Evolving an Entrepreneurial Ecosystem (#31)

Structural Shifts with Ian HATHAWAY, Senior Fellow at The Brookings Institution

We discuss with Ian Hathaway — Senior Executive Director at Techstars, Senior Fellow at The Brookings Institution, and a Co-founder and Board Member of the Center for American Entrepreneurship and book author (latest book co-authored is called ‘The Startup Community Way’ ). In this episode, Ben and Ian discuss entrepreneurial ecosystems, what governments are getting wrong when they try to foster entrepreneurship and how they can create better outcomes; why entrepreneurship can lead to bigger and better outcomes than direct engagement in politics; why entrepreneurs are going to have more opportunities than ever during the pandemic and after it — and more.

Ian recommends:

 

  1. One book: “What You Do is Who You Are” by Ben Horowitz
  2. One influencer: Naval Ravikant
  3. Best recent article: What is a tech company, by Ben Thompson
  4. Favourite brand: Apple
  5. Productivity hack: Say ‘No’

The difference between a small business owner and an entrepreneur is the ambition to grow.

[00:01:22.21] Ben: So, Ian, thanks very much for coming on the Structural Shifts podcast. We’re going to cover in quite a lot of detail your new book. But before we get started, I just wanted to ask you a broader question, which is, in what sorts of health do you think American entrepreneurship is today? Because we sort of get the impression, because there’s been so many world-beating tech companies that have come out of Silicon Valley that everything is rosy. Would you agree with that statement?

Ian: So I view entrepreneurship much more broadly than Silicon Valley, for sure. In my framework, I think the difference between a small business owner and an entrepreneur is the ambition to grow. That’s much broader than most people think about in tech, but to stick to the tech and venture-backed world, the US market has a long tail, right? A substantial portion of startup activity, venture-back startup activity happens, of course, in the Bay Area, but an even larger portion happens outside of it. And in those markets, the capital efficiency maybe is what we’re talking about here, is much better. So Silicon Valley is just a completely different place, even within the context of the United States.

[00:02:43.04] Ben: But I was reading some statistics. Actually, the number of new companies that’s getting started each year, has actually been going down. So I’m just wondering, you know, do we have the impression that maybe entrepreneurship in America is kind of doing better than it actually is?

Ian: Well, so, the Business Formation Statistics, which you’re talking about is covering business owners of all growth, ambitions, all sectors, right? That’s been on a steady decline since the late 1970s. And in fact, that’s a trend that has been carried across all of the OECD. I believe that’s more demographically driven than anything — as population growth declines and as society ages, business formation rates, overall, are reduced. Now, businesses are also getting much bigger. There’s no rule that says, if the business formation rate is subdued, that businesses must get bigger. And overall, the average business is getting much bigger. There’s a huge debate happening on what the implications of that are. I think it varies substantially across sectors. But one of the things that I and some other researchers documented back in 2014, is that the business formation rate, even in the high-tech sectors is declining as well, which will startle a lot of people. But it’s just because that denominator is so resilient, and the companies are getting so big.

[00:04:14.19] Ben: What was the rationale for writing this book?

Ian: Yeah, I guess I should go all the way back to 2012. My co-author, Brad Feld, wrote a book called, ‘Startup Communities’, documenting his experience as an entrepreneur turned venture capitalist and community builder while in Boulder. He moved to Boulder in 1995, didn’t really know anybody, had a successful career in Boston as an entrepreneur, started investing in the Valley, New York, East Coast — and wanted to just get involved in Boulder. There was a lot happening, but it wasn’t really concentrated. And so, he spent, you know, the next couple of decades doing that work. He felt that Boulder was unique in terms of the entrepreneurial output that it has achieved and that that collaborative spirit, that community was a big part of that reason. So he wrote that book.

First of all, the entrepreneurs must lead the community. Secondly, the entrepreneurs must have a long-term commitment.

Ian: We started talking in 2016 about ways we might work together and one of the things we discussed was an evolution on his Startup Communities book and the frameworks that were included in that. Given that my background before working on a full-time basis with startups, as I do today, and big tech companies, as I did, you know, over the last decade, I was a full-time researcher. So, I have a research background and an economics background. And that was one of the appeals, I believe, for Brad was, “Hey, look, we’ve got knowledge and interest in startups and ecosystems, we have different frameworks in our heads. Let’s bring those together and see what comes out of it.” And so, that was kind of the script. And we began work in the spring of 2017. We had a bunch of fits and starts, a couple of hiatuses, nonlinear progressions, which we’ll talk about, I’m sure. And the book was finally published this last summer. So three years in total, from start to finish.

[00:06:13.25] Ben: Maybe let’s talk about what the first book is about, right? Which is principally about the Boulder thesis. So would you mind just introducing us to that, the four principles of the Boulder thesis in creating a community?

Ian: Yeah, so the Boulder thesis is simple, but not easy. First of all, the entrepreneurs must lead the community. Secondly, the entrepreneurs must have a long-term commitment. So originally, in the book that said a 20-year view; that’s evolved to a 20-year view from today, which means it’s always 20 years ahead of you. So, you’d be thinking in generations not in, you know, weeks or years. The third is that it must be inclusive of anyone who wants to participate. And the fourth is that it must engage the entire entrepreneurial stack, which I interpret as a derivation of inclusivity — so people from various domains, roles, experience levels, and so on. And that that engagement is constant.

if you think about a city as a series of systems, the startup community is the beating heart of entrepreneurship in a city

[00:07:12.29] Ben: You know, when you talk about a long-term commitment — so generational commitment — and you, yourself acknowledge that these things are hard, and the outcomes are uncertain. I mean, how difficult does that make it to recruit the key actors for a startup community?

Ian: It’s very difficult because most people don’t work on those time cycles. But there’s nothing that can be done about it because these long feedback cycles are inherent. That’s one of the reasons why we wrote this new book, which we can dig into that a little bit more, and why we wrote it in the way we did, which is explaining these systemic properties of startup communities and entrepreneurial ecosystems. But taking a quick step back, it’s also why Brad emphasized why entrepreneurs should lead the community. That’s not to say that non-entrepreneurs cannot be involved in building startup communities, helping founders, and in fact playing leadership roles, right? In many nascent communities, it’s these non-entrepreneurial community builders, whether as a side hustle or as their full-time job they are catalyzing efforts because entrepreneurs are heads-down, doing what entrepreneurs do, which is building their businesses. So, it’s not to say that, that non-entrepreneurs don’t have a role, but it’s that the entrepreneurs who are committed to being in a place for a long period of time, building their businesses there, knowing that it’s a — you know, even a successful outcome it’s 10 to 20 years before that liquidity event occurs, and those resources can get recycled back into whatever comes next. That’s just the reality of the situation. And so, that’s why the emphasis on entrepreneurs leading. Not only because the entrepreneurs are the ultimate end-users of the startup ecosystem — if they’re not benefiting from it, or participating or engaging, then it’s not valuable to them, which happens in many communities. But it really is an acknowledgment of the long-term commitment that’s required.

The mistake that’s often made is looking at the factors that currently exist in successful ecosystems and equating that with what it takes to get there.

Ian: Now, to build on that quickly, one of the things we talk about is the difference between the community and the ecosystem. Quickly, I’ll just say, if you think about a city as a series of systems, the startup community is the beating heart of entrepreneurship in a city. It’s really the founders, it’s the people who work with them on a consistent daily basis, whether as their full-time job or maybe something that they do outside of their job — maybe they’re mentors, maybe they’re angel investors or something like that. It’s having a firm understanding of what the entrepreneurs do and what they need, but it’s more than that. It’s also this kind of kinship connection, right? It’s a common identity, it’s kind of a love of place and that sort of thing. The ecosystem is a broader construct, which is, of course, all of these resources and actors who bring them that can either accelerate or impede the progress of entrepreneurship in a community. They have different organizational structures that align or are misaligned to varying degrees with entrepreneurship and entrepreneurial communities, they have different incentives — so, people want governments to engage a great deal in the building of ecosystems, which makes sense, because, you know, ecosystems in startup communities are sort of like a public good for the benefit of entrepreneurs. But governments have a much bigger mandate, right? So, their mandate is typically around creating jobs and having economic vitality and safe and enjoyable cities. And so, because of not just the hierarchical, top-down structure of governments not being aligned with the behavior of startups and startup communities, it’s also very different incentives.

Ian: And so, back to this long-term arc, this concept we discussed is community ecosystem fit, and why developing a strong startup community must precede the development of a robust ecosystem. Part of the motivation behind that was something we observed in many cities, which is you pull in these ecosystem actors — whether it’s potential angel investors, corporations, governments, and so on — their response was, “Well, you know, the entrepreneurs aren’t any good. You can tell me all day long I should be more collaborative and helpful and focused on the needs of the entrepreneurs, but all the entrepreneurs here suck. So why would I want to do that?” Now, we can push back on that and say, “Look, well, you know, what are you doing to help that situation? But fair point.” And so, once the startup community is producing a high rate of companies that are interesting, it then becomes a resource attractor that pulls those things in. And so, that’s a very long answer to your question about, you know, how do we get around that — this need for a long-term view — and my answer is that the entrepreneurs will be the ones who will create the interest by producing interesting companies.

[00:12:30.20] Ben: Is it not slightly a Catch-22 situation, where, when you’re trying to create a new startup community, we don’t have successful entrepreneurs? Because, you know, in a way, the community depends on being led by successful entrepreneurs and if they don’t exist, then it makes it harder to create that community, right? How do you overcome that challenge?

Ian: The mistake that’s often made is looking at the factors that currently exist in successful ecosystems and equating that with what it takes to get there. The resources, the actors, they co-evolve along with success. We’re going through the early days of a boom cycle, right? If you believe there has been this outward shift in technological opportunities, there has been a shift in certainly the supply of venture capital into these ecosystems. But these are emergent systems. And so, we can’t just force success. We can’t say, “Okay, these seem to be the ingredients of success. Let’s just place them here and then innovation will happen.” The reality is what’s valuable will emerge. There will be certain principles that apply across geographies, but it truly will be unique to each time and place. That’s an inherently uncertain process and when that gets choked off, progress is stifled. So, that’s the frustrating thing. The Catch-22 is really about that we want to manufacture success, but it’s the attempted manufacturing of success which is actually what can impede success from emerging from the bottom up, principally led by the entrepreneurs.

you can improve the odds that your company will succeed by being more collaborative and engaging in a community, regardless of where you live

[00:14:22.14] Ben: I want to talk a bit about what’s different, or what changed versus the 2012 book. So, you talked a bit about, you know, how you wanted to talk more about what you’d learned from Boulder. But I think also, this whole notion of an adaptive ecosystem is new in the second book. And then also, I think you took a much broader lens, right? So you wanted to look at the startup community and ecosystem through a broader lens, which included some of the geopolitical events that we’ve lived through in the interim. So, can you just talk about that — what evolved versus the original Startup Community book?

Ian: Yeah! So, our process is actually pleasantly recursive of a complex adaptive system. The process itself evolved. Our mission emerged from our process of discovery. So, the 2012 book was really about Boulder and Brad’s perspective of here’s what the situation was, here’s what we did, here’s what worked, here’s what didn’t, here was the outcome — of course, with it being about one place. You know, I thought that book was very principles-oriented. It was very actionable too. There were tangible ideas that people can go and try this thing or that thing. But because it’s about one place, it’s inherently limited. It was so early. I mean, Brad is really a pioneer in this thinking. And so, people in lots of places adopted the principles and the practices from that book. They found varying degrees of success with that because their city was so different from Boulder, and that’s the main criticism, that this is an idealized state of the world. If you’ve been to Boulder, it’s teeming with talent, large institutions, it has a huge entrepreneurial spirit, the community is so collaborative. I actually think the collaborative nature of the Boulder startup community is reflective of the entire Boulder community, rather than the other way around. And it’s just this fantastic place. So that was kind of the main criticism is like, “Look, try going to Paris where people undermine each other.” Nicolas Colin, our mutual friend, he wrote a book review of the Startup Community Way, saying, “There’s kind of this Kumbaya spirit emanating from Brad and then also Brad and Ian, which didn’t really apply in Paris.” And so, that’s fair.

Ian: But I still think, even if you view Boulder, which is not perfect as the idealized state of collaboration, there’s still a lot that can be learned from that. Why the evolution was, as startup communities, entrepreneurial ecosystems garnered more attention over the last decade, the scope and scale of ecosystem actors increased, right? Governments, corporations, universities, other actors, and so on, have been putting more resources, getting more involved in more places. And one of the things they were looking for were tangible frameworks, right? It’s very difficult to convince those actors without sufficient evidence, and theory and frameworks to guide, that this bottom-up approach of experimentation — learning — adaptation, which is so familiar to entrepreneurs and entrepreneurial community builders, that that’s actually the way to do this work, because it feels a little hand-wavy, right? It feels kind of like it’s bullshit.

Ian: And so, our mission was to say — and I think that’s part of the appeal of working with me, someone with an economics and research background to say — look, let’s dress this up with some data, let’s dress this up with some more theoretical frameworks. And that kind of was the initial mission, to do that. But through, I guess, maybe we were four or five months in, we have 30,000 words written and just think of it as, you know, Startup Communities 2012 book with more evidence, theory, frameworks, from economics, sociology, economic geography, that sort of thing. But it was still a linear progression from the first book. As I talked to more people, I realized that it was just this complete disconnect, almost of mental models about bottom-up versus top-down, you know, planning and execution versus experimentation and adaptation. And so, we realized that we were on a different mission. I don’t have a background in systems science. My background is in political economy and economics, but I discovered complex systems along the way. And as soon as I — you know, having talked to lots of people, reviewed lots of work — as soon as that framework came into my mind, I realized immediately that this is what needed to be the centerpiece of our book, to explain the inherent uncertainty, the nonlinear behavior, the uniqueness of each place, and why that presents these challenges. So, we threw the first 30,000 words or so that we wrote away and we began a new — and so, that sent us down this path of explaining the behavior of startup communities and entrepreneurial ecosystems through the lens of complex adaptive systems.

[00:19:48.24] Ben: So, I’m trying to draw a parallel: in nature, you can’t control ecosystems. You can merely sort of seek to guide them, to influence them. And this is very much the same philosophy you take with startup communities and the attendant ecosystems. But what are some of the equivalents? How do you give an ecosystem the energy, the nutrients, the oxygen to grow? What can be done that’s replicable across different places?

Ian: This is not to say that the inputs don’t matter, right? It’s an empirical reality that entrepreneurship, especially in the knowledge economy, and especially if we want to talk about tech and venture-backed entrepreneurship, is concentrated in certain types of places, right? The distribution is very spiky. That’s an empirical reality. It is beneficial to have a density of highly-educated, ambitious people, right? It’s advantageous to be around other high-tech institutions, whether they’re businesses or universities, and so on. Those things matter, but they’re not enough. What our point is, it’s about the integration of those elements, right? If I view the process of starting and scaling a high-potential company, as a search — not entirely, but to a large degree, it’s a search for the resources you need to succeed. Many of them exist outside the boundaries of the company, right? So, whether it’s a key senior hire, it’s early-stage mentoring — we talk about investment capital a lot, right? It’s a relationship with the customer. All these things are dependent on the exchange of intangibles, fundamentally underpinned by relationships, which require trust.

Ian: And so, what we’re really talking about when we talk about integration, is building better relationships. And so, one of the points that we make throughout is — and this is the part that’s empowering, especially for people in places that don’t have all these resources, where people do have ambitions, and they do want to be better, and they want to stay where they are — is by building a community of like-minded people who are committed to a cause — entrepreneurship, technology, they’re committed to that place — if they could be committed to each other, create a critical mass of knowledge sharing, support learning, sharing contacts, expanding networks, we believe that the odds of success for any one company will be greater. It doesn’t guarantee success, it also doesn’t guarantee success to be in Silicon Valley. It just improves the odds of success. I mean, maybe we could debate that today, if that’s turned negative. But that’s the fundamental point we’re making is, you can improve the odds that your company will succeed by being more collaborative and engaging in a community, regardless of where you live.

[00:23:10.09] Ben: And how do you get some of those stakeholders to be collaborative, and to not want to take control? Because, as you said, they’re not the principal actors; the principal actors or the leaders have to be the startups. But you still need the participation of governments, universities, organizations that are typically very top-down driven, very hierarchical. How do you get them to behave in the appropriate, collaborative manner to really help the ecosystem?

Ian: Well, it helps to have individual champions from those places. And this is a subtle nuance that’s missed. Sometimes it’s a key individual or individuals who drive the whole thing in a community. Fred Terman’s role, from Stanford and Silicon Valley, has been talked about a lot. Brad Feld, honestly, in Boulder is sort of a local hero. There are a number of stories throughout. There’s even one from the Viking Range Company — I don’t know if you’re familiar with that — but high-end ranges in the United States, a small town in Mississippi, there’s a famous story about how the founder of that company created an entire local services economy to support high-end families who would come to purchase these ranges. This role of a local champion can be really important, whether that’s in an official capacity or non-official capacity. Too often, though, however, these institutions are disconnected from the entrepreneurial community. University towns are a great one in particular. Even in Boulder, which is a city of 100,000 people, it’s fairly densely populated for having a small city vibe. The university is just adjacent to downtown, but in my experience, it’s very disconnected from the startup community. So in an ecosystem ranking or a research report, it might say, “Well, this is an example of a research institution that’s feeding entrepreneurship.” In my opinion, it doesn’t. So, it’s more about the talent that it’s producing, it’s drawing interesting people to the community, it’s driving economic growth. But I wouldn’t say that, that university and countless other places, are driving the entrepreneurial community. And in worst instances — I’ve seen in a bunch of especially smaller, less-developed ecosystems — there are what I’ll broadly call entrepreneurial supports; these are innovation centers, incubators, co-working spaces, and so on. They’re almost always funded by the government, and the people leading it have no entrepreneurial experience. What they have experience doing is extracting, or I should say, getting these initiatives funded by the government and maintaining those relationships. They at best, are irrelevant, and at worst, harmful. They suck the oxygen out of the community, and they can be actually predatory to entrepreneurs in too many places.

what each city is going to find is that about 10% of the companies will create 90% of the value

Ian: Going back to one of the first things we talked about, which is, if you live in an environment like that, the best thing you can do is to build a critical mass of people who don’t behave that way, to help each other. One of the things that I’ve found, even more transactional — I mean, I know it’s very easy, the American way is to say, “Hey, be informal, be collaborative, be helpful.” That can be seen as a naive view towards many cultures. But what I have seen is that when people do embody those values — being helpful to others, without expectation of something in return, being less transactional, at all times — that shifts the dynamic, and people start to think in positive-sum terms, right? Like, “Oh, well, if that person does well, that’s good for me, too. This is going to grow our ecosystem overall and that’s a good outcome for me as well.” And so, you know, my message would be entrepreneurs creating a critical mass, in spite of those obstacles. It’d be great to unlock the power or the resources that some of those larger institutions have, but you don’t need it. And one of the ways to get around that is by creating a critical mass, creating successes, and then those larger actors have to adapt or die because they’re no longer the most important force in that ecosystem.

[00:27:41.23] Ben: Do you think is as present now as it was historic? I mean, is it more difficult to find people that will act in that way, and with that level of generosity?

Ian: I believe the startup communities in which I operate — so this could be a biased view, just because of my network — but I find that the entrepreneurs are fairly collaborative. The Startup Community community is fairly collaborative, more so than obviously, many other sectors of the economy. I do think that mentorship is one of the ways that this has manifested, I think mentorship around entrepreneurship has been adopted pretty much worldwide at this point.

[00:28:27.09] Ben: You know, you’re giving advice to governments around ecosystem development. And what should they be doing? Because you’ve already said they should not be necessarily investing in or funding incubators, and accelerators. So what should a government do to foster a startup community and then an ecosystem?

Ian: Well, it’s not that they shouldn’t do those things. It’s the way in which they do those things. So, the first order of business is figuring out what is needed. I can’t tell you how many times, whether it’s from a mayor in the US to a minister of innovation in country XYZ, that says, “Oh, we’re doing this, this and this.” And the question I always ask is, “Well, you know, where did that idea come from? What do the entrepreneurs think of that?” And they never know. They’ve never taken the time to say, “Well, what actually is needed here? And what can we do to see that?” So that’s the first principle, which, again, it’s super simple, but it’s not easy because governments aren’t used to acting in that way. The second thing, it’s not that they shouldn’t fund accelerators, incubators, and so on. Actually, there’s a super important role for government to catalyze those things, especially early on, but don’t do it in perpetuity. Let the private sector fill in eventually. And make sure that entrepreneurs are involved. I’ve done some survey work on a bunch of different dimensions. And the number one thing — at least in the way that I’ve structured these surveys, where I’m kind of generalizing between positive and negative — on the negative side, the number one thing is not involving entrepreneurs with any of the decision-making process and how money is spent. That doesn’t mean you want to have an entrepreneur, necessarily, who’s the CEO of an innovation center, a co-working space, something like that. But you should have entrepreneurs involved with the design, and from the governance perspective, on the board. That way, we ensure that it’s relevant. Over time, the entrepreneurs, the successful entrepreneurs who are in that community should begin to fund those initiatives. Otherwise, again, they’re not valuable.

the most powerful political actors in the United States, where I’m from, are the people who’ve had the major entrepreneurial successes

Ian: So that, I think is more kind of the role of government, right? Be smart, be agile, fund many things, not just one thing — that tends to happen as well. You know, they’ll pick winners, and everything goes to this, they try to consolidate. But actually, I think a better thing to do is fund maybe a handful of things over a two or three-year period, and then let them be self-sustaining at that point, see what works, see what doesn’t. Also, think about stage. So, it feels to me like there’s been almost an oversaturation of very early-stage entrepreneurial support, in most places in the world. We saw the S curve adoption for accelerators. Now, there’s pre-accelerators, pre-pre-accelerators. And I think that’s fantastic! I think we have more experiments that are going on. But what each city is going to find is that about 10% of the companies will create 90% of the value. So it’s the ones who have achieved that product market fit who have the traction, and maybe are unclear about navigating international markets, or what it means to be a CEO in a company that goes from 10 to 50 people overnight, that sort of thing. There’s a huge under provision of that and I think that’s where the industry of entrepreneurship support needs to really fill in that gap. Because we haven’t seen that yet.

[00:32:17.03] Ben: In the book, you say, these are things that measure the things that are least important, right? But you’ve got a government that’s clearly very keen to demonstrate progress, very keen to demonstrate they’re getting return on investment. So, how do you get them to think about the right metrics for success, and to apply a long-term vantage point to this, when again, you know, they’re hungry for short-term success?

Ian: Well, the first thing that I do is explain to them that any metrics must be oriented around whatever the program’s goal is. So, if their ultimate goal is about job creation, wealth creation, okay, I understand that. But too many people will sell them a solution saying, “Oh, yeah, this thing we’re going to do, this program that is supporting entrepreneurship, will create x jobs.” Oftentimes, governments will fund initiatives and the key metric is how many jobs did this create at this point in time? Which is the wrong metric. What I might be more interested in is what kind of lift do they give to the marginal company who participated, right? How did, let’s say, a top of funnel community catalyst program, what kind of relationships spun out of that, if that’s kind of the goal? Or, what kind of people did it pull into entrepreneurship? So making sure that it’s structured around what the programs actually do, having a clear value chain that explains, okay, if job creation is actually what you want, how we get there is having companies with better outcomes. Let me tell you how you help companies have better outcomes, and we can create that value chain. But making sure what you’re measuring is actually built around the program.

Ian: The other thing, too, is that I believe that system structure explains so much of the performance of an ecosystem. So we’ve been doing a bunch of network mapping exercises in a few markets where we’re looking at who’s influential. There’s some academic research, and also some policy research that supports this, that when the influential actors in the ecosystem are entrepreneurial, have had entrepreneurial success, or they support organizations that are heavily influenced and/or funded by entrepreneurs, those tend to be more productive ecosystems than those with less. So, there’s empirical support behind these theories that we’re talking about. And so, that’s one of the things that we do, we map out the ecosystem. Who are the businesses that have reached to scale, have had some success, and how are they integrated in? What are they connecting up with? Often what we find is that the most successful entrepreneurs are isolated. They’re not linking up with any of these support programs. So, the metrics, in this case, are outputs. How many companies participated in this program? How many people attended this event? What I want to know is, have the most impactful companies touched any of these things we’re paying for? Or who is this angel investor over here who seems to be connected to every high-impact company that has come out of this community in the last 10 years? How can we engage her more in our efforts? What do they think we could be doing better? And just by mapping that out, and not only who the influential actors are, but how they’re all connected through meaningful relationships — whether they’re investment, mentorship, program participation — that explains a lot. And then you have a well-informed strategy about, again, taking the system’s view of how can we better integrate these things and make sure that the most productive programs have the resources they need, and maybe the ones that aren’t, that are just sort of creating a lot of noise, but not producing tangible outcomes, high-impact outcomes — maybe you start winding those down. And that’s okay. That’s normal and healthy.

[00:36:16.27] Ben: We talked about the introduction of the whole complex adaptive systems framework. We’ve talked about developing what was learned in the interim period. But the other thing that strikes as different with the second book, is this idea of it having a broader context. Now you’re looking at startup communities through a broader lens, including a geopolitical one. And you talk about your experience of living in London at the time of Brexit. I suppose the question I wanted to ask is, like, you know, you mentioned Nicolas Colin, but Nicolas has this view that, you know, almost through entrepreneurship, you can make a bigger change than you can through engaging directly in politics, for example. So would you say that, that was a big motivation for writing the book? And do you subscribe to that view that entrepreneurship can lead to bigger and better outcomes than a direct engagement in politics?

I’m incredibly optimistic about the future of entrepreneurship in America, in Europe, globally. I think entrepreneurs are going to have more opportunities than ever, coming out of this crisis, during this crisis. And we’re going to need that

Ian: Well, I’ll answer the second one first, which is, absolutely, yes. In fact, you might say that the most powerful political actors in the United States where I’m from are the people who’ve had the major entrepreneurial successes. So, kind of reverse engineering math. You know, I’ve always been fascinated by geography. I’m committed to entrepreneurship, working with entrepreneurs, writing about entrepreneurship, explaining the importance of it to economic vitality, and, you know, to vibrant cities. I’ve just always been interested in these things. But it’s also personal to me. Although I’ve spent most of my adult life in California — well, I went to school in Chicago, spent time there — California, Washington DC, London, I spent a little time in Geneva, we talked about that a few weeks back. I grew up in a small, agricultural and industrial town, in the Midwest, in Ohio. It was part of the Detroit supply chain. And we didn’t have a lot of opportunities. I was born in 1980. That’s when manufacturing employment peaked in that region. We had a self-sustaining community. But I was born in the beginning of the decline. My father is a brilliant innovator. He has no college, no university degree, but he has, I don’t know, something like 50 or 60 patents in transportation logistics. And it’s always been this weird thing. It’s kind of like, my dad had these jobs, but he had these crazy hobbies in redesigning transportation logistics infrastructure. But he was not successful economically in these endeavors. He was not a successful entrepreneur. And what I had thought about was, well, what if instead of being from where we were, where we lived, if we were instead from Palo Alto, California, if you just changed that one piece, would my dad have had a very different outcome? Therefore, would I have had a very different life trajectory and so on? And I think the answer is not 100%, but I would imagine the odds of success would have been much higher. And I would like to see that equalized more.

Ian: I think we’re living through an era where there has been a massive proliferation of entrepreneurial high-tech activity around the world. People forget — you know, I know that Silicon Valley gets a lot of the attention, but people forget how fast activity has diffused. I did a report in 2018 with an urban economist named Richard Florida, where we mapped just over a decade and a half period, about the spread of venture capital, which we used as a proxy for high-tech entrepreneurship. Not a perfect one by any means, but it is a reliable data source for what it measures. And, you know, I guess, in 1992, the US got something like 97% of all venture capital. It’s now less than half. It’s 40%. And I think half of that decline happened in the last seven years. So, people forget how quickly this is diffusing in geographies, not only outside of Silicon Valley, but outside of the United States. And so, I feel like my soul’s mission in this work is so that entrepreneurs, regardless of where they want to live, can improve the odds of succeeding. That doesn’t guarantee they will, but if we can move the needle, and so that people don’t feel like they have to ride the train an hour and a half into London every morning, just to have a job in the industry they want to work in or, you know, face exorbitant housing or wildfires in San Francisco, and congestion. Like, I hope we can move the needle on that. And so, that’s what’s motivating me.

[00:41:18.07] Ben: The neoliberal kind of supply-side economics view was that people have to move to where the jobs are, right? We need to get mobility of labor. But, one of the downsides is that it’s very detrimental to happiness, because people have to give up their community links and so on. And so, what you’re saying, your philosophy in life is to take the opportunities to the people rather than vice versa?

Ian: Yeah. And also, the reality is that high-profile, high-tech successes happen in way more places than people realize. A successful company can be formed anywhere. The question is, how repeatable is that process? What happens after that success? I’ll use the example of my adopted hometown where my family moved to, on the central coast of California, called San Luis Obispo. It’s a 45,000-person town, small university, huge agricultural element, beautiful place where retirees and people on long-weekend holidays like to go from San Francisco and Los Angeles. In 2015, there was a company called Mind Body, which it’s been a unicorn exit. They were the first company to really get venture funding. Like, nothing happened and then it went from basically zero to a unicorn exit. Now the question is, what happens next? So, I just spoke to an entrepreneur down in Orange County, California — for people who don’t know, that’s between LA and San Diego — and he was saying, “We’ve had loads of exits. But then, people don’t reengage. There’s no community.” And so, what we’re after is we’re not going to predict where the next unicorn or 100 million or 500 million exit occurs. It’s, can you increase the odds that they will occur in your place? And when they do occur, how do we build a community of support around that so that the people will want to reinvest and stay engaged, rather than leaving or, you know, going off to the proverbial beach and disengaging? And that varies across geographies, significantly. And that’s really what this is all about.

[00:43:29.03] Ben: And that diffusion of startup success that you talked about, do you think that’s going to accelerate now, post-pandemic? I mean, do you think being physically close to the other actors in the startup community and an ecosystem is still as important as it was?

Ian: I feel like distributed work, there’s been a permanent shift on that, at least in the United States. Our cities are unsustainable, to a degree. You know, cities in Europe are unsustainable, but they’re just completely configured in a different way. I mean, the San Francisco Bay Area, Los Angeles, they’re almost unlivable, they don’t have the right infrastructure. So, I feel like there’s at least a permanent shift in some of that activity. But we have to remember that even the people who are moving to smaller cities — second, third-tier cities — they still spent years building relationships in those larger cities, they’re going to have a meaningful relationship with those places. I mean, I don’t want to be remote 100% of the time, I don’t want to work out of my house. So, I actually like the model of, you know, whether my colleagues sit next to me on a daily basis is irrelevant to me so long as we have the foundation and we come together when it’s needed. I do believe that the human element is important. Having said that, if you’re an early-stage company on rapid product iteration cycles, that’s hard to be distributed. I mean, I think it’s okay to have a distributed company, as long as it’s by teams, especially having engineering teams where people are completely isolated, that’s really hard to do rapid iteration. So I don’t think that will be permanent.

Ian: Another thing is, you know, there’s been all these announcements from big tech companies in San Francisco, like Twitter and Facebook saying, “Okay, permanent remote work.” The key indicator for me will be what happens to the executives. If the executives don’t leave, then it won’t be lasting, because it’s a strong signal that if you want to be promoted in the company, you still need to be at headquarters. And that’s been going on for a long time anyway, right? All these satellite companies. I know people in Europe feel that strongly that a lot of these American tech companies like, you know, you’re always second-class citizen if you’re in one of the satellite offices. So, we’ll see if that evolves. So yeah, I think, more importantly, though, that we’ve just gone through a massive shift in society and the structure of our economy. Entrepreneurs are best positioned to respond to that. Some people are being forced into entrepreneurship, maybe for the first time. So, I actually see a huge explosion in entrepreneurship happening overall and I’m incredibly optimistic about that.

[00:46:30.09] Ben: You wrote quite a lot about having a creative class, a spirit of rebellion. And there’s that great case study of Jerusalem in the book — great work with it — where the guys visited by a public official, saying, “Oh, we’re going to seed 200 startups.” He said, “You’d be better off seeding 200 rock bands”. Do you need to create the draw to bring people in, that will then create the foundations for community?

Ian: I think it’s extremely important. You know, in general, people go to places for three reasons: they go to a place for work or opportunity. Second, they go to a place for family or personal connections. The third is they go to a place desirable. So, if you’re a place that’s lacking on opportunities — family is sort of, there’s nothing you can do about that, right? Family and personal connections. But the third thing, making it a desirable place. Absolutely! Especially now, if you’re trying to attract people from the entrepreneurial class, knowledge workers that we’ve proven can more or less be based anywhere, if you have an airport or rail links that can get you into those major markets in a reasonable way, and the communities are desirable, they have social, natural, cultural amenities — I think that’s what people want. So I think it’s hugely important. And also, you know, additionally, this is something that people in the traditional institutional actors, the governments, the other civically-minded corporations and universities and so on, can do something about. It’s a little more in their lane.

Ian: One of the things that I tell governments often is, you know, they so desperately want to do the exciting things, you know, “Let’s create a huge startup campus!” I think they like going to ribbon-cutting ceremonies — that is like a tangible thing that’s exciting and fun. But then it’s like, just stay in your lane. Like, is this a great city to live in? Paris, fix your traffic congestion problem! You know, like, why don’t you start there? Taxation, regulation, all that. But a big part of it is, you know, making your community a place where people with options want to be. A big part of that, for me, is a healthy and vibrant small business sector, right? Quality restaurants and bars and that sort of thing. And so, yeah, I think it’s hugely important. I can say it in eight different ways, but absolutely, yes.

[00:49:05.19] Ben: Yeah. And I think the proxy sometimes, for success, is to build infrastructure, right? But infrastructure won’t bring companies by itself.

Ian: No. Well, today’s infrastructure is what? High-speed internet and interesting places to work.

[00:49:22.20] Ben: Yeah, exactly. Because I think, yeah, the definition of infrastructure is often defined in the industrial age terms, which is, we need new roads, we need new railways. I think you’re right. I mean, the actual kind of conception of what infrastructure should be, probably hasn’t been updated in many politicians’ minds.

Ian: Yeah, absolutely.

[00:49:42.13] Ben: What happens for those cities and those countries that can’t create a vibrant startup community?

Ian: They’re probably falling behind if they haven’t already. Entrepreneurship, in general, is important for a more vibrant economy and community, creates jobs, provides better services, increases productivity. In normal times, you know, creative destruction, even in the small business sector is super important. Kind of old, tired businesses move out while young, exciting ones move in. Everything’s updated and reflects the current demands of consumers and businesses, right? So, we want a healthy amount of that in general. So, if we focus on just the innovation-driven businesses, they’re the ones… Innovation-driven startups are shepherding in new industries, new sources of growth. Oftentimes, economic development initiatives are focused on the industries of the past and present — cluster analyses, you probably heard that terminology. Those are the strengths yesterday and today, but what entrepreneurs do is they look for sources of new opportunity. So, again, can’t guarantee success, but a healthy amount of that going on is really good for the long-term prospects, not only for those companies that achieve success but for the entire community.

Ian: One of the best books on economics I’ve read in the last decade, is called ‘The New Geography of Jobs’ written by Enrico Moretti, who’s an Italian economist at UC Berkeley. And his overall thing is, look, let’s divide the world into two types. Let’s divide the economy into two types of businesses. There’s the non-tradable sector, which produces local goods and services; this can be high value, low value, you know, everything from taxis and barbers, all the way up to lawyers and doctors. The tradable sector produces goods and services that can be bought and sold all around the world. Everything from agriculture — food — to the high-tech, innovative sectors. Within the tradable sector is the innovative sector. And his whole thing is, you know, you don’t have to work at a high-tech company, or a knowledge-intensive company that’s tapping into huge global markets, in order to benefit from that. What you need to do, if you’re destined to be a barista or a school teacher, you want to live in a community that has some amount of that going on, because those are well-paying jobs, those businesses are bringing revenue, and so income and wealth into that region is then spent to support the local services economy. So you want a healthy amount of that in your community to propel long-term economic vitality and opportunities for people.

[00:52:55.17] Ben: What’s your view on Europe? Do you think Europe has enough vibrant startup communities? Do you think Europe is building enough digital-age businesses to be successful or to have the same level of success in the future that has had over the last few decades?

Ian: Yes, absolutely. You know, I’ve mostly spent time in London. London, to me, feels top of the stack in terms of not only entrepreneurial activity, but collaborative spirit. I feel like people are generally helpful, interesting, people are weird. There’s that spirit of rebellion going on. I can’t say too much about many of the other places. But what I will say is, you know, the US is at an inflection point, and we’re definitely, because of our political dysfunction, our inability to address major challenges, putting aside outright hostility to foreigners — including high-skilled foreigners — we’re losing our edge. We have a major election coming up and I think the outcome of that could have a huge impact on the future of innovation here, as a talent magnet. Another great book to read on that — Harvard Business School Professor Bill Kerr wrote a book called ‘The Gift of Global Talent’, and it’s documenting how the US has been by leaps and bounds, a major beneficiary of foreign talent. Foreign talent has driven our innovation economy to a very large degree. So, you know, if you’re a European founder, entrepreneur, investor in the US, you know, depending on your embeddedness in this country, and you’ve had enough of our response to COVID, maybe you spent the last four months back at home and you realized, “Hey, life is better here!” Because it is. I think the European lifestyle is much better overall. And so, you know, I think that’s one dynamic at play — the US losing its relative position.

Ian: And, as I said before, Europe is a great place to live — I feel like that makes it a talent magnet — and a lot of progress has been made in a short amount of time. I think that that’s one of the things people forget. There’s a book that I read, called ‘100 Years of History in Silicon Valley’ — something like that; I forget the exact title — and it talks about how it was 100 years unfolding. You know, this didn’t happen overnight. People really do forget that. I think the first proper venture firm was founded in 1959 and the evolution of Silicon Valley’s technological prowess goes back much further. I recently realized that that book was written in 1996. And now, we’re 125 years in the making. As I mentioned before, we more or less can’t document the presence of venture capital in Europe before the mid-’90s, really. Early ’90s. Now, there were some, but it was very disparate. So, you know, that’s kind of a lot of progress in a short amount of time. So, I just want to frame it in that so people are mindful of how much has moved forward at a very, very rapid pace.

[00:56:22.06] Ben: Just to revisit the US election for a second. I mean, you paint this as a really pivotal moment, which I think most people would agree with, right? Do you think that entrepreneurs in the US — particularly those that have been very, very successful, and have major influence — do you think they’ve been sufficiently political or vocal?

Ian: I don’t want to paint with too broad of a brush, because people are so different. But I think the general bent for American entrepreneurs is to be more conservative, politically. The definition of that has shifted dramatically. Hardcore libertarian streak. Of course, the irony of that emanating from Silicon Valley is, you know, how propped up Silicon Valley was, and has been? Well, certainly, in the beginning, stages, how propped up it had been by government spending? And some of these entrepreneurs — you know, Elon Musk, in particular, has been a huge direct beneficiary of that. So, you know, the question, ‘have they been outspoken enough?’ I don’t know. It’s kind of all over the map. You know, I do see the private sector actually advancing cultural and moral causes more so than our government right now. It’s something I’ve actually been sort of thinking about, lately, that it’s remarkable how outspoken companies like Nike have had to be around the racial inequity crisis happening. Well, I say ‘happening in America today’ — it’s actually been happening for the last 450 years. I was watching a major league baseball game this past weekend. And I know most people in Europe might not be familiar with baseball, but on the pitching mound, there was a logo, it was #BLM — Black Lives Matter. And the fact that sports, major businesses, so many segments of our society are coming forward in support of that, and yet, our own government is actually hostile to that — you know, a portion of our government is hostile to that. I think that’s pretty remarkable. Really. A lot of businesses feel the need to fill that void.

Ian: So yeah, I don’t know, that’s kind of a meandering answer, but it’s a little bit all over the map. But I think in general, you know, people are stepping up. So, I’m incredibly optimistic about the future of entrepreneurship in America, in Europe, globally. I think entrepreneurs are going to have more opportunities than ever, coming out of this crisis, during this crisis. And we’re going to need that. I would encourage the entrepreneurs themselves, people working directly with them, whether you’re in consulting, podcasting, writing, mentoring, investing, wherever you are in that entrepreneurial stack, to be more collaborative and helpful. I think we’ve learned the importance of community by having it taken away from us. In some ways, my community is stronger, I will feel so much more gratitude to be in the physical presence of others in the future. But it’s really this positive-sum mindset. You know, we talk about ‘give first’, help people without the expectation of receiving something in return immediately. It’s not naive altruism. You expect to get something, but you don’t know when or from whom and in what form. You know, I believe if the global startup community is stronger, and I believe if entrepreneurs are doing better, that I will benefit from that too, because I’m a part of this system. This is like a time to just be grateful for each other, have humility, and build community, and you’ll be much better off if you do that.

[01:00:25.05] Ben: Amen to that! Ian, thank you very much for your time! That was a great discussion!

Ian: Thanks, Ben! It was a pleasure to be here!

Igniting Entrepreneurial Sparks (#28)

Structural Shifts with Michel Jordi, serial entrepreneur

Full transcript:

 

 

We were four people at the launch of Le Clip. Six months later, in November, we were 50 people, and we produced 10,000 watches a day.

Ben: Michel, welcome to the podcast!

Michel: Hello, everybody! Thank you for having me here! I’m looking forward to a great talk with you!

[00:01:37.17] Ben: So Michel, in preparation for this podcast, we read your book — we read ‘Ignite That Spark’. I mean, it’s a wonderful book! You could call it a self-help book for entrepreneurs, but I think it’s more than that. I think it’s really a celebration of entrepreneurship. And so, we’re going to talk about this book, in quite a lot of detail. But I hadn’t realized, until you arrived this morning, that you’d also written an autobiography because my impression of this book was that, you know, I loved it, I would advise everybody to read it. It’s a very easy, compelling read, but the bit that it misses a bit is your life story. And then, when you arrived this morning you said, “Actually, I’ve got this massive tome, which is my autobiography.” And so, if you don’t mind, can we start there? Can we start with just a little bit of your background? How you entered the watch industry? You did your first startup at 23 in Japan — how did you end up in Japan? So, if you don’t mind, could you fill in the gaps on Ignite That Spark and tell us how you started in this industry and why you were in Japan in the first place?

my dad was my first role model, the perfect example of what I really did not want to do with my life — Michel JORDI

Michel: Yeah! It sounds interesting, thank you very much! You know, life is a journey and it’s a learning process. We learn every day. I’ve been a very, very curious person, enthusiastic, loving life. When I grew up, my dad had eight-to-five jobs, leaving every morning at 7:30, coming home for a one-hour lunch break, and go back to work until 5 PM. And when I saw him in action, my dad was my first role model, the perfect example of what I really did not want to do with my life.

Ben: Yeah, sometimes happens.

Michel: I mean, I decided right there in my teens, “This is not what I’m going to do. I want to be independent, to break free, to be my own boss in planning my day.” This was really my goal. Fortunately, I had a fantastic mother who, when I was 18 or 19, she said, “You have to go to England. You have to study English because if you don’t speak English you’ll never get anywhere in your life.” So I went to England — actually, not in London. I was at Leeds University, which was great because nobody spoke German or French there, so I was forced to speak English every day and to learn it quite quickly. I must say, it’s a great language — the language of Shakespeare, which I love very much. When I came back, my sister had already moved to Geneva because she wanted to improve her French and she said, “Why don’t you come down here?” So I still remember, 16th of April 1969, I ended up and I slept on the floor in my sister’s studio. That was my first night in Geneva. I immediately was very quickly in a company in Geneva, a watch factory. It was a time when the Japanese watches became very strong — Seiko, Citizen — and all their watches had metal bracelets, except the Swiss watches. We had only leather straps. And I remember, they put me in charge of the purchasing department there, at that watch company. And our salesmen always complained that we did not have any metal bracelets. So they told me to seek for metal bracelets. So, I looked around and I realized that the manufacturers in Switzerland, first of all, they were only very few and very expensive — 50 francs or more a metal bracelet. So, I looked around and I realized that all these bracelets came from Asia — Japan, Hong Kong, Korea.

[00:05:14.28] Ben: At that point, was the Swiss watch industry losing competitiveness because it didn’t have metal straps?

Michel: The Swiss watch industry was in deep trouble — really threatened by the Japanese watch manufacturers. As I said, Seiko, Citizen, Ricoh, Orient — these were the four big ones. But it was not only the bracelets, but technological changes. Number one, there were the quartz watches because the Swiss, although they invented the quartz watch, they didn’t believe in it. The Japanese used that technology and they made the watches always thinner, and thinner, and thinner. And the Swiss watches were big potatoes, heavy potatoes. Nobody wanted them in the world markets. And in addition, in all those warm and hot countries, humid countries, a leather strap is dead after three or four months. So that’s why the Japanese have metal bracelets. And I wanted to bring those metal bracelets to the Swiss watch manufacturers, as well.

Michel: So, I left for Japan — I was 23 years old — made a joint venture which was my first startup at age 23. And there, in Tokyo, I remember I had 10,000 Swiss francs in my pocket, and I knocked on the door of the biggest major bracelet manufacturer in Japan — 3000 people. And I remember as if it was yesterday, the president of the company, the chairman of the company, he received me there, I explained to him about my dream, what I wanted to do. He did not even let me finish my sentence. He just came out and said, “Jordi-son, you must have a big dream!” And so, he told me, “Look, if you don’t have big dreams, you never get anywhere.” You know, I expected that we would discuss five or 10-year plans. The guy spoke of the 21st century and the Silk Road long before it was a thing. He said, “Jordi, I’m going to make a silk road to Europe and you will be my first link.” That’s where it started. The bracelet was my first business. I founded that in 1971. And after about 15 years, I kind of got tired. I mean, business was flourishing, we made 25 million Swiss francs in sales with metal bracelets. I was the biggest supplier of metal bracelets to the Swiss watch industry. Everybody used my bracelets.

Michel: And then, Le Clip was my second company. The way Le Clip came along: I was always looking for new designs for watch bracelets, and we worked with a lot of freelance designers. And one day, I came into an office of designers, here downtown Geneva, and there was a drawing of a clock in the shape of a closed pack. There is a big clock, those taper clocks which you put in watch stores as advertising. And when I saw that clock — this was in 1985 — it was just shortly before the Swatch watch was launched. And when I saw that, it was within one night; it was a spark, really. A spark. I saw the whole business plan, I saw this, instead of a heavy brass clock, I saw that in plastic with colorful fancy designs, and to be clipped on and wore anywhere, everywhere except on the wrist. And so, the next day I went back to these guys, I bought the drawing for 1000 Swiss francs. And then, I developed the whole thing. And that was in September 1985. Le Clip was launched on June 10th, ’86. I mean, seven, eight months later, we were on the market.

[00:08:55.11] Ben: When did the Swatch watch come?

Michel: ’82 or ‘83.

Ben: Okay. So you were riding the wave.

Michel: Yeah. I was riding the wave. It’s true.

[00:09:06.25] Ben: Yeah. One of the anecdotes I loved from the book is that… So, you’ve spotted the opportunity to do something a bit different with Le Clip and you got some investors on board. And then, you said those investors became a bit nervous and they wanted some external party to validate the opportunity. And they called on McKinsey to do so. And McKinsey pretty much rubbished the idea, right? Or at least said that you couldn’t price it at any sort of premium. And you chose to just completely disregard the McKinsey report and just launch anyway, at the price point you’d already thought.

Michel: Yeah. I’ve mentioned this in my book, Ignite That Spark. For me, everything starts with a vision. And my vision was so clear about this Le Clip watch. I mean, as you said, I took the Swatch watch as a benchmark. But it was not a wristwatch. And our slogan, actually, was “The watch to be worn everywhere except on the wrist.” That was our slogan. And, for me, it was clear I had to position it at the same price as the Swatch watch — 50 Swiss francs. Not 49.95 or 51. It had to be 50 — exactly the same thing, with the same very, very trendy, colorful, advertising and promotions. And I was just sure. I work a lot with my guts. I listen to my guts. And I had the gut feeling that this was the thing to do. And I put 35,000 watches in production.

Michel: And in the beginning, the problem was I couldn’t find any retailers. Nobody wanted to buy that watch because it is not the watch you sell at traditional watch retailers. They didn’t look at it as a watch. So, I went to see department stores. And department stores loved the idea because it was colorful, they saw the success with the Swatch watch. And the big advantage that you have with the department stores is you get a lot of frequency. People come through. They just go through these stores, they see it, they look at it. And at 50 Swiss francs, you impulse purchase. But still, my two partners were afraid. They said, “Michel, you have to make market research.” So we did market research by McKinsey. And the report came out just about a month before the launch. It was devastating! “No one will buy the product. Totally useless. It’s a gimmick. Who the hell cares about a watch in a closed pack, and what is the watch for if you can’t wear it on the wrist?” And I used that, actually, as my promotional slogan: “The watch to be worn everywhere except on the wrist.”

[00:11:49.26] Ben: There’s a great photo in the book, with “You’re wearing it everywhere but the wrist”.

Michel: Yeah. Actually, we made the front of the People Magazine in the United States. Front page! And People Magazine into circulation is three and a half million, with 46 million readerships. We made the front page of People Magazine! It was amazing!

[00:12:10.10] Ben: So, please buy the book, but if you don’t — this is a photo of Jordi and he’s got watches hanging off his mustache, his hair, his eyebrows, his ear, his finger. It’s a very impactful image.

Michel: Yeah. And if you turn the page, you see Andy Warhol, who came as a special guest for the launch in New York, in October 1986. And, actually, he told the journalist, “I’m waiting for Michel to make a version to clip on my contact lenses.” I loved that one! He was a great guy!

[00:12:48.06] Ben: So your lesson from the McKinsey incident — we’ll call it that — was that you can’t put too much stock by market research. It can essentially prevent you from doing what your gut tells you — and your gut is sometimes a better yardstick of what might work than market research.

Michel: Yeah, for me, at least. I mean, I listen to my gut. Everything I do, I listen to my gut. Which, of course, it doesn’t mean that you’re always 100% right. I mean, sometimes you know, it is a little bit trickier. What market research does not do is it does not take into consideration your advertising expenditures and your promotions. I mean, we sponsored the Montreux Jazz Festival. We had an advertising budget of a million Swiss francs in 1985 or ’86. That was a hell of a lot of money. We had TV commercials, billboards, and the Montreux Jazz Festival. And people just loved the product! I mean, it took off like a rocket. We sold 1 million watches for 23 million Swiss francs in the first year. I mean, imagine, that’s almost 2 million per month for a startup in which the McKinsey report did not believe in the product at all. We were four people at the launch of Le Clip. Six months later, in November, we were 50 people and we produced 10,000 watches a day. I mean, just structure-wise, organizational-wise, everything was just so fast. It took off like a rocket. In all of my life, I’ve never lived anything like those first six months. It was just absolutely unbelievable! The sky was the limit — I can say that!

[00:14:42.29] Ben: And how did that feel?

Michel: It felt fantastic! It was so motivating! It was actually uplifting. We were like on a cloud. We were just running through the world on a cloud. It was unbelievable!

[00:14:59.08] Ben: One of the things I also liked about your book, which resonated with me was — I mean, it’s obvious when you talk about your dad’s life story that you wanted something that was in opposition to that rigid corporate life. But then, what you say in the book is that, as an entrepreneur, you feel the highs so much more and also the lows so much more. And so, I can just imagine how it felt to, first of all, prove all the naysayers wrong. And then, to get something out there, where you’re producing, 10,000 watches a day, and everybody wanted it. I mean, I can just imagine how that felt.

Michel: Yeah! I mean, department stores like Grand Passage in Geneva or Globus in Zurich, they had to empty their cash register on big days — Friday, Saturday — they were doing it three times a day. There was so much cash, they couldn’t put the cash anymore in. At that time, you didn’t pay by credit cards. You paid cash.

a lot of people say, “The business plan is dead, forget about the business plan.” I think it’s totally wrong. — Michel JORDI

[00:15:53.28] Ben: Yeah. That’s wonderful! So I guess, also, you were very much part of the renaissance of the Swiss watch industry at that time, right?

Michel: Yes! Which, as I said, was initiated by the Swatch watch. And this came along. It was in the same trend.

[00:16:09.29] Ben: So, in this story in the book, you talk a lot about your gut instinct. You also have this — you call it, ‘ready-fire-aim’, right? This idea that if the timing’s right, you’ve got to get something into market, and then you can iterate after that. But, at the same time, you talk a lot about the importance of writing a detailed business plan, documenting the mission, the vision. How do you reconcile the ready-fire-aim mentality with having really detailed business plans? Because this was one thing where I kept reading those two statements in the book and thinking “I’m not sure they’re completely consistent.” So I just wonder how you, yourself, reconcile those two.

in discussing with young entrepreneurs who always say “I have a great idea, I want to do this and this.” I say, “Put it on paper.” — Michel JORDI

Michel: The book is divided into four parts. Part one talks about the lucky clover, which is the first four commandments. And those first four commands are vision, guts, different, and timing. And I think these four are so important — and what I’m telling all young entrepreneurs is, “Fill this out — that lucky clover — and evaluate it with notes from zero to 10, for each of the four leaves. If you hit 40, you’re gonna have a home run.” In those three companies, I always had 40. And that’s why the three companies became international successes. I mean, Le clip, The Swiss Ethno watch, the Twins Heritage — they all were 40 point measurements on the lucky clover. But if you’re below 30, I think you should really worry about what you’re going to do as an entrepreneur.

Ben: Yeah.

The only thing that changes all the time is the market. So adapt to it. If you want to be successful and stay in business, you have to adapt to the market. — Michel JORDI

Michel: Then you have to start to measure what is missing, which of the four parts are not correct? What I’m trying to say in this book because a lot of people say, “The business plan is dead, forget about the business plan.” I think it’s totally wrong. Well, what I think is, it’s almost impossible to do and what is not right is when people ask you to make sales projections for the next three to five years. This is extremely difficult, especially for a new business. But what is important in writing your business plan is going through the thinking process of your business. It’s like what I also explained afterwards in my rainbow target, which talks about marketing, price positioning, and all these different things. It is very important, when you write a business plan, it forces you to go through the thinking process of your business, and then, suddenly, you get stuck somewhere. Did you think about distribution? Did you think about marketing? Did you think about the point of sale? All these things, you have to think of it. And I felt, in discussing with young entrepreneurs who always say “I have a great idea, I want to do this and this.” I say, “Put it on paper.”

Ben: Yeah.

Michel: The minute they put it on paper, they get stuck. They don’t know what to write on the paper. That’s what I’m trying to say, if you cannot put it on paper, that means your vision is not clear and it’s going to be very, very difficult to reach your goal. But then, as I also said, ready-fire-aim means you cannot always get all the parameters 100% the way you would like to have them, because there’s some gray zones. You don’t know exactly what to do. If you want to, just aim all the time, you can aim for 2,3,4 years — you never shoot. So there comes a time, there’s a certain factor of risk involved, you have to shoot and then aim as you go along because then, you really, in the real world, you’re in the market, and you have to adapt to that market at all times. Markets are changing. The only thing that changes all the time is the market. So adapt to it. If you want to be successful and stay in business, you have to adapt to the market.

[00:20:16.16] Ben: Yes. Jeff Bezos talks about this idea of being able to take decisions when you’ve got 80% of the available data.

Michel: Yeah. Exactly!

[00:20:26.15] Ben: So what you’re saying is a business plan for you is making sure you understand the big blocks that will be needed to be successful. So, understanding your go-to market plan, understanding how you’re going to do marketing, distribution — but it doesn’t have to be completely precise. And there’s no point in doing five-year projections.

Michel: Absolutely! I totally agree! No, I mean, as I said, you cannot always have everything right. There is a gray zone, which you only know once you’re in the market. That’s what I’m saying. Then you start to aim.

part of the problem is when you make a disruptive product — like Le Clip and also the Swiss Ethno watch — if you want to make a market research, you’re going to meet some people. They all say ‘no’. Do you know why? There are no benchmarks. They cannot compare with something existing. — Michel JORDI

[00:20:56.29] Ben: Tell us a bit more about the Swiss Ethno watch.

Michel: Well, as I said, I mean, from Le Clip, the problem with Le Clip was it grew so fast that I just couldn’t finance the whole project. I ran out of cash. So, I had to bring in an investor. And I was very naive and believed everything he said, instead of taking a lawyer or an advisor with me to make sure we all do every step properly. I trusted my two former partners, that they will take care of that part. But instead, they partnered up with the new guy, and they kicked me out. So I mean, a naivete. I concentrated on business, whereas they concentrated on what is the best way to kick him out so we can take control of the business, you know? And then, of course, I didn’t know what to do.

[00:21:55.29] Ben: You’re right! I’ve missed an important step, which was exactly this point, which is, you lost control of your own company. And I think this is, again, one of the lessons you draw in the book, which is around managing cash flow. Because this is a classic case of, you just grew so fast, there has been such working capital pressures on the company, that in the end, you had to take in what we might now call ‘vulture capital’ — you took in capital that came with, ultimately, in this case, really horrendous repercussions. So, talk to us a bit about some of those lessons. I mean, I think there’s a whole section here.

Michel: Yeah, it’s commandment number 10 — Cash Flow. Cherish your cash. Cash is your oxygen, as in if you run out of it, you die. But again, I went to IMD, I went to Harvard. That is exactly what they tell you everywhere: “Be careful. Don’t run out of cash. Grow slowly, because if you run out of cash, you may lose control.” That was the situation with Le Clip. And there was just no choice. It just went through the wall! You can’t stop it. You can’t stop it. But then, I mean, maybe today, what I would have done differently, I should have immediately taken my personal lawyer or advisor and make negotiations myself instead of my first partners doing it. Because, in the end, they just partnered up, as I said, with the new investor and kicked me out. I mean, the guy promised to invest seven and a half million Swiss francs in 1987. That was a hell of a lot of money. He brought two and a half million. The rest never came. So, I took a lawyer, I started to attack him, but I had already lost the majority when the deal was done. I was below 50%. And he brought only two and a half million. What can you after it? It was too late! I couldn’t come back. I mean, I was kicked out but as I said, in hindsight, you’re always smarter, you know what you should have done differently. I just had to acknowledge that this was one of my learning curves, one of the things which did go wrong, but I knew should have been done differently. But I can also say that had there not been Le Clip, there would never have been the Swiss Ethno watch because I couldn’t do this with the Ethno watch, without all the lessons, everything I learned from that first experience.

[00:24:34.06] Ben: And so, talk to us about the Ethno watch. First of all, where the idea came from, how you executed the idea, what you did that was different from Le Clip? So, building on the learnings from Le Clip.

Michel: Well, first of all, Le Clip was sold at 50 Swiss francs, it was a fashion accessory wore everywhere except on the wrist, but the Swiss Ethno watch was a classical wristwatch to wear on the wrist with a leather strap. But, what I did differently because after Le Clip, I made a trip around the world to see former friends, to get ideas, brainstorm what should I do next. I mean, I was devastated, I lost my ground, I had a family to feed, I had two kids. And I knew only one thing: that I wanted to remain free and independent. So, no way that I would go and work for somebody else. So I went around the world, saw old friends, and asked for advice, “What do you think I should do?” And several of them said, “Make your own watch. Why don’t you make your own watch?”

Ben: Yeah.

Michel: As I said, “Who is ever going to buy a watch where it says ‘Michel Jordi’ on the dial?” I just couldn’t envision that at this point. I didn’t have the confidence to put my name on the dial. It was my wife, actually, who convinced me. She said, “You have to do it!” She felt it was a great idea! She’s Korean origin, she has a big spirit and can think big. After a few months, I decided, “Okay, let’s have a go!” And then, these people I met around the world in Singapore and Japan said, “Why don’t you make a typical Swiss watch? Like the Swiss Army knife.” Now, what is so typical about Switzerland? The most typical symbols we have in Switzerland are the cows and the edelweiss. So I took to cowbell, embroidered the edelweiss on the strap, and the cows went in circle around the bezel of the watch — That’s exactly it. It was amazing! It was an amazing timepiece. But, again, part of the problem is when you make a disruptive product — like Le Clip and also the Swiss Ethno watch — if you want to make a market research, you’re going to meet some people. They all say ‘no’. Do you know why? There are no benchmarks. They cannot compare with something existing. So, they said, “This is a kitschy tourist trap. No Swiss will ever buy the product. Maybe you can find some tourists in Interlaken or Lucerne.” But I decided to do it anyway. I put 10,000 watches in production before I even had an order.

I did not sell folklore, I sold lifestyle — Michel JORDI

Michel: And, again, retailers didn’t want to buy it. I decided to make it rare and limit distribution to only 100 product sets. But each one of them had to invest in a package of 100 watches for 20,000 Swiss francs. And I managed to get them together. It was very, very hard work, a lot of persuasion, a lot of traveling, but finally, thanks to Bucherer — the big retail chain store, Bucherer — they ordered 1500 watches as a starter. And once I had Bucherer on board — the best retail in Switzerland — all the other followed because if Bucherer says that’s fine, then, I think it must be something good. So, I managed to put them together. I made an amazing launch. I invited them to launch the product to the cradle of Switzerland, at the shores of Lake Lucerne for an unbelievable launch party, for which they had to dress in their Swiss national costumes. They were all motivated and joyful. They all went home and said, “We’ve got to spread Swiss Ethno fever”, and suddenly the product took off. I can also say, one thing is, we spent one and a half million at the launch party, advertising, and promotion-wise. If you cannot advertise heavily in promotion, you don’t have a chance to bring the message across.

Commitment is 200% and you never think about the plan B, when you start. It’s impossible. — Michel JORDI

[00:28:47.04] Ben: Yeah. Because you’re trying to persuade people to change their buying behavior.

Michel: It’s a must. You have to make it a must. I wanted it to make it a must. But I did not sell folklore, I sold lifestyle. The most important thing was to sell it as a lifestyle product.

[00:29:04.23] Ben: There’s a few things to delve into, here. So, one is marketing. I mean, I’m a marketer myself, and so, I loved some of the things you were saying in the book about marketing, because my frustration or my critique of a lot of marketing efforts is they put too much emphasis on just one of the P’s — promotion. And what I liked a lot in your book is you talk a lot about the other three P’s. And one of the things you talked about a lot was these launch events and the impact you can have of getting something on the radar of people, of the consumer who’s time-poor, of the publications who are stretched in terms of resources. And so, a big launch event could catalyze the branding and the marketing of something new. So, can you talk to us about that? Because I think that, again, there’s a lot on this in terms of these launch events.

Michel: Yeah, it’s crucial. I think it’s crucial in our success. If you only advertise or communicate through classical marketing, you have those beautiful pages in magazines. But today you open a magazine, there are tons of advertising. Tons of advertising, also, of watches. But people don’t talk about an advert. They just turn the page. But when you make a crazy event, like what we did — we made a fashion show at Piccadilly Circus with cogs, a Swiss Folk group, and Swiss flags, as well. I mean, Piccadilly stood still. And then we made the Swiss Primetime Evening News. I made an advertisement at the foot of the pyramids, in Egypt. We took a sailboat up to the foot of the Matterhorn. All those crazy events. Then, what it does is, first of all, it projects the company as being very dynamic, disruptive, unusual. And, at the same time, people talk about it: “Did you see what the guy did? It was cows and edelweiss and camels in front of the pyramids or a sailboat at the foot of the Matterhorn!” People talk about things like that. So you can stretch it for quite a while. And especially, also, I always invited my retailers — the network — to these events, because I wanted them to be part of it. And very often, we didn’t just invite the owners, but the sales personnel because suddenly, the sales personnel was there at the launch with the owner of the company — with Michel Jordi. They could talk to him. You know, you have to be very humble in these situations. We’re all the same. And the retail, if you want to sell something, it is a long chain. Many people are involved and important for a sale. And I always say, a chain is only as strong as its weakest link. And, if at the front of the sales point, the salesgirl, the salesman, doesn’t believe in your product, doesn’t propose your product, you’re not going to make any sales. So, that’s what I say. Then you advertise. The last ‘p’, as you mentioned before, is the point of sale. If when you advertise, you cannot have a really optimal presentation, your product doesn’t stand out on the point of sale. You’re not going to sell it.

[00:32:29.23] Ben: And I suppose this idea of hacking — we might call it hacks or guerilla marketing — it’s actually become probably more, not less important, right? Because we’re all on our devices, we’re all even more distracted than we were in the past. So, it’s even harder to get on to the consumer’s radar because the consumer is more attention-deprived than ever. So I think the lessons in here are, you know, it’s not like because you were launching watches in the ’80s that these lessons are not applicable today. I would say they’re even more applicable today. And the other thing I liked a lot when you were talking about marketing was the importance of price on the one hand, but the other thing was packaging.

in my age, it was a shame to fail. It was a real shame. People looked down on you […] I mean, I failed four times. So what? Give yourself a chance to fail because, as I said, the most important thing when you fail is that you learn a lesson every time. — Michel JORDI

Michel: The packaging is very important. The first contact your customer has with your product it’s the packaging. First of all, you have to stand out! Of course, I mean, I’m lucky. I mean, I’m a Swiss citizen. What are the Swiss colors? It’s red and white. And red is the color of passion. Red was always involved in my packaging and everything. So red stands out. My books are red.

[00:33:39.15] Ben: Yes, that’s true! And also, for the Ethno watch, timing, again, was very important because you timed the watch to coincide with Swiss anniversary, right?

Michel: Yeah. Again, it’s part of the lucky clover — the first four commandments — as I said, vision, guts, differentiation. If you’re not different, if you don’t have a USP or a competitive advantage, you don’t stand a chance. And then, the last of these four is timing. And I realized that all these companies, which have been very successful, the timing was just perfect. And there’s a market research by American Venture Capital Group who revealed that 42% of startups fail because of bad timing. And I must say, sometimes it takes a portion of luck. I mean, the Swiss Ethno watch, without the 700 years anniversary, will probably not have been as successful as it was. Because we got a lot of write-ups from the press because we linked it with this 700 year anniversary. And if I come back to Le Clip: Le Clip was because I could jump on the bandwagon of the Swatch watch. And then, the Twins Heritage — I mean, imagine, my third watch, the Twins Heritage. I made Le Clip 50 Swiss francs. The Swiss Ethno watch, gold plate — 395. And then, after that, I come with the Twins Heritage — the price is ranged from between 70,000 to 220,000 Swiss francs for watches. When you go to any university, any business school, they just tell you, “This is simply impossible. You cannot, with the same brand, Michel Jordi — Le Clip was different — but from 395 you go up to 70,000 or 200,000!” Everybody said it’s impossible. And that’s what the press told me: “You’re crazy! It’s simply impossible. You’ll not be able to do it!” You know what? We made a fantastic launch event, with a great write-up in the Tribune de Geneve, production for Twins Heritage was booked out for a whole year within only two weeks after the launch. And we sold over 4 million Swiss francs of watches, in the first year. It was amazing! And because it was, again, something different.

[00:36:12.06] Ben: I just want to get back to the idea of guts, which is one of the four parts of the lucky clover. How do you rank guts? Because clearly, you’ve shown massive guts, putting a 10,000 order for Swiss Ethno before you’d even had a single retailer prepared to take it. It shows massive bravery. But, how do you rate guts out of 10? Because I can see how you could see what’s in the market and you get a sense for, this is 10 out of 10 differentiated. I can see how you can look at the timing and say, “Okay, there’s something I can hang this on.” There’s some market change or some technological change, and that’s the perfect timing. I can see how the vision you could rank it out of 10. How do you rank guts out of 10?

Michel: Well, I guess everybody has his own way of measuring his guts’ capacity or whatever. I mean, I just kind of developed it. Somehow I developed this and that was always very daring. I mean, guts is daring courage, risk-taker. I mean, guts has a lot to do with risk-taker. I took a hell of a lot of risks in my life. It also failed sometimes. I mean, that’s why I’ve fallen on my nose. But the good thing about guts, it’s like when you eat: sometimes you bite up a little bit too much than you can chew. So, you have to work your way through, to be able to chew it down and digest it. It’s the same thing with guts. Sometimes, you maybe took a bite a little bit too big. But it forces you to find solutions. You just have to go because giving up is no option. My book, actually, the autobiography, the English title, actually, is “Guts” and the subtitle “Giving up is no Option.” That’s the only thing, just guts. I envision things, I fix myself objectives. And then, of course, you have to weigh “How far can I go? How much can I bite up and hope to be able to digest?” And then you just have to run for it. You just have to work. It’s very, very hard work. And you just don’t give up. There’s no choice.

the best product in the world is of no use if people don’t know that it exists and where to buy it and why should you buy it — Michel JORDI

[00:38:36.20] Ben: Yeah. And another part of the book is where you were interviewed, and somebody said, “Well, what’s your plan B?” And you laughed, and you said, “There is no plan B”. So it’s gut almost like a proxy for just how committed you are to this?

Michel: That’s a very, very, very good question. As you say, correctly, this TV presenter asked me, “What’s your plan B for when you start your new company?” No. Commitment is 200% and you never think about the plan B, when you start. It’s impossible. That means you have two business plans. You have, “This is what I want to achieve” and “This is what I do when it fails.” That means that you plan to fail there in the first two weeks or the first two months. Forget it! Then you’d better don’t start. I mean, when you launch something, you plan to be there at least for a year or two or more. And since the markets are moving so much in six months, once you choose this, the market will be so different, everything’s so different than when you started out, that you cannot foresee what will be your plan B by then. So, just focus and concentrate on your success and make it happen.

[00:39:53.09] Ben: In the book, you point out that the pace of change is accelerating all the time, which is, I suppose, a good and a bad thing, right? Because more and more opportunities are opening up for entrepreneurs. And then, you say that also, that it’s become cheaper and cheaper to launch startups because the barriers to entry, the tech costs of creating a startup are falling. So, is your advice now, still the same as it was — i.e. create a business plan, have massive conviction, do the research, understand if it’s differentiated? Or is it more trial and error, now, because there’s so much change, to do more startups, to try more things?

Michel: Of course. Of course. I mean, time is now! I mean, your time is now. Of course, the thing is, you cannot stop progress, and we cannot stop where we are moving now. But I think every era, every period has its pros and cons and its advantages. I would say, today it’s so much easier to start a company, than in my time. First of all, in my time, it was almost impossible to find the money. We didn’t have the same technology. We had no computers, we had no iPhones, we had nothing. No smartphones. Today, all the tools are there. They are at your disposal. And also, I mean, in my age, it was a shame to fail. It was a real shame. I mean, people looked down on you, “Look at this guy! He failed!” I mean, I failed four times. So what? I mean, give yourself a chance to fail because, as I said, the most important thing when you fail is that you learn a lesson every time you fall. And, as I said, without Le Clip, I could never have done the Swiss Ethno watch; and without the Swiss Ethno watch, I could not have done the Twins Heritage. Everything became an evolution and was a fantastic learning curve. And what I can say, also, in hindsight, I don’t regret anything. I had a fantastic life. I enjoyed myself. I never looked at my watch. I never felt that I was working. Yeah, as a watchmaker, I never looked at my watch.

Ben: Yeah, as you say, it’s an irony.

Michel: I really had fun. I just lived my passion — and I think that’s the most important thing: people living their passion. I mean, life is so short and it gives so many opportunities. And also, when I mentioned the event marketing and all that stuff — today, things have not changed. Event marketing is still there. But it’s different because today you have the social media. With social media, you can make so much noise! You have Instagram, you have Facebook, you have all these things. We didn’t have that. So, the enormous opportunities and the advice I could give to young entrepreneurs who want to start their own business, start as early as possible. Start in your teens. The greatest thing to teens — 13 to 19 — because maybe you’re still in school, but you have peers, you have colleagues. You have no responsibility, no family responsibility, you have no kids. And it gives you a chance at 19 or 20 — you can fail two, three times and you’re still young to make it to the next point. And every time, you learn something, until you finally hit the jackpot!

in all of my companies, the most important for me was to surround myself with competent people — Michel JORDI

[00:43:31.13] Ben: I think this is, again, a really salient point, which is, you talk in the book about always being curious, always learning — which I’d say is, again, universally applicable probably more important now than ever, right? You know, you talked about your father’s life, this sort of rigid eight to five type setup and you wanting to do something different and be your own boss, and so on. But actually, almost like the option to have that rigid corporate life is disappearing, right? Because I mean, there aren’t so many jobs that you can do for your whole life anymore, right? So, it’s almost like more of a need to become entrepreneurs through necessity than was the case before. And one of your definitions of an entrepreneur is somebody who’s just constantly curious and constantly learning. Do you think you can teach that? Or do you think that’s just something that’s inherent intrinsic to individuals?

Michel: I think everybody has the ability to cultivate it. It’s an attitude. It’s an attitude to be curious. I mean, I’m so curious. I always ask a lot of questions. I want to know more, and I never take no for an answer. I want to know what is behind. And I think today, for the kids, they just have to be alert. Be alert. Eyes open, ears open all the time! And learn. Because, in the end, what is important is know-how. Through all the experiences we do, we learn a lot of things — which today we call know-how. And know-how is maybe one of the few things you don’t learn at the business school or universities. You only learn it by doing. So do it. Break your neck. Stand up and try the next thing. You know, without failure, there will never be any progress. You have to understand that. You know, the Wright brothers, the people who started to fly — how long did it take until you could fly an airplane? How long did it take until you could lift up and fly? How many people died? I mean, unfortunately, it’s the same thing, but the damages are not the same because you don’t lose your life. Those pioneers lost their lives.

[00:45:57.06] Ben: Yeah. Maybe we should talk about one of the things that didn’t work for you, which was the Swiss Icon. What was the reason it didn’t work, from an approach point of view? Did you apply the same methodology, the business plan, etc. to that business? Or was that one where you knew it was riskier because it didn’t score so well on the lucky clover? Talk to us about that.

Michel: It’s the perfect example. And I think it really rounds up my book because if I look at that lucky clover, at least two out of the four leaves were not optimal. The number one was timing — it was the worst time.

Ben: If you could just elaborate on that.

Michel: We launched it in August 2011. It was exactly when the Euro collapsed and so did the Swiss francs. And suddenly, you could buy Swiss watches cheaper in London or Paris or anywhere in the world, because the drop was over 20%. It was unbelievable! That was, even, at that point in time was almost par: one euro for one Swiss franc, for a couple of weeks. And so, of course, everybody stopped buying. I started to sell only on the Swiss market, concentrate on the Swiss market. So, time was definitely very bad.

Michel: Another thing was differentiation. It was a beautiful product. This is a beautiful product, I have it on my wrist every day, but it was not as different as all my other products. And when it is not that different, then what you need is you need very, very heavy advertising. You need a hell of a lot of advertising. And what we did, I had two partners in that company. So, what we did when the Swiss franc collapsed, we cut our advertising expenditure. Huge! We just crossed and stopped everything. And that was the first big mistake. And what we should have done is, if you cut the advertising budget, you should also reduce the price because suddenly that price — 7900 for a chronograph would only be paid if you advertised strongly so people would want to have it. But if you reduce your communication budget, your price should also come down, your retail. So maybe we should have sold it at 4900 or whatever, 3900. We didn’t do that. So it was definitely a mistake, a misjudgment, or whatever. But as I said, I also had two partners. I couldn’t do everything. I mean, the launch wasn’t the way I wanted to. And then came my bicycle accident where I lost consciousness and I had three broken ribs and things were going to get very, very difficult and more complex. And I decided, in the end, to sell the company to the partners and get out of it.

[00:49:08.10] Ben: So, was one of your learnings that when you’re launching a disruptive product, the advertising budget should never be seen as discretionary? Because it’s just trying to do something really disruptive — without the air cover of a big marketing budget is Canute-like, impossible to do.

Michel: Absolutely! You have marketing expenses — they are very, very important. You have to communicate, because the best product in the world is of no use if people don’t know that it exists and where to buy it and why should you buy it. Of course, I mean, there’s several ways of marketing. Also, what’s important is, I always try to first have trendsetters to wear your product because when you have trendsetters to go around and talk about you, it’s visibility. You need a lot of visibility. And you can only get that visibility when it’s the thing to have, which means you have to communicate.

[00:50:07.04] Ben: I would say that that trendsetter part is more important now than ever, also, right? Because we live in a world where branding is so tied to individuals. So yeah, having influencers wear your stuff. And when you were getting trendsetters to wear your stuff, did you pay for that? Or you just created a product that was so desirable that people wanted to wear it?

Michel: No we didn’t pay for it.

Ben: That’s what I expected, yeah.

Michel: But it was just so good, people bought it to have it. But we made it sexy. You have to communicate it in a sexy way and you have to package it properly. I mean, in the end, the product almost has to sell by itself. When you take it in your hand, there’s an emotion going through your body. You feel it. That’s the difference when you’re wearing a Swiss watch. A Swiss watch has a soul. If I buy a watch made in Japan or Korea or China, there’s no soul in it. It also gives the time, but it is no soul on it. I mean, the Swatch watch at 50 Swiss francs I think it’s the greatest consumer product ever made. Ever made. Because at that time, the watch was 50 Swiss francs. What other consumer product gives you technology, precision, mechanics, time, and lifestyle, for 50 bucks? It’s amazing! I think it’s a great product still today!

[00:51:42.02] Ben: Why do you say that Swiss watches have a soul in a way that other countries watches don’t have a soul?

Michel: The way we communicate it, the way we market it.

Ben: Yeah, because I think one of the things that Switzerland does brilliantly is packaging, right?

Michel: And communication. It’s communication. I mean, most big companies, they have a great slogan around. Look at the Rolex advertisement — it’s amazing!

[00:52:08.07] Ben: So, I just want to get you in a couple of other things that you talked about in the book. There’s a really nice soundbite where you say ‘talent wins games, but teamwork wins championships.’ Can you talk to us about the importance of building great teams and how you cultivate those teams?

Michel: I think it’s essential for every company to have a great team. And that’s exactly the slogan you just said: a team wins championships because, if you compare it with an army, there’s no use to be a general when the troops cannot follow you. Napoleon could never have won if the troops were not right behind him. And in all of my companies, the most important for me was to surround myself with competent people. You can read about them; I get a lot of testimonials in my book here. One of my guys is now CEO at Rolex Australia, another one is CEO at Bucherer in Lucerne, about 10 of them have started their own company. I have regular contact with them and they always tell me, “Michel, without you, I would have never been there.”

[00:53:26.12] Ben: So there’s two functions there. One is spotting raw talent. How did you do that?

It’s beneficial for the company to take a vacation, to take off. And this is what I think we have to understand. You cannot perform when you’re tired. Enjoy life! — Michel JORDI

Michel: Empowered them. Empowering people.

[00:53:37.17] Ben: But empowering people presupposes that they’re good in the first place. So how did you spot the great people? And then we can talk about how you empower them.

Michel: You know what? It is very fun and very interesting: I believe that a lot of people have much more talent and are much more capable than they think. But you have to give them the confidence. You have to detect and see where the strength is and let them go, let them loose. You know, I realized, when you let them loose or ask for them big things to do, it’s very motivating. Because they’re like, “My boss has confidence in me! He thinks I can do that!” I mean, the one who is now in Australia, the Rolex CEO, he was a watchmaker repairing watches at a retail shop in Zurich, and he was about 22 years old or 23. I said, “What are you doing here?” I mean, you know, as a watchmaker at his age, I saw that guy had potential. And I wanted to have salesmen going out to sell my watches, who know what they talk about — watchmakers. So I took him, I trained him on the Swiss market, then I sent him with my best salesman internationally, to the Middle East to learn about the international salesman. Then I told him, “Now you’ll go to Hong Kong and you’ll open my affiliate office in Hong Kong.” He opened my affiliated office in Hong Kong, and then made a business plan. We showed him how to do it. And the guy, he was 26 years old, he was trembling. He said, “Can I do it?” I said, “You will do it! Just go!” Throw them into the water, give them a chance to maybe make mistakes. But you learn from the mistakes. Again, they learn to swim.

[00:55:28.19] Ben: The impression I get when I listen to you is not only were you very much part of the renaissance of the Swiss watch industry, but also to the longevity of that Renaissance because of all the people that you coached and all the people to whom you gave opportunities? Would you say that’s fair? I know you’re a modest man.

Michel: I’m a very, very small part of that. And in the end, it’s still the guys who have to do the job. But if we come back to Bucherer, now the guy who is CEO, his second man below is also a guy from me because he was looking for a number two man. And I had him, he was a guy who worked in another company, in the Twins Heritage. So now Bucherer’s number one and number two, both come from my team. So these guys, once you give them the opportunity, they have to see their opportunity. They have to grab it. But very often, I think a coach’s job is to detect the ability, the talent and give them the confidence to really develop all their potential. Very often, they don’t even know what they’re capable of. So, develop that potential.

[00:56:48.11] Ben: The confidence and the opportunity, right? Because you did both, right?

Michel: Yeah. See it, have your eyes and ears open.

[00:56:56.03] Ben: And then what about leadership? Because it seems like you’re the sort of leader who leads by example, right?

Michel: This is leadership. Show them the example. Exactly. I mean, for example, you know, most of the time, I was the first guy in the office. Most of the time I was the guy who closed the door. You have to show them how to do it. Get your fingers dirty yourself.

[00:57:21.27] Ben: But having said that, you also talk about the importance of work-life balance in the book.

Michel: Yeah.

Ben: So, live by example, show the level of commitment to the business, but at the same time… Or would you say also lead by demonstrating to people the importance of not burning out, of pacing yourself off, as you say, eating well, living well, exercising.

Michel: I never had anybody in my company who had to burn out. But I must admit that I have been close to burnouts a couple of times. One of them was at Le Clip. I remember I arrived once in Vancouver on a Friday night and I stayed in bed the whole weekend and on Monday I traveled on to Japan, to Tokyo. I didn’t see anything of Vancouver except the airport. I was just so completely tired. So you have to listen also to your body. When you’re down, you’re down, then you have to rest. And what I learned over time is that when I grew up, you were a hero, and you wanted to show that you work hard and you work long hours. Today, I realize — that’s what I’m also trying to tell people is that the art of doing a good job is of knowing when to relax and when to slow down. So, I started to take long weekends, and that’s what I could suggest to anybody. A long weekend, let’s say three, four days, when you’re in the 30s or 40s. I mean, it can do wonders in regenerating yourself. Or take a week vacation — whatever — because when you come back, your mind is emptied, you know, and you have just so much energy. And it’s only good for the company. It’s beneficial for the company to take a vacation, to take off. And this is what I think we have to understand. You cannot perform when you’re tired. Enjoy life! That’s all I can say. I love to drink a good glass of wine. You work like hell during the day and in the evening, a good glass of wine — hey, what a pleasure! What a relaxation!

[00:59:31.07] Ben: Talk to us about why you ended up calling it a day when you realized that you didn’t want to do any more startups — and the conditions that then gave rise to you writing this autobiography, which sadly, is only available in German, right? At some point, maybe you’ll publish the English version. So, talk to us about that realization that enough is enough. It was now time to take a step back.

Coaches are so important, because, as I said, a lot of people lack the confidence. They don’t see all their potential and that’s what a coach is for. And I think, if I can help people detect their potential and live also, as I said before, a balanced and a rewarding life, then I think it’s a fantastic way to end the fourth part of my life. — Michel JORDI

Michel: Like I said, the lucky clover has four parts. Our life has different segments. There’s our youth, there’s education, then you start to get into the corporate drive, then you become independent as me, but then, I’m 70 years old now. I mean, you have to think how much longer you have to live? It’s 10 or 20 years if I’m very lucky, if God wanted. So, what do I do with the rest of my life? And I think the rest of my life is not going to be behind the desk and doing operations stuff. But coaching people, or consulting companies, detect talents or detecting opportunities. Coaches are so important, because, as I said, a lot of people lack the confidence. They don’t see all their potential and that’s what a coach is for. And I think, if I can help people detect their potential and live also, as I said before, a balanced and a rewarding life, then I think it’s a fantastic way to end the fourth part of my life. First of all, life is not a 100-meter dash. Life is a marathon. And it’s not like a football game where you have two halves. I think it’s more like basketball where you have four quarters or something like this. So I’m maybe a man now in my fourth quarter. And I think there’s still a hell of a lot to do and I’m looking forward to it.

[01:01:40.20] Ben: Fantastic! That’s a wonderful optimistic note on which to finish the podcast. So Michel, thank you so much for coming. Buy the book — Ignite That Spark — it’s full of sage advice, and it’s really a great read. You can read it in a single sitting. I think it’s also a reference — you can keep coming back to it.

Michel: Yeah, it’s like a Bible. You can take it back anytime. But also, what I said is, the book costs 19 Swiss francs — roughly $20. What I say to everybody who buys my book is that if you don’t get 20 bucks value or wisdom out of this, write to me, and I refund it.

Ben: You get your money back, guaranteed, from the man himself. Okay. Thank you so much again, Michel!

Michel: Thank you! It was great!

Previewing the post-Pandemic World (#17)

Structural Shifts with Nicolas Colin . Co-founder The Familyé Laetitia Vitaud, co-founder Building Bridges; and Ian Charles Stewart — Executive in Residence at IMD Business School (an co-founder of WIRED).

Today, we have a special episode for you on how the post-pandemic world would look like. We are bringing back three of our favorite guests: Nicolas Colin — Co-founder and Director of The Family, which is a platform for European entrepreneurs; Laetitia Vitaud— renowned writer and speaker on The Future of Work; and Ian Stewart — Executive in Residence at IMD Business School (an co-founder of WIRED). 

Ben Robinson interviews them separately, beginning with Nicolas, who talks about why this pandemic is so different from other crises like terrorist attacks and recessions. He also goes into why the stock market is currently doing okay — at least as of this recording — even though the unemployment rate has skyrocketed, and he and Ben talk about what a safety net could look like for the entrepreneurial age.

Laetitia continues the safety net conversation going into how much are we going to continue to value and appreciate proximity workers into the future? We love them now — are we going to continue to show them the love after this pandemic? And what about new protections for freelancers? What are we going to see in that space? Laetitia, who taught American Studies and English for 10 years, also goes into a really interesting discussion on Roosevelt and how his New Deal helped pull the US out of the Great Depression and what the chances are of something similar happening in the US, today. I’ll give you a spoiler — spoiler alert — things are not looking good! Laetitia ends by talking about how companies need to act today if they want to succeed today, but then also in the future after the crisis ends.

Ian picks up the leadership question, answering Ben’s question, “Is this a time to be brave and contrarian or is it time to just keep everything going as normal as possible?” Is China a safe haven for investors? How is the pandemic affecting US-China relations? And the perpetual question, when will China become the largest economy in the world? And is that even the right question to be asking? At the very end, we will circle back to Nicolas for his closing snapshot vision of how the pandemic will accelerate the transition to digital entrepreneurship. Enjoy the show!

 

[00:02:42.19] Ben: Nicolas, would you say, one of the biggest differences between the Corona crisis and some of the other major crises over recent years — the major difference is that there is no global leader? The United States led the response to the financial crisis and the United States led the response to 9/11, and you see very much that we’ve had this sort of balkanization of responses, right? Because, the UK was going for herd immunity, Italy was in lockdown, the United States, at least initially, wasn’t taking this very seriously — and we’ve lacked that sort of coordinated global response.

Nicolas: So, the US is a country that I’ve studied for a very long time and I’m passionate about it. I’ve traveled there a lot and I read a lot of books about its history, especially. What I find is different this time. So, one thing that’s different is that they have Trump and he’s a very unusual kind of leader to have in these difficult times. But another thing that’s very different is that the US is used to respond to crises by doing two things: one is, send troops abroad to invade Afghanistan or to invade Iraq and topple the regime there or Vietnam — sometimes it works, sometimes it doesn’t, but sending troops is easy for them because they have the mightiest military in the world. The other thing that they do, usually, is that they close their borders, which is easily done when you’re the US because they’re isolated at the other end of the world, they have two oceans bordering them, they only have two borders to close, effectively — one with Mexico and the other with Canada. And so, basically, on 9/11 they did both things: they sent troops to Afghanistan, and then they closed the borders to prevent anyone from entering the territory.

Nicolas: For the financial crisis, well, they gathered a small group of politicians and experts and economists in the Treasury building in Washington, DC — that was basically all you had to do to solve the crisis. You had to take big difficult decisions, but in material terms, organizing to respond to the crisis was quite easy. This time, none of these works. Sending troops will not solve the problem; closing the borders won’t solve the problem because you have sick people at home on your territory, on US soil; and simply gathering experts in a building won’t solve the problem because, after two weeks, we know what should be done, but it’s all a matter of implementation now — and implementation on US soil, at that scale, with so much disruption for the way people live in the US is unprecedented. I don’t see a precedent of the US being confronted with such a crisis at home and they are not equipped as a government and as a country to respond to that.

[00:05:59.25] Ben: So you could argue that it is unprecedented and would be difficult for any US institution to manage. But, in addition to that, you’ve also said the fact that Donald Trump has been gutting the institutions that would be most able to respond. So, I read “The Fifth Risk” by Michael Lewis — I read it when it came out, and I think what am I going to do is reread it because it was so sort of prescient in highlighting the fact that what was happening was almost going unnoticed, and would go unnoticed, until all the institutions were suddenly needed, which is exactly where we are now is it not?

Nicolas: I’m French and you’re British, so we both come from countries with a very long tradition of strong and respected civil service. The reason why we used to have — maybe we don’t have them anymore — very efficient and effective civil servants is because we were countries confronted with many threats and we had a colonial empire to manage. Both France and the UK had a Global Empire to manage, which requires a lot of skills and a lot of capacities — you really need that to manage such an empire. In comparison to the French and the British, the Americans never had very effective governance when it comes to implementing policy at home. They’ve had for quite some time a very effective military, but when it comes to implementing policy at home, the US government is already lagging far behind those of other Western countries or China or Singapore, for that matter. And they’re used to it and they don’t really care because most of their government is done at the local or state level and most of the problems that Americans have on a day-to-day basis are solved by the private sector or by lawyers.

Nicolas: But, a striking example is that you can’t really manage your taxes without relying on a tax advisor in the US because the government won’t help you do that. They don’t have the resources, they don’t have the people to be able to respond to every question that every individual taxpayer has. So, that’s their tradition. Their tradition is that of a limited government and a government that nobody really needs in normal times, so no one cares about the government being underfunded or too small for this very big and large country to manage. And it’s only when such a crisis happens, that they realize, “Oh, maybe we should have the same kind of government that the French or the British or Singapore has.” But you can’t catch up in two weeks on doing that — it’s a whole tradition and a whole cultural matter.

[00:09:28.21] Ben: Donald Trump underestimated the threat and then he’s had some very public disagreements with governors. It doesn’t really seem to be affecting his poll ratings too much. Do you think Donald Trump will still be reelected in November or do you think this has materially changed the odds?

Nicolas: He’s been polling at 40% approval ratings forever and whatever he does, it never goes down. And so, people say, “Oh, he’s still popular because he was that popular when he won the election four years ago”, and so, he could do it again with such a low approval rating as a person and as a leader. But what I’ve been interested in is how low is polling in other ground states like Michigan, or basically the Rust Belt where he made a lot of promises about jobs coming back, factories reopening, supporting people, etc., and those promises have not been kept and people are feeling the pain. And so, they’ve probably already decided for many of them that they won’t vote again for Donald Trump this year, which will make a huge difference because he won Michigan with 10,000 votes, I think, in 2016. And so, it doesn’t take much for him to lose Michigan and then lose the presidency — even though he’s faring well in southern states and other conservative states.

[00:11:05.14] Ben: One of the things I wanted to ask you was — you know, this isn’t just from a US perspective — how bad do you think the economic consequences of this pandemic will be? I guess it’s a really difficult question to answer because we have no idea how long it’s going to last and so on, but, would you say that people are still underestimating how profound the impacts will be?

Nicolas: I think we’re underestimating it clearly. I’m not really sure what people are expecting in terms of impact, but clearly, after two weeks, people will look around and say, “Oh, life seems to go on. I’m stuck at home. In many cases, I still have my job. I still get my pay every week or every month and probably life will go back to normal.” But what’s normal? If you reflect on the 10 years that we’ve gone through after the financial crisis, yes, most of us did get back a job and recovered on a reasonable standard of living, but everything has changed, in a way — politically, economically, financially, it’s the rise of China, it’s Brexit, it’s Trump. So, we might have to expect radical consequences to the crisis we’re currently going through. We just don’t know what it will be about.

[00:12:39.26] Ben: Why is the stock market not more materially affected. The initial reaction was quite severe, but actually, it’s been ticking back up. And if you take the NASDAQ, for example, I just looked — I’d better timestamp this, just so we’re not completely wrong. So, it’s the 9th of April and the NASDAQ is down about 18% versus its peak. In a world where we’re potentially facing 30% unemployment, how do you reconcile those two statements?

Nicolas: I wrote a long piece about the stock market to try and explain why it was faring so well whilst many people think that the economy is going in the wrong direction. I think there’s a decoupling between stock market investors and most people. We’re way past the time when everyone was investing in stocks. That’s not true anymore. Most of the money that’s invested in the stock market is invested by large institutional investors and the main reason why it’s faring so well, even in the presence of such problems, is that those people simply don’t know where to invest their cash.

Ben: Yes.

Nicolas: They’re afraid of investing it in tech companies because they don’t understand innovation and entrepreneurship in an economy that’s driven by increasing returns to scale; they’re afraid of investing it in bonds because bonds bear no interest rate economy; they’re afraid of investing it in commodities and they’re afraid of investing it in emerging markets or any market that’s not the US because they prefer to invest at home. And so, what are you left with, when you want to invest in stocks in the US? Well, it’s a lot of investors chasing the same stocks. And what do you do? If you have too many investors willing to buy the same stocks, prices go up regardless of the fundamentals and the context. I think that’s what’s happening now.

[00:14:58.01] Ben: They have the quantitative easing taking place as well.

Nicolas: Yes, yes! It has brought so much money in the hands of so many large investors that they don’t really know what to do with all that money. And we should bear in mind, as well, that because the government and the central banks are pumping up so much money in the economy as of now, many people expect it to trigger inflation. And so, you don’t want to hold cash if inflation is coming around the corner; you would rather have that cash invested in stocks and count on an upside with stocks, as opposed to cash.

[00:15:41.15] Ben: But what is true of the stock market is not true of venture capital at the moment, right? We are seeing capital exiting from venture capital and it’s making it harder, particularly to invest in early-stage companies. So, what do you see is the short to medium term prognosis for venture capital?

Nicolas: In venture capital, at the moment, is very difficult to invest at the late-stage because at the late-stage, valuations are extremely dependent on the state of the economy — and now the economy’s in very bad shape, so you can’t really put a price on a late-stage startup. And so, that prevents late-stage investors from deploying capital and because late-stage investors don’t deploy capital, early-stage investors prefer to hold on their cash and keep it to further fund the startups they are already a shareholder of. And so, if you’re a new startup and you try to pitch an early-stage investor, they’ll probably respond, “Okay, but because no late-stage investor is investing at the moment, I won’t invest in your startup. I’ll keep my capital to deploy in my existing portfolio.” So, until the economy goes back on its feet in terms of predictability, we won’t probably see the engine starting again.

Nicolas: But, on the other hand, we’re already in a period where venture capital is diversifying in terms of how it deploys capital. More and more players are learning to design debt instruments to finance tech companies that are in fact part tech companies — part traditional companies. And so, what I expect is that it will probably put traditional venture capital to a halt, but then create room for designing hybrid instruments that mix venture capital with more traditional business financing.

[00:18:04.14] Ben: Do you think the government could take a bigger role in funding startups, at least in the interim period where funding has dried up?

Nicolas: The new generation of tech companies that were born right after the financial crisis 12 years ago, the two flagship companies of that generation are Uber and Airbnb. And so, there are a lot of discussions about what explains their success. Is it the macro context or the technological wave that was the iPhone and smartphones in general, or exceptional founders that were made grittier by the crisis? I don’t know. I think the three factors come into play, which would lead investors these days to look at companies that not only benefit from the macro context, but also surf a wave of technological change, and then are led by exceptional founders that are even more ambitious by the current context. What we’re seeing is radical change already happening, because of the lockdown, in education, healthcare, real estate, housing. I think people will reconsider their choices. I think fringe options when it comes to educating your children will become more mainstream — like homeschooling or part-time homeschooling.

[00:19:41.09] Ben: You don’t think people have been put-off homeschooling by having done it for a few weeks and trying to juggle it with everything else?

Nicolas: I think some people will be put off but others will realize that it provides them with more freedom.

[00:19:56.09] Ben: It is quite liberating to be unfettered from a curriculum. Like, one day, your children express an interest in something and you can spend the rest of the day researching that particular subject that’s much freer, more interesting for the kids than sticking to a rigid curriculum. But, it is thought to be very, very tiring for the

parents.

Nicolas: But what will be happening in those spaces? I don’t predict that every kid will be homeschooled soon or right after the crisis. What I predict is that the period that we’re going through, which will last for weeks or months or more, will provide an opportunity for parents to reconsider educating their children, will provide an opportunity for teachers to reflect on their own job, opportunities for entrepreneurs to make their case that they can provide a different approach to educating children. And then, when the crisis is over, most of those will go back to normal but some people will keep in mind what they’ve learned during this period and investments will have been made in new infrastructures, new products, and those investments will lead to higher productivity which will make it possible to lower the prices and to make the value propositions more attractive. So, we have a virtual circle that will lead everyone to reconsider, and the entire school system will reach a new stage, probably with more customization, flexibility, more of an online experience and so on. That will happen in education, obviously in health care — because the health care system will be profoundly transformed by the current crisis, with telemedicine becoming more of the norm, as opposed to being the exception — and also housing I think will be disrupted because people will reconsider where they live, and how they live and the kind of home or apartment they inhabit.

[00:22:18.05] Ben: You’re saying, almost like, what people were predicting about this post autonomous vehicle world is now going to crystallize because if we work from home, we might as well work in the most attractive surroundings we can because we don’t need to be very close to other people because there is a much less sense of office work.

Nicolas: Exactly! I’m sure many people are experiencing working from home, and realizing both that working from home makes them more productive, more creative, and realize that if they work from home most of the time or part of the time, they don’t need to live as close to the workplace as before. So, maybe that’s the unexpected event that will contribute to solving the housing crisis in large, dense cities.

[00:23:10.22] Ben: I don’t think we can have a podcast with you and not talk about the safety net. You’ve written extensively about creating a new safety net for the entrepreneurial age and your book was extremely prescient in spotting the need for this new safety net. And if the pandemic has done one thing it’s once again highlighted the absolute need for a safety net for digital workers because they’re so much more precarious. Are you more confident post-pandemic or during the pandemic that we’ll now take the steps to introduce the safety net?

Nicolas: I think there are several changes on the way — some countries, and we, as a society, will probably reconsider what it’s about to work in proximity services. Basically, those proximity workers are the only ones whose job hasn’t changed much because the nurses are still in hospitals, delivery workers still have a job. And also, for those who don’t work anymore, like in restaurants — restaurants are a powerful lobby, they have quite of a political clout. And so, I don’t know of a government that isn’t helping the restaurant industry as a whole because we expect them to reopen when the crisis is over, and so we don’t want all the companies to go down. But, in exchange for all that government money that will make it possible for restaurant owners to cope with the crisis, we’ll probably ask about how much are you paying your employees and what kind of safety net do they benefit from? Maybe we could make some progress on that form because those people were left on their own during the crisis. So, I think for the first time we’re reconsidering the safety net or the social contract for proximity workers. For the first time, some governments have been deploying mechanisms to help support self-employed people, self-employed workers, freelancers and platform workers and so on — which is a first — and then many, many startups will be lifted up by the crisis and will come up with innovative financial products or innovative approaches to managing benefits or innovative real estate products that will all contribute to revealing the new safety net.


[00:26:06.27] Ben: There’s no automatic reason why we should rebuild the safety net or create new institutions post-crisis. But that definitely could be one outcome, right? Because certainly, you see that many of the politicians right now have extra political capital and whenever we have this kind of shared experience, we start to have more empathy for various sections of society. So, it does seem like an opportunity to make some quite radical changes, post-crisis.

Laetitia: Yeah! It really does! Like, thinking about new collective bargaining institutions, if you think of the supermarket workers in France, they very rapidly obtained visibility and then there was this pressure on supermarket chains to pay them more and create new protections for them, so they built all those window panes to protect the cashiers from people’s droplets and then they decided they’d pay them 1000 euros more every month — which is not so bad. And once the crisis is over how can you go back to saying, “Okay, well, you’re actually worthless. Let’s just cut all this and go back to whatever it was before. I think that’s not going to be possible because they are united, they went through something so terrible that they think in terms of “We’re in this together — I mean the workers — and we’ll necessarily have more bargaining power and think collectively.”

Laetitia: So, it was this pressure. Carrefour in France, and Leclerc and Auchan — all those supermarket chains — one after the other, they added this special premium for workers so that they can get paid extra. This hasn’t happened in other countries, yet — or maybe in a few others that I don’t know of — but at least it’s a sign, that in terms of bargaining, something’s really happening.

Laetitia: And the second thing is that we’re understanding the rule of public services and how crucial they are and how completely helpless we are without those public services. If you think of the NHS, how, in normal times, it doesn’t have enough resources and how in spectacular times this lack of resources will cost so many thousands and thousands of lives, there is no politician in the UK tomorrow who will be able to attack the NHS — even Johnson, who is now at the mercy of the NHS, literally speaking. And so, the fact that in times of crisis we suddenly saw the possibility of boosting those public services and their critical role is something that will have a political legacy beyond the crisis.

[00:29:12.09] Ben: Do you think that plays out in the United States? Do you think there’ll be more pressure in the United States to create some form of public health care?

Laetitia: Well, the United States is such a mess! Such a mess! I’m not optimistic about the US. What I think will happen is a moment of reckoning with this epidemic. Everything, all their incentives are wrong, all their system is wrong. The fact that there is absolutely no safety net encourages people with no alternative to continue to work even after they’ve had the first symptoms of the disease, so the spread will be worse. And then, lots of people who cannot even go to a doctor — there will be more deaths than in any other developed nation. And then, the economic crisis will also be worse because there is nothing to cushion the impact of the crisis. And so, even with a $2 trillion package rescue plan, which seems like a lot, but if that rescue package is meant to compensate for the lack of anything pre-existing, it won’t be enough. It won’t be enough to cushion the country from something so deadly, that it will be a moment of reckoning. I’m very, very pessimistic about their ability to do anything before the worst happens.

[00:30:50.15] Ben: The way I see it is this juncture where the US could either turn left, metaphorically speaking, and kind of push towards creating a proper safety net to prop up the population at large, or it could double-down on individualism. And it’s not clear which way it will go. I think if they had potentially a different president, maybe we might be more confident.

Laetitia: Yeah. I’m unsure that anything massive or anything radical can be done in the current political context. Number one, the candidate, the official Democratic candidate now is Joe Biden — and Joe Biden is not a radical thinker. Number two, there are a lot of things that are completely deadlocked. There’s the Supreme Court that is durably conservative and that will strike down whatever ambitious proposal comes out of Congress — and that is if Congress is majoritarian in the hands of Democrats after the next election, which is absolutely not sure because the Senate is also likely to remain conservative. So, I don’t think anything can be done in the American political context today that will be radical enough or ambitious enough to make a difference.

[00:32:12.21] Ben: What were the political conditions at the time of the New Deal? Because this does feel like this could be analogous to the time that led up to the New Deal.

Laetitia: Yes. It’s interesting! This comparison is very interesting because Roosevelt had difficulties with the Supreme Court of his time.

Ben: He did, yeah! I remember that!

Laetitia: He did, and he came up with a plan that came to be known as the Court Packing Plan, and the idea was to nominate lots of new justices to the Supreme Court because there is nothing in the Constitution that says that you have to stick to nine — which it’s just tradition, it’s an unwritten rule or tradition. And he said, “Okay, they’re all old and conservative. Let’s appoint lots of new justices and pack the Court with friendly justices.” And that, of course, was very controversial and lots of Americans attacked Roosevelt for being so shockingly radical — and this Court Packing Plan probably wouldn’t have been accepted and wouldn’t have passed. But, luckily for Roosevelt, one of these old judges died and he could appoint a new one, and at some point, there was a turn and because they had felt so much pressure, some of the other judges sort of changed their minds and started being more flexible, and more liberal. And so, they eventually let the New Deal unfold, but it was a couple of years of very, very, very difficult institutional moment and a true battle between those two branches of power. And today that’s not going to happen because I don’t see how in a few years, the Supreme Court will change. It was designed by the conservatives to be made durably, durably conservative.

[00:34:22.07] Ben: So when the lockdown is finished, we won’t just go backwards to the way it was; one reason is because, first of all, millions of people aren’t literally going to be able to get back to work because they don’t have work. We’re going to have a much bigger appreciation for the proximity workers and appreciate how important they are in our day-to-day lives.

Laetitia: Including teachers!

[00:34:41.17] Ben: Including teachers! Oh, yes! Those of us that are homeschooling appreciate teachers. And a lot of those proximity workers will have more bargaining power and the same applies to many of the public services that we’ve maybe had underappreciated in the run-up to the crisis. What other ways do you think we won’t go back to normal and we’ll move to some kind of new normal?

Laetitia: Well, when it comes to remote work, and the digital transition of large organizations that suddenly overnight had to manage differently, choose different tools to work remotely, there’s no going back to before in terms of the flexibility of work, and the fact that you don’t need to prove to your manager that you’re perfectly able to do things without being watched constantly and without being physically present at the office. So, I think that’s something that will change. A lot more work will be done at home, and in co-working spaces — and that’s a small revolution in a way because when we think of workplaces, we usually don’t think of the home as a workplace, so I think that’s a big change. And the fact that we think of home as workplace has an impact of how we view housing and how we consider housing policies and housing inequalities; it has an impact for companies on how they think of the workspace in general and ergonomic solutions, and it has an impact on how you protect workers because a lot of the workers who work from home already and who’ve worked from home before were not necessarily considered in a lot of the institutions that were created for office workers or factory workers or field workers.

Laetitia: We talked a lot about American politics, but for example, Roosevelt’s 1935 Social Security Act did not include domestic workers, because these domestic workers were the descendants of slaves and for political reasons, it was safe not to include them so as to have the support of Southern Democrats who were racists. And that’s just one example of how domestic workers were never included in the institutions that were created to protect workers. And that’s something that’s going to change because these institutions include medical supervision, ergonomics, social protection, obviously, etc. And so, now, the home will fully enter the realm of the workspaces and it’ll have a number of consequences.

[00:37:43.08] Ben: If everybody can work from home or have more flexibility post-crisis, do you think this changes the relative attractiveness of being a full-time employee versus being a freelancer?

Laetitia: I’m certain that it does and it’s an interesting development that’s happened over the last few weeks. In the UK, as well as in France, for the first time ever, there’s been talk of creating new protections for the freelance workers who will lose all their gigs, and all their revenues because of the crisis. It’s millions of new freelancers who suddenly will find themselves without any revenue. It’s more than 5 million in the UK, and something like that in France — a little less, I think — and these are workers who could have been salaried workers under different circumstances. The French government in the Rescue Package that was created, created a new unemployment insurance — a crisis unemployment insurance — for freelance workers. That’s a first! And then, the British Chancellor did the same which is even more surprising in the British context that’s less protective of workers than the French tradition. The Chancellor announced that a new protection will be created for all freelancers, up to 2500 pounds a month on the basis of whatever you earned, on average, before that — and that will create a form of precedent.

Laetitia: What’s obvious is that there is a misalignment between workers and companies now, because companies faced with this unprecedented crisis realize they want most of their costs to be variable. They want fewer long-term salaried workers — for example in France where you can’t lay off people easily — they want fewer offices with fixed costs that can actually kill them and burn all the cash that they have left. Whereas workers, on the other hand, want as many protections as it’s possible, they will want to return to more traditional forms of employment that provide more protections, that come with a better bundle. They want unemployment benefits, they want health benefits, etc, etc. And because this misalignment is going to be a bigger problem than ever before, in the context of this crisis, new institutions in between will have to be created, so that the model will look more like Sweden — companies must be able to lay-off people whenever they need to, but people must be protected and helped to find other jobs in the future. And so, in between is a better safety net that makes it possible to have a better alignment of interests between companies and people.

[00:40:59.26] Ben: Do you think it’ll be necessarily the state that creates those new institutions? I suspect it might be a combination of both because if you think about the present context, people are firing their freelancers because they can, because they’re those that have the least protection, the shortest contracts. But, many of the best people are freelancers. Therefore, for anybody who’s willing to take a risk at this present time and be slightly contrarian, this is the time to go in and find those freelancers and create some sort of organization that arbitrages that risk between employers and freelancers.

Laetitia: That’s true! But it’s too many people right now. It’s a little bit like, you know, when you’re an insurance company, it’s fine to handle normal risks, but once you have a risk that’s as big as a natural disaster where you have either the entire country or an entire region that’s completely destroyed, that’s not something that one insurance company can handle. It’s too big. Only the state is big enough to handle a risk of that size. However, you’re right. In most cases, it’s a combination of the two that will be most effective. So, you’ll have lots of players handling smaller risks and the biggest of them all, the natural disaster, the huge crisis — that’s something for the state.

[00:42:34.15] Ben: So just to return to this, we’re in a situation where a small minority of people work from home in the crisis. Now, I don’t know what the statistics are, but probably it’s a small majority of people who are working from home.

Laetitia: It’s about half and half actually; or one third — one third — one third: roughly, one third of people are unemployed, one third of all people are working outside, in hospitals or in supermarkets or working in the supply chain, and one third work remotely. Depending on the country, the figures are different, but you get the idea. It’s roughly something like that.

[00:43:08.13] Ben: So we’ve got a situation where a small minority was working remotely, and now a third of the working population is working remotely. So, a massive increase from one day to the next. How do you think people are coping? What do you think are some of the unseen ramifications of that, in terms of gender inequalities, for example? And then, what are your tips? Because you’re somebody who’s been working remotely for a long period of time. And it’s difficult, right? For example, we find it’s difficult to know when to stop work, for example, in the evening because you could theoretically go on until bedtime and you can start as soon as you wake up. And so, how do you create new parameters for remote work?

Laetitia: Well, it’s an excellent question because the tips that are usually given to remote workers are not necessarily valid in today’s period when parents have their children at home, or they have other family members at home that makes it so much harder to find the focus or even just the physical space to do their work in normal conditions. So, these are very un-normal times for the tips for remote workers to figure out how to work. So, it’s more a crisis time and you do whatever works best for you; parents may need more flexibility because they will work early in the morning or late in the evening if they have young children or they will work in shifts. If there are two remote workers in the household, and the two of them need to work then the mornings will be for the mother and the afternoons will be for the second parent or vice-versa. They will have to find a system and unlike in normal times, it’s a system that works for the household. So, there is this merger, if you will, of the private sphere and the professional sphere in a way that we’ve never experienced before because in normal times you have other institutions, like daycare and schools and nannies and you have this organization where you fit your household with lots of other players and a lot more extra outside help.

Laetitia: So this is very, very different and I’m a bit irritated sometimes by the productivity pieces that we see today about remote work as if it was a normal time, as if it was business as usual. Also, we know that in terms of, as you said, you’ve mentioned gender inequalities and in some households it’s like going back to the 1950s because all the chores, all the workload that was more evenly distributed between a woman and the outside world — nanny, cleaning woman, whoever else came for help — is now reinternalized. And when you reinternalize it, it’s rarely evenly split. So, that’s a disaster for feminism — that was the title of an Atlantic piece that was very good; it was, “Coronavirus is a disaster for feminism.”

Laetitia: So that’s one thing. But another is that in normal times, no one would champion lockdown. No one would say, “It’s best when you work not to see anyone ever.” So we know that in terms of mental health, we are going to have to cope with extremely difficult moments and it’s not about being productive. It’s about surviving. So, I would say, the usual things that I write about managing scattered teams and how companies with no office, like GET Lab or Buffer or Basecamp have found solutions to help us do without an office — those things do not apply today because it’s so different from anything we’ve ever experienced before.

[00:47:30.26] Ben: But in a way, that’s another thing that won’t get back to normal, right? Because, I don’t know how much you saw this, but a lot of companies, when they first were forced to let people work from home, they tried to impose normal office hours, and then they figured that, as you said, people were managing multiple different priorities at home, and so, they had to be more flexible. So, that’s another way in which companies have had to seed more and more control.

Laetitia: Yes! And that’s a positive thing that may happen out of this — is that if they make flexibility the new default, and if there is actually more trust in their management, then it will benefit everyone, even in new normal times because parents still need flexibility and they still need to be able to handle the workload the way they see fit and incorporate all the constraints that they have. So, that’s something positive that could come out of this.

Laetitia: If you’re a pessimistic, you may see that a lot of the companies that are forced to work remotely overnight, are replicating the managerial culture that was theirs before and so they basically continue to watch their people and there’s this software to take pictures of your worker’s screen and verify what they’re doing. And then, you have lots of managers who want to be on Zoom all the time — and if you’re on Zoom all the time, when exactly are you supposed to do your work? Or how much flexibility do you have when you’re supposed to be in meetings all day on Zoom? And so, I think that there’s a big gap between the companies that have a more flexible managerial culture, more horizontal managerial culture, and those that are still very conservative and basically replicating online the culture, the managerial system that they had at the office.


[00:49:49.13] Ben: Ian, I wanted to ask you how business leaders should be responding to this crisis? Is this a time to be brave and contrarian or is this a time to make sure that you steward your company through a difficult time?

Ian: So, I’m afraid I’m going to give you a boring answer, and the boring answer — which I think is the right answer — is only if the evidence supports to be brave and contrarian. The trick with most difficult situations, whether you’re a kid in the playground faced with someone larger than you or a business leader trying to deal with the fact that 95% of your revenues have just died as is the case for friends of mine around the world today, is to try to look at things relatively unemotionally — it’s hard to be completely without emotion when people you know are dying — but to try and be relatively unemotional and work out what you can do. It’s clarity, its analysis, but it’s also the ability to make a decision relatively quickly. And in that sense, that’s brave. When you have to make a decision when the information isn’t clear because you have no choice because your business goes under if you don’t, that’s the bravery that’s necessary. It’s just making hard decisions when you have to, quickly. I think you don’t do one thing. I think the efforts to try and make sure that people don’t lose their jobs have been admirable in certain areas, but obviously impossible in an airline or a hotel industry where suddenly you have no customers at all.

Ian: Now, I say impossible. It’s not entirely impossible. Mark Greeven, a professor at IMD recently gave us a case study about the car company BYD in China, which overnight, within 24 hours, because they had to find something to do with their employees — they didn’t want to let everybody off — became the biggest producer of face masks in the world. This is a known case study now, but it’s only two months old. Then, there’s another company in China that I follow, that switched from being a 90% — 10% offline retailer with thousands of stores to online retailer — so they were 10% online and 90% offline — switched to 80/20 online/offline within 30 days and didn’t suffer either the employment losses or the revenue losses that people expected. So I think the bravery is in making tricky decisions in tricky times. Contrarian — only if the evidence supports. And try to look at things based on data, not based on just gut feel.

[00:52:26.25] Ben: And where do you see that there might be room to be contrarian? So, where do you see the opportunities that good leaders, prepared to make quick decisions, might capitalize on?

Ian: So that’s a very general question. It depends on the sector you’re in and the industry you’re in. So, at the moment, the problem isn’t so much decision-making because the decision-making is fairly clear. Right now, the issue is data. If you’re looking at markets, people are talking about the difference between a V-recovery, a U-recovery, an L-recovery, underlying that are estimates of when we go back to work, when customers start buying things again. I would suggest that one of the things that managers of retail businesses or managers of consumer business should be doing is trying to work out how much of consumer behavior changes over the next three to six months. Short-term shocks tend not to impact consumer behavior; consumers tend to go back to doing what they did before. Longer-term shocks, things that last longer, people get used to doing new things in new ways; maybe they don’t go back to doing things the way they did before. And trying to work out now, trying to pass that now and work out what people will do or won’t do, how much they will change, how much they won’t change — is a very interesting question. So, I think, at the moment, it’s more about trying to understand what data there is and what it’s telling us before we get decisions. Everybody, at the moment, is just trying to scramble — spend less money, find new customers, keep as many of the employees as you can because it’s hard to rebuild teams. It’s doing what they can in difficult environments. The tricky bit is what happens next, and when next is.

[00:54:05.26] Ben: Is China now a safe haven for investors?

Ian: China has never been a safe haven for investors. It’s always been tough. And this isn’t against foreigners or outsiders — it’s tough for everyone in China, local Chinese included. It’s probably the most competitive business environment in the world, and there’s a lot of money from lots of different sources aiming at the same projects. So, prices have gone up. It’s never been safe. Right now, in addition to that, we have a very clear anti-foreigner sentiment, partly exacerbated by the last couple of years, but it’s been there, frankly, pretty much since the arrival of Xi Jinping. So no, it’s not a great time for investors in China.

[00:54:44.06] Ben: Do you think more investors from outside China are looking for a safe haven for their money? Because China was first into the pandemic, is first out, and the economy is kind of getting back to normal. Is this a time for people to look at China with fresh eyes, from an investment point of view?

Ian: So, a lot of the conditions that make China a complicated place to invest in are still there. It’s still an environment where we aren’t terribly sure if they respect the requirements for reporting that we do in the West. We’re still not very sure about how much of actual activity is being reported in the books, what isn’t on the books, what’s slightly off-book, or what’s on a separate set of books. And even with public companies, this has been the subject of some debate amongst analysts. So I think those conditions have always been there. The second question, I guess, is whether or not China really is coming out of the cycle. I don’t believe that the COVID-19 cycle ends until there’s a vaccine. We’re already seeing second waves in different parts of Asia, in China as well. The Chinese government of course, is blaming us on people coming back to China — either foreigners or Chinese — but it seems likely that there’s been underreporting, so it seems likely there’ll be other waves. People forget that actually the whole question of this COVID-19 cycle, the only reason we’re getting flattening of the curves is because we’re all locked indoors wearing masks and staying away from each other. Any form of return to normalcy will involve greater human interaction, which will involve an increase in infection rates. So, I don’t think we’re out of China yet.

[00:56:25.02] Ben: In other words, there’s almost no safe haven until we have a vaccine.

Ian: So, two different things. One is, what’s safe for humans who want to live in a particular place? And the second is investment. I didn’t quite get to answer your question because I was creating my usual precursors, pre-conditions for answering. The answer is yes, I’ve been looking at companies like Tencent and Baba for investment, but that’s principally companies that are quoted overseas, so I’m reasonably sure about being able to trade, and it’s large companies where we have enough access to understanding what they do and how they do it — so it’s relatively easy to judge them or even then, I would suggest that we don’t really know anything about those companies. So yes, I started to look at investment in those areas. And if you look at how they’ve done, their shares, actually, haven’t come down in terms of public market shares — they actually haven’t come down as much as you might expect. If you look at the falls in some of the American stocks, the Chinese stocks, the top Chinese stocks simply haven’t fallen as much. So, again, your question, why the government isn’t above buying shares to support its own market and its own company? So, there is this element of lack of transparency in both private and public markets for investment in China. And so, it’s always going to be tough. So, therefore, the short answer to your question is no, it’s not safe.

[00:57:40.19] Ben: Do you think that China will suffer less, economically, than some other countries because it got on top of this quickly?

Ian: Because it depends to a degree upon foreign consumption, and because the manner in which it has dealt with the crisis affects people’s perceptions of China, that foreign consumption may change. It’s one of the questions we all have about what happens when we get out of this. What are people’s attitudes to China going to be? Because they tried to shift a lot of the consumption — their internal consumption — that makes them relatively speaking, less dependent upon foreigner views of Chinese production. So, that side of the economy should do better. Yes, they’re harsher on crackdowns, and there’s been some criticism of the fact that everybody has to carry this little app, which tracks them where they go and tracks who they meet, so the government knows whether they’ve done anything high-risk, which are elements which actually are starting to be talked about in the West but are generally presumed to be not acceptable to Western cultures. The harshness of the treatment of the areas that came under the virus notwithstanding, yes, I think China’s probably going to do a better job of managing the infections and therefore probably do okay coming out. But, as I said, we’re 18 months away minimum from a vaccine. That means nothing goes back to normal. It has to change. Economies and companies and ecosystems that want to keep transacting have to adjust the way they transact, which may not be a bad thing. A lot of people started talking about how this has become a big push for those companies not already online to try and do so. And so, that side it’s not a bad thing.

[00:59:19.13] Ben: So, I don’t know when the vaccine comes, but do you think in the period up to the vaccination or the availability of a vaccine, China is better able to manage in this unstable interim period?

Ian: So, I’d separate our period from China’s ability to manage. The Chinese companies are extraordinarily competitive and extraordinarily able and extraordinarily nimble. So, when it comes to adjusting business models or adjusting supply chains or adjusting customer interaction processes, there’s no business culture on the planet currently faster than the Chinese and better at adjusting. So, from that perspective, they’ll weather almost any shop better than most Western companies. This didn’t use to be the case. The Americans used to be the best of this, let’s say a generation ago, but the Chinese are definitely stronger at that now. So yes, I think they’ll probably do fine in many respects.

Ian: One of the reasons that I was excited by China in the North-East in the early 2000s, was the degree of innovation I saw in places like the Western provinces for telecommunications, because there was so little money out there, and yet the companies were trying to create an infrastructure and an ecosystem for transactions on the telephone. So, they had to produce systems that worked on very, very little. And innovation in early telecommunications technology at the time is part of what’s driven the success with Huawei and others recently. So, yeah, they will do well, they’ll do fine. The more interesting question is whether we, in the West, will trust what they produce and therefore, continue to purchase with the same alacrity as we have done in the past. That’s an open question.

[01:01:01.08] Ben: So just leaving that question for now, do you think that the pandemic will bring forward the moment at which China overtakes the US to become the largest economy in the world?

Ian: China was always going to become the largest economy in the world by dint of its sheer size. So, with 1.4 billion people, it was always going to pass a country that was 300 million people at some point. Does it speed it up? It depends on how you measure it, I guess. They’re growing, obviously, at a faster rate than anybody has — even slowing down to 6%, that’s double than anybody else’s speed by far. So, I’m not sure COVID-19 makes a material difference to that. The short-term slowdown of the West, yes, creates issues for certain sectors, but not everywhere. So I don’t think it’s material. I think China was always going to end up being the largest, relatively quickly, and I don’t think this materially changes. I would, again, add a corollary, which is, bigger isn’t necessarily best, bigger isn’t necessarily strongest. I remember, in the 1980s, people were afraid that Japan was going to be the biggest, strongest economy in the world, and it would dominate the global ecosystem. I remember books being written about the danger of Japanese dominance of the business environment at that time — and look what happened. So, let’s see how they do what they do, and I think that will, to a degree affect how everybody else receives them. But there’s no question they will be the biggest very soon, just in terms of size.

[01:02:31.06] Ben: And then, just to dive a bit into this notion of external perceptions of China, how do you think they are faring and how do you think they will change post-pandemic? Because, on the one hand, China was seen as getting on top of this very quickly, if you like, the consumer of last resort, they’ve been providing aid and PBU equipment all over the world to countries that couldn’t otherwise source them. So, that’s the positive part of the post-pandemic perception. But then, on the negative side, people see them as the source of this virus, they see them as having covered up the extent of the virus at least initially. So, where do you think we end up post-crisis in our views of China?

Ian: I think the largest problem, the largest challenge for China is its own insecurity about what other people say about them. The Chinese government representatives at almost every level are particularly thin-skinned when it comes to criticism and that tends to mean they overreact — and they overreact in ways that we might consider surprising for the biggest guy in the room. And until they, themselves, feel a sense of confidence about their place in the world and about how they can be received, I think they’ll continually misstep or misjudge important reactions, and we will, therefore, always find them slightly off-putting. So, I don’t think that’s necessarily changed, as implied in your question. We’ve seen that mix. They had the capacity to construct and build and react, they had the capacity to supply us with things we need, and although we have poor-quality goods coming out of China, we also have very high-quality goods coming out of China. It’s just a question of making sure you choose your supply correctly and manage quality control. So, you can get wonderful quality goods coming out of China.

Ian: As you said, though, we’re concerned about what we’ve been told, we’re concerned about how certain things were managed; we, in the West, have seen video reporting on Twitter, which people in China have not been able to see about what the lockdown was really like in Wuhan — and that certainly maintains our concern about the way the country is governed. So I don’t think anything’s changed from this. The same two sides — the capacity to do good and produce fabulous equipment, gear, products, and services remains, but the insecurity on the part of the governing group and their overreaction to criticism and their style of management of crisis, because it doesn’t necessarily fit with what we consider to be appropriate, will continue to encourage us to consider China with both those sets of lenses separately and empower.

[01:05:33.07] Ben: What do you think happens to US-China relations? Because they were already pretty tense in the run-up to the pandemic — they had an escalating trade war and a worsening narrative. How does the pandemic positively or negatively affect US-China relations?

Ian: Well, again, because China was the big kid entering the playground, it was always going to be some tension, right? The previous big kid, the United States, suddenly finds someone that’s twice his or her size and acting differently — not just a question of being larger, but their interaction in the playground has been different to everybody else. So, the cultural shocks are always going to create a problem. And of course, the fact that they’re bigger and the fact that they’re going to wield larger sticks means that everybody gets nervous. So this conflict was always going to happen, it isn’t just a question of the current leadership.

Ian: Having said that, leadership can make it better. On both sides, at least, when it comes to the US and China specifically, as opposed to the West and China, we have leaders who are happy to blame the other side for something, both arguably thin-skinned, both unhappy with a pint of criticism, and that doesn’t help. So, I think good leadership, leadership of the type we’ve sometimes seen in Europe, with Angela Merkel and others, I think would help others. So, let’s see what happens over the coming years. But the current situation has certainly not made it better. I’m not sure it’s made it a lot worse. I mean, even if we had a more able diplomat on either side, whether in the US or in Asia — it might have been better handled and things might be smoother, so I’m looking forward to that as leadership changes, but that isn’t going to happen immediately, and for the time being, it’s going to be awkward.

Ian: To counter that, of course, is the interdependency. The United States still manufactures a huge amount of sub-contracts or directly manufacture a huge amount in China, and even though China has done its very best to switch economic dependency onto local consumption, they still have a need for overseas customers. I think that independency is a basis for trying to create a relationship that works. It’s one of the reasons people tried to create Europe after the Second World War having an interdependent economy — it means you’re less likely to go to war with someone if you’re genuinely interdependent.

[01:07:58.10] Ben: Do you think some of those interdependencies will diminish? Because I think we all benefited from having these just-in-time supply chains, these geographically dispersed supply chains, because it meant that the cost of goods went down. But I think what we found is their supply chains are very fragile in the face of big shocks. So, do you think some of those interdependencies would just naturally be rolled back as we seek to make supply chains more resilient?

Ian: And again, the answer is in the question. You ask very good questions which provide their own answers.

Ben: Then they’re not good questions.

Ian: People are certainly beginning to realize the risks of relying upon others in difficult times and the risk of trying to get access to something when you need it in a hurry when a normal supply chain takes three weeks, and you need it in two days. So those sorts of things, those concerns are coming to the fore at a time like this. But the answer isn’t to decouple completely and roll globalization backwards as some people would prefer. The solution is to build redundancy into the supply chains. So, you need to make sure that you have more than one route to get anything that’s important. By all means, for economic reasons, we’ll still try to go to the low cost, high volume, reasonable quality producer, but we’ve got to assume on anything that’s important that we have an alternative in the event that either we have an argument with the supplier or there’s a need for a timeframe which is shorter, which means we could accept a higher cost — there have to be redundant sources for the supply chain.

Ian: Western Europe is currently slowly trying to do this with natural gas, to reduce their dependency on Russia. It’s an issue in a lot of things around the world. But yes, COVID-19, particularly on medical supplies, has made it a more acute, obvious challenge for specifically medical issues. But, remember, these trends have been happening for a while — partly that things like Trump’s bring-industry-back-home stuff, but also, in Europe, as people have realized the challenges of trying to maintain quality control in Eastern Europe, not just China. So, there has been a slight trend to think about whether we want to produce everything halfway around the planet and what happens when we can’t get it when we need it.

[01:10:11.26] Ben: So you’re involved with lots of different companies as board member, advisor, investor. What are you telling the companies that you’re speaking to every day? How do you think they should best plan and adjust for this crisis?

Ian: It depends on where. I tend to be involved in media and/or consumer tech and/or, to a lesser degree, arts and creative industries companies. So, for most of those companies, the big thing that’s happening right now is pushing to get digital faster, especially if they were traditional media companies — it’s very, very hard to get newspaper and magazine and book companies to do more online. When you have no bookstores or your distribution methods are constrained and people are stuck in their homes, then online is the only place to find them. So, that’s been a really quite interesting portion. So, resistant management teams are finally saying, “Okay, we have time to do this because our other methods of reaching out customers simply aren’t working. So, that’s a big plus, I think there’s going to be a real push in some areas to do more stuff online, and therefore, to understand how it is one attracts people online and keeps people online. It isn’t the same thing when you walk down a street. Once you’ve walked into the store, you tend to spend 10 minutes there because it’s hard to visit 20 stores in a day. Online, you’re a click away from changing so people are realizing that we just simply don’t have 10 minutes to grab someone’s attention. We’ve got seconds. And that changes the way people think.

Nicolas: This crisis is THE crisis that will accelerate the transition to a more mature entrepreneurial economy or digital economy or whatever you want to call it. That’s what crises do. There’s something that’s already happening, a trend that’s headed into a certain direction, but it goes at a slow pace until a crisis happens and the crisis accelerates the pace, it fastens the pace and we’re still going in the same direction, which is a more digital economy. Some countries are seizing it as an opportunity, other countries are missing the mark, and are sliding down in terms of economic development. Like everyone interested in long-term change, I’m thrilled by the acceleration that the crisis provides. I’m terrified by the consequences of the short-term and all the people suffering and dying, but I think it creates an opportunity for every nation to accelerate the transition to a new paradigm.

Jumping S-Curves and Inventing the Future (#16)

Structural Shifts with Bill FISCHER, professor of Innovation Management at IMD Business School and Ian Charles STEWART, co-founder of WIRED.

How reliable will strategy be in the future? What if tactics were more important than strategy? Are firms obsolete? What about nation states? Can the future of companies be a model for the future of countries? How is the nature of competitive advantage changing? How are we redefining quality to meet the needs of consumers and the marketplace? In this episode, Ben Robinson is in conversation with Bill Fischer and Ian Stewart from the International Institute for Management Development — IMD. Bill is Professor of Innovation Management and Ian — who you may remember from a previous episode of this podcast — he co-founded WiReD and he is Executive in Residence at IMD. 

Innovation should describe the characteristics of the way we work. It should be about how we do things, rather than what we’ve done at any particular time, or who’s doing it. — Bill Fischer

 

[00:01:51.29] Ben: We are at IMD to interview Bill Fischer, and Ian Stewart is here to make sure I get the very best out of this podcast. So, it’s going to be a joint interview and more of a conversation than anything. Starting with teams — is team a noun or is a verb?

Bill: It’s a verb. Without a doubt! Incidentally, thank you for coming over here and thank you for inviting us to be part of this. This is great fun!

Ben: I always forget to say that. So yeah, thank you for coming on the podcast!

Bill: So, I think, when we talk about innovation, the idea is, no matter what part of innovation we’re talking about, to make it a verb, not a noun. A noun describes somebody else doing it, some of the other departments, and I think that it’s too important as a quality of life — organizational life, individual life — to be pigeonholed in somebody’s group. So, I think it’s a verb. Amy Edmondson at the Harvard Business School talks about teaming rather than teams, and I think that’s a good way to begin.

Ben: And the reason you think it’s a verb, rather than a noun, is because it can never be passive — the formation of a team, the building of the team, the management of the team.

Bill: No, I think that innovation should describe the characteristics of the way we work. It should be about how we do things, rather than what we’ve done at any particular time, or who’s doing it. I think we want everybody, ideally, to think of themselves as potentially involved in the innovation process, so it shouldn’t belong to any department or group or section or what have you. I think we ought to characterize a way of working that involves curiosity, autonomy and the ability to experiment.

[00:03:45.15] Ben: I imagine Ian had the same experience that I have. You know, sometimes you have teams that just gel and they perform amazingly well; other times, you think you put together a similar composition of skills and it just doesn’t gel. So, what is the key to team performance and the composition of team, in your experience?

Bill: So, I think teams are too casually regarded. My sense is that teams should be fit for purpose. And if you think about industry development — I know we’ll talk about industry and arenas later — if you think about industry development as an S curve, then in the middle of the S curve where you know what you’re doing, and you know how to do it, then I think teams ought to be run in one way — probably harmonious and people get together and they gel quickly and they know each other. But, when you’re trying to jump from one S curve to another, when you’re trying to invent the future, then I think teams have to be very different. And I often think that contentious teams, teams that are staffed with people who know a lot of stuff and who disagree with one another, it’s probably the better way to go.

Ben: Yeah. And you take aim at what you call “polite teams.”

Bill: Right. Polite teams get polite results. Yeah.

Ben: Yeah! It’s almost like the antithesis of polite teams — teams that are combative.

Bill: Yes, but not destructive. I mean, I think they have to be led differently. I often think of teams in the middle of an S curve being led by an orchestra conductor who stands there and everybody knows what they’re doing and his or her job is to keep the movement going in the right direction and the right speed. But crossing the S curve is more like a boxing referee: allowing contentious discussion — because I want to get every brain cell I can possibly get — allowing contentious challenge to take place without being corrosive or destructive.

[00:05:55.16] Ben: You cite the research that shows there’s an inverse correlation between the size of teams and their performance, which I think, intuitively, feels great. And also, it’s unbelievable how much research went into that report that you cited. But that, then, poses the question of, if you’re going to run a large organization, how do you avoid having large teams and thinking in terms of large teams?

Bill: Yeah, so, just to be clear, the research you were talking about was a piece of work done by three fellows from Northwestern University last year — it appeared in Nature, I think, or Science.

Ben: Nature I think.

Bill: And it’s an amazing piece of research! Wonderful data, large data sets — a really spectacular piece of work. But it’s about invention, not about innovation, and I think that’s important to clarify; it’s at the very front end of the change process. For me, the thing that was so interesting in their results was that at some team size over five, every person you bring in reduces monotonically the level of novelty and the expected outcome. That’s extraordinary! I mean, the more people, the more conservative we become. In fact, they have some interesting data that argues that it’s a functional way that larger teams work, and also, the expectations that larger teams are going to deliver different results, and so people are responding to the audience as well. What clearly comes out of that is that if you have your preference, if you’re able to do it, smaller teams are better than larger teams, and they have more autonomy as well. So, I think that rule #1 about thinking about teaming is, how small can I do this, and can it be, and how autonomous can we fashion this?

Ian: Interestingly, I found the same thing on boards, with the same parallel thoughts. The less change an organization is going through — whether it’s for-profit or non-profit — the more it can afford large boards, the more it’s involved in something which requires substantial change. I’m on the board of an NGO at the moment, which is seeing its funding sources around the world radically change as governments fund less, and private sector sources, foundations, family offices are funding more in this particular area, and they have zero experience in this space. So, trying to understand how to change the fundraising process, changing actually the management team to enable them to do it has been a struggle, and what I often find on these things is that the first thing that a good chairman does is break things down to smaller groups so that there’s only three to five people handling it. So, there was a small group of us that went out to hire the new CEO, there was another small group that had to restructure how funding works. It’s a very interesting process. I think it’s exactly the same on boards as it is in innovation teams within companies.

Bill: I’ve come away over the last couple of years thinking that end-to-end responsibility, smallness, and autonomy are really critically important characteristics for teaming. Contextually, when you want to do something big, if we want to run the day-to-day operations of an activity in a mature industry, then those rules may not apply at all.

[00:09:34.29] Ben: Yeah. So, we’re going to come back to talk about whether the structure of a firm is still as relevant as it was because the very notion of a firm is building these high-transaction costs. So, we’ll come back to that. But, if the future, if optimal performance is achieved through very small teams, does that mean that organizations just become a composite of lots and lots of small teams, then? And how easy is that to actually orchestrate?

Bill: So, I have a long-term relationship with Haier — the Chinese appliance company — and that’s the direction they’re going in. They’re going in that direction because their industry is on the verge of a major upheaval around hyper-connectivity in the kitchen, and they’ve never done this before. They’ve never produced content. They used to talk to their customer typically once every 15 years; now it’s five or 10 times a day. So, they need to be really different, and what they understand, I think, is that there’s so much opportunity to do different things, but they’ve never done this before. So, what they’re doing is they are subdividing into small groups that are autonomous, that are self-investing as well, which reduces the risk to the organization as a whole, and they’re allowing people to take chances. And I think the belief is, “We’re going to be in the right place at the right time not because we’re smarter, but because we’re taking more chances — and most of the chances aren’t going to turn out well, but a couple will, and then we’ll be uniquely positioned to move forward.”

[00:11:25.17] Ben: So, I just want to drop anchor on Haier, because I’ve been to Drucker Forum and you’ve brought them there in the past, and it’s a fascinating case study, but I think there’s several things I’m interested about, one of which is, how replicable is that in other examples of companies that are doing the same thing? But the first thing is, how do they manage consistency with that level of autonomy? Because we’re talking about home appliances, so these are not things that you would want to be breaking every day. How do they manage that?

Bill: These small teams are located on platforms that are overseen by people who are more internally focused than externally focused — so the small teams are completely externally focused. But then, that behavior in activity is mediated by the role of the platform, which is sort of a bridge between the external and the internal world and does the translation. So, that, to me is the way they go about consistency. And, on that platform, they have a number of stakeholders involved, so you’re all using the same connectivity systems, so that you’re not doing one thing. One of the interesting things about this is that all of a sudden, logistics becomes a much more important player in the conversations than they did in the past, and that is because you’re no longer buying separate pieces of home appliances, but you’re applying a suite of home appliances to talk to one another. You’re spending a lot more money, and when you walk in that kitchen as a customer, you want to push the button and everything works, which means it has got to be all delivered on time as well. So I mean, you’re seeing very different internal players participating, as well as somewhat bizarre external players.

Ian: In answering the first part of your question, Ben, I think depends on the size of the organization and the dynamism of the environment in which it works. If there’s a great deal of change going on, or a great deal of change necessary and/or there’s a level of disruption because of changes in the way either the context of the business is formed or the competitors in the environment, I think that level of change requires structures and systems that allow for it. If you’re dealing with something that is relatively static — and that’s less and less true these days; all of the indications are that the lifecycle of companies is dropping — but if you’re dealing in a sector which is relatively static, then you can afford to build a deep process, which fine-tunes, which eliminates, which molds down to a point where it’s as efficient as it can be to run one set of processes. Now, something like that — and I’m thinking of large Japanese companies, for example — doesn’t react to change terribly well, isn’t able to adjust, isn’t able to innovate. But, if you’re in an industry that doesn’t have that level of disruption yet, because they probably all will at some point, then I think it’s okay to have an order type of structure. But I think it’s very clear that the trends on company lifecycles, and industry lifecycles, and the level of change that’s taking place through the application of technology in all sorts of different levels in different companies, in all parts of the value chain, suggests that some level of management, of innovation plus reliance on core processes I think, is inevitable.

[00:14:43.13] Ben: Yeah, a tension between the exploitation tap and the exploration tap, which is, as you said, depending on where you are on the S curve, which one is taking precedence. Just going back to Haier, you talked about the rising importance of logistics and the platform that underpins it. I suppose another case study is Amazon, right? We have this idea of API first, so even the internal teams interface with other internal teams through APIs, which actually makes it possible then for those internal units to be exposed to external parties — a bit like AWS was. Is that how Haier is built? Which is, you can quickly change the interface from internal to external, the same way as if you wanted to plug out a Haier appliance, you could plug in another appliance because they have to be built on a platform that allows interoperability.

Bill: I think, actually, what happens is by creating autonomous work units to the extent that they are at least responsible for their own functions, everyone has a line of sight to the customer and as a result, they take what’s going on in the marketplace much more seriously than they might have — buried under levels of bureaucracy and really don’t see the customer at all.

[00:16:09.11] Ben: I think I’ve been to the Drucker Forum twice, maybe three times, and each year, you bring Haier back to speak. They’re great! It’s a phenomenal story, and it’s so innovative in its business model. But, the fact that you bring them back and you don’t bring other examples back is that because there aren’t that many examples, still? They’re still trailblazing?

Bill: There are a fair number of organizations that are experimenting with change, but I have not yet seen any organization that’s gone as far as Haier, for as long a period of time — this is about a 35-year continuous story, with 70,000 people. And yet, there are plenty of organizations that are really experimenting in different ways with autonomy, but not on that scale, not for that long, and I think not that comprehensively.

Ian: It’d be interesting to take a closer look at Alphabet and Amazon — they’ve not been going at it for anywhere near as long. That’s the impressive thing with Hire — the longevity of the process is really quite something. But clearly, Alphabet and Amazon, in their own ways, have approached the same problem in parallel ways, trying to work out how to be continually innovative, whilst maintaining the core business and trying to build a set of internal processes that keep it feeling and acting and operating as a single entity, a single corporation whilst creating these new services and businesses. I mean, it’s a fun area! It’s a really, really fun area! My favorite bit of business at the moment is this frontier between trying to run something and trying to build something because they’re not always the same thing.

Bill: And the boundaries between these organizations blur because, where’s your focus and where’s your allegiance and where’s the center of activity occurring? And that’s interesting. The other thing that I have always been fascinated by, at Haier, and it’s probably because I had gotten to know the chairman Zhang Ruimin so well, but he talks a lot about giving up control — not amassing control, but giving up control — because that’s the only way the organization can move responsibly fast enough; that’s interesting, to watch an organization trust its people to get on with their job.

[00:18:35.04] Ben: In terms of lessons learned, one of the fascinating things is, home appliances, this is quite a capital intensive business, and so, I can get how you can devolve down autonomy for decision-making because you want the individual units to be quite responsive to changing customer demands, but how do you devolve down capital allocation on that scale?

Bill: That’s a big problem! And it means, probably — and I’m watching some organizations try to deal with that — it means that the sizes of these organizations are arguably going to be much larger than the small groups that are interacting on the frontier of client-facing type. But it doesn’t mean you can’t do it, it doesn’t mean that a group of people can’t run a large-asset, intensive operation within a manufacturing framework or run the manufacturing framework itself. I mean, that can be done — it’s a different size, and it’s a different degree of involvement engagement.

Ian: I think it’s also a different approach to risk. If one’s trying to allocate capital in areas that are less well-known by the existing management team… I mean, I spend my time these days often going backwards and forwards between French organizations and American organizations or whether they’re Canadian or US, and there’s a very different approach to a decision about whether to invest in either a process or a new technology. The French companies — and forgive me for French listeners, if I’m generalizing to a point that is offensive — French companies tend to go more into the reports, and details, and they want to be absolutely certain if they possibly can before they make the decision. The American companies want to be sure or more or less triangulate that this is the direction, and then they’ll throw money and people at it and see what happens. And I think that that different approach, the ability to take on investments with higher risk and less certainty, I think is fundamental to very large organizations being able to allocate capital to their internal operation. So, I’ve spent time, obviously, as an investor, as a venture capitalist, and I think that some of those attitudes, some of those approaches to being comfortable with risk and trying to judge what are the levels of risk you’re willing to accept — is it more the team? Is it more the tech? Is it more the goal? Are the processes involved appropriate, given whatever the context is for what they’re trying to do? And then deciding, “Okay, $150 million goes on this” based on less information than some companies might be willing to accept. I think that’s essential for this type of change at this type of scale in large organizations trying to stay relevant.

[00:21:13.06] Ben: So is that what will determine the winners in the future? Which is, if we think about the changing nature of competitive advantage, is that ability to deploy capital better and faster or will they be disrupted by companies that are more modular and more networked?

Bill: So here we get into the difference between industries and arenas.

Ben: Yes.

Bill: As a preface, I would say, if you reflect on the way we think about strategic thinking, it’s based on industry analysis — Michael Porter’s five forces, and things like that. Industries are asset-defined. So, all automobile companies pretty much look alike and all banks pretty much look alike and they all have the same assets and the same talent, but there’s a couple of things going on now, I think, that are really changing that. One is that we’re no longer as interested in the asset-defined rivalries as we are in the outcomes, the customer experience. So, for 100 years, when we think about strategy, we’ve been thinking about the inputs. And now, we’re thinking more about the outputs. I think that’s a function of a business model innovation, and the ability of a whole generation of entrepreneurs who have decided that they don’t have to have those assets, they don’t have to have those engineers; they can go out and play in the customer experience game and access the assets and talent that they need some other way. And they’ll differentiate themselves on something within the business model that everybody’s been aware of, for a long time, but nobody else has taken on. And so, I think that the nature of the way we categorize firms is changing.

[00:23:08.29] Ben: And so, is the right way to categorize firms as aggregators, and platforms, and long-tail, then? Is that the way to think about it? So they’re either aggregating the work of other companies and their consumer-facing, or they’re sharing network effects across their platform where they’re not necessarily customer-facing, but they are sharing between all the different tenants of the platform, or are they the long-tail suppliers to the platform?

Bill: So, we start outside-in rather than inside-out, and we start with the customer experience, and then, we think about all of the different ways that we can affect that customer experience or change the customer experience. At the present time — and I don’t know if this is because it’s in the middle or at the beginning of this transition or it’ll always be this way — there are still some assets-specific providers who do everything and well-known brands who are participating in the arenas — as Rita McGrath calls it — that characterize the creation of customer experience, but there are also some aggregators and some modular assemblers. I guess those would be aggregators who are doing the same thing with a completely different balance sheet in terms of the way in which they go to market. While I’m saying this, I’m thinking that we’ve seen modularization around for a long time. It’s not new. The missing piece, I think, has been the business model, which has really tied it together. So, Alex Osterwalder who lives just a short distance from here, really deserves a lot of credit for reminding us, calling our attention on the fact that the business model is really an important way to think about innovation, and we lost sight of that somewhere along the line, I think.

Ben: Yeah, I think the business model is the most important thing to get right. We’ll come in a second to the discussion of strategy versus innovation, but I think business model trumps both because if you get the business model right, then it allows you to innovate at scale and it allows you to execute the strategy. So, I would argue, the business model is now more important than ever has been.

Ian: I think it also depends on where you are in the value chain for an industry — or an arena, for that matter — and where your skills and competitive advantage lie. Even in the car industry, where you have a whole bunch of people facing the customer on the B2C side, with variations on a number of different themes — with SUVs dominating these days — at the back end, you’ve still got a very limited number of suppliers of, for example, gearboxes, where a few companies really dominate. They do one thing really, really well, then they customize it to the different customers, but, essentially, there are very few companies supplying to a great many B2C-facing car companies and car brands. So, I think it depends a little bit on where you are and where you sit in the system.

Ian: I wanted to address another question you asked very early on about whether Haier and its development of platforms facilitates interoperability. I think there’s a big difference between the platforms that a company creates for itself, for its own innovation, and for its range of products and services. Bill mentioned if you start to buy from a company which has its own system — and of course, we know Apple in the space, not with washing machines, but yes, with consumer objects — it becomes very hard to leave after a while because the system works very well in amongst the different objects and tools and machines that they sell. The same will be true, I’m sure, at Haier, but I’m sure, as with Apple — I’d love to hear from Bill about this — Haier probably doesn’t make great efforts to ensure that their systems interoperate with other competitors in the Chinese marketplace, because that’s a source of competitive advantage. So we see certain benefits of network effect within ecosystems that we control. We don’t necessarily want other people’s devices to be able to interoperate because then we lose our control of the customer. So I think it’s interesting to see what’s happening, and I think there are efforts to create standards to allow IoT systems to interoperate — it’ll be very interesting from a competitive landscape point of view to see how that goes.

Bill: Yeah, I agree. I was trying to think about how that would work, and my sense is that, certainly, Haier does have its own system of connectivity and within the domestic Chinese market, that’s the one that is in use and I think has been probably the market leader. Outside of the Chinese system, the reality is that you have other organizations like Amazon, Google, and Apple who have a head start with their systems — particularly Amazon Echo and the like, because they’ve been around for a longer time. So, I think it would behoove Haier moving into the domestic North American market to make sure that their equipment works with the standards — how many of these devices do I want to talk to so that they’re a system? What I don’t know, and an interesting question is, would they have a special microenterprise that would take responsibility for that system, or would the existing microenterprise adapt to fit both systems? I don’t know how that works and I don’t know who would make that choice. I think the way the choice will be made is who moves the fastest within Haier?

[00:29:04.20] Ben: I’m really pleased that you raised this, so I think it’s worth delving into this a bit more. Isn’t that notion of switching costs — which is really what you’re talking about, which is, you make things proprietary so that it’s difficult for your suppliers, your customers to switch up — isn’t that a very Industrial Age concept that will gradually disappear? Because the nature of competitive advantage is changing. I mean, you’ve said everything has to be customer-first, ecosystem first, such that the most successful companies will be those that generate the highest level of network effects and those that externalize those network effects with their ecosystem, such that the idea of introducing heavy switching costs is almost the antithesis of how you increasingly create and sustain competitive advantage?

Bill: If I can just make a quick observation: I used to do a lot of work in the telecom industry, and I remember how major telecom companies would be afraid to become the dumb pipe. Nobody wanted to be the dumb pipe. I now hear automobile companies say that because in autonomous drive vehicles, if the audio connectivity is done through an existing system like Amazon or like Google or whoever, then who actually owns the customer? And if I have an Amazon Echo on in my home, and I then go out into my garage, do I really want to change systems? And how interoperable do I want to be? So, it’s not in Amazon’s interest to make it easier for anybody.

[00:30:46.05] Ben: But, in a way, isn’t that Canute-like to resist that? Because, almost necessarily, we’ll prefer some channels to other channels, and we won’t want to have different proprietary channels for our car, for our bank, so we’ll probably necessarily move to horizontal channels. Isn’t the trick to make yourself desirable even if you don’t interface directly to the customer — i.e. to be the car that people choose even though they might interface through Echo, the bank that people might choose even though they might interface through WhatsApp?

Ian: I think that’s the crux of a competitive question. If you think that there is going to be the potential for a horizontal network effect, integrated system across multiple brands, then you target that. But, if you think you’re going to add enough value — remember, it’s not about optimum value, it’s about enough value — to your customers to keep them loyal and keep them within your system as much as possible, then the rent you can charge for that, the amount of margin you can generate from that is going to be enough to sustain you for a great many years, even if ultimately you think you’re going to get knocked out, as you say, “Canute against the waves.” I’m not sure. I think this is a classic problem that every company in every industry faces at some point, open or shut, and I don’t think it’s a given that everything’s going to be open. I really don’t.

Bill: So, it’s an interesting exercise of legacy thinking: what’s legacy thinking and what isn’t? And it also calls into question the enduring power of brands. Is there enduring power of brands, or will brands fade, in what Charles Fine would call “fast clock speed industries” where there’s a lot of turnover? Brands that have prospered in slow-change industries would they also prosper in fast? Can you make them do that? And if you can’t, then how fast you move to get out of that constraint? I think those are really interesting questions. So, the way I see platforms working is, if I’m doing a proprietary system that allows my products to be connected, whether they’re home appliances or not, do I encourage another internal microenterprise to try to do ones with a broader set of connectivity — maybe common standards, among others — and see how the market reacts?

[00:33:24.04] Ben: But I think what’s interesting about Haier, is they’ve built an organizational business model, let’s call it that, that allows for very fast innovation. So, arguably, that’s a business model where they can keep up with changing customer expectations. But most companies can’t; I guess they need to insource innovation from other people. And so, I don’t know if Haier can innovate fast enough, particularly as it expands into a larger arena. But, isn’t that the question: How your need for the work of others depends on how fast your own market moves? And, to talk about something else that you mentioned, you think this is sort of the New Age of Edison. Are there slow-moving industries anymore? I mean, you could argue that electricity was a slow-moving industry, but that’s undergoing massive change, right? So, what is a slow moving-industry and can anybody afford not to adopt an ecosystem model?

Bill: So, I think there are industries that wish they were slow. But my sense is, if you say there are no slow-moving industries anymore — which I don’t think we’re there yet, but I think we’re in the not-too-distant future — and we’re moving into unknown areas of rivalry where we have broad arenas with many different types of approaches, I think that strategy no longer becomes reliable, dependable.

Ben: Not enough time!

Bill: And that strategy becomes the ex-post rationalization of successful or unsuccessful tactics.

Ian: As it sometimes already is.

Ben: Every successful entrepreneur post rationalizes the story of the firm and the fact that everything was pre-planned and not down to luck.

Ian: And every country writes its own history. You’d only have to compare the English, the British, and the Chinese histories of certain parts of Southeast Asia to see.

Bill: What if we managed as if tactics were more important than strategy? I think that, in a sense, we’re doing that.

Ian: I agree.

Bill: I think Haier certainly uses it. And I think that changes the way in which we approach things. To go back to teaming, if we take a look at the last hundred years of industrial history, most organizations, and most generations of managers have remained on the same S curve. And now, all of a sudden, we have this acceleration of change. For me, the most important piece of that is that the ruptures between S curves become a larger part of my managerial career — and in those ruptures, I have to act differently. So, if I move quickly from a world where strategy was worthwhile because I had a long expectation of harvesting that strategy, to a point where I have to continually move from one S curve to another, I think I need to act differently. And every one of those S curves is the unknown, it’s no longer the uncertain, right? Strategy is the province of the uncertain. We sort of know the way the game is played, we know who our customers are, we know who our rivals are, we know how to do this. But if I’m going into the unknown, if I’m going to brand new industries and brand new customer experiences, then all that decision-making becomes unreliable.

Ben: Yeah.

Ian: There’s not much point in having a three-year or five-year strategy plan if you have to adjust it every 18 or 12 months.

Bill: Right!

Ben: Or three months.

Bill: Yeah. I had dinner a couple of years ago with Tim Brown from IDEO, and he said one of the things that is changing in his business — which is the design business — is that they’re losing the middle of projects. So, they have beginnings and ends but there’s less and less time in the middle to do things because of customer pressure and time to market. That changes the way in which you do everything about a project.

[00:37:32.10] Ben: So, taking that same idea of losing the middle, is that now what’s happening to strategy, which is bifurcating between, on the one hand, setting the company vision and mission and trying to manage the company culture, to put in place the right business model — which is just stuff that doesn’t change very often — versus the polar opposite, which is, the rest of the strategy is introducing as few constraints as possible and allowing the company to be as innovative as possible?

Bill: Oh, yes! So, my view is that change is continuous and accelerating, but in corporate life, organizational life, is episodic and remains episodic — so they’re always going to be out of sync. The problem is, how do we speed up the nature of organizational life, so that it’s more in tune with the change in the outside world? And this is not unique. Another lesson from Haier is we have to resist linearity and sequentiality in the way in which we work.

Ian: This is a parenthesis, which takes us out to a different field, but I would argue the same is true for country governance as it is for corporate governance. I think a country like China, that still does five-year plans, struggles when things change very, very quickly in large ways.

[00:38:57.19] Ben: How repeatable a process can innovation be? I mean, you wrote a book called “Idea Hunter”.

Bill: It’s a great book!

Ben: It’s a great book and it cannot be simplified in a simple line, but this idea that there is a formula for continually coming up with good ideas, which by extension means that the same company or the same individual could continue to be innovative.

[00:39:46.25] Bill: Right! Design Thinking, Lean startup — things of this nature — are procedural, and I think what they are is procedural in a way that reduces the linearity in the innovation process. So, the old innovation funnel, right? The old innovation funnel was completely inside out — it was all about our numbers rather than the customer experience. It was completely inside out, was completely linear in the way in which the stage-gating processes worked. And, for me, the biggest cost was that learning took place at the end. And what I think we’re doing with Lean Startup and Design Thinking, and the variants thereof, is we’re trying to move to a slightly less linear process where we do more testing along the way, pretotyping, prototyping, and so, the learning is moved forward. We don’t have to wait until the end of the experiment. So, my sense is that, in the face of increased unknowns — which is the shorter S curves, more ruptures between — we are moving to a more experimental model of decision-making, and that experimental model involves much more testing, faster testing, and quicker learning — and then, the application of that, as we go along, but it’s still a process.

[00:41:08.00] Ben: Recently, we interviewed Marc Gruber, for the podcast, and his argument is that the toolset that you’re referring to — Design Thinking, Lean startup — is missing one tool, which is the where-to-play framework. Do you also agree that it’s really important, ex-ante, to decide where you’re going to play?

Bill: So I think prototyping is, can we do pretotyping? Does anyone care if we do it?

Ben: What’s that term?

Bill: Pretotype. It’s the minimal viable representation of the idea tested in a marketplace. So, it’s an attempt to try to see if anyone cares about this and, in a sense, that’s some insights into whether or not there’s a market for this, whether we should be playing in this space. And the beauty of pretotyping or prototyping is that it gives you better feedback because you’re talking about something tangible, rather than something abstract. So, my sense is that all of these things, moving from abstraction to tangibility — quick testing and all that — are attempts to reduce the impact of legacy, linearity, and sequentiality.

Ian: I have this worry sometimes, as we lose the middle, as we’re constantly working on customer value innovation, and we’re constantly trying to catch up with production to meet those new expectations of our customers, whether that lack of middle and lack of longevity of process reduces quality and reduces the longevity of the product and the service.

[00:42:55.20] Ben: There is a clear trend in place where customers don’t want mass-produced products; they want things that are more locally-sourced, higher quality. Almost like the end of the end-consumer brings with it the end of the mass-produced customers.

Bill: I don’t see any reason inherent in that process where quality should be reduced. It’s not as if we’re doing it in a half-baked fashion. We’re still trying to build the right quality but the interesting thing that comes out of this is that, what if the customer decides the quality is not an important issue in their purchase decision? What if, in fact, the quality that we’re producing is unnecessary?

Ian: The best example is in fashion. Fast-fashion over the last 15 years, people have been happy to have things that fall apart in three months because then they get something new because it costs them nothing.

Bill: Yes! Yes! Actually, I spoke with a firm that makes fast-fashion and whose largest market is in the city, in London, because they have wealthy, well-paid typically men who have no domestic skills, who buy a shirt once and throw it away, because it’s so affordable. So, I think that we have a definition of quality, a legacy definition of quality that needs to be re-examined. Listen, I’m not advocating bad quality.

Ben: Fast throwing away shirts after single-use.

Bill: What I am advocating is rethinking the nature of quality and what’s required. We see a movement away from long-term — particularly in North America — two-year MBA programs to shorter MBA programs. Is that a reduction in quality? We don’t think so. We think that we’re redefining the nature of this experience, in many ways. And you see a growing rise in certificate programs. I think that quality, like anything else, is constantly up for redefinition.

[00:45:17.15] Ben: I’m so pleased you brought up the topic of MBAs because, in a world where innovation matters more than strategy and where experimentation matters more than knowledge, is it worth people taking two years of their life to study in a classroom?

Bill: I don’t know what the right time period is, but I’m a great believer that knowing more is better than knowing less.

Ian: It makes sense to me.

Ben: Even if you continually write in your articles that the experimentation trumps knowledge?

Ian: Experimentation also leads to knowledge.

Ben: Touché!

Bill: Yes! So, last year, I took 95 MBAs to Shenzhen — a colleague and I did — and it was a great experience! We spent five days there. It was about learning, not knowing. So, I think more and more of education is about how do you engender the curiosity to seek things out? And then, how do you learn? What do you do to learn more? Because going back to the rapidity of change in the S curves, in the future, what you know will be less valuable than how you learn.

[00:46:35.22] Ben: And is that what you are increasingly teaching that — how to learn?

Bill: Yes, I think so. I think what we’re providing is frameworks and vocabularies that make it easier to learn and make it easier to share learning — scalable learning — but I think that more and more those frameworks have change at the center, rather than stability at the center.

[00:47:00.02] Ben: So, I’m looking around at your bookshelf here. We’re in Bill’s office, and as you can imagine, you would expect of a professor’s office to be full of books. I’m just trying to count how many of these books have the word “firm” in them. And my question to you is, is the firm still a relevant concept or is it obsolete? Because the firm was all about grouping people under one entity because transaction costs were high and because it was about systemizing production — so you needed to organize work into repeatable tasks, with formal hierarchies — and everything we’ve talked about so far suggests that every notion I just mentioned there, is obsolete. So, is the firm obsolete?

Bill: That’s a good question!

Ben: You’re going to have to throw many books if it is.

Bill: I think in the spirit of how we started this conversation, organizing is not obsolete. Teaming is not obsolete. The construct of a firm may, in fact, need to be re-examined. Earlier you talked about how we think about organizational size and how that’s changing, and I think that’s really true — and that’s probably true in the nature of the firm as well: the motivation for the firm, the corporate nature that tends to be associated instinctively with the firm. All of those things probably need to be rethought and redefined and re-examined, questioned, but I’m not sure that organizing itself is a bad idea.

[00:48:37.01] Ben: So, we’ve nearly got to the point where we delved into the Chinese question — we’ve constantly held ourselves back, but I think we’re ready now. But maybe let’s start through the prism of the idea of the nation state, which is, if the firm needs radical overhaul, does the nation state require the same?

Bill: Ian?

Ian: So, I guess, referring back to my earlier comment about the difficulty of having five-year plans in a world that changes every three to 12 months, I think the general answer is yes, to a degree. I think a lot of the things that still glue people together — culture, attitude, and history — remain and will remain important. I think what’s interesting, today, is that the nature of citizens’ relationship to their country is changing, and it depends on where they are. I’ve said in public before that I think that the relationship between capital cities of a lot of the world, certainly Western nations, but including places like Beijing and Tokyo, less so Jakarta, bear more resemblance to each other. These places bear more resemblance to each other often than they do to their own hinterlands, and I think, therefore, that the term nation state is interesting because I think there’s a difference between how large capital cities, large busy cities, whether they’re officially the capital or not, are very, very different to the countryside from whence they came. You only have to look at the Swiss referendums to see how different the voting is between cantons in the center of the country and the cantons that touch the outside world. But also, if you look at the voting for Brexit, if you look at the voting for many major cultural and/or country changes over the last 10 years — I think of the US, as well as the UK, but also Venezuela and Brazil, and elsewhere — we have a dichotomy taking place. We have a dichotomy appearing very strongly between big cities and the rest of the country. So, I think that’s one dynamics which requires change in governance with the countries concerned, but it’s also about the relations between countries across the board. I haven’t been for a long time a big fan of things like the United Nations, but the purpose of the original League of Nations made sense. I wonder now, within the context of the changes that are taking place inside countries, whether we need better relationships across countries.

[00:51:00.00] Ben: If Haier is the future of the firm — large autonomous independent units that are brought together through logistics and data — is that the future of countries? Because, in some ways, in Switzerland, the model for a modern country because that’s really what Switzerland seems to do quite well, which is this thin federal layer that kind of coordinates activities, and then a lot of power and responsibility and autonomy devolve down to communes — and if that’s the case, it would seem we’re moving in the opposite direction: states become more insular and I don’t know. That’s just as a thought. If the Haier corporate model is the model for nation states, how does that play out on a global scale?

Bill: You know, it’s hard for me to answer this question. When I was much younger, I thought that the nation state would fade and that multinational corporations would become — I mean that was 100 years ago — multinational corporations would become the real powers that move the world, but they failed. They failed because of inefficiency, they failed because of greed, they failed, because they did not take the interests of everyone into account.

Ian: I wonder if it’s changing with a move to stakeholder focus rather than shareholder but yes, I agree with you.

Bill: Great! And I certainly don’t see any change coming out of Silicon Valley with these new-age sorts of organizations. The biggest problem I think that we have, in so many countries, is the income disparity that exists and the inability for some people to have futures. So, what I do think is interesting in the example of Haier, is that, first of all, they trust the people — and I think Switzerland does that as well with the way in which the voting takes place on everything. So, there’s a great deal of trust in people to be effective participants in a political process, and there’s a very clear focus on what they want to achieve. And there’s been 35 years of consistent trust in the workforce and a belief in the talent of the people there. I think that over time, what that’s done is that has led to the ability of people to advance their own situations. People who normally would have been in a traditional organization, would have been on the margins of society because they lacked the educational credentials or because they lacked the connections. The ability to be autonomous and to start things on a small investment has allowed smart, hardworking people to succeed. So that’s a good outcome.

Ian: I’m generally a great believer in the notion that smaller is better for structures, not just in times of innovation, but also because of the nature of the way people treat each other in small structures versus big structures. I think smaller structures are healthier in interpersonal relationships, whether they’re in organizations or societies. I’m going to take a twist on your question, Ben. I am not sure that there is an optimum model visible yet for country governance because I think it’s context-related. In the same way, I think that the optimal model for company governance is also context-related partly speed, partly size, partly environment. I think I’m going to twist it and say that my faith, both looking at history and looking around me — but I’m slightly biased in this because as someone who starts companies, I believe in the power of the individual — I’m going to say that I think it depends a great deal on leadership. Just because one country has a leader that people are unhappy with, it doesn’t mean the structure of the country or the systems within it are wrong.

Ian: Similarly, I think because a country is successful, I think one has to look terribly closely at who’s driving the success currently, to understand whether it’s the individuals that are within that structure that are making something unwieldy work, or is it the structure itself, which is predisposed towards producing good leadership and therefore good results. I’m more a believer in good leadership, whether it’s corporate environments or in-country governance, than I am in the structures because I’ve seen bad structures work and I’ve seen good structures fail, both in corporates and in countries. So, I care a great deal about leadership. One of the reasons I spend so much time at the school, one of the reasons that I like coming back here and something I very much enjoyed about my time when I was here was, it’s about leadership, it’s about creating good, global, citizen leaders. I think that’s crucial. I think I wouldn’t put my faith in structures; I would put my faith in individuals.

Bill: I agree with that. I think that we need to look at the role of people to be able to play a leadership role, not only at the top of the organization but throughout the organization. And my sense is that when we work with organizations who aspire to be like Haier, one of the problems we run into almost always is that they’re unprepared to give autonomy to their people, and the people are unprepared to accept the autonomy if it’s given to them — and that’s largely because the perception is that leadership doesn’t take place throughout the organization. And I think what I’ve learned from Zhang Ruimin is he says, “We’re an organization of leaders.” These people are all running small businesses, some of which are not so small, many of which are quite successful, and that needs to be reinforced. And then, I go back to the IDEO example, and one of the things Dave Kelly used to say was his job as CEO, as the leader, was to reinforce the confidence of the people in the organization to make the right decisions.

Ian: But I think you’re also reinforcing my point about the fact that if you don’t have a leader like that, it’s not going to happen in the organization.

Bill: That’s right!

Ian: It is important for the leader to be aware that they need leadership at all levels of the organization.

Bill: So, if we go back to the broader innovation question, for me, I’m a big believer in top-down leadership. Not dictatorial, not oppressive, but if you don’t have strong top-down leaders, then you cannot allow bottom-up to occur because the leaders become intimidated or threatened by the suggestions. So, you need people at the top who are secure in their own confidence and who are enthusiasts for autonomy. And so, that’s going to determine how organization boundaries get set and how they operate.

[00:58:24.28] Ben: Is that how you would define the leadership in China?

Bill: Well, that’s a very different level of complexity. It’s a political leadership. I don’t think that’s the role of political leadership in any country that I know of.

Ben: But leadership at a country level is just as important, isn’t it?

Bill: Oh, yeah, I think so, too.

Ian: I think Bill’s referring to the systems underneath. The complexity of politics in any country is such that you can’t necessarily assume that everybody is united on a particular goal or vision because there are many visions and many goals — you have competing parties, you have competing people within parties, you have systems within the systems, you have autonomous bits that fight with each other. It’s not so easy.

Ben: This is what business people that become politicians always underestimate, isn’t it?

Bill: Yeah, right.

Ian: Absolutely! I think there are certain types of people who run businesses, who have the capacity for this openness and this ability to deal with complexity underneath them that might survive in that environment. But it was the reason why not to have generals running countries, too. If you’re used to a certain type of hierarchy and an assumption about how the orders would flow down and follow what was required by the top, then that doesn’t work in almost any political system that I’m aware of.

[00:59:47.15] Ben: Other than the fact that you both work at IMD, another thing that unites you both is that you lived for a long period in China and you witnessed the economic miracle that has taken place over the last 30–40 years. Is the economic miracle stalling? And if so, why?

Bill: So, I think there are some structural issues that everybody has known about for a long time — it starts with the demographics of the country. You have an aging population. I think that that’s not going to go away in the short run. I also think that you have an economy that was built originally — the modern economy — starting in 1979–1980, built with an export orientation. It’s harder to build a domestic market. It takes more time and the like, than anyone thought. It’s happening now, but it’s been a while. And the other thing is, if you build an export-oriented economy, you sort of hope that your customers are going to grow — and the rest of the world is not growing either. So, I think that there are important what I would call, structural and demographic reasons for the present slump.

Ian: To add to that, there’s also a natural cycle. They’ve gone through an extraordinary expansion with all the funding coming in from overseas and the growth in population and the extraordinary improvements internally to allow both. I’m not going to say the defeat of poverty, but there was a huge reduction in the number of people surviving on very little. So, I think the governance of the country is in a place that’s so large and so complex — it has been really quite extraordinary over many years — but we’re now at a cycle stage in their own cycle, where there are other things to be sorted out — a slightly less capital available, there are concerns overseas in terms of how the country is perceived. Internally, there are questions about the way the country is governed, the way that certain decisions are made, which partly happens when things slow down and there isn’t this sense that everybody can do fine and it doesn’t matter what the government’s doing, because we’re all going to be better off than we were before. I think all of these things lead to a natural slowdown. I don’t think it’s something I would worry about from a global perspective. There is the issue of the internal debt problem and the possibility that the non-performing loans in some of the larger regional banks are never actually going to be paid back because the developments have been made. But I think those are structural issues, which again, people are aware of, both in China and abroad.

Bill: And it is not the first time.

Ian: And it’s not the first time. And actually, if you look at history, their history is a lot better than, say, Argentina, so I’m not worried yet about China.

Bill: I first moved to China in 1980, I’ve been there every year since. If you look at China through that period of time, what has happened today would have been unimaginable in 1980. Absolutely unimaginable!

Ben: Quite extraordinary!

Bill: Right! And so, I think one of the great headlines of the late 20th century, early 21st century, but certainly late 20th century was the movement of China, the development of China into a modern nation state. And modern nation state, I don’t think it could have happened if it was just individual provinces working in an autonomous fashion. So, I think they needed that galvanizing force. Since the onset of the One-Child Family Policy in 1980, you could forecast that there was going to be a plateauing of growth in the economy, due to the reduction of people consuming and producing age. We’re there now. I have also learned never to underestimate what the Chinese people can do, and my sense is that China will come out of this fine, I think. I would not short China in any point.

[01:03:45.24] Ben: Do you think China is ready to overtake the US?

Bill: I don’t think that’s important. First of all, what numbers are we going to use? We could argue it forever. I think the fact is that China has modernized to a point where it’s a global, geopolitical, economic, technological power. And I think that’s the accomplishment.

[01:04:04.27] Ben: But in a way, the US — and you could argue whether this is a trend that will be sustained — right now is becoming more insular. It’s not rejected globalization, but is retreating from international organizations, they’re retreating from globalization. Does that mean that China steps in and becomes a global superpower? Because you said, it doesn’t matter. But if that mattered.

Bill: I think China is a global superpower.

Ben: Preeminent. Voilà!

Ian: Again, it depends on what preeminent means.

Bill: Yeah.

Ian: Hearts and minds versus economy and dollars, I think are very different things.

Ben: Yeah. China is much more interested in the latter, right? The Belt and Road Initiative is about creating markets for exports.

Ian: There’s also a sense of history in the Belt and Road Initiative. There are different things going on there. And again, I don’t think either of us is here, ready to speak for China, but what we can see is a concern at different levels of government for how the company is viewed — even though they pretend it’s not so important — how it builds its own systems internally, how it helps its own people, and logically, so given how recent and massive the changes have been, it’s obviously more concern with ensuring that things are fine within China than without. And so, I haven’t seen any politician attempting to create a global leader role, either as a politician or for the country, because there’s always been this sense that we worry about our problems, we don’t interfere with other people’s problems, we don’t want other people to interfere with our problems. I don’t think there is this wish to have this role of leading global adjudicator over other people’s issues. Yes, perhaps the US did play that role for a while, and yes, elements of US society wish to be less involved in other people’s issues for a while, but I think Bill’s right, I think it’s the wrong question. I think what’s interesting now is to try and work out what the new world looks like with a few large stakeholders, a few smaller stakeholders, and very different ways of measuring impact and influence in the world today, partly because of the difference between network effect and military effect and partly because it is about ideas and concepts as much as it is about the ability to control a seaway.

Bill: I think we’d all be better off if the US and China were in an amicable relationship. Everyone would benefit as a result of that. At the present time, fear is an insidious, corrosive power.

Ian: Often used by politicians.

Bill: Yeah. Often used by politicians and at the moment, at least, in North America, in the US, it’s on the rise. Actually, if you look at the US, the US has never really been a whole-hearted embracer of a global community except for the period between the First World War and recently, so it’s a return, I think, to some of the inherent conservatism of people in the center of the country who are not as cosmopolitan as they probably should be.

[01:07:32.08] Ben: And where does that leave Europe? So, if the Belt and Road Initiative is about creating a stronger economic alliance in Asia, in Africa, United States is a large domestic market and they’re happy to subsist with being themselves and they don’t have somebody difficult neighboring countries to deal with and they’ve got a large domestic market, where does that leave Europe? Where is Europe set in this two-polar world?

Bill: So, I’ve always been enthusiastic about Europe playing a larger role in the world than it is at present. I would like it to be more relevant. I think that it has historically been a source of values and reflection that the other two great powers have not been interested in. But I worry about Europe playing that role because I don’t know where Europe is any longer and I don’t know where it stands. It seems to be perpetually stuck between aspiring to be a great power and not being able to execute.

Ian: One of the strengths of Europe is exactly what causes that issue. It’s not one country, it’s not a superpower, it’s not a nation state, per se. I think it’s one of the charms and values of Europe. I think one of the things that’s great about this part of the world is the multitude of languages, approaches, cultures, and ways of thinking and doing things. I think that’s what creates the richness of Europe, and the richness of the experience of being here. Now, it does make it difficult to make a decision in one place, and it does make it difficult to have a European viewpoint. I’m not 100% sure the world needs it. I like the fact that every now and then you do get a European point of view because there are certain things that many of certainly the Western European states, sometimes less so the Central European states agree on. I think I quite like the variety of discussions that take place about any points that are in Europe. I like that diversity of opinion — I think it’s what is the charm of Europe. I also think that being smaller makes it easy to manage, if you think of the Haier model, this multitude of different approaches to problem-solving and different products that occur.

[01:09:58.16] Ben: Doesn’t that require a thin federal layer? Which is kind of developing as we speak.

Ian: We kind of have a thin federal layer. The question is how thin it gets? I think there are structural issues. There’s the obvious structural issue of having a united currency and a disunited fiscal system. So, I think there are lots of things about Europe that don’t make sense, in the way it’s structured. And also, there are different goals from different European leaders, and it changes when the leaders change, about what Europe should be. The vision from the 1950s was relatively loose. The vision from some, now, macro-leaders amongst them is the United States of Europe, and not everybody shares that view — some of the newer members, even less than some of the older members. So, I think there are structural issues that make it very unlikely that Europe becomes this single voice, single cultural place that some people would like, but I don’t think that’s a bad thing. I quite like the diversity.

[01:10:51.05 Ben: But the problem with Europe, I guess, is, in the absence of having these new Digital Age giant businesses, it’s a risk of becoming a tourist destination for Chinese people over time?

Ian: It is a tourist destination for Chinese people.

Ben: But that is being the only engine of growth.

Bill: Incidentally, I think that’s not a bad thing because I think that we all…

Ben: It’s not that is a bad thing, but it’s difficult to find nations that rely solely on tourism that are really prosperous.

Bill: I think one of the things we talked about needing to expose people in the center of America with what’s going on in the world around them. We also need to expose people in every country to what’s going on around them.

Ian: Yeah. Everybody should travel!

Bill: And I think that the fact that we have a lot of tourists coming from China today is a victory. It’s a huge achievement! You would never have thought of that when the reforms began, so it’s a sign of success. I think that Europe plays or could play an important role in moderating the excesses of the other superpowers, and I think that that would be a healthy outcome, in particular at the moment with what’s going on in the US. I think that there needs to be a broader view of how we work together.

[01:12:20.10] Ben: So, I’m going to attempt badly to summarize some of the things we’ve talked about. So, team size matters — smaller teams, in general, perform better than larger teams for many reasons under certain contexts. Definitely, the nature of competition is changing much more to arenas than industries; innovation is rising in importance vis-a-vis strategy, and innovation can be a repeatable process. Business models matter so much more than they did in the past. China is at a point where it’s slowing down, but, as you said, you can never underestimate it and it will necessarily start to exercise greater geopolitical influence. My last question to you, both, is that I think you could argue that we’re at a point in history, which is almost like pre-reformation. I mean, China is almost the equivalent of the discovery of the New World; as a symptom, you’ve got massive change in information flow with the internet and so on. I want you to be bullish for a second and say, what’s positive with the world change from this point on? Starting with you, Ian.

Ian: I’m generally very optimistic. I’m generally very positive. I said, on the previous podcast, that it’s not technologies that create problems; it’s the people who use them and the way they use them. I refuse to be a new Luddite and say that we live in a world where all of these things are scary. I wish Elon Musk wouldn’t keep saying that AI is going to harm us all. I think because of our ability to see more, know more, understand more, I’m totally in agreement with Bill that knowledge is helpful and that experimentation leads to more knowledge. We simply are better able and better equipped than we ever have been to understand complexity and come up with solutions for it. And so, even if individual leadership or geopolitical regional issues or changes in demographics create challenges for both countries and the world as a whole for the next 20 to 50 years, I am totally a believer that we now are better equipped than ever before to face those challenges and come up with solutions. I’m very excited to see what happens. My daughters are now at an age where they’re entering the sphere at 26 and 28 — one is in private equity and one is running her own company — and I love the way they talk and think about the world, and I’m really looking forward to seeing what that generation comes up with. So I am absolutely an optimist.

Bill: I think we’re on the eve of an age where there’s technological revolution, a series of technological revolutions that will change everything — change the way we live, change the way we interact. The level of change will be unprecedented, both because of connectivity and hypermobility and also the genomics revolution. All these things taking place at the same time, I think will provide the potential for huge landscape change. But, what I would hope is that our organizations are up to the challenge and that leadership is able to recognize the opportunities and move fast enough — and this is why the teaming issues that we talked about are so important. And I think that we have to provide opportunities for our entire population, not just the winners of the past economic era. And if we can do that, I think we’ll have unprecedented success. So, I’m bullish.

Ben: Ian, Bill — thank you very much for coming on the podcast!

Bill: Our pleasure! Thank you!

Ian: Thank you for having us!

Smart Focus or Pivot Later? (#15)

Structural Shifts with Dr. Marc Gruber, Vice President for Innovation at the Swiss Federal Institute of Technology — EPFL

According to our guest, Dr. Marc Gruber, Vice President for Innovation at the Swiss Federal Institute of Technology — EPFL — you can’t win if you don’t know where to play. Instead of a just-do-it mentality and pivot later if it doesn’t work, Marc speaks with our host, Ben Robinson, about how true entrepreneurs and innovators are reflective and flexible and how they think about what they’re doing and in what market to play in. By the end of this episode, you are also going to understand what’s a good market to be in and you will learn about the Attractiveness Matrix and the Social Identity Theory of three kinds of entrepreneurs.

Marc holds the Chair of Entrepreneurship and Technology Commercialization at EPFL, and he is a world-leading researcher in this area. He is also a Deputy Editor for the number one empirical research journal in management, the Academy of Management Journal — so a very talented fellow. We are very happy to have him on this podcast. Now, onto our conversation with Ben and Marc!

 

Ben: We are at EPFL and we are with Marc Gruber. I think where we wanted to start with you, Marc, was to talk a bit about Switzerland. So, anybody who listens to this podcast probably knows that Switzerland tops lots and lots of innovation league tables. And so, as a nation, it’s really good at coming up with innovation, but it doesn’t really have any sort of leading top-of-the-food-chain tech companies. Do you think that Switzerland is good enough at commercializing its tech?

Marc: First, let me say I’m very pleased to be here. Thank you for inviting me to the show! It’s a true pleasure to discuss with you all the topics around innovation and entrepreneurship. There’s some exciting stuff, I think, we can get to discuss and it starts with your first question. I think it’s a very pertinent question. If you look at the tables, we are extremely good at generating invention, and we see this in all the patent tables per capita. We’re extremely good on these fronts. Where we still have a lot of room for improvement is the commercialization side.

So, if you look at the definitions, innovation is invention plus commercialization. Moving them from the invention phase to the innovation phase where you have a commercialized product or service, this requires very different skills. This requires skills about understanding customers, understanding markets, figuring out good markets, about testing your products, about understanding whether the customer likes the features of the product. This is very different in terms of the activities — it’s the inventive phase. You might be inspired, as an inventor, by some real-world problem, and that’s often the case, but it’s still something different to test it with human beings, to understand what the response of a human being means — and not only one, but multiple or hundreds or thousands, if you want to do serious market testing.

So, everything that has to do with invention, and then everything that has to do with the innovation step, the commercialization step requires distinct capabilities, activities that engage with this, and from that perspective it’s quite normal to expect that in the league tables we can be good in one dimension — like in the inventive dimension, with patents — and we might not be so good at the other ones.

Ben: So you are saying that Switzerland should be top of the league table for invention, but somewhere way lower down the list for commercialization, then?

Marc: Ideally, we should be high on both. The invention is fantastic! That’s a great outcome, that’s intellectual effort, but the financial returns, the ecological returns, the sustainability returns — if we talk maybe later on in the show, about the broadening of our concept of returns — if we look at all these returns in society, those come up only in the next step, the commercialization step, where you create the impact, where you scale it up. If we are not good at the second step, the impact remains more limited.

Ben: And why is there that discrepancy between invention and commercialization? Is it because of the size of the domestic market or is it more about the skill sets?

Marc: It starts with the skill sets. It starts with the skill sets and then, it’s something that I see in my practical life, when I work with the startups, when I work with large companies, but that’s also part of the research I do. It clearly shows the skills and the inclinations to do these things also differ between people. You have some people who like to do technology, others like to do commercialization, and few people actually like to do both or are able to do both. If you look out there, there are few great leaders of companies that can do both. Think about Steve Jobs — he was good on the tech front, and he was a fantastic marketing person; maybe even a more marketing person than a tech person. I think it’s the skills, it’s the attitude and we are extremely good on the mental front, and I think we can be better on the commercialization front.

Ben: Do you think that those skills will appear just by themselves as companies have more success?

Marc: These initial skills to invent, I think we are solid with this, with the technical universities in Switzerland, and I think the amount of money we’ve spent in educating our population over the last 30–40 years, was extremely smart because we have really, really, really good technologists. What we have been starting about 20 years ago is to get into programs that support entrepreneurship, innovations, the second step, and educate people on this front. And we see it here, at EPFL, very concretely, where we have now a multitude of programs where students don’t only learn about the concepts, but apply the concepts so that they understand what it means to bring technology to market.

I think that’s where we are investing now. What we try to teach them, which is not the easy part, is this mentality issue of going out there, being more extrovert, talking to people, being able to convince other people to buy a product. These are very interesting skills and an important skill set, but it’s something that might not be so close to the culture that we see here, in Germany, in Austria, and in neighboring countries. In the United States, Americans are much better on these fronts.

Ben: So, you could argue that they’re better just because innately they’re better, but clearly one of the differences is that there have been so many successful companies, and success begets success. If you’ve commercialized one product and you know how to do it, then the likelihood is you stand a much better chance of doing it again versus somebody who’s coming at it fresh. So, isn’t that the bit that’s missing in the Swiss ecosystem?

Marc: Yeah, we have these reference models that are now popping up — we have quite some successful unicorns now in Switzerland, we have a few very good successes, but this is why we bring the students also into other ecosystems where they see the more advanced companies. What they realize is, I think, two things: First, they are inspired, but second, they see that water boils at 100 degrees Celsius. They come back and say if these guys over there can do it — and over the means students in Silicon Valley, and we send students over there for trips, for stays, for four to eight weeks, we have a desk at the Swissnex where they could go. Once they come back, they say, “Actually, we have all the ingredients here in Switzerland as well, to be successful.” Let’s take the smallest of our market, even, as an advantage because we are born in a small country that makes us much more open, if we want to conquer markets, towards other European markets by birth.” Either we are open-minded and start internationalizing early or we are staying small in the canton of Zurich. Let’s put it this way, that’s not a really strong impact you could have.

Ben: It’s almost like that maxim, which is you should be global from day one. It’s almost like, “Hey, you have no choice.”

Marc: You don’t have any choice. And what we also see, from the research side is quite interesting that there’s always this imprinting of the nationalities that you have on the management team, that foreshadows the internationalization strategy. So, if you have three nationalities on the team, the likelihood that this team will internationalize earlier is much greater than if you have only one country nationality represented on the founder team. That’s quite promising, as well, because we are a country that is quite diverse, the startups that are created here at EPFL are quite diverse in terms of the background of its founders, and that makes it more likely that they internationalize and I think that’s not only good for the country, that’s extremely important for the company.

Ben: Perfect! So, I want to talk a bit about your book, “Where to Play.” So, it’s a book and it’s a website, so you don’t have to buy the book necessarily to get access to some of the methodology.

Marc: Absolutely, no! Actually, all the tools are available for free and if you want to learn more, you can even get a free online course. If you want to buy the book, of course, buy the book! It’s a lovely book, we spent a lot of time working on it, and I think it gives you additional value, but the core of the method is out there for free.

Ben: It is a lovely book! It’s a book that I first came across thanks to Steve Blank, who wrote a very nice review, and the way he positions it — and I guess this is the way you position it as well — it’s like a very nice complement to some of the other tools, the business model canvas and so on. But the key difference being that it comes before, it’s like a precursor to doing the latest stuff, because until you’ve figured out which are your most attractive markets to operate in, then it’s premature to think about product-market fit. So, can you just explain to us a bit the concept, the importance of “Where to Play” and how people have maybe underestimated that until now?

Marc: Yeah. So it’s very correct what you say. Steve Blank wrote an extremely nice blog post about the book and the method that is behind it.

Ben: We’ll share the link to that, for the listeners.

Marc: Excellent! And what you said is, basically, the tools that were in the Lean startup up to that point were mostly focused on being successful once you know your domain — figuring product-market fit and developing a business model within that market. But these tools didn’t really help you to figure out where to start. What is a good market to be in, in the first place? And then he said that’s why he’s adopting the tool actually, for his Lean toolset, which is a wonderful badge of honor for us because it’s one of the most important, if not the most important innovation tool that was developed in the last 20 years, two decades — and to be adopted by the person at the origin of this is just a fantastic recognition.

So, me and Sharon — my co-author of the book and co-creator of the method — of course, we had big smiles when we got that badge of honor from Steve. But generally, the book is about trying the method that is underlying this, it’s trying to figure out what are good markets to be in because you could be in a very lousy domain and do all the stuff — you can develop a business model, you can do market testing — but then realize only after a while that actually, “Hey, that domain was not so great and I need to pivot to another one.” I still have to find the first venture team or corporate innovation group that likes to pivot. So, if you can somehow be a bit more foresightful — and I don’t want to say that you can predict the future, that’s not at all my thesis — but if you can be somehow a bit more foresightful and say, “Hey, there’s a better market here than there. Let’s first go into this turf before we try the other one.” I think then, you’re actually significantly more successful.

the question, “Where to play?” is always a sibling of the “How to Win?” question. If you are lousy in the “Where to play?” question, you will be inferior in the “How to win?” question because if you’re winning a super small battle in a small market, great! You have won! But you have missed out the big other alternatives, and that’s where I think they nearly need to go hand in hand.

Ben: So, I was going to ask you that. It’s almost like we’re given to believe that the pivoting is almost a natural part of the course, but what you’re saying is that actually, it doesn’t necessarily need to be because if you spend a bit more time understanding your market opportunities, then the likelihood of pivoting is decreasing. Do you have evidence to prove that those really unpleasant 180-degree pivots happen less frequently if you use that method?

Marc: I have done 15 years of research before I wrote the book. As a researcher, I said I’m going to write something where I know that all the empirical results point to some method that makes me more successful. And what it does is, I think, twofold, and let me describe this with an example. Flyability is a company that is here at EPFL, they are producing drones, and they have drones in a cage. And with this type of company, the question, really, is where do we apply this? They had the idea to say, “Okay, we go to nuclear disaster sites, atomic reactors, and the drone can go in there and get a good idea of the debris and of the casualties that might be there, as bad as it is.” But there are many other domains where they could inspect: electric landlines, pipelines, indoors, outdoors. So, it’s really about figuring out a good starting position. And if you think about it, yes, this company, once it sees more opportunities, there are some that are better, markets that are growing quicker with less competition, where the customer demand is stronger, where the development costs are smaller than other domains.

We’re living in an age where the industry boundaries are imagined boundaries

The first element that they learn is, “Well, we can actually start with a better, more fertile ground.” The second element — and that’s equally important — is that yes, but we still don’t 100% know if this works out. Once you have this wider lens, you become more sensitive to many decisions in your company and don’t dig yourself into a ditch so quickly by saying, “Hey, I’ll call my company now dronesfornucleardisastersiteinspection.com

Ben: Yeah.

Marc: They called themselves Flyability, and that gives you a lot of flexibility in case you have to pivot. Also, you have a double benefit out of applying the method. Number one, figuring out where a better market is, and number two, actually figuring out that you can be a bit more agile because you make decisions that put agility into the DNA of your business. So, even if you have to pivot, it’s much less painful than if you are just moving into one direction and see that as your one and only goal, and then realize after half a year, that this doesn’t work out. By the way, the statistics say that 73% of all companies need to pivot before they actually apply the method.

Ben: And do you know what it is now, post hoc?

Marc: No, we haven’t done that yet. But we see that the companies are created very differently. People have an opportunity set — that’s a portfolio of growth options. They go out there, pitch this portfolio of growth options to the venture capitalists and business angels, by saying, “That’s our first market. If this one works out, that’s our future growth market. If this first one doesn’t work out, this is our plan B.” And this is a super interesting storyline for any VC because a venture capitalist knows that they know the market and number two, they are de-risking the project by saying there’s a plan B, in case the first one doesn’t work out, and they have a future growth option in-store, which means more value creation; or they might even have two-three more growth options in-store. So, in that sense, all the feedback we’re getting from the financial community is they are super excited, they would wish that every company would apply that when it actually comes to their turf and seeks for funding.

Ben: So, I just want to test, slightly, the premise on which the book is built and the methodology is built. So, the premise is that every product doesn’t have just a single potential application. There are many potential customer groups and markets for any given product. And I was just reading this thing from Bain, and they basically take the same premise that you do, and they say what becomes important is not just to identify exactly where to play, but instead to focus on how to win because we’ve seen that the commercial world isn’t tightly grouped into industries anymore, but arenas — which I think this the terminology that you use as well — then what’s most important is having a sort of a competitive edge and having an execution edge to be able to win across large arenas now. How do you see that sitting alongside?

Marc: I think that this perfectly matches. I think the question is how to win, but you want to win in a good market.

Ben: Yeah, that’s right!

Marc: That’s why the question, “Where to play?” is always a sibling of the “How to Win?” question. If you are lousy in the “Where to play?” question, you will be inferior in the “How to win?” question because if you’re winning a super small battle in a small market, great! You have won! But you have missed out the big other alternatives, and that’s where I think they nearly need to go hand in hand. And what you’re saying is quite important, let me emphasize this. This question that we just started to discuss for the startups is of equal importance for the large companies.

We’re living in an age where the industry boundaries are imagined boundaries; we have the most successful companies actually moving to across industry boundaries — Rita McGrath calls this competing in arenas — and this is super important for large companies, too. Think about Daimler. Daimler is not worried about BMW’s competition. They are worried about the computer manufacturers, the Apple’s, the Google’s coming into the world of car manufacturing. If you look at Uber, Uber was born as a taxi service, but Uber moved into food delivery, Uber moved from food delivery now into tourism by offering tourism to vineyards, which is a smart idea if you’re trying to taste wine, that you actually have someone driving you. But they don’t care about the industry, they go wherever they can grow.

And look at Google, what they are doing, look at all their different businesses — they go wherever they can grow with their competencies. So what you said earlier with products, you need to look one step below and say, “We have competencies that generate these products” and if you maybe add from a large company’s perspective, AI or drones to the mix of competence, maybe you can do even something else, maybe you can offer new service.

Think about maybe one of the most traditional businesses — construction businesses. If they add drones to their mix of competences, they can offer everything from construction site inspection toward inspection of the fully-furnished site later on because they have all the knowledge about the construction process. In the second step, they will have the advantage to say, “We are actually better able than other companies to monitor the sites and to monitor the degradation of the site over time.”

And also, the logic that is out there is one where you very much now look for growth turf based on your competencies, and the initial question is actually where to play, and once you’ve figured it out, it’s how to win — and then it’s about figuring out a good business model, it’s about figuring out a good customer fit, etc.

Ben: Geoffrey Moore’s “Crossing the Chasm”, talks about leaving the relative safety of your first market to then get into the mainstream and how that’s almost like a trial and error type person. So, are you saying that if you employ the “Where to play?” from the very beginning, crossing the chasm is that much easier because you’ve sort of already identified the stepping stones? I think you actually used the term of building blocks. So, you’re saying that you’d almost build the tower that gets you to cross the chasm.

Marc: Exactly! And if you look at a Geoffrey Moore, he has this analogy with the pins that are falling — you focus on one and then it’s the other. But, in a way, it’s the same logic or a similar logic, where you say, okay, we need to figure out the first one to hit, and which is the most fertile ground that we can foresee, somehow. Then, when we enter there and are successful and go through the diffusion curve — we start, of course, with the people who are highly engaged in this market, there might be opinion leaders who talk about our product, so that we get into this most fertile ground, grow our tree there, to use another analogy, become strong there and then we can say, okay, now we branch out into the other domains that are related.

But what Geoffrey Moore has not explained so well in his book, but what’s basically then, in “Where to Play”, is the logic where you say, what could be this first pin? What are the other domains that we could get in? How can we structure a company or a project so that we actually have the capabilities that are more flexible, so that you can more quickly and more efficiently enter these other domains? This is in a time where everything goes much quicker. These are very important considerations. So, in that sense, I am a big fan of Geoffrey Moore’s book and I think we are perfectly complementary with the thought world.

Ben: Yeah, exactly, it’s complementary because you know that diagram where you sort of jump off one side and hope to get to the other side. You build the stepping stones.

Marc: Exactly!

Ben: Yeah. I think probably it’s natural now to talk about the attractiveness matrix that’s central to the book. So, there are two axes: one is challenges and one is potential, right? So, the first question is, could you talk us through that matrix? And then, maybe, I suppose, as a follow-on, how do you arrive at some sort of objective score for those two matrices?

Many entrepreneurs say, “Okay, yes, we have an idea about the market attractiveness and the challenges” but they typically only take one or two dimensions. They say, “Oh, it’s a big market! This must be good!” Or “Oh, we can make a quick entry. That must be good.” And they don’t see the full picture of what shapes a good market.

Marc: Absolutely! Let me briefly give you an overview, for the listeners. So, the method has three parts. The first part is about understanding the opportunity set, being creative, understanding — like in the Flyability case — where we can apply our drone to everything from inspection of bridges, up to the inspection of avalanche sites — so we have an opportunity portfolio.

When you look just at the description of a few of these examples that I’ve given with Flyability, somehow is almost obvious that not all markets are equally good entry points. Also, you need to have, in a second step, an evaluation, and that’s exactly where you can come in with the matrix. This matrix has two dimensions: it’s a challenge dimension and it’s a potential dimension. And we, Sharon and myself, we screened about 40 to 50 years of venture capital research to understand what type of features are of high importance to make sure that you are able to evaluate early-stage opportunities. And just look at a couple of these features: it’s, for instance, market size, it’s the strength of the customer needs, the ability to pay, it’s about the time that you need to develop the product, the time you need to make the sale, it’s about external risks that you cannot control, etc.

There are a couple of factors that are the main factors that you can get out of looking at these 40 to 50 years of venture capital research, and that’s, of course, not practical for the entrepreneur to go through thousands and thousands of pages. So, what we did is, within that matrix, we have two dimensions: the potential and the challenge — and behind it is a worksheet that helps you to score each opportunity. Sometimes you don’t know how to score it maybe on the market size front, so you would have to do some backup research to understand, is this a small market? How many bridges are there in Switzerland, in France, and in Germany, to understand what is the potential market size.

So, based on the worksheet that has a potential dimension, as well, and a challenge dimension to score, you come up with a summary score that you put, then, in the matrix. This matrix has four quadrants, and also, if you add the potential and challenge, we have the Moon Shot quadrant. This is high potential — high challenge. As a joke, this is the Elon Musk quadrant; everything he likes to do is in the Moon Shot quadrant.

You have low potential — low challenge: these are the Quick Wins; basically, it’s the lower-left corner. You can say, “Hey, I can go in there, I can make an easy living, I can make a first hit.” This might be the first hit that then gives you a stepping stone option towards something else.

You have the Questionable with a high challenge — low potential, where you might wonder if this is a good idea to do. If you feel suicidal, maybe you should do this, but we don’t recommend it.

And then, you have another quadrant, which is high potential — low challenge, which is the Gold Mine; those actually exist. It’s just that it’s low competitiveness, high market growth, strong customer demand, quick sales cycles, etc. And those actually exist, you have to look at them and try to rate them.

What we see with many entrepreneurs before they apply this method is that they say, “Okay, yes, we have an idea about the market attractiveness and the challenges” but they typically only take one or two dimensions. They say, “Oh, it’s a big market! This must be good!” Or “Oh, we can make a quick entry. That must be good.” And they don’t see the full picture of what shapes a good market.

Ben: Yeah. And I think, also, doing it this way removes the subjectivity because we tend to see things from our own prism. That’s a challenge I’ve seen personally.

Marc: Absolutely! You’re completely right! It’s like, either you rely completely on a gut feeling or you are subjective in scoring. But we designed the tool so that it’s a wonderful tool to work in teams with. So, you can say, “Okay, there’s Ben, there’s Marc, there’s Roger, there’s Henry and Fabiola, and we sit together and we are scoring together, and let’s see where we end up.” And at the end of the day, it brings the team together, and they say, “Hey, we did this together. We figured out this is the best point to enter” and I think, in that sense, we didn’t put this to the forefront, but when we observe the teams that apply it — it bonds the team because they discuss and decide the strategic questions together.

Ben: I think is implicit in what you said earlier on, but what you’re recommending is a portfolio approach, right? Which is to say, if there’s a Moon Shot, maybe pick a Quick Win to ally with the Moon Shot.

Marc: I think what you’re describing is very important because if you think about having a portfolio, it gives you additional abilities as a founder or innovator in a large company. Why? Because you actually can say, “Hey, I start here, here or here, and if I want to do the Moon Shot, I’m now more sensitive to the fact that I have to have much more resources, and it takes probably much more time than I expected.” So, you’re a bit more careful. That’s what we typically get as feedback from the people who say, “Okay, we have a Moon Shot, we want to do this. We thought we only needed to raise 200,000 from the VC, but we actually need 5 million.”

But we are not prescriptive at all by saying, “Hey, you need to do this or that.” We leave that up to the entrepreneur or the innovator. Sure, if you want to do a Questionable, go ahead and do a Questionable. If you want to do a Quick Win that is small, and that’s your domain, just do this. But be aware that these are the growth possibilities — and they differ — and be aware that maybe if the Moon Shot or the Quick Win or the Gold Mine should not work out, that there’s a plan B so that you don’t waste all your resources. If you’re more successful, yes, you can start in the first one, and then you’ll move to another one. An entrepreneur is a bit more of a reflective person, which is countering this can-do attitude, the just-do-it attitude — which bothers by now many people. Within the business domain, there’s this mantra of, “Oh, just do it, and then you pivot.” I think that in no part of life, we have this mantra. We tend, as human beings, to reflect a bit before we actually do it. I think, ultimately, what the book is about, is getting a bit more reflection on the whole process.

Ben: Yeah, and having worked with a lot of startups, I think that’s one of the friction points — the founding team suddenly needs to raise money, and then, the venture capitalists or whoever the external investor is, starts to ask all these kinds of questions, and it’s obvious that these were not thought about in ex-ante, right? And instead, they’re retrospectively trying to add this lens of, “This is where we’ll go next.” And so, I think is extremely helpful to have been through this process when you’re trying to raise money, for example.

Marc: Absolutely! What we see is that, from the venture capitalist side, they say, “Okay, if all the companies that apply for funding would be so explicit and so transparent of what they want to do, it would not only help us to judge the venture, but it would also signal to us that these people understand what they do.”

Ben: And you said, also, earlier on, this idea that once you appreciate that you’ve got your first market and you don’t have to do these really harsh pivots because you know where the next landing point would be if it doesn’t work out — you said that that determines things like what you call the company. But there is a whole list of things in the book about the sorts of things that you would want to be mindful of, when you start, given that you are likely to pursue multiple markets given that you’re operating in an arena.

You create a path and that path gets more fortified, stronger with each and every decision that builds on this. You go for a market, you choose your suppliers, you choose the brand name for that market, you develop the distribution network for that domain, etc. So, with each subsequent decision, you are more constrained and locking yourself in, which when you think about it, of course, it focuses you a lot, but it’s also something which with each step, it becomes more expensive, less efficient, more cumbersome to change.

Marc: Yeah. What we advocate is, as a small team, as a small venture — three or four people — to focus on one market, but if you are a large company with 50 people working in innovation, you can pursue multiple markets at once. But, especially when you’re extremely resource-constrained, what you need to do is to say, “Okay, I need to put a lot of agility into my project so that every change that I need to make is less cumbersome, not consuming a lot of resources” because your resources are not endless. And when you think about this, once you have this portfolio view of what you can potentially do, just go back to the Flyability example — once you understand that you can actually go from construction site to rescue missions in the Alps, what you are picking is a brand name that is different, that allows you to do many more things. Number two, what you’re trying, probably, to do is to say, I develop a product — the drone, in our case — which is within a few steps amenable to all these different markets, it doesn’t cost a lot to actually change the product so that it can be applied in all these different domains. So you might want to hire people who have a bit more generalist expertise to understand, “Okay, if this one is a great domain, maybe these people can also work on this other domain later on. It’s how you write your patents, the applications of your technology in there.

So, it has a range of implications that are very profound. And this goes down to the nuts and bolts of the company you create, the project you pursue, and that’s why I think this mindfulness at the beginning is then imprinted into the DNA of the company, of the project you’re creating, and I think that, over time, you’re creating a company that is more agile, has the agility in the DNA, has an outlook on growth that is quite different.

And if you think about the earlier example that I mentioned with Uber — Uber has exactly that mindset. They say, “Okay, we grow in this taxi domain, but that’s not all we do.” No one mandated Uber to just stay in this domain — they could grow in all kinds of different domains.

Now, think about the banking sector, which is quite important for Switzerland. The banking sector, they have this idea of saying, “We have financial services”, but if you move out of this logic, and say, “Actually, they could be about trust services.” And once you’re about trust services, finance is one leg that we could have and maybe there are two or three other legs that we can develop wherever trust is needed among human beings. Maybe blockchain is a key part of the skills we need to acquire and build, in order to be a viable player in trust services. This would be the Uber logic to the financial industry.

the zooming in — zooming out is a prerequisite towards seeing a portfolio of opportunities

Ben: I won’t ask you about blockchain because we’ve made that mistake on previous podcasts. It’s a bit of a rabbit hole.

Marc: They can listen to the other podcasts.

Ben: So, if you set up your company with the notion that it’s a portfolio play from the beginning, you’re saying that it’s almost in the DNA, this idea that you will be agile. So I accept that that’s true, but there’s still the temptation to always double-down on a market that’s working. And so, what else would you recommend to companies to make sure they’re agile, and they don’t become, in the Clayton Christensen sense, they don’t go so deep that they, then, become disruptors for somebody else?

Marc: Look, they can go deep as long as they are realizing that these decisions are creating these deep ditches of past — we call this, in research, “Path Creation”. You create a path and that path gets more fortified, stronger with each and every decision that builds on this. Let me give you an example. You go for a market, you choose your suppliers, you choose the brand name for that market, you develop the distribution network for that domain, etc. So, with each subsequent decision, you are more constrained and locking yourself in, which when you think about it, of course, it focuses you a lot, but it’s also something which with each step, it becomes more expensive, less efficient, more cumbersome to change.

That’s why we call the third step in our method, “The Agile Focus” because you should focus, yes, but keep in mind that once you do these decisions — like with the brand name — maybe you can make this decision in a bit more open-minded manner so that in case it doesn’t work out — and in innovation, oftentimes it doesn’t work out — in case it doesn’t work out, you are able to not fall into this big ditch that you have been shuffling, and don’t die from that.

Ben: And the other thing too, in the book, is “zooming in and zooming out.” So, we’ve come across zooming in — zooming out in the John Hagel context of having multiple time horizons for our strategic planning, but you use it more as in like, when you’re identifying target markets, you want to look at the highest level of what’s the massive group that you could target versus what’s the sub-segment of this industry that could potentially be addressable by the product. Again, what’s the repeatable methodology for doing that?

The rules of the growth game have changed and with it, the applicability of the frameworks and the need for frameworks. If we accept the idea that we are competing in arenas and no longer in industries, all the tools that would constrain you to think within an industry are not as meaningful anymore.

Marc: I think this has very deep roots because, in our research with Ian MacMillan from the Wharton School, we have continuously seen this into an entrepreneurial mindset. The true entrepreneurs and innovators are able to flexibly think about what they are doing — they’re not like a hamster in a wheel and say, “Okay, we have to run, and run.” They have this reflective capability.

Let me give you a simple example. One of the inventors here, at EPFL, one of the professors, developed a stent. This stent is basically for preventing your heart disease. But at the same time, he said, “Look, this is heart disease prevention, but we can apply this in the whole body.” Then it’s about blood flow technology. And if you zoom out one step more, it’s about flow technology — then, you think about pipelines, etc. So it’s like, you have from the very small narrow application within the heart towards everything blood flow technology, to flow technology. And that’s what a good entrepreneur should be able to say: I move out and I move in. The best application might be the heart, I don’t want to challenge that, but it’s like, “Hey, where else could we grow? What is our company about?” This a very profound definition.

And once you think about this zooming in zooming out, you can say, “Hey, that actually doesn’t cost me anything to reflect on this. This costs me a bit of time but makes me understand better what type of animal company I’m creating. So, in that sense, the zooming in — zooming out is a prerequisite towards seeing a portfolio of opportunities.

Ben: So, as I’m understanding, your value proposition is, at its most granular level, and then being able to zoom right from there to what’s the largest possible application. So as you said, with financial services, it’s understanding that we do trade finance and invoice finance, right through to which we’re about trust.

Marc: Exactly! But what I’m describing is only a cognitive process. It is purely how you allow yourself to think about it and then it relates back to what’s the makeup of the founding team or the management team. We have, since 30 or 40 years ago, a lot of super exciting research in the management domain where we see clearly that the makeup of the board, the type of experiences they have, their education is basically foreshadowing what the board will be able to do. So, if you have four people who have studied finance on the board, of course, the likelihood that this company does more finance and has that lens is much higher than them going into another domain.

If you make the same analogy now and say, “Hey, we have four people in finance, and three that have actually a blockchain experience”, guess how this company will redefine where it plays? So it’s a lot about the makeup of the founders or any management board of a company that basically, somehow is able to foreshadow what this company sees in your growth pattern. This insight is not from me. I’ve shown it empirically with my research, but from a conceptual perspective, there’s this late 1950s, Edith Penrose’s “The Theory of the Growth of the Firm” — a wonderful book; I think one of the most fascinating books that one can still read and it’s so current as probably has never been before.

Ben: One application, clearly, of the “Where to Play”, is when you’re starting out. You’re saying it’s also extremely useful for strategy teams and executives in an established company to provide answers about where to go next.

Marc: Absolutely!

Ben: That being the case, do you think it replaces some of the tools that the strategists are using today? For example, the BCG Growth Matrix. Do you think some of these things have become a bit antiquated or obsolete given the way the world has changed, both in terms of the nature of competitive advantage, i.e. that it’s more about the demand side, economy’s at scale, and also, the fact that we don’t have these narrow boundaries of what’s in an industry and what’s not?

Marc: I think that the rules of the games have changed. The rules of the growth game have changed and with it, the applicability of the frameworks and the need for frameworks. If we accept the idea that we are competing in an arena and no longer in an industry, all the tools that would constrain you to think within an industry are not as meaningful anymore. Think about Porter’s Five Forces — it’s a fabulous tool to understand the industry, but it doesn’t help you to understand the growth space beyond the industry — this arena.

That’s where, “Where to Play” comes in play because it actually gives you an idea of what is the growth turf that might be available for you, so it enlarges your perspective. And when you come to the large companies, they are in dire need of this type of perspective, and partly owing to the fact that most of the leaders running these companies were educated in the ’80s and ’90s. They know, of course, from the MBA programs that Porter’s Five Forces is the thing to do — but implicitly this constraints you to the industry. Once you come with an arena perspective, for the large companies this opens up very exciting new growth options. If you look at the interviews that Daimler is giving, the large companies are waking up to that very quickly. They have adopted not fully this mindset that there’s an arena out there, but they are starting to realize that competition comes actually from places they would never have expected.

That’s where they learn through the backdoor that actually there’s an arena, “A computer manufacturer suddenly competes with us. Whoops! We thought it would only be the car manufacturers.” So, they learn through the backdoor that actually there’s an arena to play in, and secondly, what they are realizing as well, is they have this set of competencies, “What else can we do if we now put AI to the mix?” If we put drones to the mix, like this construction company that I was referencing early on, it’s like, yes, you have your constant competence that has been around for 50 years, but now take drones into the mix. What else could you do? You can become a service business that is quite successful.

So, it’s about understanding how, as an established company, you can employ the latest technology, increase the scope of your product offering, service offering, etc. And I think there should not be a threat to any company. This is a wonderful process because it relies on creativity, imagining new frontiers where you can grow, and this is, I think, applied in the right way. It’s a truly exciting process that should energize everyone on the team. I know that the companies are worried because they see there’s competition coming from left to right.

Ben: The other thing that’s, I think, good about it, is it looks from a capability point of view, which is some of the tools that strategists use, and assume that the customer is captive, in a way; because you control distribution, you can just upsell. You know, like the Ansoff Matrix — keep the customer, the customer is fixed and you can sell them more stuff. I think that that’s been deeply challenged as distribution has opened up. And so, again, it doesn’t look at it through that distribution prism, it looks at it through capability prism.

Marc: Yeah. Or you can look at it through a distribution prism as well and say, “What other products could this customer need?” And then you evaluate these types of markets or options with a matrix tool. Our framework is, in that sense, quite flexible.

Ben: So, in other words, it sort of fits around. So, if you’ve got a matrix or a methodology you’re comfortable with, this tends to be always complementary?

Marc: So we are, in a way, highly complementary even to the Porter Frameworks, to the Ansoff Matrix, or to the BCG Matrix. You mentioned the BCG Matrix early on; the underlying question is, where do your new growth options come from? There’s no answer given in the BCG Matrix. It’s just like, “Oh, they’re rising stars!” Where were they born? Someone must have had the idea for this rising star. That’s where, “Where to Play” comes in with its method because it helps you to understand there could be a growth opportunity, a rising star, how rising and is it really a star or is it a dot, and it helps you to understand in the first place what you’re developing.

Ben: Another piece of research you wrote, which is about the characteristics of founders. You used the terms Darwinians, communitarians, and missionaries. Could you elaborate on what you mean by those terms?

The times are over where financial profit and job creation are the only two factors that matter. They are a long over. I think the companies who haven’t realized this are soon in the cemetery of companies.

Marc: With pleasure! It’s actually, one of the research studies that I learned most about entrepreneurship from, or innovation, or life — this is a big term, but I’ll explain in a minute why. We have done this study where we tried to understand entrepreneurs within one sector, to keep the heterogeneity low — it was all kinds of sports-related equipment, and there were entrepreneurs that actually were like the normal brands, very competitive. We said, “Okay, we need to develop something that gives us a lot of return.”

There were other entrepreneurs that were more the thinkers, they developed something for themselves, went on the slopes, for instance, others observed what they did and said, “Can you do this snowboard for me? Can you do this bike for me?” And then, you have a third type where you realize, “Well, these guys are not caring so much about the market, the producers, because they want to sell something, but they want to change the world to a better place.” They are about ethical production, etc.

We started off this project by interviewing these people on why do they actually have these different outlooks of what a company could be? Why would some of them give their invention for free to others, while others would patent protect it? And then, that gave us quite a lot of hard thinking to do.

And with my colleague, Emmanuelle Fauchart, at some point, we had discussions when I said, “Okay, I’ve done this study once, about identity.” And then, identity was basically the key that opened up this puzzle for us, because identity theory allows you to understand on a very deep level, why people do things. And what we did then, is to say, hey, there’s a more generalizable framework within our data, which by now has been applied by many other researchers and what we basically saw is that there are three types of entrepreneurs, pure types, and you can mix and match them at the end of the day.

The pure types would be the Darwinians who say, “I fight for my business, I’m the leader! If others in my market die that’s good because I have a better market share.” That’s one very typical way of viewing business. The others were the communitarians, who say, “Oh, we are within a community, we openly share. We are trying to make the community a better place.” And the third type was the missionaries where it’s about the whole world, “We want to make the world a better place.”

And from an identity perspective, that’s where it becomes interesting in two ways. From the identity perspective, this goes from the “me” to the “known other” to the “unknown other”. How you behave and act depends a lot if you do it for you, if you do it for known people, or if you do it for unknown others. What you expect as a return is quite different, too. If you do it for you, at the end of the day, your bank statement would be bigger. If you do it for the known others, maybe it’s love, it’s admiration, but if you do it for the unknown others, what is it that you’re getting out of there? Maybe you have a better conscience or maybe you’d like to be admired, maybe you want to be invited to talk shows. The motivators are very different, and if we are living in a world where people are soul searching and trying to understand who they are, what they want to do, these types of questions are extremely pertinent. They are relating back and that’s what we found after doing all these interviews, they are relating back to some very exciting parallels in philosophy — you have these three types described, repeatedly.

So, what we basically could show is that within entrepreneurship, we have types that have been for the last 2000 or more years discussed by philosophers as standard types of how we can think about human beings. In that sense, what I said earlier, to help you to understand entrepreneurship and innovators, but also human beings because these three types are the pure types, that are prevalent, but then you have mixes.

Ben: Yeah, what do you call it? A hybrid, right?

Marc: Yeah, the hybrids! If you think about companies nowadays that try to make profits, but also be sustainable, these are hybrids. And how their motivations might be in conflict, how they are aligned, I think identity theory can tell us a lot about this.

Ben: And would you argue that the hybrid model is becoming more prevalent, not because the makeup of the founders is changing, but there’s more constraints imposed by society to look beyond just financial returns?

Strategy and innovation are two sides of the same coin

Marc: Absolutely! I think that the times are over where financial profit and job creation are the only two factors that matter. They are a long over. I think the companies who haven’t realized this are soon in the cemetery of companies. It’s a much more pluralistic approach and it comes from the side of the founders or the managers, but it also comes as a demand by customers, but also by future employees. It’s like, if you want to have the best employees out there — I see it with the students here, at EPFL — if you are only profit-minded as a company, they will likely not choose you. They want to have this second leg, the social consciousness and the third leg, the sustainability consciousness embedded in what they do because they look for this meaning and they know that the world is breaking apart, so they want to work positively in an environment that allows you to follow these other goals.

Ben: I wanted to ask you about the coexistence of “Where to Play” and some of this other research. It feels a bit like “Where to Play” was written for Darwinians, but can it be used by all founder types?

Marc: Yes! “Where to Play”, in its purest sense, is written in the business logic to say “I want to create a company, I want to be successful” which is fine. I don’t want to challenge that. That’s still a model that creates a lot of wealth, that it creates a lot of good, and a lot of tax returns. What we have done now is an add-on that is available on our website where you download worksheets that help you understand if you want to create a social and sustainability venture, how to rate these opportunities and how to understand all the trade-offs between the profit side and the social side. I think this is extremely pertinent. So, the tool is now enlarged with these types of thoughts, and I think, from all the feedback we’re getting from social and sustainability ventures, this is a very important add-on because it allows these entrepreneurs to see more clearly how they could contribute and what it means, actually, to have sustainable and social impact.

Ben: Wonderful! I think there’s one last thing I want to cover. So, in all the years I’ve worked in strategy, each year, somebody, somewhere, some commentator proclaims that there’s a strategy. One of the things that’s great about reading your book is that it’s a return to fact-based, research-led strategy, which enables you to do what is the very heart of strategy, which is to make good choices and understand your constraints. And so, not to put words in your mouth, but I guess you would say that this book and this approach very much represents the triumph of strategy over the emerging school of just pragmatism and pivoting and iteration.

Marc: Yeah, I think it helps to bring both perspectives under one roof because it basically gives you a home for saying, “Hey, that’s more the strategic thinking and that’s more the testing, the reiteration that is needed to validate what you have thought.” So, it brings together the doers with the thinkers, and I think it gives them a home. I think that’s why Steve Blank liked it so much, as well, because it says that’s a part that was missing. He probably gets a hundred of these frameworks to look at every year and has been doing that for the last 20 years, and this is the first time he ever opened his toolbox in the last 15 years or so to say, “That’s a key new tool that needs to be in there.”

But, I think if we frame it nicely, strategy evolves, and I think we are thinking very differently about strategy nowadays than just maybe 15 years ago. And strategy and innovation are two sides of the same coin. It’s just how they work together — one is a world where you have to explore, where you have to investigate, where you have to test and the other is a world where you have to be a bit more foresightful, you have to try to understand where you’re strong at, what a good market turf is. How this interacts, I think it’s nicely described in the “Where to Play” framework because you have the markets you choose, there’s more of a strategic outlook, having a portfolio and then, on top of that, you say, “In order to understand these different options, of course, I need to test! I need to go out there, I need to collect data” but it gives you a framework to think about both, and I think that’s where this addition to the Lean tool makes sense because the Lean tool is one very much where you do experimentation testing, and now this gives you an additional aspect to do strategizing with.

Ben: Perfect! So, for those people who want to check out the toolset — which, as you said earlier, is available for free — the URL is wheretoplay.co, right?

Marc: Exactly! And I invite everyone. We have videos on there, there are PowerPoint slides that you can download for free, you can listen to webinars — there’s basically a lot of opportunities; For us, this is a tool that we want to see out there because we’ve seen in the research that it works, we’ve seen with thousands of startups and large companies that applied it, that it works.

Ben: There’s no excuse, now, if you blindly enter a market and you have to do a horrible, dramatic pivot.

Marc: Yes, there’s no excuse! Maybe after the first pivot, you realize that maybe you should have read the book and you read the book, then. It’s still valuable. You can start as an established company reading the book and try to figure out the new growth turf or you can start as a startup and say, “Let’s be a bit more mindful about what we’re going to do.”

Ben: Perfect! Mark, thank you very much, again, for coming on the show! That was great. Thank you!

Marc: Thank you very much! It was my pleasure, and good luck for everyone out there!

Europe is a Developing Economy. But so is the U.S. (#13)

Structural Shifts with Nicolas COLIN, co-founder of The Family

For this episode, Ben Robinson is joined into the conversation by Nicolas Colin — Co-founder of The Family — and we argue that developed economies are defined by two major characteristics: they are able to create and accumulate wealth via large, global tech companies and they are able to re-distribute that wealth to benefit their entire society. Through this lens, neither Europe, nor the U.S. are developed economies in the current techno-economic paradigm — and we assess whether the current politicians campaigning for or holding power are in the right flow to inspire the radical imagination that is required.

 

Ben Robinson (Ben): Welcome to the Aperture Podcast. For this episode we are very lucky to be with Nicolas Colin, who is co-founder and director of The Family, which is a platform for European entrepreneurs. Nicolas is also an author, he’s written multiple books including Hedge: A Greater Safety Net for the Entrepreneurial Age, a review of which you can find on the Aperture website. He also contributes articles to Sifted, and he writes a weekly newsletter called European Straits. Nicolas, welcome!

Nicolas Colin (Nicolas): Thank you.

Ben: You said that Europe is a developing economy, which I guess is a slightly controversial statement. What did you mean by that? And what do you mean when you talk about Europe having to navigate the narrow strait between the Americas and China?

the fact that Britain used to dominate and ceased to dominate because they missed the opportunity of one particular transition from the economy of railways to the economy of steel reveals that every region that dominates at a given time is in danger of losing it if they don’t do what it takes to embrace the new paradigm.

Nicolas: It’s a long story, but to make it as short as possible, what I believe in is the idea that we’re currently going through a transition from one world to the other, or what economists would call one ‘techno-economic’ paradigm to another techno-economic paradigm. So the world we’re leaving behind is that of the Fordist economy of the 20th century that was dominated by mass production, mass consumption, and the core of this economy was the car industry, the matrix after which every industry was modeled in the 20th century with the core principle of mass production governing everything. The new world we’re entering is that of the entrepreneurial age, as I call it, which is a world dominated by tech companies as opposed to car companies. And tech companies have a distinctive feature that is increasing returns to scale, which leads to companies overall being more fragile, and markets being more concentrated, dominated by one company at the expense of the others. And so that brings many consequences, but as in any transition of the sort, it redistributes the opportunities between the different regions of the world.

We used to race ahead in the Fordist age, but as for the Entrepreneurial Age, if you look around in Europe, we don’t have the large tech companies that determine if you’re racing ahead or lagging behind. We might have that legacy wealth and prosperity that we inherited from the past, but it will be exhausted at some point if we don’t build the growth drivers that we need to rebound and to succeed in the new paradigm, and that’s about building successful tech companies that dominate the global scale.

The first modern technological revolution was the Industrial Revolution, which triggered the rise of Britain as the dominant power at the time, and then, one century later, the rise of the Steel Industry shifted power from Britain to Germany and then to the US, and the US became the most potent economic power in the world at the time, and they still are in many respects. But the fact that Britain used to dominate and ceased to dominate because they missed the opportunity of one particular transition from the economy of railways to the economy of steel reveals that every region that dominates at a given time is in danger of losing it if they don’t do what it takes to embrace the new paradigm.

And I think that’s exactly what’s happening in Europe. We got used to dominating in the 20th century, not because we were the most developed economy in the world, but we were close to catching up on the US, emulating them in many respects, forging this very strong transatlantic alliance that came with sharing the wealth, sharing the techniques to grow successful companies, but also sharing parts of the social contract, so institutions that existed on both sides of the Atlantic. I think we got used to racing ahead, and we need to realize today that we used to race ahead in the Fordist age, but as for the Entrepreneurial Age, if you look around in Europe, we don’t have the large tech companies that determine if you’re racing ahead or lagging behind, and if we don’t have them, that means we’re lagging behind and we might have that legacy wealth and prosperity that we inherited from the past, but it will be exhausted at some point if we don’t build the growth drivers that we need to rebound and to succeed in the new paradigm, and that’s about building successful tech companies that dominate the global scale.

If you want a tech company to succeed — to overcome the many obstacles that exists at the seed stage and then to scale-up and reach a scale that makes it possible to dominate at the global level — you need that company to aggregate resources on different fronts. One front is that of employees — you need to hire a lot of talent. Another front is that of capital — you need to raise a lot of funds. And then a third front is access to the markets, — you need to sell your product to as many customers as possible. If on each of these fronts, you need to overcome obstacles that come with the fragmentation, then you are slowed down when your potential competitors in the US and China are accelerating.

Ben: And you’ve talked a lot about the reasons that Europe is lagging behind United States, and we can point to many factors, less VC money, for example, but one of the key ones is that… you talk a lot about fragmentation.

Nicolas: Yes.

Ben: And in that regard, Brexit cannot be a good thing for the European project, right?

Nicolas: No, it’s true. So the fragmentation is critical because if you want a tech company to succeed, that is to overcome the many obstacles that exists at the seed stage and then to scale up and reach a scale that makes it possible to dominate at the global level, you need that company to aggregate resources on different fronts. So one front is that of employees. You need to hire a lot of talent. Another front is that of capital, you need to raise a lot of funds. And then a third front is access to the markets, that is you need to sell your product to as many customers as possible. If on each of these fronts, you need to overcome obstacles that come with the fragmentation, be it about languages or culture or regulations, then you are slowed down by the fragmentation when your potential competitors in the US and China are accelerating at the same time, because then they don’t encounter the same obstacles as you. So an example is… you are in Paris, you’re struggling to raise money because VCs are not ready to support an ambitious venture like yours. You can still cross the channel and go to London and pitch London-based VCs that will realize that your venture has the potential to grow big, and they will invest.

Crossing the channel sounds easy, but you need to realize that if you’re an early stage startup, it costs a lot of money to buy a Eurostar ticket, then you need to spend several nights in London and hotels are extremely expensive. And then you need to pitch a VC in English, which is not your native tongue. And then even though you master some English and you can pitch your company, the fact that that you didn’t grow up in the same culture, maybe the VC in front of you is English or they are Indian or they are American but you’re French, and so the informal communication is not the same, the context, the interpretation of the context is not the same, and so there will be a high probability of a miss, not because your venture is bad or that VC is feeble, but because there’s been some misunderstanding between you due to the language and the culture, and that’s fragmentation.

if you immerse yourself in the world of startups, you realize that hard borders are not that much of a problem. It’s more soft obstacles like languages and culture that are the problem. I think that Brexit is irrelevant when it comes to soft obstacles.

Ben: And from here, it gets worse, presumably, with Brexit, because when you read your newsletter, it seems that you oscillate between sometimes being more bullish about Europe, sometimes a bit more pessimistic about Europe? Doesn’t Brexit make you more pessimistic?

Nicolas: I don’t know. The fact is, if you immerse yourself in the world of startups, you realize that hard borders are not that much of a problem. It’s more soft obstacles like languages and culture that are the problem. I think that Brexit is irrelevant when it comes to soft obstacles. It won’t make it harder to communicate across cultures and languages. The only problem that will have is that how do you solve the problem of fragmentation? You don’t solve it by enacting rules in Brussels that say now there is no border where there was one before.

You solve the problem of fragmentation by inspiring a common culture in which everyone from all across Europe can work together at building successful tech companies.

You solve the problem of fragmentation by inspiring a common culture in which everyone from all across Europe can work together at building successful tech companies. And we have a very interesting precedent in that regard, which is the financial services industry. If you go in the building of a large investment bank in London, you encounter people from all over the world who all speak English with very different accents, who obviously come with a very different cultural background, but yet they’re still able to work together because they brought together by a single culture that is the culture of the financial services industry. They have a common language to exchange information, i.e. Balance Sheets, P&L statements, Cash Flow statements. They have common tools that they know how to use — a Bloomberg terminal, Excel spreadsheet — and they have a common culture and everyone knows what they should expect when they joined that particular industry in terms of work ethics, relationships within the organization and so on. And that culture exists because it’s been shaped by successful ventures in the financial services industry. An industry that has grown so large that they’ve imposed the culture and passed it down to the next generations.

The problem we have in Europe is that we don’t have those large tech companies that would shape the common European culture for building tech companies and impose that culture on smaller startups. And because we don’t have that, we need to wait for that first generation of highly successful European tech companies and once they make it at great expense and with great pain, because they are still fighting against an adverse environment and trying to overcome the fragmentation. If they make it, they will crystallize the culture and that culture will spread out of the organization and impregnate entire ecosystems. In turn, that will make it easy for people from all over Europe to come together and build tech companies together, even though they don’t share the same language or the same cultural background.

So Brexit doesn’t really make a difference. Maybe it will make it a bit harder to build successful tech companies in Europe, because it will be harder for entrepreneurs on the continent to raise funds from VCs in London. But Brexit or not, we will still need to wait for those highly successful European tech companies for the culture to emerge and to make it easier for people to work together.

if you read history, you realize that the fragmentation of Europe has long been an asset, as opposed to the unity of countries. The fragmentation can be an asset because it fosters competition between different countries which experiment with building new institutions or creating different context for entrepreneurs to succeed.

Ben: So, the good news is that Brexit doesn’t make a material difference to the likelihood of a large European tech company materializing?

Nicolas: No. It can even make it easier actually, because there used to be a time, if you read history, you realize that the fragmentation of Europe has long been an asset, as opposed to the unity of countries such as the EU, China especially, also the US, even though it’s a federal system. The fragmentation can be an asset because it fosters competition between different countries which experiment with building new institutions or creating different context for entrepreneurs to succeed. And entrepreneurs can eventually shop around the different countries to find the right place for them to build that venture. And that’s what happened many times in the past and that was that’s what explains most of the prosperity that has characterized Europe over history. So Brexit maybe will reinforce, foster even more competition, because breaking free from the European Union will make it possible for Britain to invent their own institutions to support entrepreneurs, and that in turn will force countries on the continent to align themselves, and so maybe it will accelerate things.

Ben: So you’re starting to paint what could be a positive picture of post-Brexit Britain, and I think for many of us that didn’t want Brexit to happen, and we’ve sort of come to terms with it but haven’t yet thought about what might be some of the positive outcomes down the road. So, in addition to a slightly elaborating on what post Brexit Britain could be in a positive sense, I want to get your view on Dominic Cummings, because you wrote a very interesting piece about Dominic Cummings a few weeks ago, which was pretty critical. You were trying to answer the question of whether he could transform the British Civil Service, but regardless of whether he can or he can’t, do you think he might have some sort of Grand Master Plan for post-Brexit Britain? Because he may have many faults, but he does seem to be at least pretty good strategist or was at least when it came to winning the LEAVE campaign. So long question, but what could be the positive post-Brexit outcome, plus do you think Dominic Cummings has that kind of vision in light?

Nicolas: So, for context, Dominic Cummings is a special adviser to Boris Johnson as Prime Minister, and he used to be the chief strategist and campaign manager for the official LEAVE campaign before the referendum in 2016.

Ben: He came up with the slogan…

Nicolas: Take back control

Ben: Correct.

Nicolas: Yes. You can see that in a rather good movie with Benedict Cumberbatch, about Dominic Cummings.

Cummings is interesting because he used to study history. So he’s not a technologist per se, but he’s a nerd. He is interested in those new things and he’s probably dived quite deep into technology and the transition that technology is fostering at the moment, and so he understands what’s going on. And unlike many people that are for Brexit, I don’t think he has an ounce of racism in him. It’s not about kicking the immigrants out of Britain. For him, it’s mostly about, if we’re going through this transition, we need room to maneuver, and we need to be able to try as many different things and to experiment with new policies, new institution building, and for that, you don’t want to belong to the European Union, because supposedly the European Union imposes many, many constraints on what you can do as a sovereign country. So if you want to experiment in a radical way you need to unshackle what the European Union imposes, and to experiment and to innovate and so I think now he has the satisfaction of seeing Brexit actually happen, and he’s expecting that now Britain will be free to implement radical reforms, and to deliver radical transformation in the interest of the country and of its inhabitants.

The way you transform an organization is by re-positioning it around solving problems that didn’t exist before or that you couldn’t solve before

What I’ve been criticizing in my article is the fact that if you read the journalists— again, I’ve never met Cummings. I don’t know what’s in his head — but apparently, his obsession when it comes to implementing radical reform is about transforming the Civil Service, reshaping the state, turning the stage from what it is today, that is a very top-down, hierarchical organization entirely designed for mass production of public services, to a state that is more agile, more innovative, more responsive to the demands of the public, which are all good ideas and we can all agree with that.

But my article is critical. It’s critical because first, I know both worlds. I used to be a senior civil servant in the French government, so I know bureaucracy from the inside. I’ve seen generations after generations of politicians vowing to transform it from the top down. It never works, but I also know the tech world, probably even better than Dominic Cummings, because I’ve been working with entrepreneurs for almost 10 years now, so I know what it takes to transform an organization. And what it takes is not that you seize control of the organization from the top down and force everyone to change. The way you transform an organization is by re-positioning it around solving problems that didn’t exist before or that you couldn’t solve before, and so I think that’s what the British states should do at the moment. You shouldn’t try to transform the way the Civil Service works. It should focus on problems that have become so critical and that technology makes it possible to solve, and build new agencies, new organizations, new policies at the margin to solve those problems. And then if it’s successful, then you have a redistribution of resources that successfully absorbs the failing if you want.

Ben: Not to belabor this point too much because we want to move on to other things than Brexit, but in Cummings’ plan or at least what we know of Cummings’ plan — which isn’t that much — he is talking about new agencies. He is talking about a UK style DARPA organization. So why do you think that he will fail in creating new institutions and gradually making the state more agile and more responsive?

Nicolas: Yes, but gradually means 30 years. In 30 years, maybe the new agencies built by Dominic Cummings and others will have become so successful and so large that will become a model for the rest of the organization to reshape itself. But it’s 30 years is what it takes to change organizations as large and as old as Western states such as France or the UK, extremely centralized organizations that are huge and employ literally millions of people, and so I think he should prioritize. Does he want to build new agencies in which he gets to be the head of one of those new agencies, with all the resources and the autonomy that he needs to try new things? Or does he want to transform the entire organization from the top-down? And if you try to do both, there’s a high probability that you will fail on both fronts.

Being in the European Union or not, doesn’t really make a difference if you are a start-up in one of the non-harmonized industries, and for some reasons startups are mostly located in non-harmonized industries, because harmonized industries are those that are already dominated.

Ben: And then last question on Brexit, but is the flaw … because again, I think when you talk about creating a UK that’s more agile and able to respond faster to this new economic paradigm, that doesn’t sound like a bad thing, but is the flaw that in order to create the flexibility to do so, to reform the state or… we don’t know how quickly that can happen anyway, is the flaw that the UK is no longer part of the single market, so it doesn’t have this large addressable market for its new companies to sell into? Could there have been a better outcome where it was a softer Brexit with more autonomy, but with still access to the hundreds of million EU consumers?

Nicolas: Well, to be frank, I don’t think it makes a huge difference. There’s a thing called the Single-Market, which in theory provides you with a guarantee that if your company established anywhere in the EU, you can market and sell your product anywhere else in the EU. But in fact, the Single-Markets, few people realize this, it only exists in certain industries, such as manufactured goods, financial services, electricity, airlines, railways, and a few others. And so if you are a start-up in one of those industries, then you can enjoy the benefits of the Single-Market and Brussels will be here to provide you with the certainty that wherever you are established, you can compete in another country member state. If you don’t belong to one of those industries, well it’s much more difficult, because the regulations will be different and no Brussels-enacted legislation forces member states to harmonize their regulations in industries such as healthcare, public transportation at the city level.

And so, being in the European Union or not, doesn’t really make a difference if you are a start-up in one of those non-harmonized industries and for some reasons startups are mostly located in non-harmonized industries, because harmonized industries are those that are already dominated, extremely capital intensive. Like, you don’t want to compete on the market for electricity if you are a start-up. That’s simply too hard. You don’t want to come up against the incumbents in that particular industry. So you might, in theory enjoy having a single market for electricity, but in fact, it’s impossible to penetrate, to enter that market. So startups end up in more mundane industries, such as business services, health care, education, and all those industries, by coincidence, are very different from one country to another. So I don’t see Brexit making a lot of difference.

Ben: Listening to you, it sounds like you’re relatively sanguine about Brexit, and I guess at the heart of what you’re saying is you believe that entrepreneurship will harmonize Europe faster and better than politicians ever could, which I guess is inherently why you switched from being a civil servant to starting The Family.

if you tackle a big problem, if you harness the power of technology to solve that problem, and if you raise funds from venture capitalists, then you can deliver great things and make a real difference and a real impact. And so that’s where the power is.

Nicolas: Exactly. That’s the idea. Well, like many people working for government, I was disappointed by what I observed from up close, and the worst thing is in government is the politicians and the very low quality of the leadership. And then you encounter entrepreneurs and you realize that if you tackle a big problem, if you harness the power of technology to solve that problem, and if you raise funds from venture capitalists, then you can deliver great things and make a real difference and a real impact. And so that’s where the power is. Power is not only scale, it’s also agility and ability to experiment with new things having nothing to lose, which is definitely not the case in the government’s spheres.

Ben: Just a challenge that slightly, and let’s talk a bit about the U.S., because the U.S. doesn’t have Europe’s problem in the sense that it has several top of the food chain, massive tech companies, and for a long period of time, that was galvanizing the institutions in the U.S. There was alignment between tech, business and politics, particularly during the Obama years. But things have moved against those tech companies, and they’re not able to exert the influence that they were, and yourself, you’ve talked a lot about how damaging Donald Trump has been for Silicon Valley. I think you even had a piece that was called exactly that or something to that effect.

Nicolas: Yes.

Ben: So is it enough to just have massive tech companies? I mean, because …

Nicolas: No, it’s not enough. Definitely not. What I usually explain is that if you want to be a developed prosperous country in a given paradigm like the entrepreneurial age, you need to run a race that’s effectively divided in two parts. So the first part of the race is about building successful tech companies, capitalist organizations that generate increasing returns to scale at the largest scale possible. And then once you have that you have that wealth, that value that can be realized into wealth and that wealth can be reinvested in developing your economy by spinning out to other industries that don’t generate as high returns. But that doesn’t happen if that particular country is not provided with the right social contract, and so that’s the second part of the race. Once you have the large tech companies, you need to build the social contract to guarantee that the wealth they create and the power that they accumulate is used to developing the entire economy, as opposed to enriching just a small group of people.

Ben: So in the US, why didn’t that second part happens? So the US created massive, global, world-leading tech companies, but it didn’t put in place a social contract, but it looked for a time like it was going to. You had Obamacare. You had some sort of alliance between Silicon Valley and Obama. What went wrong? Was it a problem with Obama, because implicit in some of the things you write, you see him as a very good strategist but failing versus somebody like Roosevelt in terms of visibility to get stuff done? Was that his problem? Was he just not effective enough?

Obama was open minded and extremely charismatic and inspired a lot of respect all across the world and so Obama could vouch for Silicon Valley companies and say, “okay, trust them. I know them. They’re my friends. We’re working together. We’ll find a solution for them to pay a bit more taxes, but not too much. We’ll find a solution to regulate and protect your privacy, but please, let’s stay friends”.

Nicolas: Well, we don’t know whose responsibility it is, but it didn’t work. It didn’t deliver. I think that was the plan. Obama was clearly extremely supportive of Silicon Valley and Silicon Valley companies, including by negotiating free trade agreements with Asia and with Europe, to foster the growth and to guarantee that they would have access to those large markets outside of the U.S. In exchange, you can even say that Silicon Valley was extremely supportive of Obama in many respects, especially by providing a lot of money to his campaigns and providing a lot of talent to staff his administration. And so had another Democratic president being elected after Obama, they could have continued that stream of build up this alliance between the dominant capital-intensive companies of the day and the forward-looking progressive leaders willing to build a new social contract. That didn’t happen for many, many reasons. Part of them are completely random. But because it didn’t happen, the US is now losing ground, and you can see that by the day.

A very concrete consequence of Trump’s election is that Silicon Valley has lost support in Washington DC, especially when it comes to negotiating free trade agreements, because Trump has officially put an end to negotiating all of that. He effectively ceased negotiating on both sides of the U.S., and then he also closed the borders for immigration, which makes it harder to hire talent in Silicon Valley. Plus, he took the side of backward-looking incumbents in many industries, as opposed to supporting innovative entrepreneurs trying to transform those industries. And the result is that Silicon Valley has been slowed down, and not only have they been slowed down by the Trump administration, the Trump administration has also transformed how we view the U.S. from the rest of the world. So before that, people were a bit worried about large U.S. tech companies manipulating data and crushing competition from legacy players, and so on. But when you looked at the U.S., what you saw was Obama and Obama was open minded and extremely charismatic and inspired a lot of respect all across the world and so Obama could vouch for Silicon Valley companies and say, okay, trust them. I know them. They’re my friends. We’re working together. We’ll find a solution for them to pay a bit more taxes, but not too much. We’ll find a solution to regulate and protect your privacy, but please, let’s stay friends.

Today when you look at the U.S., you see Trump and everyone hates Trump, except for the fringe of Trump supporters in the US, and so Silicon Valley is not protected by its own government anymore. The government has become a liability, both in terms of what they do at home, but also in terms of the image that they’re projecting abroad.

Ben: Crystallizing a magnet on negative.

Nicolas: Yes, exactly, and so I think it’s not a coincidence if many U.S. tech giants have been renouncing competing at a global scale, precisely during that period. Uber renounced competing in China just a few months before Trump’s election, then they left Southeast Asia, sold their operations there to Grab. And what I see is more and more U.S. tech companies will retreat onto the U.S. market, and it’s now impossible for them to compete in China and it is lost forever. It will become more and more difficult for them to compete in India, another very large market in Asia. Africa is up for grabs but the Chinese are extremely aggressive on the ground and securing market shares and supporting local entrepreneurs with Chinese capital and Chinese platforms, and Russia is also out of grab for U.S. tech companies. So at some point, what they’ll have is the U.S. market, part of Latin America and maybe part of Europe unless we Europeans embrace Chinese products, or we Europeans build our own solutions that are adapted to the European context that is effectively very different from that of the U.S.

Ben: See, you are making out like this has changed the course of history. Listening to you it sounds like there’s some permanence to this new situation, but it could just be a blip. And I’m going to refer you to an article that you wrote, I think three years ago called President Trump, or the Twilight of the Conservative Gods, which for those of us that didn’t want Trump elected, we took a lot of heart from that because what you essentially said in the article is that Donald Trump is the last, the most extreme Republican before a reset towards an era of democratic control and the reconstruction of the state bodies and infrastructures, tuition. Do you still subscribe to that view? Could it be a blip?

the U.S. needs the world less than it used to in the past

Nicolas: So I still subscribe to that view with two caveats. One of them is that what we didn’t expect is how influential Trump would be in terms of reshaping the U.S. political system. That’s especially true for the judiciary. So he’s already appointed two justices in the Supreme Court. He will probably appoint one or two more, especially, or even more, if he’s re-elected. They’ve also appointed a lot of judges. So basically, if you control the White House and the Senate in the U.S. system, you can appoint as many judges as you want, and that’s the case for the Republican party at the time and judges are appointed for life in the U.S. system. So any Democratic president that comes back to power after Trump will have to deal with a judiciary that will be ready to strike down any progressive regulations or laws that are enacted by a new progressive majority, a Democratic majority. So that’s one thing.

The other thing, so the judiciary — Trump is also actively destroying the government in itself. It’s now understaffed, under-funded. A lot of people are traumatized. It’s riddled with corruption at every level, and that’s all because of Trump. And so you can say, Okay, we’ll erase all of that and rebuild. It takes time to rebuild a government once it’s been damaged like it is today. And the first thing is the U.S.’ standing across the world. There will be many relationships and many alliances that won’t exist anymore once Trump leaves power. And all of that in the context, that’s the other caveat, is that the U.S. needs the world less than it used to in the past, because they don’t have… well, China is officially a rival, but it’s not as frightening as the Soviet Union once was. They’re not officially at war, and they don’t have missiles pointed at each other. The U.S. are now almost independent in terms of energy. They have oil, gas, natural gas, and so they don’t need to be as present in the Middle East to secure oil supply for the economy to grow. And so many people expect the U.S. to just go back to the isolationist approach that used to exist before World War Two, and simply ignore the rest of the world. So if it’s a deep trend and long term trend, Trump will only have accelerated that one.

When it’s your time, it’s your time. It’s about being in the flow. So your best chance at winning is to be in the flow. Maybe that’s not enough, but staying in the flow is the best chance you have to go as high as possible. When you are in the flow, there’s something that makes a real difference and whatever happens to you, it makes you stronger.

Ben: You have a theory in politics, which I think we can summarize very simply as when it’s your time, it’s your time, and so it wasn’t Hillary Clinton’s time, but you think it’s Elizabeth Warren’s time? However, of late she’s been dropping quite a lot in the polls, do you still think it’s Elizabeth Warren’s time?

Nicolas: Well, the thing with the polls during a primary season is that as long as you’ve not reached the first primaries, you don’t really know where people stand. Because the two first states that hold the primary or caucus that is Iowa and New Hampshire are very weird and unrepresentative of the U.S. as a country. And so they usually can bring the whole pack in a direction that’s very different from national polls and change the nature of the equation because if you have a momentum building up in these early states, then you can recover.

So I know that Warren has been behind in the polls for a while or a close second. Now she’s receding because there have been several controversies, plus there is apparently redistribution from her to Bernie Sanders. I don’t know, but when it’s your time it’s your time. It’s about being in the flow. So your best chance at winning is to be in the flow. Maybe that’s not enough because being in the flow doesn’t guarantee that you’ll be at the bar at the day of the election. But staying in the flow is the best chance you have to go as high as possible. And again, maybe that’s highest at the bar, maybe it’s not, but when you are in the flow, there’s something that makes a real difference is that whatever happens makes you stronger. And the example I use to explain that is Obama. So Obama was obviously in the flow during the first campaign, the 2008 campaign.

But at some point during the primary, he was in a fierce competition against Hillary Clinton already, and there was controversy around raging speech by Obama’s pastor that was captured in video in which he was railing against the US and typically the image of the angry black men that frightens white voters in the US. And so the Hillary Clinton team said that’s over. That will ruin Obama and we will recover and win this race, and then she’ll be elected president. It didn’t ruin Obama because Obama was in the flow, and what he did after that was say, okay, that’s a very big problem, probably the major PR crisis that he had to overcome during that particular campaign. But what he said is, I’ll use this opportunity to make a big speech on race, which he did in Philadelphia. And that speech was so mind-blowing and was so eloquent and so deep that everyone forgot about the raging of the pastor, and then focused on that speech that Obama had made in Philadelphia. And that’s what being in the flow means is whatever happens even though it looks as if it’s very negative, then you can always recover from it, absorb the energy and then move forward.

We’re clearly at a point when Silicon Valley has been extremely successful at growing tech giants, and when the U.S. needs to enter the second part of the race that is building a social contract, and you can’t enter that second part of the race without putting bold ideas on the table.

Ben: So if Elizabeth Warren might not be in the flow, who is in the flow in the Democratic race?

Nicolas: I still see her as the most in the flow. You have some years where nobody’s in the flow like in 2004, if you remember that campaign. There was a very large pack that ended up being dominated by John Kerry who lost the election badly against George W. Bush because he had no exceptional charisma, no bold ideas, nothing. And so some years… that’s all you have. You have uninspiring candidates competing against each other, and no one’s using the flow. The one that’s in the flow is the one from the opposite side.

Ben: How much of a problem is it that Elizabeth Warren wants to regulate and break up big tech?

Nicolas: Well, I don’t think it’s a problem. I think it’s part of being in the flow. We’re clearly at a point when Silicon Valley has been extremely successful at growing tech giants, and when the US needs to enter the second part of the race that is building a social contract, and you can’t enter that second part of the race without putting bold ideas on the table, and she has bold ideas, and you know that’s the rules in politics and government. There’s a very long distance between the initial intent and what comes out of the many bargaining and negotiations at the end. But having someone that’s willing to open the conversation is very important. It’s a signal that says, we’ll get in that race for building a new social contract, and maybe that social contract will be the one that we need to have to have a more inclusive and more sustainable economy.

There’s a common thread that links Obama, Trump, Macron, Ocasio-Cortez. They came from the margins, were not identified as the prominent politician and overcame that obstacle by using technology to create a direct relationship with the voters, which is now possible. So all those politicians have been digital-age politicians when it came to campaigning. But campaigning and governing are two very different things, and I still have to witness a politician that masters the art of governing for the digital age.

Ben: Do you think Elizabeth Warren is a digital age politician, or do you think somebody like Alexandria Ocasio-Cortez is more of a digital age politician? And do we yet have any digital age politicians in Europe?

Nicolas: Well, that’s the thing. There’s a common thread that links Obama in 2008, Trump eight years later, Macron the following year, Ocasio-Cortez in 2018, and all those politicians… they came from the margins, were not identified as the prominent politician, as a front runner, and overcame that obstacle by using technology to create a direct relationship with the voters, which is now possible. So all those politicians, all highly successful by the way, have been digital age politicians when it came to campaigning. But campaigning and governing are two very different things, and I still have to witness a politician that masters the art of governing for the digital age. All of those failed at reinventing what government is about once they’ve won their election. Obama failed to do that. He was stuck in the gridlock of Washington DC and was unable to use the support, the massive popular support triggered by technology that he enjoyed during the campaign.

Maybe Trump is the most advanced for the worst, because he knows how to leverage the power of his supporters that are angrier and angrier by the day and retracts on government, but some people would argue that he didn’t achieve anything that really matters to him because nothing matters to him probably beyond being famous and wealthy, and so Trump has been a tool used by the Republican Party to achieve lower taxes and more conservative judges on the benches. That’s all but Trump himself didn’t achieve anything meaningful that matters to him in terms of policy outcome…

Macron has likely failed in terms of governing. He mastered the art of campaigning in the digital age but didn’t translate that into a new form of government, and Ocasio-Cortez, it’s still too early to say. But I think Elizabeth Warren, to come back to your initial question, is the best we can have in terms of a politician that’s been learning how to campaign in the digital age. She’s been pioneering new techniques to orchestrate network dynamics between her supporters, including the selfie lines. If you want to Google that…

But Elizabeth Warren, and that’s the key for why I think she’s in the flow. She’s a consummate professional when it comes to governing. She knows every detail related to the mechanics of government, how policy is designed, implemented and so on. She knows how important it is to appoint the right persons in the right positions, and so if she wins, and that’s a Big IF, but if the flow is enough to put her above the bar, then she wins, we will have probably the most expert president in a very, very long time when it comes to governing and to deliver policy outcomes. And I think voters sense that, and that’s very important to them. They can’t explain it because they don’t really know the art and science of government. But they can sense that she’s serious when it comes to government, as opposed to people that have just soundbites.

Ben: With the space that’s being left as the United States retreats from globalization and retreats from international diplomacy and international agreements, is it China’s moment? Will China rise up and usurp United States? There’s a great section in your book about the Belt and Road Initiative. Is China, through the Belt and Road Initiative, going to become the new global superpower?

Nicolas: Well, so the Belt and Road Initiative is a program designed to build infrastructures to connect China to the entire Asian continent and towards Africa and maybe in some parts of Europe. And it’s meant to support trade, and to strengthen the connection between China and the rest of the world. I think there are many precedents. It resembles the Empire that the Portuguese built the 16th century. It resembles to a certain extent the British Empire in the 19th century, with the exception that the British really wanted to govern entire countries, whereas the Portuguese a few centuries earlier, were not interested in submitting entire populations to their will. They just wanted outposts to be able to trade and to access the riches that were in the different parts of the world. And so I think the Chinese are more in that spirit. They’re not interested to submit other countries to their power. They are interested in developing their economy and to supporting their companies growing, and to strengthening their regime and they know because the regime has many adverse negative characteristics from a Chinese population point of view. It’s acceptable only if the economy is doing well.

Ben: Yeah.

Nicolas: And the Chinese economy will do well only if Chinese companies manage to expand abroad and do more business with other countries. So that’s why Belt and Road Initiative was designed. It’s to support and to sustain the continuous growth of the Chinese economy over the long term, even though most industries or companies are reaching a cap in terms of their capacity to grow on the domestic market. So what they’re interested in is more trade, more connections. And as such, they won’t be really comparable to the US in the 20th century. The U.S. was interested in security and matching the Soviet Union. Here the Chinese are interested in just trading and inspiring support in other countries for their regime. They don’t want to be bothered when it comes to domestic affairs.

When I wrote the book that was two years ago, it seemed as if China was succeeding on every front, especially because of Trump orchestrating the failure of the American Empire. Today I would say the current situation makes many people less bullish on China because the economy’s slowing down. Xi’s regime is tightening the bolts a bit too much.

Ben: When you say ‘tightening the bolts’, you mean …?

Nicolas: Well, imposing surveillance and…

Ben: Yes. Okay.

Nicolas: …repressing freedom of expression and there was a long time during which even Western media played along because everybody wanted to be friends with China. But now what we’re witnessing in Western media… it’s all out. Now we can write at length about Muslim people being forced to work and the Uyghurs and so on, which you didn’t read as much about that few years back because there was still…

Ben: Is that a Trump effect because of the trade war, and I guess the sort of indirect pressures he is applying around the world to do less with China?

Nicolas: I think it’s the Trump effect. I think Trump has precipitated the realization that maybe the U.S. will have to become self-sufficient, and maybe large US tech companies will have to renounce competing in China. And so if you don’t need to compete in China anymore, why bother trying to make friends with the regime? It’s useless. So it effectively becomes a mandate for those who are genuinely shocked by the treatment of the Uyghurs to write at length about that, because it doesn’t go against the economic interests of the U.S. as a nation, because they’ve renounced doing business in China. I’m not sure it’s true for every U.S. company, but I think that the radical change those past two years has been that well, it would be nice if we could do business in China, but since it’s too difficult, let’s just renounce it and reposition our entire economy.

Ben: You write a lot about how innovation is a three-player game, so you have the State, Capital and the Entrepreneurs, and you also talk about how the state best deploys resources when they are mission-oriented. Is the Green Deal, which I’m not sure something you’ve talked about much or written about much, is the Green Deal the mission to galvanize those three players? In particular, is it Europe’s opportunity to create something, our new industrial sector or a new group of companies that can be world beating?

I like to be a bit more radical and talk about ‘war’. What matters is that we must wage a war against something, because being in a state of war is extremely liberating for entrepreneurs. You don’t have to waste too much time explaining what you do if you’re in a state of war, as opposed to what many entrepreneurs do all the time, which is trying to explain what they’re trying to do and no one is understanding.

Nicolas: So to be fair, those are not really my ideas, but rather those of economists like William H. Janeway and Mariana Mazzucato. The idea that the entire thing that we call entrepreneurship, or VC-backed entrepreneurship, is in fact enabled by the state spending a lot of money in basic research, infrastructures, and so on. And that most of that world, the world of entrepreneurs, owe their biggest successes to the state having set a goal and having mobilized an entire nation towards reaching that goal.

And so, Silicon Valley can be seen as a byproduct of the US trying to best the Soviet Union on many fronts, including technology, and because it was a matter of life and death, the price that you had to pay was not really in a question. And so the U.S. Government was ready during the Cold War to spend whatever it took to discover new technologies, to implement those new technologies not only in the military, but also at a larger scale. And all those people who make fortunes in Silicon Valley were just piggybacking on that effort.

Mariana uses the concept of the mission. So we must be on a mission together if we want the state to provide the direction as to where entrepreneurs should go, and what kind of problems they should try to solve. I like to be a bit more radical and talk about war. What matters is that we must wage a war against something, because being in a state of war is extremely liberating for entrepreneurs.

First of all, war is preceded by speeches and explanations and slogans that everyone listens to, and so when you are an entrepreneur participating in the war effort, whenever you talk to anyone — an investor, a customer, potential customer, your mother, your friends — they all understand what you’re trying to do because it’s all part of an effort that everyone understands deep inside. So you don’t have to waste too much time explaining what you do if you’re in a state of war, as opposed to what many entrepreneurs do all the time, which is trying to explain what they’re trying to do and no one is understanding.

The other thing is that you don’t have as many enemies, as many obstacles in your way. You read a lot of stories about entrepreneurs trying to disrupt an industry and having incumbents against them, lobbying the government to enact stupid regulations that make it impossible for startups to enter that particular industry. But in fact, if you’re in a state of war, you can point out those incumbents that are lobbying the government to enact stupid regulation. Instead, they’re going against me that is part of the war efforts, and so as such they are enemies of the nation, and so it becomes more difficult if you in a state of war to resist the rise of startups and to slow down their success.

I think we need to find another war, and that’s why I’ve introduced this idea of Europe as a developing economy, because we have many examples in the recent past of countries that have managed to develop their economy by waging a war against under development, because being underdeveloped is humiliating. You see yourself as poor, lagging behind, and so each leader comes up and says, we’ll fight a war against this under development, and that will take a lot of effort.

Ben: So to reframe the question then, should Europe wage a war against climate change?

Nicolas: Well, I don’t know. I think Europe is not that impacted by climate change, too… Well, nobody knows. So far, it’s been a miserable failure. We’ve failed at inspiring a fighting spirit when it comes to climate change. I think in countries such as Australia that’s burning at the moment, it will become soon, quite easy to make people realize the connection between that abstract thing that is climate change or global warming, and what’s happening around them and actually threatening their life, and suddenly it becomes a matter of life and death. And that’s what war is about.

But in Europe, we were lucky in a way that we’re in the part of the world that will be the less impacted by climate change, except maybe for the Netherlands, who are in danger of disappearing altogether. So I think it’s difficult to inspire that fighting spirit in a region such as Europe where people see the world burning far away from them, but don’t feel really concerned, and it’s even difficult for them to realize the connection between the immigration waves and the fact that some of those immigrants are actually fleeing regions that are deeply impacted by climate change.

So I think we need to find another war, and that’s why I’ve introduced this idea of Europe as a developing economy, because we have many examples in the recent past of countries that have managed to develop their economy by waging a war against under development, because being underdeveloped is humiliating. You see yourself as poor, lagging behind, and so each leader comes up and says, we’ll fight a war against this under development, and that will take a lot of effort. And that will implement radical reforms like what happened in South Korea in the 1970s, or Taiwan in the 1960s. And then you deliver economic development as a result of having waged a war against under development. So you need to find something that resonates in people. It’s either problems that they experience on a day to day basis like housing is unaffordable in large cities where all the jobs and all the opportunities are concentrated. Maybe the French president that would wage a national war against housing and affordability would inspire that fighting spirit, and would manage to implement radical measures like expropriating real estate owners in dense urban cities. Maybe, I don’t know…

Twenty years from now, we are not sure we will still have prosperity because if we don’t have the growth drivers that are large, successful tech companies that accumulate value and realize that value into wealth, and a social contract that orchestrates redistributing that wealth at the scale of entire societies, then we will be lagging behind. And that’s the lesson of the history of technological revolutions.

Ben: So I understand better what you’re trying to achieve by calling Europe a developing economy, and I remember the newsletter that you had where it was called something like they had stopped celebrating sort of second tier IPOs because we shouldn’t dress up where Europe really is in terms of tech, particularly vis-a-vis the U.S. and vis-a-vis China.

Nicolas: Yes, exactly. That’s it. It’s still good to live in Europe. We have good public services, good infrastructures, good hospitals. Most things are affordable, except for housing in Paris and London and Munich, but the fact is, we have that today but 20 years from now, we are not sure we’re still have all those things because if we don’t have the growth drivers that are large, successful tech companies that accumulate value and realize that value into wealth, and a social contract that orchestrates redistributing that wealth at the scale of entire societies, then we will be lagging behind. And that’s the lesson of the history of technological revolutions. It’s not because you dominate in a given paradigm that you’ll be the dominant economy in the next paradigm. You need to do what it takes to reposition your entire economy, to redesign your social contract to make the most of the new technology of the day and Europe has been failing miserably on that front. And that’s why people like me like to insist on the fact that yes, there are some successes, some promising things happening, but we’re still lagging way behind the U.S. and China and we need to have more of a fighting spirit to catch up on them.

Ben: And so it’s been only one or two years, but it’s not quite two years but it’s getting on for maybe two years since you published HEDGE, and looking back on it, do you think you should have written a book first about how to build giant tech companies and then this should have come later how you redistribute the wealth dividend?

When you start talking to those politicians about jobs and opportunities, they realize that there’s a connection between the everyday life of their voters, their constituents, and those small startups are trying to scale up and you can have a conversation that’s more constructive and more serene.

Nicolas: Well, the idea of writing that book was not mine. It was that of one of my co-founders, Oussama Ammar, who told me one day like with Trump, so he had a sense that Trump’s election will amplify the tech backlash worldwide. So his intuition was that now the Americans will start experiencing what entrepreneurs are experiencing every day in Europe, that is hostility, widespread hostility towards what they’re trying to achieve. And because we are French, we built The Family initially in France. We have a technique to counter that. How do we fight the backlash in France? We fight the backlash by changing the conversation from tech companies are disrupting the world to… governments are failing us by not building the right institutions, in which the value created by tech companies will benefit everyone. And when you manage that it’s very effective because you talked to some Civil Servant or some Minister, who is raging against tech companies that oh, they’re not complying with the rules and destroying jobs and we will regulate them to death and you say, well, maybe the problem is not that tech company.

Maybe the problem is that you’ve been failing at the radical imagination that we need to design new institutions for a radically new world, and maybe that’s the key to creating more jobs and to provide more opportunities to people. And so when you start talking to those politicians about jobs and opportunities, they realize that there’s a connection between the everyday life of their voters, their constituents, and those small startups are trying to scale up and you can have a conversation that’s more constructive and more serene.

So Oussama’s intuition was that it’s starting in the U.S. — the tech backlash is crossing the Atlantic and will intensify in the US, and maybe we can share our playbook about changing the conversation from disruption to designing a new social contract with the Americans and HEDGE was written for that. The problem is that it didn’t, didn’t really resonate, because it’s not Silicon Valley’s impulse to switch to discussing social policy when they have problems with the government. But maybe it was a bit too early.

Ben: It was a necessary book, whether it was too early or not. It had to be written and I was just flicking through it in advance of this interview. It hasn’t aged. It’s still fresh.

Nicolas: It’s a very fundamental topic and a very important discussion to have. So I think the book will remain relevant for many years to come. And maybe at some point, people will realize that now it’s the new battle that we need to wage, imagining that new social contract. But had I started by writing a book about building tech companies, that wouldn’t have been of interest for Americans because they know how to do that. And I didn’t know enough about Europe at the time to explain how we should proceed in Europe to catch up.

Now it’s two years later, I’ve been living in London for many years. I’ve been crisscrossing the continent, speaking to many people, including in the U.S. and read many more books. So I have a clear view of how you build tech companies in Europe.

I think government policies have been misguided so far. Government has been focusing too much on how do we support companies, and how do we attract more companies in our local ecosystem, whereas most of the efforts should be on how do we force companies that are starting to grow in our local ecosystem to expand at the pan-European level.

Ben: And I mean, that’s the effort that you’re supporting across Europe with The Family, because it started in France, but you are in Berlin, you’re in the UK, and the proposition has changed too, because it was a platform into which entrepreneurs could plug in to get the support they needed to grow. And since then you are now providing capital into some of this companies, as well as a program to bring talent into Europe, particularly into Berlin. So what’s next for The Family in its mission to support European entrepreneurship?

Nicolas: Well, that’s a tough question because The Family is more than a mission-oriented organization. It’s also a business venture that needs to square up its ambition with the resources that we have. So what we have today is a growing portfolio of startups, some of which are getting quite large, reaching quite a large scale. And so we’re starting to be able to exhibit those as examples of what should be done, and reverse-engineer the best practices that we’ve been experimenting within The Family, but we are still dependent on the state of the pan-European ecosystem. If it doesn’t lift up companies as much as it could, then we’re taken aback by the entire ecosystem. We can race slightly ahead of the pack, but not that much ahead. We are still dependent on where the ecosystem is. So I think today on that front of thought leadership and reflecting on tech companies in Europe, the next stage is to foster that conversation that’s still not happening about building tech companies in Europe. What I see happening is local conversations about how to attract more startups to Paris or to London or to Berlin, which is not very promising, because that’s not the way to do it.

Ben: Is that almost zero-sum stuff?

Nicolas: It’s zero sum stuff, and it means that you resign yourself to rely on a single city for building startups, which cannot succeed because you might find capital you need in that city. You will struggle to attract all the talent you need in that city, and you will certainly not find all the customers that you need in this particular country. You need to be able to cross borders to find customers in other countries and so on. I think government policies have been misguided so far. Government has been focusing too much on how do we support companies, and how do we attract more companies in our local ecosystem, whereas most of the efforts should be on how do we support? How do we force companies that are starting to grow in our local ecosystem to expand at the pan-European level, which is part of the development playbook for South Korea and Taiwan, by the way, back in the 20th century?

You need to prioritize supporting companies that are strong on foreign markets, as opposed to companies that are stuck in your domestic market. So nobody does that because nobody realizes the common points between the current state of Europe and the state of East Asian countries as you did decades back, but I think there’s more and more interest the fact that we have a new EU Commission, the fact that we have the context of Brexit that inspires many questions. The fact that we, as The Family, have more of a platform now to voice ideas and to share them with a larger audience.

Ben: Do you have practical examples of companies and founders that are making those leaps, are crossing those borders?

Nicolas: Not that many. So in a recent newsletter, I mentioned the example of an entrepreneur that’s not part of The Family, but he’s a good friend called Vincent Huguet, so he’s the founder of Malt, which is a freelancing platform that’s very strong in France, and they’ve decided that the next opportunity for large scale expansion was Germany, and they reflected on how to conquer a market like Germany, because Germany is very different. Freelancers are not the same as in France. Corporations are not the same as in France. The geography is different. It’s a decentralized country, as opposed to France being extremely centralized in Paris. And what he decided is that he had to move there, to lead the efforts and be on the front line. And so he moved to Munich, he found someone to manage the French operation and decided to move to Munich to send a very strong signal that Malt is very serious on the German market. And so it’s a signal towards potential customers in Germany, if the CEO lives here, that means they’re serious, and it’s a signal to his organization. That is, if we don’t make it in Germany… I’m committing myself to conquering Germany by settling there with my wife and kids. So Vincent is a rare example. And don’t know of many others actually, but I think it’s too rare, and it’s explained again by cultural differences, problems with languages.

Ben: And a lot of friction.

Nicolas: Yes!

Ben: But you yourself have lived from France, to United Kingdom and now you’re going to move to Germany. So you are practicing what you preach.

Nicolas: Yes. Which is good.

Ben: It is good, yeah.

Nicolas: We’re doing that as a family, so my wife and kids, because both my wife and I have been shifting our work to a place where we can work mostly remotely. So The Family is an organization that is extremely welcoming to remote work. So I work mostly from home, except when I travel for important meetings and so on. Laetitia Vitaud, my wife, has her own company, and that can be operated from anywhere. And then we want our kids to learn many different languages. So we don’t have a problem with leaving France and putting it put them in English school in London and then leaving London and put them in a German school one year from now in Germany. We know that they’ll have the challenge of not understanding a word for a few weeks, and then, because they are kids, they learn extremely fast, and I think it’s the most valuable asset that you can provide children these days.

Ben: Because it’s not about language, it’s about culture.

Nicolas: Yes, language is only the practical tool that you use every day to communicate with others. But when you attend a school in a different country, you are deep inside a very different culture that you learn. You might not be able to describe it, but you learn it instinctively and it makes your brain more effective at adapting to different circumstances.

Ben: Fantastic. Nicolas, thank you so much for coming in to see us in Geneva and being part of this podcast.

Nicolas: Thank you for having me.

Ben: That was really fascinating and enjoyable. Thank you.

Nicolas: Thanks.

Startup Success Recipes (#4)

Structural Shifts with James MINERS, serial-entrepreneur and now Senior Advisor at Fongit

Together with James Miners, serial-entrepreneur and now Senior Advisor at Fongit — Switzerland’s premier startup incubator — we explore what it takes to make the journey from scientist to startup founder, transforming ideas into successful mass-market products and what is the key to startup success.

 

  1. Fongit startup support, news & events — https://fongit.ch
  2. Follow Fongit news — https://www.facebook.com/fongit.ch/
  3. Overview of the Swiss startup scene — https://www.startupticker.ch/en/swiss-startup-radar
  4. Swiss startup workshops, coaching, and grants — Innosuisse.ch
  5. Startup Genome Report — Metrics for startup success — https://startupgenome.com/reports
  6. Swiss startup investments — https://www.sictic.ch/report2019/
  7. Swiss startup investments — https://www.startupticker.ch/en/swiss-venture-capital-report
  8. Noam Wasserman — The Founder’s Dilemma

You can follow James on Twitter @JamesHMiners

Ben Robinson (BR): For episode four, we’re in conversation with James Miners. James is an international innovator who has made the journey from science to startup, and now supports fellow innovators, helping them to achieve success. If you’ve wondered what it takes to turn an idea into an successful product, or the keys to startup success, this podcast is for you!

James has founded and grown several companies, transforming scientific inventions into mass produced products. For the last five years, he has focused on building the Swiss startup scene and has supported hundreds of innovators and entrepreneurs. He has also used his innovation techniques to support large companies in generating innovative ideas.

James works at Fongit, which is Switzerland’s premier startup incubator where he manages the coaching and incubation process. He is also an expert for Innosuise — Switzerland’s innovation agency.

James, welcome to a p e r t u r e! Let’s start at the beginning. Your career has gone from science, to technology, to product, to people. Please can you tell us about it.

James Miners (JM): Yes. So as a kid I was always excited about discovering new things and making good new things happen. And so strangely enough, I really wanted to push the boundary of what was known in science. So I ended up doing a PhD with someone who went on to win the Nobel Prize for chemistry. And that was fascinating. The problem that we had at the Max Planck Institute, was people saying, well, what’s the application? It was so far out and you have a lot of ideas, but then the question is which of those are useful in the real world?

So that pushed me to industry and to startups and working with taxis that were powered by hydrogen and stuff like that. And in that role, I was ultimately chief scientist. So working on the technology, going from prototype to mass production, multi-generational roadmaps, and then ultimately in the last one, more on the people side and the COO role.

Ben Robinson: So what was the first startup you did after your PhD?

James Miners: So that was in fuel cells for cars and boats. And my job was to set up the research center for new materials. And with that we were able to go from an idea all the way to scaling it up and seeing it in a fully integrated system. And it was a joy because I was working with people on the Russian space program, the European space program and some of the Americans. So…

Ben Robinson: What happened to that technology?

James Miners: So it’s funny, technology has hype phases and for a while the best investment you can make in the world was in hydrogen fuel cells. And then all of a sudden it’s out of fashion. Luckily… batteries became really hip and it’s very similar technology. So I was able to move from doing these fuel cells for those applications and to small fuel cells for the military in Israel and then ultimately to nano technologies for large batteries that you can see in hybrid and electric vehicles.

Ben Robinson: Okay. And so that was that. So the first startup was where? It was in..?

James Miners: So that was in France. And then we ended up having I think, nine sites and we were on our way to raising a hundred million pounds and 93 million signed up and 9-11 happened. So you can just imagine bankruptcies just rolling across. And there I am… in France, 26 years old… first job in the industry, first job in France, and with a team of brilliant people that come from all over the world to join me and we’re in bankruptcy. And that was my first big crisis of leadership. Everyone can sail a ship when it’s happy days. But I was very proud that I could keep my team together in France and teaming up with the Belgian team. We could actually get refinancing and bring that into the second startup.

Ben Robinson: So there is — I suppose as long as these things turn out at the end, these are good lessons learned, right? If they don’t.

James Miners: I learnt a lot. And the second startup really was great because we could take those ideas that we had in the first one and really ramp them up to mass production and I learned a lot in that process as well.

Ben Robinson: So you went from fuel cells to batteries. You went from France to Israel and what came after that?

James Miners: So I went to visit my parents one day, live in new Lusanne and I’m talking to the neighbor and they said, . So I did. And that’s how the fourth startup got going.

Ben Robinson: So what — I missing one. I think. So you did a startup in France, a startup in Israel. [We had two in France]. Two in France. Okay, Both in fuel cells? [Yes] Okay.

James Miners: So the first one got bought by the second and then…

Ben Robinson: Got it. Okay. Okay. And so that brought you back to Switzerland or the first time you moved to Switzerland?

James Miners: No, that brought me back to Switzerland.

Ben Robinson: Because you grew up here or you grew up in the UK.

James Miners: I was born in France, raised in Holland, educated in the UK and Berlin. And then had two startups in France, one in Israel, the last one back here.

Ben Robinson: Okay. That was again in batteries was it? [Yes] Okay. And what happened to that company?

James Miners: We were bought by Dow Chemical and that was at the time where Obama was giving — was stimulating the car industry and also the renewables. So once I joined Dow I could help launch their energy material business. And that’s amazing when you’re helping a large company innovate and bring new technologies to the market as well.

Ben Robinson: A couple of questions I wanted to ask you. One was why not do another startup… because it seems like you had very much had the bug to keep starting new things and… why not do a fifth?

James Miners: Well, if the right opportunity comes along, but at the moment — there’s always this question, if my why is to help make good new things happen, I can either go deep in one or I can work on a lot of different facets of different startups. And because I was really helped by a lot of mentors throughout my journey, it’s incredibly rewarding to do what I do now and I think I can actually have four times the impact just [Interesting] doing that…

…than just working on one and it’s also suits my personality as well. I think. Yes my grandfather always talking about cricket. I wanted to be a good all-rounder and… on one front you’ve got to show to yourself that you can do the depth. And I think I did that with my PhD and my postdocs and being a COO. But on the whole I’m happier in a more creative role.

I think a lot of people idealize how it is to work in a startup.

Ben Robinson: Yes So when you did startups, you found it got very operational very quickly and less about ideation and…

James Miners: You’ve got to manage that process. I really did go from invention to technology to product and then…

Ben Robinson: Which I guess makes you a much, much better mentor. But what you’re saying is what you like about your existing job is you can — you can have an outsize impact by mentoring people, but also you get to concentrate on these of early stage of startups. Is that right?

James Miners: So I like the early bit, but actually what I enjoy is the diversity of questions you get asked. So today it was the employee share purchase plan for a company. It was managing the coaches at Fongit talking about the dangers of making a video of your product because it can really damage your ability to patent them. You imagine that in my morning today, so your brain is being exercised at all of these different dimensions. I think the real questions get more interesting later.

Ben Robinson: And you don’t miss some of the rush, the adrenaline of running your own company or, and I guess also a lot of reason why people get into doing startups is because of the out sized potential rewards that can come later. You don’t miss that aspect. The adrenaline, the potential to become rich or really rich or…

James Miners: What most people don’t know about my job is Fongit is a business and it’s a fascinating one. We’ve got 60 startups that we’re helping who’ve got 350 are employees. And over the last five years we’ve transformed, this incubator being world-class in the way it operates and the way we coach in our process for going from IDF to a fully funded business plan. We’re seeing more Swiss startups going a lot further.

So there’s this whole business side and I’m part of a pretty amazing team at Fongit which has also grown up a lot in the last five years. So I get the whole running a business side or working within a business at Fongit and then the ability to affect the startups without the huge portfolio focusing of running a startup. I think a lot of people idealize how it is to work in a startup. I got married at the age of 45 or 46 for the first time. I think there’s a reason why it took so long.


Ben Robinson: We’re going to come back to that. So there’s loads of things I want to come back to because I think one of the — one of the things we should discuss is there is a false narrative sometimes around what it takes to be successful and run a startup? [Absolutely] I want to come back to that. I want to talk about Switzerland because through Fongit, I think we can start to see some of the impacts of Fongit and other incubators manifesting themselves in way better scores for Switzerland; way more way more vibrant ecosystem.

So I want to come back to that. I want to talk about Switzerland in Europe. I want to talk about Fongit, but I just want to ask one more question about you before we move on to Fongit, which is… all the companies that you did were focused on energy, batteries, fuel cells. I guess you were motivated by stopping climate change or the circular economy or whatever we might call it. Do you not — is that not a burning sort of passion or mission and do you not miss that aspect of what you were doing?

Fongit was set up by innovators for innovators and that was 28 years ago and that’s what we’re doing today. It’s trying to find the best way to transform ideas and research into products and services that deliver social and economic value.

James Miners: So, yes I do think that if you get a gift, you should use it for good. And I have to say when Copenhagen summit collapsed, that was a really big blow to me personally. So now I genuinely believe that new technology tends to improve the quality of life and particularly if it’s in life science, but in a replacement economy, better products tend to also be cleaner. And so I find what I’m doing now is contributing and as if we now look at the movement from clean-tech to SDGs, there are a lot more different ways that you can contribute.

Ben Robinson: What are SDGs?

James Miners: Sustainable development goals. [Okay, thank you] All 17 of them.

Ben Robinson: And so, well, I think what you’re saying is you, you are very motivated by helping the planet. What you’re saying is you’re still having a contribution. It’s just a bit more indirect than it was.

James Miners: Developing technologies for industry is probably a space that is best played by industry itself. Clean Tech is not an obvious place for startups. If you’ve got to prove that you’ve got a lifetime of 15 years and then you’ve got to finance all of that… that’s a tough path of the market as well.

Ben Robinson: We’re going to move on now. So tell us how you started working at Fongit and what Fongit is?

James Miners: So Fongit is Geneva Foundation for Technology Innovation and the story of startups in Switzerland really started 50 years ago with a tech innovator who tried to set up as a company and it failed. And then two years later tried again with his brother… failed. And the third time it was a charm. It became LEM which is now quoted on the Stock Exchange. It’s in multiple companies. A Real Swiss success story.

Mr. Eta when the company IPO, he decided when to take some of that money and use it to help other tech innovators so that they could avoid some of the silly mistakes that he made at the beginning and they could boost their success. So Fongit was set up by innovators for innovators and that was 28 years ago and that’s what we’re doing today. It’s trying to find the best way to transform ideas and research into products and services that deliver social and economic value.

For us, success is having a company of 15 to 30 employees doing something interesting for 20 years, that’s a contribution. It’s not necessarily interesting if you’re a venture capitalist however. In fact, you might end up pulling the plug on this company that could really be viable.

Ben Robinson: And how long has it been going?

James Miners: 28 and half years. [Wow. Okay] Yes, so it was the first one in Switzerland and the guy was really visionary to set this up.

Ben Robinson: Yes I mean it was way ahead of its time, right? [Yes] Because it seems, at least to me that incubators are really, while they thought they were relatively recent phenomenon. [Yes] And in those 28 years, 28 and a half years, I guess you can point to quite a lot of successful graduates from the program.

James Miners: Yes. So we’ve had sort of 11 exits in the last 10 years or so and they tend to be acquisitions by larger companies. Normally the distributor of the product. That long time frame has allowed us to develop Swiss model of startup success and also enables us to play to our strengths rather than trying to imitate other behaviors. So one of the first things I did when I joined Fongit, was try and look at the Swiss strengths and develop this model for the Swiss startup success as opposed to pretending that you’re in Silicon Valley in America.

So Switzerland tends to do high deep tech innovation that can be patent-protected, B2B, in a niche. And very often you are going to have a much higher success rate, more successes, but fewer unicorns. And a lot of the narrative around the startups is driven by creating products for venture capitalists. But on the whole VCs aren’t actually tremendously present in the Swiss scene.

Ben Robinson: It’s interesting because a lot of people focus on that. A lot of people sort of say that Switzerland, relative to Israel, or the UK or US, whatever per capita doesn’t have that much VC money. And I suppose one way to interpret that is it’s an underdeveloped ecosystem. But the other way might be that it just doesn’t need it because if most of these companies can kind of bootstrap themselves and they had become SMEs and they’re not pursuing moon shots, then maybe it’s just an economy in an ecosystem that doesn’t require as much VC money.

James Miners: Well I think there’s that. And I think there’s also a question in maturity of the ecosystem. So what you feed a teenager is not what you’re going to feel as a school kid. And so the Swiss ecosystem now is in growth phase. And what’s funny is we’re seeing higher average quality and more of them and they’re going further. So now we are starting to see Swiss unicorns popping up. But our approach is to say we want rabbits. So real actual businesses developing interesting technologies. So the idea is you have lots of these baby rabbits, you feed them rabbit food and at some point in puberty they start growing a horn. At which point you can start giving them Unicorn feed and you’re seeing those metrics going.

However, if you treat every startup like a unicorn, you’re going to kill most of them. [Yes] That’s kind of toxic. And our job at Fongit is to help develop successful startups. Now what does success mean? In fact, that’s the first question I want to ask an entrepreneur. Do you want to get rich or are you wanting to remain in control? and you even believe you’re the best person to grow this? Success will be different in both cases. And for us, success is having a company of 15 to 30 employees doing something interesting for 20 years, that’s a contribution is not necessarily interesting if you’re a venture capitalist however. In fact, you might end up pulling the plug on this company that could really be viable.


Ben Robinson: And you have some quite good statistics on this. I think in terms of the average age of a Swiss founder that the rates of growth and — because its — like I think when you look at those statistics, it’s obvious that trying to turn Switzerland in Silicon Valley or even trying to compare Switzerland with Silicon Valley is just the wrong lens through which to look at this ecosystem.

James Miners: Yes! Just play to your strengths, I think. And it may be it took a few foreigners to come to Fongit and say, look, this is what you do. Well, let’s come up with this Swiss culture of startup success and let’s work on that. So, yes…

Ben Robinson: But do you think — coming back to this story of this narrative around startups, right? So the first one — I’m not saying these are necessarily false narratives, right? But one of the first things that people say is if you want to change the world, you need to work for startup. Do you subscribe to that view? Yes or no. Secondly, the way to get rich is to join a startup. Do you subscribe to that view? Yes or no? And then the third thing is, you’ve got a blitz scale run as fast as you can. Do you sort of subscribe to that view. Yes or no? And I think you would — you probably, I guess you can even turn this on its head and say like they start with the objectives of the founder, But if you can even remember what those three questions were, how do you[Crosstalk]

James Miners: So the third one was, it turns out that premature scaling is the biggest harm to start ups. And there’s a lovely report called the Startup Genome Report and they reviewed 20,000 startups a few years ago and they came up with the term  is the most common reason for startups to perform worse. And I understand the dynamics. At some point, you’re on generation three, your investors are all “launch it” — — but all your costs come into marketing there and production there.

So you need to be damn sure before you’re going there. On getting rich. There’s a great book called The Founder’s Dilemma and the fundamental question is; do you want to get rich , bigger pie, smaller slice or do you want to keep control? I asked people that if they don’t want to say I really want to get rich and that’s why it’s clear they want to maintain control.

If you’re in your 20s or 30s, you probably get more money working for a large company or in banking than working in the startups statistically. The average age of a founder in the US is 38 years old; in Switzerland it’s 38 years old. VCs tend to prefer funding younger startups and we love the idea of people just finishing university. But the fact is that, every Swiss startup entrepreneur has finished their university. They don’t drop out.

And a really great way to go about doing a startup is working a large company, really understand the industry and then at some point, whether or not autonomy becomes a bigger driver for you, you’ve got the seed capital, you’ve got enough with a few co-founders to go for one and a half years, then your valuation is much higher. Now you’re going to be less manipulatable by VCs and extra money. And there…

People say startups are taking a leap into the void. No, it isn’t. You go, you get a good coach. It’s an airplane… they ask you where you want to fly, they give you some tips, you take off and you work out all the risks and you manage the hell out of them. And you get a great team and a good advisory board. And yes, sometimes you’re lucky.

Ben Robinson: It feels very much the Swiss way, right, to work in industry for a long time, become a master of the profession and then use that knowledge to kind of make the profession better for a different narrative than, ,you know you leave college and he wants to massively disrupt existing industries.

James Miners: It turns out that in the US the 0.1% fastest growing companies, the average age of their CEOs is 40 and the 0.01% of them, the average age is 45. So it depends which story you want. And when we talk about this question of do you want to get rich or keep control, people say, well… let’s look at Apple, right? He was kicked out and there were three founders and you know two of them. Microsoft, also three founders, you know two of them. So even the examples where someone had it all, they’re not particularly helpful. [Yes] So one of the tough things about my job is you have these outliers, which are very, very interesting, but they don’t necessarily help you dealing with the majority of the people you are coaching.

Ben Robinson: True. And the story of successful companies is told by the people who’ve enjoyed their success and they never place or they never attribute any of the success to luck, right?

James Miners: Yes. Or they say it’s timing, which is luck. So one of the worst moments I had and I promised myself when I was going to be successful, I would not do this, is… you’re there… and there’s a successful entrepreneur. And if it’s a guy, he’s going to say… . And he said, . Well there were three co-founders, but I killed two and  and I’d be sitting there in the audience thinking you have to be a super hero to succeed.

This was tremendously demotivating. Now I understand why I’d say that, but no, most of your life as a startup, you’re not a butterfly. You’re actually a caterpillar. And I think the helpful start up and that narrative is, hey look, these are the stupid things I did but didn’t kill me. And nonetheless, I’ve had a really great time. I’ve learned a lot.

Ben Robinson: What proportion do you think of the stories and how companies were founded and how they initially felt success are either fabricated or kind of retrofitted because it sounds great?

James Miners: So I work with the professor of innovation at IMD called Stewart Reed. And he said, the problem with his area of research is if you’re a good entrepreneur, you’re good at telling stories then you will tell the best stories. So it’s a story. And when I’m coaching people that is finding the most compelling narrative. There are many stories, but which is the best one? And the question is, which is the most helpful to the goal of building a thriving Innovation Nation?

People working together and also more women entrepreneurs. Because also this mantra narrative, it isn’t the truth and it’s not helpful. And so much of this is people say startup is taking a leap into the void. No, it isn’t. You go, you get a good coach. It’s an airplane… they ask you where you want to fly, they give you some tips, you take off and you work out all the risks and you manage the hell of them, out of them. And you get a great team and a good advisory board. And yet, and sometimes you’re lucky. So your third question, I forget what — oh your second…

The best way a large company can get the most value out of a startup and also help that startup is to be their customer. Because the value of a dollar from a customer is 10 times that of an investor.

Ben Robinson: I think we covered everything. Do you need to do a startup to change the world?

James Miners: Yes, in terms of innovation types, you’ve got incremental innovation. 70% of innovation is incremental. That’s fine. Then we’d like to think about the breakthrough, which is an IP, you know… new science. And then of course you’ve got the disruptive, which tends to be not much technical breakthrough, but it’s really market driven. So that might be more entrepreneurial innovation. And of course the ideal is when you get all of those together. So the Swiss model tends to be — it’s existing needs solved better. And then the question is do you want to build that yourself into a sustaining company? Some point you want — why would a large company want to buy that?

Ben Robinson: Good. So I’m pleased you brought us on to the subject of large companies coexisting with small companies because, so you’ve obviously lived this in your experience with your startup and Dow Chemical. And, I guess you also live this through Fongit because I would imagine one of the things you’re doing is trying to find both customers and also innovation partners for the startups that you incubate. How easy is that to do?

James Miners: So that’s the weakest points in Switzerland’s innovation score cards, the collaboration between large companies and small companies and startups. And there’s always this debate, should we invest in a startup? Should we do contract research for a startup? The best way a large company can get the most value out of a startup and also help that startup is to be their customer. Because the value of a dollar from a customer is 10 times that of an investor.

And that means the large company is not only getting something that’s super fresh, they’re really testing it before everyone else and tailoring it to their needs. It’s phenomenal. On the other hand, if they want to invest well, there are people like me that know how to make an awfully good slide deck and the proof is in the pudding. So my recommendation is if you’re a large company and you want to innovate, we know that startups are three times more Capex efficient in developing something than a large company.

Also, startups don’t have any brand risk. If they go test something and it doesn’t work. In fact, it’s remarkable. When I was acquired by Dow Chemical, we had three times the number of people. But if we were sampling in the existing customer, there’d be a debate. What happens if it’s not perfect? Well, it’s still going to be better than what we shipped six months ago. Right? But we’re selling this other stuff and this might hurt our brand. And as a manager, that’s the last thing you want to do. So startups can get customer intimate and iterate so much quicker than a large company.

So it does make a lot of sense for a large company to, particularly if you want to explore different positions in the value chain, can even do it on a different brand powered by this, or acquire a startup at the right stage. And then it’s basically rebranded and you scale.

Ben Robinson: It always seems like it’s a very healthy coexistence because as you said, one has — one company has a brand, a lot of customers, a route to market and the other one has innovation. And so does it always seems like it’s a very, very good symbiotic match when you can match a big company with a small company. But what you’re saying is just become their customer and you steer people away from some of the other things that they do. Like investing in startups like innovation centers and all these things that are less effective, you would argue.

James Miners: So the investing it’s very complex. [It’s not really in the DNA of the company, I mean they’re not specialists…] so the point with the investing is it works well if it’s completely separate. But if it isn’t, then you set it up to do those risks that you wouldn’t normally look at. But then you’re getting analyzed using the normal part of your brain, which says it can never work. So you’re not really de-risking it in that case. And then we haven’t really seen the success that was anticipated from these corporate centers where they would integrate startups.

Ben Robinson: Yes well there’s a big movement isn’t there? To try to learn from startups and where do you stand on sort of intrepreneurs and that movement, maybe I’m putting words in your mouth, but it seems to me that you’re saying one company is good at exploitation, one company’s good at exploration and they should work symbiotically, not try to copy each other or…

It’s one of the funny things that if you’re a consultant or you’re an external person, people listen to you. The moment you’re inside the organization, you’re one of 50,000.

James Miners: Well I do think if a large company is going to know how to value an innovation and not shoot down every new idea… they do need to nurture it internally. And you just asked an interesting question. What can large companies learn from startups? And there was a very smart guy from Nissan who approached us two and a half years ago and he said,  

So we worked with them to get an elevator pitch and an executive summary slide where they could pitch the idea to the committee of VPs in three minutes. We train them in Question and Answer. And then it was do we kill it? Do we adopt it immediately or do we ask for a full slide deck, full slide deck, 12 slides. Also trained them to pitch Q and A, took them three months to do. Again, half of them were adopted; one third maybe killed and another 20% just wanting some extra detail. But it turned out the tools that we’re using in startups are highly effective to help those large companies innovate.

And because, you know, you got to be aware, if you see all of your ideas that you’ve gone in house in the next few days and you kick all of them down, well you’re not going to be around in the next five, 10 years. And what was fascinating from the vision of the CEO… said people are managing really well to a certain level, but if they want to become a VP, they need to know how to invent the future. So they need to run an innovation group or on a project or two for 18 months before getting that promotion because someone in the organization has to build the future.

Ben Robinson: I don’t know — you probably have statistics on this too, but it seems that most innovation that takes place within a corporate comes when that corporate is prepared to do things outside of the body corporate. So set up a new entity or give the power to a group of people to go off and think differently and take risks. And so in the same way it works more when they worked with startups because that’s inherent to the culture of a startup. It seems that you’ve got to try to create that culture and maybe you use a separate vehicle if you want to get that kind of innovation in a corporate. Like does applying the business model canvas or whatever work if you just tried to apply it to the body, like divisions within a large corporate.

James Miners: Yes. You always going to have the innovation wars between building the future and the value delivery engine and all credit to the value delivery engine, they’re paying the bills and incremental innovation works fabulously. Now, if you want to do something very different, particularly changing your position in the value chain, so imagine all of a sudden, let’s say you’re Nissan and you want to explore selling cars to Uber drivers. Just want to have a think about it. Now, you upset all of your fleet vehicle manufacturer, you attack all of your existing… so with this idea, just changing a little bit in the value chain, you can damage 90% of your existing business. So that would be silly.

And on the other hand, if you could spin it off or if there was another startup that was doing it and you could help them a bit where you can explore that without that huge risk. So the other problem is if you make this external innovation center within the large company where these people end up being freaks and when they go and talk to the silver back gorilla is that we’re not in running the production and the core thing, they’re like, you’re a freak. So they lose the ability to convince people inside. And it’s one of the funny things is if you’re a consultant or you’re an external person, people listen to you. The moment you’re inside the organization, you’re one of 50,000.

Ben Robinson: So how many years have you worked for Fongit?

James Miners: It is been five and a half now.

Ben Robinson: Five and a half of the 28 and a half. And in that time I would imagine you’ve had exposure to hundreds, probably thousands of Swiss fintech companies because you probably looked through their applications, you were involved in the selection process, then you’re incubating. So you said there’s 60 startups. Is there an annual intake?

James Miners: Yes. So each year we had about 300 people applying and then we’ll screen those down. We’ll pre incubate about 15 so, they spend three months with us and a coach just seeing… what do they really need? Is there a fit? are we the best people to help them? And then we can move on to the incubation, which — typically you’d say, well we want it to be three years. But sometimes, the really great companies you want to keep sticking around because they’re inspiring the other ones. And particularly for me, coaching becomes scalable where you can say,  and now she becomes an expert because she’s explaining it. So…

Ben Robinson: and those successful companies are also happy to stick around in the program or at least in the building or…?

James Miners: Yes. So some of them get too big and at some point when there were about 30 people, they’ve got enough internal dynamics and unfortunately for us, and we’ve got a rent revenue, but we do feel it’s the moment for them to graduate. But some of them ask us, at pivotal moments, for example, during an M&A can we come back on the board of directors to help them for that? so we’re there and our mission is to help startups maximize their value really.

if it takes a village to bring up a single child, it takes a country to bring up a successful start up

Ben Robinson: Is there a Swiss part to your mission or not?

James Miners: Yes, so we have a few guiding principles. One of them is proximity. And what we noticed is if there’s someone in our building on the way to the photocopy machine that asked me a question, I say, And that’s basically saved them a week. And it’s as good as coaching as you could go and meet for half an hour. So we found that the value of proximity of entrepreneurs talking to entrepreneurs and their teams as well. When you are in R&D and you realize that the head of sales is really annoying. You think it’s your head of sales that’s particularly annoying.

When you see other startups, you’ll realize that jogging with another guy from R&D, it’s just the natural tension that you’re going to have. Those are the kinds of things that are useful from proximity. And then we have two other guiding principles. One is excellence. We’re trying to improve the whole time. And the other one is exceptions because anyone that’s going to be successful has to have a sustainable differentiated value proposition. And we can have our rules… but on the whole, if the evidence is some of our best successful companies will be different and will not be in the natural sweet spot.

Ben Robinson: Are there any downsides of incubating starts? I mean it’s difficult to see them. But one thing sometimes people say is that if you put, if you put sometimes introverted people in an open plan office, then they maybe become less inclined to share ideas and collaborate as kind of the only downside that I’ve heard. But are there any thought of others or if you’re mindful of these things then you take them into account?

James Miners: Yes. So… I’m smiling because when I joined Fongit every year we’d have an event with wine and these little nibbles and ties and the politicians will come and entrepreneurs hate that. So the first thing is…what kind of environment do introverted science geeks like myself like? And what kind of events do they like and how do we create an environment where they can thrive and be celebrated? So it turns out you need a kicker table, turns out that they do like coffee and croissant… that’s sort of our town hall meeting. And you can get the information across and getting the right kind of event and the right mix. That’s a lot of how you get the magic to happen.

But you’re going to need to have some noise canceling headphones. You need to ideally have some quiet zones. You need a variety of different spaces. And so we actually had to change our staffing. So all of a sudden you realize, well if we want to build a community where people interact, well, I’m a physicist, I’m not great at building parties. So we started working with people that had been trained in hotel schools, or business schools. And the moment the person that’s running our space has a background in events and facility management and brings a whole range of different competencies to the ones that we have. But again, not tailoring it to extroverted sales people, but trying to create that environment for Swiss entrepreneurs.

Ben Robinson: Is it competitive? So you said you’re getting 300 applications. It sounds like you’re oversubscribed, but does that — is it becoming harder to attract the best companies and what is the competition? Is it other incubators? Is it WeWork — do you think in those terms or is that…?

James Miners: Someone once said, in Geneva, the problem is not the 100 startups that are supported by the incubators. It’s actually the 20,000 companies that we can’t support. And literally if a company applies to Fongit and they’re based in or around our region or in Switzerland, I will try and find a way in my reply to help them. And most of them won’t come to Fongit. People apply, there may be in social entrepreneurship, well there are other good places for them. There’s the Swiss training. There are other colleagues in different fields.

If they’re in Zurich and they want to do something that is where they can equally well do that. And in Zurich as Geneva. Why move? Why not go to F-10? So it’s strange. We’re a foundation… not for profits. So our job is to try and help these people. And sometimes the best thing to say is, well, go and do this InooSuisse workshop and come back to us.

Ben Robinson: I should have asked this at the very top, but it’s only Swiss companies you incubate, is it?

James Miners: Yes, so you asked that was what I was saying about proximity. You’ve got to be here and be in Geneva.

Ben Robinson: What I was saying in effect is; would ask you to move here at least for the duration of their program. But the, the applicants don’t have to be Swiss. And what — you filtering only for Swiss applicants?

James Miners: No, no, no. So most of our our founders are international and but they have to be based here and live here. That’s the idea because simply we have so much more impact if they are here and you’ve got limited resources and time and you want to have the maximum impact, really.

Ben Robinson: Got It. So they might not be Swiss, it might not be a Swiss company initially, but in order to really take part, you ask them to become Swiss and settle here and base the company here?

James Miners: Yeah, So 90% of Swiss startups or startups in Switzerland are set up within 20 kilometers of where the people live. And in fact, that’s your great advantage as a founder is that — where do I want to live? And giving, you’re taking a big risk on your job. It’s kind of important to be there where you have your friends and families so that when that evening is available and you can go for beers… you can. And I think that was one of the mistakes I made with my first startup going from Berlin where I had my life and all the way to the middle of rural France where I got really good tax break. I wouldn’t recommend that.

Ben Robinson: This question occurred to me based on what you said, which is there is there a problem with a) Swiss geographical mobility. Like is it difficult to get Swiss people to move around? If you’ve got successful startup, how easy is it to attract Swiss people to move from, say, Zurich to Lausanne? And then the other thing is b) how difficult is it to get people from abroad to move to Switzerland because of costs, visas? what one of the reasons might be?

James Miners: So the main aim of an incubator is actually to, to grow what you have and help it to thrive. That turns out that, there are some people that are coming from abroad and have very good reasons for wanting to set up their start up here. But we’ve got an agreement with for example, Vaud, the canton next door, which is before the company set up. It’s fair game. Wherever if we can give them an offer that they really want, or they should come and set up the company here.

Once it’s established, you’re going to pay money to relocate someone, they’re going to lose their network because proximity is important. I know when I moved from having my center, the EPFL where my last startup was and Dow was… to Geneva, I had to rebuild half of my startup network. So I don’t see it there’s much… There’s going to be extremely good reason for moving an existing company.

Ben Robinson: But it’s more question about attracting talent?

James Miners: Switzerland and Geneva is one of the most desirable places to live in the world. And compared to San Francisco, it’s pretty good value for money. But the Swiss, actually the European German model of company growth tends to be… it’s a country of small to mid-sized enterprises, you can have little centers. And then you’ll grow, you might find some talent and grow another center of 30 people there and other talents of 30 people there. But on the whole you’re always keep your headquarters in Switzerland because it makes tax sense and it’s good for IP.

Ben Robinson: Okay, I’m going to get back to the question I was going to ask you earlier, which is, so you were working at Fongit for five and a half years, you see at least 300 startups a year because that’s roughly how many applications you get. So you, more than perhaps anybody else in this country, has a finger on the pulse. And so the question I want to ask you is what’s hot in the Swiss startup scene? What are the early indicators that you see of success? What are the — you think of the best characteristics of successful startups of founders, maybe? Just just share with us some of your insights based on all the startups that you see?

James Miners: Okay. So the first thing is…

Ben Robinson: And do they mainly come out of universities?

James Miners: Yes, so that’s an easy question, right? the first thing is, Yes. Solo founders versus teams. Solo founders take three and a half times longer time — more time to reach scale and two and a half times less likely to pivot. So we know the narrative of the lonely leader on their own. It ain’t true. So the next one is [debunking part of the established narrative right?] Yes. And then it’s always about diverse teams because you want people with (a) if they can get along and work together, but you’ve got different mental models going on as well. So that’s very valent. So balance team tends to have about three times or more user growth.

Ben Robinson: Is there an optimal number?

James Miners: Actually we got a really great start up and I think they had seven co-founders that was — average age was around 40 when they founded … called OB Wise. And they were a spin out of — it was ST Microelectronics and Ericsson, really good team. So we tend to find also early on if it comes to pitching competitions. So teams with a female member will tend to win that… just on the whole we’re seeing women are better in Q and A which is a big part of — [What do you think that is?] On the whole, guys can see questions as a challenge and women on the whole just — thanks for the question and going for it!

And also it’s aspect of differentiation. When you’ve seen five pitches of just one guy and talking about the team and how diverse they are, and then you actually see two people and they’re sharing the, the voice and the Q and A and one of them represents 50% of the purchasing public.It’s kind of more credible.

In terms of trends, our idea at Fongit is very much bottom up. We believe it’s the entrepreneur, the market and the investor that decide. And we enable. So when I heard the word Fintech via London five years ago, I looked around and we had five Fintech, seven fintech companies already at Fongit and no one in Geneva knew that word yet.

So if you know the word, it’s probably too late. So you’ve got to do it bottom up in that approach. But the biggest advantage I have is I get to see teams every day. Do they have lunch together? How are they when they’re not on show? What progress do they make? Because sometimes, and we’ve had to standardize this at Fongit. If you coach a company, put in a hundred hours and another one you got 10 what you’re going to expect? you know 10x improvement in the first case might not be the case.

So that’s my unfair advantage if I’m angel investing… because I get to see it and I do believe or choose to believe that those companies where you have someone that has the positive energy but also the endurance and is part of a team, that’s a really powerful mix.

Ben Robinson: So you think it’s less — so I do want to suggest that it was about technologies. There’s obviously no direct causation between a great technology and a great success. So I wasn’t — the question wasn’t what’s hot and leading to success because I think you’re right. I think it’s many other factors that explain much better than causation. But the question was more what’s hot in Switzerland right now? Is it in the Medtech space? Is there anything in particular that you would highlight as being world beating and quite specific to Switzerland?

James Miners: So in a word it’s Deep tech. So patent protected technologies, that’s our sweet spot. And then of course, yes, Switzerland has a huge life science heritage. A lot of the financing money is going towards that. Of course you combine that with watch making, with med tech and then ICT is growing a lot in terms of the amount invested there and a lot can be said for the fact that now the ecosystem has matured and you’re seeing B2B software or even B2C. And another bit is that now you have some serial entrepreneurs who are working inside angel groups, like SICTIC, to support the next generation. And that’s really powerful when you’ve got people that have done it giving back, investing, and giving appropriate and actionable advice.

Ben Robinson: How does these groups, because there’s this — I agree with you, those groups has seem anecdotally at least to be having a much bigger impact on the ecosystem. So these, the angel investing groups and there are at least three that I can think of right now that have quite big membership and deployed quite a lot of capital. How do you coexist with these types of organizations?

James Miners: So actually we collaborate a lot. And what I love about Switzerland is you’ve got just enough competition to stay world-class. But on the other hand, you’re exchanging best practices. With us, we want to make sure that anyone that we’re allowing to work with our startups is doing this in a benign and positive way. And then how can we collaborate with them? Because we were the first, at the beginning there was nothing. So if someone can do something even as good as us or better, hey, let them do it. And then we could — we can focus in on the other gaps. So we’ve hosted events with the Business Angels Switzerland who we were the first Swiss angel group, then with SICTIC, then with Investiere. And these would be good.

What we normally do is they bring some of their startups, we bring some of our startups, they bring some of their angels, we bring some of the angels in our ecosystem together. And you’ll find that each of these have their own culture. And maybe that will be the place where an angel would think, okay, here’s a group of like-minded people that I can work with. And on the other hand, these are my angels that prefer to do their own thing.

Ben Robinson: So one of the questions I want to ask you again, from the time you’ve been working at Fongit and other companies you’ve seen, which is — are you able to see demonstrable impact of the work you doing?

James Miners: So what we’ve noticed is, if it takes a village to bring up a single child, it takes a country to bring up a successful start up. So really our best startups, you’ll find that they were — the idea was initiated at a pre incubator called Genius. Then they got the venture kick. Then they may have hopped out to Mass Challenge for three months. They’re founded at Fongit. They’re winning the venture.ch prize, you’ve got the Business Angels Switzerland and SICTIC coming in as angels. They’re InnoSuisse coached and that’s classic.

You’re getting the best of all of these components and whether you wanted or not as an incubator, your job as a coach is not being the one source of objective truth, but it’s actually connecting them with the best. The funny thing for me is I think I’m a better coach in fields where I’m not an expert. So I’ve been a better coach in med tech because I connect with more experts in those fields and I’m doing the just plugging the entrepreneur.

And the other important thing is to remember… it’s called entrepreneur. It means she does it, and never try and become a consultant, never make them dependent on you. The three rules of coaching for me is number one, do no harm. And that’s very difficult if you’re coming from a large company because it’s so much of your, what you’re going to advise is actually toxic to start up strategy.

And the second one is do just, just enough so that they still own it, they’re independent. You want to do an upgrade in one specific area, the most vital one that creates the most value in a very short time and then they can carry on running.

And the third rule of coaching, I’m trying to find out…

Ben Robinson: Okay, there’s so much I wanted to follow up on that because, so first of all, do you coach the coaches and do you have professional coaches or are they volunteers? The second question I wanted to ask you was, it’s interesting you said that you think you’re a better coach in fields where you’re not an expert because I’ll give you a short anecdote, which is, I was briefly a mentor at an incubator.

I remember going to a session where startup asked for help on pricing. And it was a B2B Enterprise Support Company asking for help in pricing. And 14 mentors turned up to this meeting, giving — dispensing advice on B2B software pricing. And it was absurd. And at one point I asked, ? None of them had. So what other sort of minimum — like if you could be a better mentor and feels you don’t know much about, what are the minimum criteria you have to meet to be a decent coach. So do you coach the coaches, are they professional and what are the minimums sort of characteristics you think of a coach?

James Miners: Okay. So we have developed a process going from from an idea all the way to a funded business plan. So idea — you have to be able to express that idea, getting the value proposition, minimum viable pitch, written elevator pitch, then the testing it, getting to your 12 slides. We’ve got examples of all of those 12 slides financial templates that are accepted by the market, executive summary and so on.

So we’ve got that process and all of our coaches at Fongit follow that process. They’re all InnoSuisse or Platinum certified coaches. So tech startup coaches and but they get each, everyone gets to use their own tools as long as they deliver this in a certain amount of calendar time and a certain number of billable hours. And because as a coach, if you want to stay fresh and inspired, you’ve got to use new stuff constantly, but within that framework.

My director is Antonio, so he come, did quite a lot in classical music and I’m always thinking about this balance between structure and freedom. And I think that’s important with managing coaches. They’re good musicians. You’ve got to give them… there’s got to be enough structure so that we can all work together in driving that startup forward to success, but enough freedom for each person to add their own flavor and also adapt it to the startup.

And then there’s this other aspect between — difference between a mentor and a coach. So a coach is paid to deliver something in a given time. So, ideally 10 weeks. A mentor on the whole, it’s pro bono. You are lucky because mentoring really should be done with at least two or three mentors in the room so that they keep themselves honest. [Probably not 14]

But the danger is if you have a single mentor who is; and off they hop and you’ve got your whole slide deck in pieces and you can’t get it back together again. So in Switzerland, because we have this history of the coaches from CTI and Swiss and Platinum, there is less appetite for coaching for mentoring from our high tech startups.

Ben Robinson: So maybe it was a question on mentoring then, which is what do you think? So if you — maybe express it in a different way, which is if you’re a startup and your eager to get a mentor, what would you advise a startup to look for in a mentor?

James Miners: The first thing would be real startup competence. I would ask or same with any new board member, investor, ask them for reference and then phone those people up. And startups are not smaller versions of large companies.

The other thing is understanding what kind of time they can commit. If it’s a little, everyone wants to give you advice, but what you ultimately want is connections to business and then coaching where you can really go deep.

You know how it is with brainstorming anything. There’ll be a few quick wins but, in an hour and a half meeting, how deep can you go? You can’t really start sculpting and changing a bit of your business out of that meeting, particularly a start up that’s been going for more than six months, which is most of our startups and that depth of work and appropriate actionable advice you can — you need to invest the hours there. And that’s when coaching really can pay off because that is their job.

Ben Robinson: Yes. So in short you’re saying go for coaches over mentors and if you go for a mentor, make sure that person, knows something about startups, not necessarily deep domain expertise and they can actually commit time consistently.

James Miners: Yes. So I will always have one lead coach and then get some mentors and try and use them for connections.

Ben Robinson: Yes, okay. And where do you stand on the whole debate about Europe? Because there’s a viewpoint that Europe’s massively lagging United States and China in terms of building next generation tech companies. Where do you sit on that, do you think — I know your viewpoint is very much Swiss centric, but do you have a view since you’ve worked all over Europe on whether Europe’s doing enough to create next generation digital age businesses?

James Miners: So I’m kind of a bottom up guy, so I’m always thinking what can I do to improve things and what are the gaps and can we do something to change them? Because a while back that was the narrative in Switzerland; we are not good enough and — okay, maybe that belief keeps you surging forward, but it doesn’t necessarily tell you what you need to be doing and more of and how to be doing it.

So I do think if there’s a miss message for Europe, then play to your strengths. Stop complaining that you’re not the United States or something like that because you’re not and you’d only be a pale imitation. So Europe and digital, well as David Galbraith said, we have a strength in design and then we also have a strength in privacy. So how can we bring those round to a more modern view of what the Internet is going to be?

And is there space for an internet that is not funded purely on advertising and your data, but rather maybe having privacy at the core and payments and then you see Swiss becoming a good place for privacy and also crypto, potentially micro-payments. So I don’t have the answer. But what I’ve seen in Switzerland where we’ve really gone from, my exit was the only exit in two years at the EPFL in 2009.

Now it’s every three months. Why? Because people kept on doing good stuff and we stopped trying to do B2C platforms that required huge networks to win and focused on deep tech, niched, B2B, export orientated stuff and then all of a sudden we start winning. And by the way, every now and then a unicorn starts popping up. So I think we’re moving in the right direction.

Ben Robinson: Are you excited that Facebook has started Libra here in Geneva?

James Miners: Well, it was funny because, we were having our team meeting a while ago and I say, look, they’re having privacy problems. So what’s the gold standard in privacy? Well, it’s crypto. So if you want to prove that you’re repositioning yourself. Well, that’s a good one. And if you want to do privacy and Crypto, then Switzerland is a good answer and Geneva. So I think that’s a result.

But the other interesting thing is it’s a Geneva entrepreneur coming back and this was one of the strategies of — [explain that? So is that not an angle that I picked up on]. So it turns out David Marcus comes from Geneva. [I didn’t know that]. Yes. So he co-founded Paypal, Facebook Messenger, and then the question is where do you want to live? And actually EPFL, that’s their strategy, to find Swiss émigrés in the US, and say, . And I think that’s a very smart approach it is…

Ben Robinson: Not many people have picked up on the angle, I don’t think. Just wanted to finish up by asking you — So first of all, I wanted to say that the Fongit events are excellent and we’ll be tweeting out a link to the Fongit event page. We will tweet out links to all of the publications that you’ve mentioned, all of the reports that contain all the great statistics you’ve been mentioning. I wanted to finish by asking you what your proudest achievement is in the time that you’ve been at Fongit. And it doesn’t have to be a single company that you’ve coached, although if you want to mention any great companies, that’s cool.

James Miners: So can I give you two? So first one was five years ago, I was speaking to our neighbours at the incubator, and we were talking about their strategy for the next five years. And together we had this dream we like, could our region be one of the top 30 startup ecosystems in the world? If we’ve done that… that would be amazing. And maybe one day, they will do it.

And literally six weeks ago, the global startup ecosystem report came out and there we are… number 22 in the world. And interestingly, it’s Geneva-Lausanne-Bern as a region. And in Life Scienses we are seventh. Yes, there was a startup genome report, which I mentioned that had studied 20,000 startups and came up with the first success criteria and some real metrics on startup success.

So they’ve always been a reference. So then coming in that was pretty, pretty powerful. And it shows that, it’s not about one start up. It’s about a whole region and other things I like is one great entrepreneur who was working for one company left that worked in another company that bankrupted, started out his own venture, which is doing quite well because our ecosystem is big enough and there’s a need for talent. It’s actually de-risked… your venture or if you’re working a startup that may not work, but we will want you for another one. And I think that’s a sign of the dynamic.

But privately, and this sounds really geeky, but one of the things I’m most proud about is when we developed a new incubation process and new incubation agreements, which were above and beyond what we’ve seen from the US National Business Incubator Association, or theEuropean one; say it’s just taking this profession of supporting startups to the next level and seeing Fongit go from 20 companies to 60 and this great dynamic atmosphere around that. And that’s really rewarding.

Ben Robinson: Fantastic. Well, I would like to thank you very much for your time, and I hope that our listeners feel the way I do, which is I think you’re having a profound impact on the ecosystem and if there was a medal that we could give you for contribution to the startup ecosystem, that would be great. So thank you both for being on the podcast and for everything you’re doing for fostering the ecosystem here.

James Miners: Thanks a lot.

In Pursuit of Happiness (#3)

Structural Shifts with Mike NOLET, CEO at LiveBetter

Together with Mike Nolet, CEO of LiveBetter and former CTO of AppNexus, we’re discussing the limits of what society can achieve through startups, the health risks of being a founder and the importance of wellbeing