cohesive, we could be smarter, we could learn new things that would help us make the world a better place. All these things happened, and yet…

At each step forward, our darker angels found a way to use these tools, too.

In spite of that, today the human race is in a better place than in any time in human history. Each advancement in our capabilities to communicate gave us the ability to reject a world dominated by violence and ignorance for a world where knowledge and cooperation drove civilization forward.

Most revolutions are not obvious when they happen. When the first scribe wrote on a tablet, no one said, “This is the day everything changes.”  When the first Bible came off Gutenberg’s press, no one said, “There will be billions of these.”

I do not believe that any of you would exchange places with any other generation.

But the question is whether you’ll tell your children that this decade was the beginning of a new dark age, or whether it was the time of something new and wonderful. When it was the time the Internet and social media allowed us to work faster and more collaboratively. When scientific discoveries and technological breakthroughs were integrated into the fabric of society faster than they had ever been before. And when how businesses operated changed forever.

Now graduates of 2017, as you turn back to your phones, light a path for the better angels. The world is counting on you.

Thank you.

If you can’t see the video click here

Innovation, Change and the Rest of Your Life

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 and now Digital Health.

I’ve been asked to talk today about the future of Innovation – typically that involves giving you a list of hot technologies to pay attention to – technologies like machine learning.  The applications that will pour of this just one technology will transform every industry – from autonomous vehicles to automated radiology/oncology diagnostics.

Equally transformative on the life science side, CRISPR and CAS enable rapid editing of the genome, and that will change life sciences as radically as machine intelligence.

But today’s talk about the future of innovation is not about these technologies, or the applications or the new industries they will spawn.

In fact, it’s not about any specific new technologies.

The future of innovation is really about seven changes that have made innovation itself possible in a way that never existed before.

We’ve created a world where innovation is not just each hot new technology, but a perpetual motion machine.

So how did this happen?  Where is it going?

Silicon Valley emerged by the serendipitous intersection of:

  • Cold War research in microwaves and electronics at Stanford University,
  • a Stanford Dean of Engineering who encouraged startup culture over pure academic research,
  • Cold War military and intelligence funding driving microwave and military products for the defense industry in the 1950’s,
  • a single Bell Labs researcher deciding to start his semiconductor company next to Stanford in the 1950’s which led to
  • the wave of semiconductor startups in the 1960’s/70’s,
  • the emergence of Venture Capital as a professional industry,
  • the personal computer revolution in 1980’s,
  • the rise of the Internet in the 1990’s and finally
  • the wave of internet commerce applications in the first decade of the 21st century.
  • The flood of risk capital into startups at a size and scale that was not only unimaginable at its start, but in the middle of the 20th century would have seemed laughable.

Up until the beginning of this century, the pattern for the Valley seemed to be clear. Each new wave of innovation – microwaves, defense, silicon, disk drives, PCs, Internet, therapeutics, – was like punctuated equilibrium – just when you thought the wave had run its course into stasis, there emerged a sudden shift and radical change into a new family of technology. 

But in the 20th Century there were barriers to Entrepreneurship
In the last century, while startups continued to innovate in each new wave of technology, the rate of innovation was constrained by limitations we only now can understand. Startups in the past were constrained by:

  1. customers were initially the government and large companies and they adopted technology slowly,
  2. long technology development cycles (how long it takes to get from idea to product),
  3. disposable founders,
  4. the high cost of getting to first customers (how many dollars to build the product),
  5. the structure of the Venture Capital industry (there were a limited number of VC firms each needing to invest millions per startups),
  6. the failure rate of new ventures (startups had no formal rules and acted like smaller versions of large companies),
  7. the information and expertise about how to build startups (information was clustered in specific regions like Silicon Valley, Boston, New York, etc.), and there were no books, blogs or YouTube videos about entrepreneurship.

What we’re now seeing is The Democratization of Entrepreneurship
What’s happening today is something more profound than a change in technology. What’s happening is that these seven limits to startups and innovation have been removed.

The first thing that’s changed is that Consumer Internet and Genomics are Driving Innovation at scale
In the 1950’s and ‘60’s U.S. Defense and Intelligence organizations drove the pace of innovation in Silicon Valley by providing research and development dollars to universities, and defense companies built weapons systems that used the Valley’s first microwave devices and semiconductor components.

In the 1970’s, 80’s and 90’s, momentum shifted to the enterprise as large businesses supported innovation in PCs, communications hardware and enterprise software. Government and the enterprise are now followers rather than leaders.

Today, for hardware and software it’s consumers – specifically consumer Internet companies – that are the drivers of innovation. When the product and channel are bits, adoption by 10’s and 100’s of millions and even billions of users can happen in years versus decades.

For life sciences it was the Genentech IPO in 1980 that proved to investors that life science startups could make them a ton of money.

The second thing that’s changed is that we’re now Compressing the Product Development Cycle
In the 20th century startups I was part of, the time to build a first product release was measured in years as we turned out the founder’s vision of what customers wanted. This meant building every possible feature the founding team envisioned into a monolithic “release” of the product.

Yet time after time, after the product shipped, startups would find that customers didn’t use or want most of the features. The founders were simply wrong about their assumptions about customer needs. It turns out the term “visionary founder” was usually a synonym for someone who was hallucinating. The effort that went into making all those unused features was wasted.

Today startups build products differently. Instead of building the maximum number of features, founders treat their vision as a series of untested hypotheses, then get out of the building and test a minimum feature set in the shortest period of time.  This lets them deliver a series of minimal viable products to customers in a fraction of the time.

For products that are simply “bits” delivered over the web, a first product can be shipped in weeks rather than years.

The third thing is that Founders Need to Run the Company Longer
Today, we take for granted new mobile apps and consumer devices appearing seemingly overnight, reaching tens of millions of users – and just as quickly falling out of favor. But in the 20th century, dominated by hardware, software, and life sciences, technology swings inside an existing market happened slowly — taking years, not months. And while new markets were created (i.e. the desktop PC market), they were relatively infrequent.

This meant that disposing of the founder, and the startup culture responsible for the initial innovation, didn’t hurt a company’s short-term or even mid-term prospects.  So, almost like clockwork 20th century startups fired the innovators/founders when they scaled. A company could go public on its initial wave of innovation, then coast on its current technology for years. In this business environment, hiring a new CEO who had experience growing a company around a single technical innovation was a rational decision for venture investors.

That’s no longer the case.

The pace of technology change in the second decade of the 21st century is relentless. It’s hard to think of a hardware/software or life science technology that dominates its space for years. That means new companies face continuous disruption before their investors can cash out.

To stay in business in the 21st century, startups must do three things their 20th century counterparts didn’t:

  • A company is no longer built on a single innovation. It needs to be continuously innovating – and who best to do that? The founders.
  • To continually innovate, companies need to operate at startup speed and cycle time much longer their 20th century counterparts did. This requires retaining a startup culture for years – and who best to do that? The founders.
  • Continuous innovation requires the imagination and courage to challenge the initial hypotheses of your current business model (channel, cost, customers, products, supply chain, etc.) This might mean competing with and if necessary killing your own products. (Think of the relentless cycle of iPod then iPhone innovation.) Professional CEOs who excel at growing existing businesses find this extremely hard.  Who best to do that? The founders.

The fourth thing that’s changed is that you can start a company on your laptop For Thousands Rather than Millions of Dollars
Startups traditionally required millions of dollars of funding just to get their first product to customers. A company developing software would have to buy computers and license software from other companies and hire the staff to run and maintain it. A hardware startup had to spend money building prototypes and equipping a factory to manufacture the product.

Today open source software has slashed the cost of software development from millions of dollars to thousands. My students think of computing power as a utility like I think of electricity. They can get to more computing power via their laptop through Amazon Web Services than existed in the entire world when I started in Silicon Valley.

And for consumer hardware, no startup has to build their own factory as the costs are absorbed by offshore manufacturers.  China has simply become the factory.

The cost of getting the first product out the door for an Internet commerce startup has dropped by a factor of a 100 or more in the last decade.  Ironically, while the cost of getting the first product out the door has plummeted, it now can take 10’s or 100’s of millions of dollars to scale.

The fifth change is the New Structure of how startups get funded
The plummeting cost of getting a first product to market (particularly for Internet startups) has shaken up the Venture Capital industry.

Venture Capital used to be a tight club clustered around formal firms located in Silicon Valley, Boston, and New York. While those firms are still there (and getting larger), the pool of money that invests risk capital in startups has expanded, and a new class of investors has emerged.

First, Venture Capital and angel investing is no longer a U.S. or Euro-centric phenomenon. Risk capital has emerged in China, India and other countries where risk taking, innovation and liquidity are encouraged, on a scale previously only seen in the U.S.

Second, new groups of VCs, super angels, smaller than the traditional multi-hundred-million-dollar VC fund, can make small investments necessary to get a consumer Internet startup launched. These angels make lots of early bets and double-down when early results appear. (And the results do appear years earlier than in a traditional startup.)

Third, venture capital has now become Founder-friendly.

A 20th century VC was likely to have an MBA or finance background. A few, like John Doerr at Kleiner Perkins and Don Valentine at Sequoia, had operating experience in a large tech company. But out of the dot-com rubble at the turn of the 21st century, new VCs entered the game – this time with startup experience. The watershed moment was in 2009 when the co-founder of Netscape, Marc Andreessen, formed a venture firm and started to invest in founders with the goal to teach them how to be CEOs for the long term. Andreessen realized that the game had changed. Continuous innovation was here to stay and only founders – not hired execs – could play and win.  Founder-friendly became a competitive advantage for his firm Andreessen Horowitz. In a seller’s market, other VCs adopted this “invest in the founder” strategy.

Fourth, in the last decade, corporate investors and hedge funds have jumped into later stage investing with a passion. Their need to get into high-profile deals has driven late-stage valuations into unicorn territory.  A unicorn is a startup with a market capitalization north of a billion dollars.

What this means is that the emergence of incubators and super angels have dramatically expanded the sources of seed capital. VCs have now ceded more control to founders. Corporate investors and hedge funds have dramatically expanded the amount of money available. And the globalization of entrepreneurship means the worldwide pool of potential startups has increased at least 100-fold since the turn of this century.  And today there are over 200 startups worth over a billion dollars.

Change Number 6 is that Starting a Company means you no longer Act Like A Big Company
Since the turn of the century, there’s been a radical shift in how startups thought of themselves.  Until then investors and entrepreneurs acted like startups were simply smaller versions of large companies. Everything a large company did, a startup should do – write a business plan; hire sales, marketing, engineering; spec all the product features on day one and build everything for a big first customer ship.

We now understand that’s wrong.  Not kind of wrong but going out of business wrong.

What used to happen is you’d build the product, have a great launch event, everyone high-five the VP of Marketing for great press and then at the first board meeting ask the VP of Sales how he was doing versus the sales plan.  The response was inevitably “great pipeline.”  (Great pipeline means no real sales.)

This would continue for months, as customers weren’t behaving as per the business plan.  Meanwhile every other department in the company would be making their plan – meaning the company was burning cash without bringing in revenue.  Finally the board would fire the VP of sales.  This cycle would continue then you’d fire the VP of Marketing, then the CEO.

What we’ve learned is that while companies execute business models, startups search for a business model. It means that unlike in big companies startups are guessing about who their customers are, what features they want, where and how they want to buy the product, how much they want to pay.  We now understand that startups are just temporary organizations designed to search for a scalable and repeatable business models.

We now have specific management tools to grow startups. Entrepreneurs first map their assumptions and then test these hypotheses with customers out in the field (customer development) and use an iterative and incremental development methodology (agile development) to build the product. When founders discover their assumptions are wrong, as they inevitably will, the result isn’t a crisis, it’s a learning event called a pivot — and an opportunity to change the business model.

The result, startups now have tools that speed up the search for customers, reduce time to market and slash the cost of development. I’m glad to have been part of the team inventing the Lean Startup methodology.

Change number 7 – the last one – is perhaps the most profound and one students graduating today don’t even recognize. And it’s that Information is everywhere

In the 20th century learning the best practices of a startup CEO was limited by your coffee bandwidth. That is, you learned best practices from your board and by having coffee with other, more experienced CEOs. Today, every founder can read all there is to know about running a startup online. Incubators and accelerators like Y-Combinator have institutionalized experiential training in best practices (product/market fit, pivots, agile development, etc.); provide experienced and hands-on mentorship; and offer a growing network of founding CEOs.

The result is that today’s CEOs have exponentially more information than their predecessors. This is ironically part of the problem. Reading about, hearing about and learning about how to build a successful company is not the same as having done it. As we’ll see, information does not mean experience, maturity or wisdom. 

The Entrepreneurial Singularity
The barriers to entrepreneurship are not just being removed. In each case, they’re being replaced by innovations that are speeding up each step, some by a factor of ten.

And while innovation is moving at Internet speed, it’s not limited to just Internet commerce startups. It has spread to the enterprise and ultimately every other business segment. We’re seeing the effect of Amazon on retailers.  Malls are shutting down. Most students graduating today have no idea what a Blockbuster record/video store was. Many have never gotten their news from a physical newspaper.

If we are at the cusp of a revolution as important as the scientific and industrial revolutions what does it mean? Revolutions are not obvious when they happen. When James Watt started the industrial revolution with the steam engine in 1775 no one said, “This is the day everything changes.”  When Karl Benz drove around Mannheim in 1885, no one said, “There will be 500 million of these driving around in a century.” And certainly in 1958 when Noyce and Kilby invented the integrated circuit, the idea of a quintillion (10 to the 18th) transistors being produced each year seemed ludicrous.

It’s possible that we’ll look back to this decade as the beginning of our own revolution. We may remember this as the time when scientific discoveries and technological breakthroughs were integrated into the fabric of society faster than they had ever been before. When the speed of how businesses operated changed forever.

As the time when we reinvented the American economy and our Gross Domestic Product began to take off and the U.S. and the world reached a level of wealth never seen before.  It may be the dawn of a new era for a new American economy built on entrepreneurship and innovation.

NYU Commencement Speech 2016

NYU Engineering Commencement Speech

Thank you for the opportunity to address you on your graduation from this esteemed engineering school. I’m honored to help you celebrate this important milestone.NYU commencement speech

See the video here

Your life is already full of milestones: Your first steps, your first kiss, passing a driving test, this graduation. And there are more to come: your first job, getting married, buying a house, having a child, becoming a manager, starting a company, retirement – and eventually commencement speaker 🙂

In 33% of the commencement speeches this year, 2.8 million graduates are going to hear advice about “follow your own path.” Or “Learn from others”. Or the perennial favorite, “you can make a difference.”

All of this is great advice. In fact, I’m going to give you exactly the same advice. But in very few of these speeches does anyone let you in on why we’re telling you this with such passion and urgency.

So today as we celebrate your graduation I’m going to tell you why.

—–

When I was young, I learned a quote in Sunday school, that has stayed with me throughout my life. It said, “teach us to number our days that we gain a heart of wisdom”. Since then I’ve had a series of interesting careers: technician in the Air Force, tech writer, marketer, entrepreneur, CEO and now educator and mentor.

But this idea has never been far from my mind: That most of us will wake up 28,762 days- and then one day – we won’t.

That means you have about 21,000 days left –  and about 14,000 of them for your career.  So herein lies the urgency.

In every startup I did, every new course I created, and everything I’ve taught, the phrase “make every day count” took on new meaning when I knew how many were left.

So how do you live a life making the most of each day?

That’s the challenge we all face – and we all make different choices on how we do it. But this morning I’d like to share three short stories – about how I made my days count and gained some wisdom from others.

­_________

So my first story is about Taking Risks and Pushing Boundaries

As you enter the working world, you’ll hear things like, “That’s not how we do things here.”  “It’s never been done that way before.”  and “The rules say you can’t do this.”

Some of these rules will keep you from killing yourself on the job. Some are required for you to gain the skills to perform your job. But most everything else people will tell you about rules is wrong.  Not kind of wrong, but spectacularly wrong. It’s ironic because ignoring the rules is what drives innovation and invention. While most visionaries turn out to be hallucinating, the few who are right push the human race further along.

Let me give you an example.

When I retired after 21 years working in 8 startups, I was invited to be a guest lecturer at the business school at the University of California Berkeley. They thought I could tell good stories about what it was like to start a company. Soon I began to pester the head of the department about this new idea I had… that startups are not smaller versions of large companies.

Actually they’re entirely different.

Established businesses execute business models while startups search for them.

Yet everyone – investors, entrepreneurs, academics — expected new startups to follow the same practices that worked for large companies – write a business plan, forecast 5-year sales projections and build the product without ever talking to customers.

I was a lone voice inside one of the country’s leading business schools challenging the conventional wisdom of the last 40 years, proposing that everything we were teaching about starting companies was wrong.

I can’t tell you the number of very smart professors and venture capitalists who laughed in my face. But I didn’t give upBecause I knew the clock was running and I was determined to make every day count.

I saw something that they didn’t and to their credit…Berkeley’s Business School and then Stanford’s Engineering School let me write and teach a new course based on my ideas.

Five years later the U.S. National Science Foundation adopted this class, now called the Innovation Corps, as the basis of commercializing science in the Unites States. This unorthodox idea has become a movement …called The Lean Startup –  and has led to entirely new ways to start companies, commercialize science, and think about innovation.

How did this happen?  Innovation comes from those who see things that others don’t. It comes from people who not only question the status quo But keep persisting in the face of all the naysayers.

Because your time here is limited.

­_________

My second story is about Mentors and gaining the heart of the wisdom

Questioning dogma doesn’t mean rejecting all advice and guidance from others who’ve come before you.

In fact, your career and life can take on a very different trajectory if you find mentors and use that time to learn from their experience.

As an entrepreneur in my 20’s and 30’s, I was lucky to have two extraordinary mentors, each brilliant in his own field. One, Ben Wegbreit taught me how to think – Ben reviewed my first datasheet and returned it with entire paragraphs circled in red labeled “CFP” – I finally got enough nerve to ask him what CFP meant and he said, “Content Free Paragraph”. While Ben taught me how to think, Gordon Bell taught me what to think about. Gordon had the uncanny ability to see the future trajectory of computer and chip technology way before I even understood the problem.

I had no idea I was being mentored and never asked for it. But I sought out these really smart people, because I wanted to know what they knew.

In hindsight I realize that what made these brilliant engineers put up with me was that I was giving as good as I was getting. While I was learning from them – and their years of experience and expertise – what I was giving back was equally important. I brought fresh insights and new perspectives to their thinking.

In hindsight I realize now that mentorship is a two-way street.

Finding a mentor can change your life – this is where you can gain a heart of wisdom.

So if someone takes an interest in your work and career, be open to their advice.  And think about what you can bring to the relationship.

Teach us to number our days that we gain a heart of wisdom.

­_________

My last story is about serendipity and making the days count

Some of you may think you have a clear sense of where your career is headed.  Others of you may still have no idea. But either way, while the days count down, none of you should be worrying about what you will be doing 10 or 20 years from now. Because none of it will happen as you expect.

While your education has prepared you to master the facts, the other half of your brain needs to learn to trust in serendipity. By the way, the engineering definition of serendipity is, that life is too unpredictable to pre-compute. Serendipity is when it all comes together and you put all the days of your life into what becomes that of heart of wisdom.

Here’s the latest way Serendipity changed my life.

Over the last decade I’ve watched the Lean Startup approach to entrepreneurship take off. The National Science Foundation adopted it.  The Lean LaunchPad class is now taught around the world – and VC’s expect entrepreneurs to talk about not just their technology but their customer development findings.

It was amazing to see the movement I started grow and thrive.

Just recently serendipity sent me down a new road that connected dots from 40 years ago to today.

When I was 18 I served in the Air Force during the Vietnam War.

After hanging up my uniform I had little interaction with the military until four decades later, when a group in the Department of Defense invited me to give a talk about Lean methods. Shortly after that, I met Pete Newell, the retired head of the Army’s Rapid Equipping Force – one of the best Lean and agile organizations in the military – and I met Joe Felter an ex Special Forces Colonel. As I spent time with Pete, Joe and the Department of Defense, two things struck me –

Serendipity had just brought together my military experience of 40 years ago and the tools and techniques I spent the last decade building for Lean Startups.

I asked: What if we could teach students how use Lean methods to solve the most challenging national security problems? A new class – Hacking for Defense – was born.

Together with Pete and Joe and support from many others, we just taught this class for the first time – and hopefully will soon teach it here.

We plan to scale the class across the country and create a new opportunity for students to engage in national service—solving problems to keep Americans safe at home and abroad.

How did this happen?  Showing up a lot, and being open to new seemingly unconnected experiences, helped me create something that never existed before.

For me, knowing I was counting the days made me choose to work on things that pushed boundaries and made us collectively smarter.

So what do these stories mean for you?

  1. Take risks and push boundaries
  2. Learn from wise people who may know more than you do
  3. And let serendipity happen.

Of course only you can decide what you will do with the 14,000 days in your career.

But as engineers trained here at NYU you have a distinct advantage. As graduates you’ve been given the tools to design and build things to help people live better lives. You can solve major challenges the world faces.  You can create something that never existed.

Congratulations class of 2016.

My challenge to you – make every day ahead mean something.

Teach us to number our days that we gain a heart of wisdom

Make all the days of your life matter.

If you can’t see the clip, click here

Pioneering Women in Venture Capital: Kathryn Gould

I met Kathryn Gould longer ago than either of us want to admit. Kathryn has been the founding VP of Marketing of Oracle, a successful recruiter, a world class Venture Capitalist, a co-founder of a Venture Capital firm, a great board member, one of my mentors and most importantly a wonderful friend. During her career she made a big point of not telling you: she was one of the first women Venture Capitalist’s in Silicon Valley (along with M.J. Elmore and Ann Winblad) – “I’m just a VC.”  Or one of the first women co-founders of a VC firm – “I co-founded a great firm.” She was twice as smart and just as tough as the guys. She has been a mentor and role model not just for a generation of women VC’s and CEO’s but for all VC’s and CEO’s – and I’m honored to have been one of them.

One of the reasons I took up teaching is my strong belief that it’s incumbent on all of us to make those who come after us smarter than we were.” So when I heard Kathryn gave the University of Chicago commencement speech I suggested that she reach out to a larger audience and share her decades of experience.

Her response? “The last thing I want is a bunch of people bugging me while I’m growing my grapes, flying, painting, playing music, and generally goofing off.”  I pointed out that, “Now that you retired, what happens to all the knowledge and experience you’ve acquired?” She still demurred so I gave it one last shot. I sent her an email saying, “When you’re gone everything you learned goes with you. This really is bigger than you. I have two daughters starting careers and nothing could be more inspiring than hearing your story. You really ought to share your journey.”

So for the first time ever, she has. Here’s Kathryn’s story.

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Why Give a Commencement speech
One of the more fun things I’ve been asked to do lately was give the commencement speech at the University of Chicago Booth School of Business in June 2014.  What I didn’t tell them before, during, or after the talk was that I’d never gone to my own University of Chicago MBA graduation, nor had I gone to my BSc in physics graduation at University of Toronto.  I’ve never been big on pomp, and I had fun jobs I wanted to go to right away after each of them.  And to be fair, I wasn’t summa cum laude in either case.  I was merely respectable, so there was no appealing ego trip involved.  Anyway it was high time I went to a graduation.

The most personally interesting part of writing this speech was thinking about what I could say to the young women that I wish I’d heard at their age. (I heard nothing).

So, for the first time, I thought hard about what it was like to be a woman in a man’s business.  Not thinking about it earlier was a survival strategy—because if I’d thought about it, I’d have wanted to TALK about it, and that would have been stupid. I was working and competing with men daily.  And successfully. And the truth is, I like working with men. Being a physicist-turned-engineer, I have very little experience working with anything but men. So when members of the press or militant feminist types would question me about this stuff, I would avoid and be annoyed. Now that I’m retired I can speak out and let the chips fall. Still, a nod to Sheryl Sandberg for saying her piece while in the thick of it.

In the aftermath of the speech, I got the most resonance in two areas:

1) make unconventional choices that fit YOUR OWN aspirations

2) from women appreciating the advice to go around obstacles, and enjoying hearing from a fellow ‘dragon lady’

Actually it wasn’t “dragon lady,” it was a stronger, less feminine term — “Ball Buster” — but, hey, I couldn’t say that in a speech.  Reason I know is that I’m still very close to most of the former CEOs from my boards. I ran this speech by a couple of them.  Over time they had heard me referred to as that other term. They would jump to my defense – and they report that the people who said this had never met me –it was just the “word on the street.”  Insidious, yes?

Anyway, mine is a study in making unconventional career choices (not that I recommend everybody go be a recruiter for a few years!), and searching for what you’re great at, and meant to encourage women to go right through those walls.

So they call you a “dragon lady”; so what?!

Here’s the speech:

2014 University of Chicago Commencement speech ‘Your Great Adventure’
“I’m so happy to be here today:  First, to help you celebrate your success thus far, and more important:  to celebrate your last day of doing what is expected of you —now each of you embark on your own great adventure—there is no ‘expected’ path from here on. You get to create your own history. No more tests, get into this school, get into that class, get this degree—now the real adventure begins. The second reason I’m glad to be here today is that 2 years ago, when Dean Kumar first asked me to do this speech, I wasn’t sure I”d even be alive, so I had to pass.  More on that later.

So, about your adventure:  should you have a plan? Maybe. But don’t follow it. Planning prepares the mind, and chance favors the prepared mind, but chance usually messes up plans!  When I was where you are, 36 years ago (can ya believe it) I didn’t have a plan—but I did have an aspiration: I wanted to go to Silicon Valley and I wanted to work in startups.  I had no idea how I was going to get from here to there.  I was completely unprepared!  We had literally one entrepreneurship course here in the mid 70s—taught by a guy who commuted in from Silicon Valley.  Compare that to now—with our superb entrepreneurship curriculum, and I understand 70% of this class has either an interest or focus in entrepreneurship.

Chance Favors the Prepared Mind
So here’s how it happened for me.  I had had a love affair with computers since I was 18 and a freshman physics major.img013

Computers were so different from now—arcane, annoyingly difficult— and interesting. But they weren’t really in Silicon Valley at the time—they were in Boston, Minneapolis, New York. So going to Silicon Valley wasn’t an obvious move at the time. It was the invention of the microprocessor that made it obvious for me. I quit my good job here and moved to the valley. Most people thought I was nuts.  I had no idea what I was doing—just that I had to be there, and in a startup—so I took a job with the smallest company that made me an offer (passing up Intel, Tandem and Apple). It wasn’t a great choice, but I was THERE. But then, one our customers was Larry Ellison, with this little company that wasn’t even called Oracle at the time. I loved what he was working on (thanks to perspective in data management from my large company experience here—that prepared mind thing).  So I joined Oracle when it was about 20 people, eventually becoming VP Marketing. And it was an amazing time. Larry was the best entrepreneur I’ve ever known, and completely unconventional…

What can you learn from this story so far?:

Put yourself in the way of success—get in front of an important wave and ride it.

Gravitate to what’s new.

Don’t be afraid to take a step down (Oracle was a $1 Million business, I had been marketing manager for a $100 Million  business).

Build Your Skills Not Your Resume
Eventually I left Oracle, wanting to do another startup. Problem is, startups that have world changing potential are not that easy to find. I wanted another Oracle, not any old startup. So I did something completely crazy and unplanned—which looks brilliant only in hindsight! I noticed that I loved looking for a job, even tho I didn’t’ find a company I wanted to join. I liked meeting people, hearing the company plans, learning about their technology, figuring out if it was for real—all that was fun. How could I do that for a living? The answer of course, was Venture Capital, but that was not in the cards—as yet. I had met a few exec recruiters in the process and thought what they did was similar and interesting.  So I started an exec search firm as a creative way to look for a new startup.  Turns out that I quickly became one of the few best recruiters in the valley for CEO and VP levels, got to work with the best VCs and their startups. And who would have guessed—perfect preparation for the VC business. I ended up doing that for 5 years, and in the process saw about 80 startups in various stages of success and disarray. I developed a deadly accurate intuition on people, an unbeatable set of contacts, and loved working for myself in my little firm. By the 4th year, VCs were asking me to join them, partly for recruiting help, but more because I kept introducing them to startup investment opportunities. As you’ve heard, it’s excruciatingly hard to get in to the VC business, and there I was. Because I”d built some unique skills.

Plus, I had learned some stuff that you don’t get in business school:

  • How to cold call –adrenaline, real time, 3 seconds to grab their attention—learn this!
  • Also the adage As hire As, Bs hire Cs—absolutely true—be careful of the company you keep,
  • And what goes around comes around.   Help people with their careers, their ideas, contacts—and I’m serious, good things come back years later.

I also learned that the first time without a paycheck is a little scary.

Find Your Obession
I joined VC firm Merrill Pickard in 1989. My first IPO wasn’t until 1995—the VC business takes patience. Two companies I helped start in 1992, DCTM and Grand Junction Networks both became Stanford business school cases and very valuable, successful companies. I was on the way to my lifetime IRR of 90%. I loved the business, and I was good at it.  But then, trouble. My two best partners went off to start Benchmark Capital, very successful to this day, so my firm was going to blow up. I went Boogie Boarding where I do my best thinking. I thought, gee, I could already afford to ride waves the rest of my life. That might be neat. But I couldn’t do it. I loved the business, couldn’t stop.  So I started Foundation Capital in 1995. I loved starting my own firm, doing it my way.  We brought in all operating guys—all had done startups, all had technical backgrounds. In 5 years we were one of the top firms in the Valley by any measure.  I had found my obsession.

It’s Not the Calls You Take, It’s the Calls You Make  One of my sayings
You are the creator of your destiny. In whatever business you’re in, there is always so much coming at you that you can stay insanely busy just responding.  Don’t do that. Always think about what is your agenda, what do you want to make happen, what do you want the future to look like.  This is not so easy.

Go Where the Action Is: It’s not over in the Valley
Now 35 years later, should you still move to the Valley (or Hollywood, or London, or Chicago!—or wherever the action is in your area of interest?). I can’t speak to the other places, but I”ll tell you what, it’s not over in the Valley.  From electric cars to drones, DNA sequencing to robotic surgery, enterprise software to social media –the size and variety of these markets makes the Valley of my early days look bush league. There’s no end in sight. The valley startup culture and talent pool is unique in the world.  If you think maybe you should go there—maybe you should.

I retired in 2006. My husband and I bought a vineyard—so I’m a beginner again!  With another startup!

A Word to the Ladies Here
I understand a third of the class is women. I have always said, with an annoyed attitude when people ask, that there are no obstacles to women these days, just look at me! That’s the safe way to answer, right? But it’s not entirely true. One of the gifts of talking to you ladies here is that I forced myself to reflect on this.  I’ll just mention two obstacles that hit me—neither of which I even reacted to at the time, just accepted.

First Obstacle
I wanted to go to Caltech, but they didn’t take women undergrads until 1970. I wasn’t mad about that; I just thought it was my fault for being interested in guy things. So I dated a Caltech student and got to use their computer—first computer I ever met too—a monster. Structural obstacles like this are over with for you.  Good riddance.

Second Obstacle
Remember that business of starting Foundation Capital when my first firm blew up?  I did it because I didn’t have a choice—couldn’t get a job.  Really.  I spent a couple of months talking with the few VC firms that I was willing to join. (yes, I was picky) It became clear it was going to take a long time to get into one, and I didn’t have a long time.  I didn’t want to lose my momentum. Mind you, I was one of the top handful of VCs in the business at the time. Not on the Midas list yet, because it hadn’t been invented, but anybody could see that my results were heading toward extraordinary. I have to think that a guy with my numbers would have been snapped up pretty fast.  For me, starting the firm and raising the money was way faster. Don’t you think that’s stunning? A pretty big fat obstacle. So we went from Boogie Board to money in the bank in 6 months. Not that I’m sorry—it turned out great.  But you ambitious women will surely face something like this in your career. Just go around it!  There is always a way.  Note on the VC business, only 4% of senior VCs are women, according to Fortune Magazine. I don’t think it’s changing anytime soon either.

Now to be fair, consider your advantages:  you’re much more memorable than most of the guys, they won’t forget you, and there is a self selection:  the men who have the guts to do business with you have the extra self confidence to be more successful.  The guys that wanted me on their board of directors had moxy—because of course they had heard all the crap about how I was a dragon lady (all ambitious women get called that as you know) and they still went for it. Who knows—could be why my companies were so successful…

I often walk among my grapevines and think how grateful I am for my life right now.  But if the vines had come first, without the adventure and hard work, it wouldn’t be nearly as sweet. So that’s my story so far—but it’s not over yet, because the cabernet is really good!

Tending a New Crop in My Next Venture

Tending a New Crop in My Next Venture

So now, for each of you, go create your own unique adventure.  You are done preparing—go do it! Make a plan, but don’t stick to it. Let chance favor your prepared mind.  Break rules, find your obsession, be extraordinary!”

View the speech in its entirety here

Three Things I Learned on Commencement Day

In the last five years I’ve been at Commencement Day at universities around the world – a few times to receive awards and three times as the commencement speaker. But attending both my daughters’ college graduations this year helped me to see how things look from the other side of the podium.

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CommencementFirst, college graduations fall in the category of “life cycle” events. At some major events– your birth and death for example, while you may be the center of attention, the events are managed by others and are more important to the people around you. Other events, like coming of age celebrations, getting your driver’s license, getting married, the birth of your children – are more important to you, and those attending are the celebrants at your event.

While our daughters’ graduations felt important to us, on top of mind was that this day was about honoring their accomplishments not ours. We were there to celebrate with and for them. And we were incredibly proud of what they achieved – through their years as college students, they grew smarter, wiser and more prepared for the world in front of them.

Second, for most students, our kids included, college was a halfway house to independence. The morning they stepped onto campus as freshman it was the first day of their own life –they were no longer just a child of their parents. College was the first place they could taste the freedom of making their own independent decisions – and in some of those “mornings-after” – learn the price of indulgence and the value of moderation.

At school they had their first years of taking responsibility for themselves. While it may not be obvious to them yet, their college years were a transition from having their parents make decisions for them to making decisions for themselves. Through those years, we lived through a few crises, tried hard not to be helicopter parents and helped when we were needed.

But as independent as our kids and their classmates felt, going to college is still a known path for 21 million U.S. college students. Commencement Day has a sobering finality in that it’s the end of the prescribed path. From that day forward each of these 21 million students now has to search for his or her own path through life

That brings up my third and final observation. At the commencements I attended, graduates were classified by their academic rankings. Outstanding academic performance was noted in the programs and awarded with special honors. Schools reward their students for a combination of intelligence, perseverance and hard work, in the classroom and on the playing fields. But these metrics don’t help kids understand that great grades are not a pass for a great life.

How many of those “A” students will find that after their first job, few employers care about grades and customers don’t ask for your transcript? In fact, in a decade or two, a good number of those “A” students may well be working for those supposed losers who barely graduated.

It’s at the back of the hall where there were a few who see things differently. Who have no fondness for rules or respect for the status quo—these are the kids who are more likely to grow up to create new companies and new industries and push the envelope in directions not visible to those who follow a more conventional path. Successful founders and technology entrepreneurs have at best a zero correlation with great grades.

Colleges may not reward resiliency, curiosity, agility, resourcefulness, pattern recognition and tenacity. But as an entrepreneur, they matter a whole lot more than following directions, playing by the rules and getting top grades.

Congratulations to those in both the front and back of the room. Your lives are going to be interesting – through very different paths.

Lessons Learned

  • Graduation was their day. We were there to help them celebrate
  • Commencement Day is the end of the prescribed path. Now they have to find their own
  • Great grades are not a pass for a great life
  • After their first job, few employers care about grades and customers don’t ask for your transcript
  • Successful founders and technology entrepreneurs have at best a zero correlation with great grades


Download the podcast here

ESADE Business School Commencement Speech

President Bieto, Dean Sauquet, members of the faculty, distinguished guests, and ladies and gentlemen….Thank you for the kind introduction. I’m honored to be at a university noted for knowledge, and in a city with 2000 years of history –  home of Gaudí one of the 20th century’s greatest innovators.ESADE quote

I’d like to start with a request.

Everyone, hold your phone up in the air like this.

Now look around.  In this sea of phones do you see any Blackberries? How about any Nokia phones?

Ok you can put your phones down now but let’s keep exploring this a bit. Raise your hand if you rented a VHS tape last night? Or if you used a paper map to find your way here?

These questions and your answers lie at the heart of what I’d like to talk about with you today: the changing face of innovation and your role in it.

Let’s start with Joseph Schumpeter. I’m sure many of you have heard his name. Schumpeter was an economist who taught at Harvard in the 1930’s and 40’s.  I like the guy because he’s credited with coining the word entrepreneur. But you probably remember him as the one who proposed the theory of creative destruction.  According to Schumpeter, capitalism is an evolutionary process where new industries and new companies continually emerge to knock out the old.

Fifty years later another Harvard professor, Clayton Christensen, developed his theory of disruptive innovation, which actually described how creative destruction worked.

Disruptive innovation leads to the creative destruction of businesses that once seemed pre-eminent and secure.

Which brings me back to your mobile phones.

Think about this; 7 years ago Nokia owned 50% of the handset market. Apple owned 0%.  In fact, it was only 7 years ago that Apple shipped its first iPhone and Google introduced its Android operating system.

Fast-forward to today—Apple is the most profitable Smartphone company in the world and in Spain Android commands a market share of more than 90%.  And Nokia?  Its worldwide market share of Smartphones has dwindled to 5%.

You’re witnessing creative destruction and disruptive innovation at work. It’s the paradox of progress in a capitalist economy.

So congratulations graduates – as you move forward in your careers, you’ll be face to face with innovation that’s relentless.

And that’s what I’d like to talk about today—how innovation will shape the business world of the next 50 years—and what it means for you.

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The Perfect Storm
Your time at ESADE has trained you to become a global business leader.

But the world you lead will be much different from the one your professors knew or your predecessors managed.

Just look at the disruptive challenges that businesses face today– globalization, China as a manufacturer, China as a consumer, the Internet, and a steady stream of new startups. Today’s workforce has radically different expectations, brands are losing their power, physical channels are being destroyed by virtual ones, market share is less important than market creation, and software is eating world.

Industries that we all grew up with, industries that enjoyed decades of market dominance – like newspapers, bookstores, video rentals, personal computers — are being swept away.

The convergence of digital trends along with the rise of China and globalization has upended the rules for almost every business in every corner of the globe. It’s worth noting that everything from the Internet, to electric cars, genomic sequencing, mobile apps, and social media — were pioneered by startups, not existing companies.

Perhaps that’s because where established companies might see risks or threats, startups see opportunity. As the venture capital business has come roaring back in the last 5 years, startups are awash in available capital. As a consequence, existing companies confront a tidal wave of competitors 100 times what they saw 25 years ago.

Efficiency over innovation
Yet in the face of all this change, traditional firms continue to embrace a management ethos that values efficiency over innovation. Companies horde cash and squeeze the most revenue and margin from the money they use. Instead of measuring success in dollars of profit, …firms focus on measuring capital efficiency. Metrics like Return on Net Assets, Return on Capital and Internal Rate of Return are the guiding stars of the board and CEO.

Cheered on by finance professors, Wall Street analysts, investors and hedge funds, companies have learned how to make metrics like Internal Rate of Return look great by one; outsourcing everything, two, getting assets off their balance sheet, and three only investing in things that pay off fast.

As Harvard professor Clayton Christensen noted, these efficiency metrics provided wise guidance for times when capital was scarce and raising money was hard. But they have also stacked the deck against investment in long-term innovation.

Since the financial crisis of 2008, policy makers have kept interest rates at near zero, flooding the market with cheap money in an attempt to restart growth. In spite of this, private equity funds have used the rallying cry of efficiency to hijack corporate strategy and loot the profits that historically would have been reinvested into research and development and new products. We legalized robbing the corporate treasury. Today billions of dollars that companies could have invested in innovation are sitting in the hands of private equity funds.

Unfortunately as we’ve learned from recent experience, using Return on Net Assets and IRR as proxies for efficiency and execution won’t save a company when their industry encounters creative disruption. Ask Sony about Samsung, ask any retailer about Amazon, any car company about Tesla, and any newspaper company about the web.

The stock market clearly values companies that can deliver disruptive innovation. Look at the valuations of companies like Tesla, Illumina, and Twitter.

In fact, I predict that over the next few decades, we will see two classes of public companies. The first will be commodity businesses that are valued for their ability to execute their current business model. Their lifetime as a market leader will be measured in years. The second class will be firms with a demonstrated ability to continually innovate and reinvent their business models. The companies that can show “startup-like” growth rates of 50% plus per year will get stratospheric market valuations.

So I hope you are thinking—“hey how can I lead a business with startup growth?” At least I hope you’re thinking that, rather than “oops I joined the wrong company.”The question for all of you is … “What will it take to inspire and manage this kind of innovation?”

Innovation
Before I answer that question, let’s take a minute to establish a common definition of innovation. At its most basic, innovation means to introduce something new. But in a business context, the meaning gets more nuanced. I’d like to describe the four types of innovation you can build inside a corporation:

The first type of corporate innovation is individual initiative. It’s exactly as it sounds – you build a corporate culture where anyone can suggest an idea and start a project. Some companies use a suggestion box, others like Google give employees 20% of their time to work on their own projects.

The second type of business innovation is called process improvement. This is the kind most of us are familiar with. Car companies introduce new models each year, running shoes grow ever lighter and more flexible, Coca-Cola offers a new version of Coke. Smart companies are always looking to make their current products better – and there are many ways to do this. For example they can reduce component cost, introduce a line extension or create new versions of the existing product. These innovations do not require change in a company’s existing business model.

This is what companies typically do to secure and defend their core business.

The third type of business innovation – continuous innovation – is much harder. Continuous innovation builds on a strength of the company’s current business model but requires that new elements be created. For example, Coke added snack foods, which could be distributed through its existing distribution channels. The Amazon Kindle played on Amazon’s strengths as a distributor of content but required developing expertise in electronics and manufacturing.

Fourth and finally is disruptive innovation – this is the innovation we associate with startups. This type of innovation creates new products or new services that did not exist before. It’s the automobile in the 1910’s, radio in the 1920’s, television in the 1950’s, the integrated circuit in the 1960’s, the fax machine in the 1970’s, personal computers in the 1980’s, the Internet in the 1990’s, and the Smartphone, human genome sequencing, and even fracking in this decade. These innovations are exactly what Schumpeter and Christensen were talking about. They create new industries and destroy existing ones. And interestingly, in spite of all their resources, large companies are responsible for very, very few disruptive innovations.

The first two types of innovation—individual and process innovation– are what good companies do well.  The third type—continuous innovation—is a hallmark of great companies like GE and Procter and Gamble.  But the fourth type of innovation – creating disruptive innovation– and doing it on a repeatable basis– is what extraordinary companies do. Apple with the iPod, iPhone and iPad; Amazon with Amazon Web Services and Kindle; Toyota with the Prius… these companies are extraordinary because, like startups, they create entirely new products and services.

ESADE and other great business schools have provided decades of advice and strategy for the first three types of innovation. But leading an existing firm to innovate like a startup is not business as usual.

Building Innovation Internally is Hard
Paradoxically, in spite of the seemingly endless resources, innovation inside of an existing company is much harder than inside a startup.  That’s because existing companies face a conundrum: Every policy and procedure that makes them efficient execution machines stifles innovation.

Think about this.  When it comes to innovation, public companies have two strikes against them.  First the markets favor capital efficiency over R&D.  And secondly, their sole purpose is to focus resources on the execution of their business model.

As a consequence, companies are optimized for execution over innovation. And to keep executing large organizations hire employees with a range of skills and competencies. To manage these employees companies create metrics to control, measure and reward execution.  But remember—in public companies financial metrics take precedence. As a result, staff functions and business units develop their own performance indicators and processes to ensure that every part of the organization marches in lock step to the corporate numbers.

These Key Performance Indicators and processes are what make a company efficient —but they are also the root cause of its inability to be agile and innovative. Every time another execution process is added, corporate innovation dies a little more.

Act Like a Startup
So how does a company act like a startup in search of new business models while still continuing to successfully execute?

First, management must understand that innovation happens not by exception but is integral to all parts of the firm. If they don’t, then the management team has simply become caretakers of the founders’ legacy. This never ends well.

Second and maybe the most difficult is the recognition that innovation is chaotic, messy and uncertain. Not everything will work out, but failure in innovation is not cause for firing but for learning. Managers need radically different tools to control and measure innovation. A company needs innovation policies, innovation processes and innovation incentives to match those it already has for execution. These will enable firms to embrace innovation by design not by exception.

Third, smart companies manage an innovation portfolio where they can pursue potential disruption in a variety of ways. To build innovation internally companies can adopt the practices of startups and accelerators.  To buy innovation companies can buy intellectual property, acquire great teams, buy-out another company’s product line or even buy entire companies. And if they’re particularly challenged in a market they can acquire and integrate disruptive innovation.  My favorite example is Exxon’s $35 billion purchase of XTO Energy in large part to get their fracking expertise.

Other smart companies are learning how to use Open Innovation pioneered by Henry Chesbrough who teaches here at ESADE. They can partner with suppliers, co-create with consumers, open-source key technologies, open their application programming interfaces, or run open incubators for customer ideas.

Everything I’ve been talking about smart companies have already figured out.  Many firms are creating the new role of Chief Innovation Officer to lead and manage these innovation activities. Ultimately this is not just another staff function. The Chief Innovation Officer is a c-level executive who runs the company’s entire innovation portfolio and oversees the integration of innovation metrics and initiatives across the entire organization.

Looking forward, all of you will play a role in the future of business innovation, whether you help to accelerate it or discourage it.
How can you kill innovation? Some companies have so lost the DNA for innovation they become “rent seekers”. Rent seekers fight to keep the status quo. Instead of offering better products or superior service, rent seekers hire lawyers and lobbyists to influence politicians to pass laws that block competition. The bad news here is that countries where bribes and corruption are the cost of doing business or that are dominated by organized interest groups, tend to be the economic losers. And as rent-seeking becomes more attractive than innovation, the economy falls into decline.

I know that’s not the path most of you want to take. Instead I think you want to be part of the innovation team.  And if you do you are in luck. Companies need your help.

They need your help in creating new metrics to manage measure disruptive innovation.  They need your help in creating new innovation incentive systems that reward creative innovation.

And they need your help as leaders who can run companies that can both execute and innovate.

Finally, remember Innovation won’t come from plans or people outside your company  – it will be found in the people you already have inside who understand your company’s strengths and its vulnerabilities.

So in closing, let me leave you with this final thought:

A pessimist sees danger in every opportunity but an optimist.. an optimist sees opportunity in every danger.

In the last 150 years only a few generations have had the opportunity to reshape the nature of business.

Be an optimist.

Congratulations class of 2014:

Embrace change and lead the way.

—-

Listen to someone else read my speech here [audio http://traffic.libsyn.com/albedrio/steveblank_hplewis_140331_FULL.mp3]

Download the podcast here

University of Minnesota Commencement speech – May 10th 2013

Steve at PodiumI am honored to be with you as we gather to celebrate your graduation.

This school has a distinguished roster of graduates… Earl Bakken, the founder of Medtronic, was an Electrical Engineering grad, and Bob Gore of Gortex, and your current president are both alums of your Chemical Engineering program.

In fact, I feel very connected to another one your grads. I’m sure you’ve heard of Seymour Cray, he built a supercomputer company in Chippewa Falls that made the fastest computers in the world. These were very expensive supercomputers. They cost 10’s of millions of dollars and filled two tractor-trailers worth of space.

Back in Silicon Valley I co-founded a company that built desktop workstations powerful enough to compete against Cray. We bid against them in a sale to the Pittsburgh Supercomputer Center… and lost. I never forgot that loss because instead of buying hundreds of our small computers they spent $35 Million on that Cray. My startup never recovered and soon after went out of business.

Fast-forward 15 years, Now retired I noticed that the Pittsburg Supercomputer Center had put their Cray for sale on Ebay.  Yep – the $35 Million machine was now for sale for $35,000 dollars.

I bought that Cray, … Honest… you can Google “Cray on eBay” and there I am… I had it shipped to my ranch and kept it in the barn next to the cows and manure.

It was closure.

But the story about Cray is also a story about success and failure.  If I can keep you awake, I’m going to tell you why – while you may have thought today was the end of your education – it’s really only the beginning. And while you might be moaning about that thought, pay attention because what I’m about to share could make a few of you very, very successful.

First day of your life
For most of you, college was the first day of your own life – the morning you stepped onto campus you were no longer just a child of your parents – college was the first place you could taste the freedom of making your own decisions – and in some of those mornings-after – learn the price of indulgence and the value of moderation.

Here at school you had your first years of taking responsibility for yourself. While it may not be obvious to you yet, your college years were a transition from having your parents make decisions for you to making decisions for yourself.  But now you face a new chapter that -– if you’re not careful – could result in having companies make decisions for you.

UofM Commencement

Career Choices
It might turn out that graduating from college and getting a job may be just an illusion of independence. If you’re not careful you’ll simply end up having others tell you what to work on, how to spend your time, when to show up and when to go home.  In fact, working in a company could be the adult version of listening to your parents tell you what to do… Only the pay is usually a whole lot better than your allowance.

For some of you, that may be exactly what you are looking for. Many of you are going to take what you learned here, get a good job, get married, buy a house, have a family, be a great parent, serve your community and country, hang with friends and live a good life. And that’s great. Minnesota is a wonderful place to hunt, fish, canoe, raise kids, and pursue lots of interests other than just your job.

All of you will ultimately make a choice… a choice about whether you “work to live” or you “live to work.” This should be a conscious choice. Don’t get trapped into the daily routine of showing up and just getting by.

Diverging Interests
While you’re excited about your first “real” job, recognize that your interests and those of your employer are probably not the same. Having your employer tell you what a great job you’re doing and rewarding you for it is not the same as discovering your passion, and figuring out who you are, and what’s rewarding for you.

What I am saying is, “Don’t let a career just happen to you.”  And as much you love, respect and honor your parents, don’t live their lives. Your obligations to meet their expectations ended the day you became an adult.

At the end of the day, you can decide whether you want to be an employee with a great attendance record, getting promoted to ever better titles and working on interesting projects – or whether you want to attempt to do something spectacular – this be or do should be a question you never stop asking yourself — for the next 20 years, and beyond. Be? or Do?

Let me share with you the day I faced the Be or Do question.

Big Company versus Startup
Out of the military, my first job in Silicon Valley was with one of the most exciting companies you never heard of. By the time I joined it was a decade old, and no longer a startup. Our customers were the CIA, NSA, and National Reconnaissance Office. Our CEO, Bill Perry eventually became the Secretary of Defense.

In the 1970’s and ‘80’s the U.S. military realized that our advantage over the Soviet Union was in silicon, software and systems. These technologies allowed the U.S. to build weapons previously thought impossible or impractical.  The technology was amazing, and somehow in my 20’s I found myself in the middle of all of it.

Building these systems required resources way beyond the scope of a single company. A complete system had spacecraft and rockets and the resources of ten’s of thousands of people from multiple companies.

If you love technology, these projects are hard to walk away from. It was geek heaven.

While I worked on these incredibly interesting intelligence systems, my friends in startups worked on new things called microprocessors.  They’d run around saying, “Hey look, I can program this chip to make this speaker go beep.” I’d roll my eyes, comparing the toy-like microprocessors to what I was working on – which was so advanced you would have thought we acquired it from aliens.

But before long I realized that at my company, I was just a cog in a very big wheel. A small team had already figured out how to solve the problem and ten’s of thousands of us worked to build the solution. Given where I was in the hierarchy, I calculated that the odds of me being in on those decisions didn’t look so hot.

In contrast, my friends at startups were living in their garages fueled with an energy and passion to use their talents to pursue their own ideas, however unexpected or crazy they sounded. “Really, you’re building a computer I can have in my house?”

For me, the light bulb went off when I realized that punching a time clock is not the way to change the world. I chose the path of entrepreneurship and never looked back.

Engineers Run the World
Engineers used to be the people who made other peoples ideas work. Today, they change the world.  We live in a time where scientists and engineers are synonymous with continuous innovation. We don’t think twice as our phones shrink, our computers fit in our pockets, our cars run on batteries, and our lives are extended as new medical devices are implanted in our bodies. Scientists and engineers no longer work anonymously in backrooms. Today we celebrate them for improving the quality of peoples’ lives.

George Bernard Shaw once said, Some men see things as they are and ask why. Others dream things that never were and ask why not.” Engineers like you have the capacity to move the world forward by continually asking “why not?” It’s your special “doing” gene that empowers us to do better.

You invent. You imagine. You see things that others don’t. Where others see blank canvases, you’ll see finished paintings. You hear the music that’s not written, you see the bridges that have yet to be built.  You envision the products and companies that don’t exist yet.

DSC_5829

Only In America
University of Minnesota Science and Engineering alumni have founded more than 4,000 active companies, employing over ½ million people and generating annual revenues of $90 billion. These alums chose not to take the safe road but instead to push beyond their boundaries and DO.

At some time you might decide that you want to become the master of your own destiny – that you want to take an idea – and start your own company. And all of you sitting here just earned a degree that gives you choices that very few other professions have.

Entrepreneurship is not something foreign – it’s built into the DNA of this country. America was built by those who left the old behind. Not too many generations ago your family packed up what they had, got on boat and came to America. They struck out across the country and ended up here in Minnesota.

And what’s great about the United States… No other country embraces innovation and entrepreneurship quite like we do. You don’t have to stay in one job, and it’s really, really hard to starve to death.

Passion
I predict that 78% of all commencement speeches this year will have advice about “pursuing your passion and doing stuff you love.” But they don’t tell you why.  Well here’s the secret – if you’re going to spend your career in a company, doing stuff you enjoy will help you keep showing up..

But if you want to do something, something entrepreneurial, just loving what you do is isn’t enough. You’re pursuing ideas you can’t get out of your head. Ideas that you obsess about. That you work on in your spare time.

Because that fearless vision and relentless passion are what it takes to sustain an entrepreneur through the inevitable bad times – the times your co-founder quits, or when no one buys, or the product doesn’t work. The time when everyone you know thinks that what your doing is wrong and a waste of time. The time when people tell you that you ought to get a “real” job.

By the way, every year I remind my students that great grades and successful entrepreneurs have at best a zero correlation – and anecdotal evidence suggests that the correlation may actually be negative. There’s a big difference between being an employee at a great company and having the guts to start one.

You don’t get grades for resiliency, curiosity, agility, resourcefulness, pattern recognition and tenacity.

You just get successful.

Failure
The downside of starting something new is that’s it’s tough, because unlike the movies – you fail a lot. For every Facebook and Google, thousands never make it.

Like Rocket Science Games, which was my biggest failure. 90 days after showing up on the cover of Wired Magazine I knew the game company where I raised 35 million dollars was headed for disaster.

We’d believed our own press, inhaled our own fumes and built lousy games. Customers voted with their wallets and didn’t buy our products. The company went out of business. Given the press we had garnered, it was a very public failure.

We let our customers, our investors, and our employees down. I thought my career and my life were over. But I learned that in Silicon Valley, honest failure is a badge of experience.

All of you will fail at some time in your career…or in love, or in life.

No one ever sets out to fail.

But being afraid to fail means you’ll be afraid to try.  Playing it safe will get you nowhere.

As it turned out, rather than run me out of town, the two venture capital firms that had lost $12 million in my failed startup actually asked me to work with them again.

During the next couple years…and much humbler… I raised more money and started another company that we were ultimately able to take public, and those patient investors more than made up for their earlier loss – many times over.

Hypothesis Testing
As scientists and engineers, you know about failure. You know that virtually no experiment works the first time.  And in a new company all you have is a series of untested hypotheses. You learned something vital in school — to test your hypotheses by designing experiments, getting accurate data, analyzing the results, and then modifying your initial hypotheses based on those results. This is the scientific method, and surprisingly we found the exact same method works for startups.

Because failure is a part of the startup process. In Silicon Valley, we have a special word for a failed entrepreneur – it’s called experiencedOur country and our entrepreneurial culture is one of second and third chances. It’s what makes us great. You don’t have to change your name or leave town. Entrepreneurs in America know that they get multiple shots at the goal.

Be or Do
Someday several of you in this graduating class will be worth a $100 million dollars. And a few of you might change the way the world works.

I want you to look around you.  …Go ahead.  Take a few seconds and give it a look…

While most of you were looking around wondering who this was going to be, I hope a few of you were feeling sorry for the rest of your classmates, knowing that the most successful person in the audience is going to be you.

These days I write a blog about entrepreneurship.  At the end of each post, I conclude with “lessons learned”—a kind of Cliff Notes of my key takeaways.  So that’s how I’ll finish up today.

Here are the two lessons that I’d like to pass on to you

Your science or engineering degree gives you tremendous choices – you, and no one else gets to decide two things:

  • whether you choose to be or you choose to do
  • whether you “work to live” or whether you “live to work”

Remember… live your life with no regrets. There’s no undo button.

And Congratulations  — you’ve earned it!

Thank you very much.

Listen to the post here or download the podcast here

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