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I read two startling different commentaries on the health of the UK as a society this morning that made me recall the “best of times, the worst of times” quote from Dickens.
First up was a highly optimistic piece in the Financial Times titled Miserablism risks causing Britain serious harm which argues that we should all wake up to the fact that times are good right now and be wary of policies and politicians proposing radical moves that might well make things worse – e.g. price interventions and exiting Europe. This is the money quote:
Look at Britain as an informed foreigner might. Here is a country that responds to a secessionist threat to its existence by holding a free and fair referendum. It has evolved an economic model that is more hospitable to business than much of Europe and kindlier to the poor than America. It cuts public spending year on year without any civil disorder to speak of. Crime is falling. Unemployment is at 6 per cent. The politicians are small-time but basically honourable. The capital city is a miracle of the modern world.
Then I read the Guardian’s Bleak figures show a relentless slide towards a low-pay Britain which featured the graph below showing that real wages in Britain have now been declining for seven years in a row – only the third time that has happened in the last 150 years.
Between them these too perspectives capture the overall situation well. On the plus side the economy is performing well and society is stable, but on the downside, the spoils of growth are going to the rich, wage inequality is increasing and the social contract is in danger of falling apart.
The important question is what will happen next. The Guardian suggests two possibilities. The first is that unemployment is now reaching levels where there is little slack in the labour market and employers will find themselves having to increase real wages for the lowest paid. The second is that technological advances will continue to take jobs from mid-skilled workers, forcing them into lower paid jobs and driving real wages down. I’ve written about this before: Robots and artificial intelligence are replacing jobs.
Cycles in the economy and labour market will come and go, but the trend towards automation will run and run. For me the most likely scenario is that tightness in the labour market will force wages up over the next few years, but when the cycle turns again real wages will cycle sharply downwards. Our opportunity is take action now to help the situation. A couple of weeks ago rich Americans were worrying that The pitchforks are coming … for us plutocrats. That will be our fate too, unless we do something.
The solution is not to protect jobs or try to limit the adoption of technology, but to invest heavily in programmes that help people re-skill and get back to work. That would be the play that keeps us as when of best performing societies in the world. If we get through the current period of austerity successfully there might just have the money to do it.
In a recent interview Marc Andreessen said:
I’m optimistic arguably to a fault, especially in terms of new ideas. My presumptive tendency, when I’m presented with a new idea, is not to ask, “Is it going to work?” It’s, “Well, what if it does work?”
That got me thinking. Andreessen is a smart guy who has a lot of experience with startups and who spends a lot of time thinking about the best ways to invest and build businesses. I don’t agree with everything he says, but when I don’t agree I always stop to think why. In this case I half agree, but think that only asking “Well, what if it does work?” is too simple.
I half agree because asking “Well, what if it does work?” forces you to think about how big something can get and to focus on the upside. The startup investment game is, as we know, all about finding big winners. For us that’s £100m+ exits. For Andreessen I’m sure it’s over $1bn. Thinking optimistically about the upside helps you find those big winners.
However, there’s no point in backing something that has no chance of succeeding, so it’s also important to think about whether an idea will work. In particular, it is important to think about whether the company will deliver it’s plan over the next twelve months (or at least something resembling it’s plan). This has two parts, asking “Does the plan work?” and asking “Can the team execute on the plan?”. Skepticism is helpful when asking these questions.
Time is plentiful when it comes to delivering the upside and it’s reasonable to assume that entrepreneurs can and will figure a way to make things happen – provided there are no fundamental reasons why they won’t be able to (e.g. it requires chip speeds we won’t see for another ten years). When it comes to delivering the next twelve months time is short and there is limited scope for experimentation and re-work. If Plan A fails badly everyone is going to wish they had done something else so it makes sense to think hard about whether it’s going to work. There will inevitably be lots of unknowns but identifying those assumptions up front leads to smarter investments and better plans.
I’ve just seen the video below of virtual popstar Hatsune Miku, a virtual popstar from Japan, as a guest on the David Letterman show. If that’s not enough for you check out this video of her performing live in front of thousands of fans in LA (caveat: the quality is poor and you have to wait until near the end to see her). She’s a blockbuster in Japan with hit video games, sold out shows, #1 singles and a virtual opera, and opened a tour for Lady Gaga in the US earlier this year.
Hatsune was created seven years ago by Japanese company Crypton Future Media as a visual representation of their song making software, i.e. a marketing gimmick, and developed into a phenomenon when people started remixing her tracks and an open source remixing community exploded online. Crypton Future Media says that Hatsune Miku fans have created over 100,000 original songs for her, over a million pieces of art and 170,000 YouTube videos. Google “Hatsune Miku fan site” and you get close to 150,000 hits.
The interesting question for me is whether Hatsune is a one off, or a sign of things to come?
From an emotional perspective it seems to me that absent human level artifcial intelligence engagement with a virtual popstar can’t be as rewarding as with a real person, but from the perspectives of engagement, participation and a feeling of co-ownership a virtual popstar community offers much more. I suspect we will see more of this.
The following quote is up on The Heretic today. It’s a great reminder:
Efficient people are well organized and competent. They check things off their to-do list. They complete projects. They get stuff done.
Effective people do all that, but they check the right things off their to-do list. They complete the right projects. They get the right stuff done.
I guess we all know this but great entrepreneurs always focus on the thing that moves the needle the most. No matter how hard or personally difficult, they take on that problem. Company needs profile: they take the stage. Distribution deal not working: they pound the streets looking for direct deals. Co-founder no longer pulling his weight: they have the difficult conversation. Biggest customer not profitable but investors don’t want to let go of the revenue: they take the hit. Burning too much cash: they act sooner rather than later.
Other entrepreneurs however, are clearly efficient but keep themselves insanely busy chasing the wrong opportunities of focusing on tangential tasks.
Prioritisation, then is the difference between efficiency and effectiveness. It’s important that from time to time we take stock and make sure we are spending our precious time on the right stuff.
Venturebeat published an interesting survey this morning which found that 42% of the tech CEOs they interviewed see evidence of a bubble. The infographic above shows the companies they are most worried about.
The market is definitely hot right now, but in the UK at least it doesn’t feel like it did in 1999, nothing like. That said, entrepreneurs and early stage investors should keep in mind that current conditions are unlikely to persist indefinitely. It’s more likely that there will be a period of meaningful market downturn at some point in their 7-10 year journey. Some will get lucky and exit much faster than that, but it is unwise to plan for luck. Better then, to keep touch with the fundamentals of building something that people love and that has attractive economics.
The very best companies combine great fundamentals with rocket ship growth, and we all want to be part of those stories, but the difficult situation that arises in current markets is investors offering big rounds before the fundamentals are sorted. Taking the money buys more time to get things working but brings with it the risk of increasing the burn, losing flexibility and running out of money if the fundamentals don’t improve according to plan. Sometimes it’s better to raise a smaller round, stay flexible, and then go for the big round when everything is ready.