When tech entrepreneurs attack science

(Cross posted from the Bio Business blog)

One of the most remarkable trends in science-based entrepreneurship is the recent explosion of fake meat companies.

I saw my first fake meat company in 2015 at the graduation event for the first class of startups at the IndieBio accelerator in San Francisco, doing egg whites. Now leading companies like Impossible Foods and Beyond Meat have landed their fake hamburger in fast food chains.

At breakfast yesterday with my boss’s boss, he remarked that some of the burgers are actually quite good, and we agreed that (someday) it has the potential to be a trillion dollar business. This seems to be one of the rare examples where the outrageous predictions by tech entrepreneurs of creating a huge new market might actually be true.

Adoption Paths

The initial pioneers may grab decent exit values, and the long-term future of replacing meat seems compelling. California alone spends 6 trillion liters of water a year on alfalfa alone (feed for cattle and horses), not counting other states, and the water for pig slop and chicken feed. Meanwhile, cow farts play a non-neglgible role in increasing greenhouse gasses. And there is also a sizable niche of the populace that either refused to eat meat, or even wants to deny others the right to do so.

It’s not clear when it will become a trillion dollar market: as I showed in my 2014 paper in the Journal of Technology Transfer, California firms created the solar industry but flamed out because they got into the market 20-30 years too early. Competing with commodity electrons is a tough adoption curve: very few people voluntarily choose to pay 50% or 100% more than market prices for a commodity, although Germany and California show that politicians can force their voters to do so and (mostly) get away with it.

What I didn’t realize until I thought it through is that meat has an easier adoption curve, with a wide range of niche markets that can be sustained at premium prices. You have affluent people who don’t eat meat — or, even better, recently gave up meat — as well as environmentally conscious customers who would like to avoid meat. You have people who are willing to give it a try, out of curiosity. And — as the burger joints have demonstrated — the B2B customer (distribution) is willing to try a niche product to raise average selling prices.

Thus, as the product gets better and the prices get lower, these firms can establish and grow their beachhead in the food market, carving off ever-larger segments of the market. Funded by Sand Hill Road and led by ambitious entrepreneurs, some will hold off for Facebook-style IPOs, but many of the weaker players will be bought up by ADM, ConAgra, Hormel and the like — providing bottomless capital to spur innovation and adoption. (The entry barriers are low enough that Tyson Foods is launching its own product directly, rather than by acquisition).

We Need Science

However, to fully displace meat, there are major technical challenges to be overcome, both in quality and cost. I supervised a student project to research synthetic organs — a more demanding applications — but still getting the texture right will require both science (new insights) and engineering (new applications) to create a quality product at a competitive price.

Thus, I was struck by the decision of one fake meat company to attack GMOs to win market share. Yes, the CEO is a 24-year-old recent Berkeley grad who’s never worked in a company. Yes, her bachelor’s degrees are in toxicology and environmental studies rather than molecular biology or chemical engineering. But the company does have one PhD (food science) in its leadership, so they presumably are doing actual science.

It reminds me (and not in a good way) of the various surveys that showed the gap between what the public thinks and what scientists (writ large) think about GMOs, including a 2015 survey that said 37% of the public thought GMOs are safe vs. 88% of scientists.

More troubling is that the certainty of these opinions seems inversely proportional to actual knowledge. As the NY Times wrote on Monday:

In a paper published early this year in Nature Human Behavior, scientists asked 500 Americans what they thought about foods that contained genetically modified organisms.

The vast majority, more than 90 percent, opposed their use. This belief is in conflict with the consensus of scientists. Almost 90 percent of them believe G.M.O.s are safe — and can be of great benefit.

The second finding of the study was more eye-opening. Those who were most opposed to genetically modified foods believed they were the most knowledgeable about this issue, yet scored the lowest on actual tests of scientific knowledge.

In other words, those with the least understanding of science had the most science-opposed views, but thought they knew the most. Lest anyone think this is only an American phenomenon, the study was also conducted in France and Germany, with similar results.

So I get that trust in authority has been declining since the 1970s. I get that we have many people who don’t understand — or have the time to personally verify — scientific research. And, as Orwell predicted (and Goebbels proved), people are easily persuaded to believe lies if they are repeated often enough in the mass media.

Still, why would companies that depend on scientists to create their products help promote such lies? Isn’t the benefit of saving the planet enough, without having to rely on junk science for the purpose of virtue signaling? And if companies that depend on science attack science, what are the implications for K-12 and university science indication, science policy and the idea of using facts — rather than emotion - as the basis for making science policy?

Channelling Bill Shockley

Cross posted from Open IT Strategies


Techstars (an incubator company) and various aerospace companies have announced plans to launch a space incubator in LA. As TechCrunch reported:

Already a major hub for the space and aerospace startup industry, with companies like SpaceX, Relativity Space, Virgin Orbit, Rocket Lab, Phase Four, and others calling Los Angeles home, the new accelerator will provide another booster for LA’s growing startup scene.

The new aerospace program, called the Techstars Starburst Space Accelerator, will be managed by longtime Techstars managing director, Matt Kozlov, who previously helmed Techstars’ efforts at its health-focused accelerator done in partnership with Cedars Sinai.

LA was the country’s major aerospace hub from the 1930s until the end of the Cold War. But with the end of the space race, the downsizing of missile and military aircraft procurement — and the death of Douglas Aircraft and Lockheed’s commercial aircraft division — jobs were cut drastically and others moved to cheaper parts of the country.

The anchor of the new LA space hub is SpaceX, which moved to Hawthorne in 2008. It had been the headquarters of the firm founded by Jack Northrup in 1937, where it built the B-35, F-89 and F-5 military aircraft. (Its B-2 bomber was built at a secret factory in nearby Pico Rivera).

SpaceX is such a tough place to work that it has encouraged its employees to game the Glassdoor employer rating system. Despite this, 1/3 of the 1,109 SpaceX reviews complain about long hours, as with the review that said “There are times I work very long hours including a few times working 60 straight hours”. Last month, SpaceX — celebrating record success in 2018 — rewarded its loyal workforce with a 10% layoff.

Elon Musk has often imagined himself the next Steve Jobs, although Steve Jobs didn’t think so. Musk clearly needs to grow up and at 47 is well past the age when Jobs did so. Jobs was certainly grown up by 1998 (age 43) when his youngest child was born and he took the reins of Apple once again. Jobs also made his money in the commercial marketplace rather than manipulating investors and government procurement.

Instead, I think Musk is the next Bill Shockley. Shockley is known for inventing the field effect and bipolar junction transistors, which won him a share of the Nobel Prize. Late in life, he was known for saying controversial things about political and social issues.

However, (given his Bell Labs colleagues probably would have invented the transistor without him) perhaps his greatest contribution to mankind was creating Silicon Valley. In 1956, he founded Shockley Semiconductor in Mountain View, California.

He was such an asshole as a boss that the next year eight of his leading employees (the “Tratorous Eight”) quit Shockley to form Fairchild Semiconductor — the first of thousands of spinoff companies to be formed in the Bay Area. The eight included Gordon Moore and Robert Noyce — cofounders of Intel — and Eugene Kleiner, cofounder of Kleiner Perkins.

So between his winning personality, stressful working conditions and past/future layoffs, Musk will be making thousands of skilled ex-SpaceX employees available to the LA aerospace labor market. As with Shockley, perhaps Musk’s greatest contribution will be attracting bright engineers to the region, who later take those skills to help get other startup companies off the ground.

Founders do it better

Successors to successful founders rarely do as well, according to two Bain consultants who’ve studied the topic.

The headline in Monday’s WSJ made it clear:

The Company Founder’s Special Sauce
No one leads a firm as effectively as the person who started it.
By CHRIS ZOOK and JAMES ALLEN
Dec. 18, 2016 5:03 p.m. ET

‘The Founder,” a new film starring Michael Keaton, tells the story of McDonald’s Corporation founder Ray Kroc as he turns a few small restaurants into a ubiquitous international chain. It’s a tale of founder-driven corporate growth—something that has become too rare today. This breed of entrepreneurial spirit makes for a good story, but it’s also crucial for the economy.

Research we published in July finds that of all newly registered businesses in the U.S., only about one in 500 will reach a size of at least $100 million in revenue. A mere one in 17,000 will attain $500 million in revenue and sustain a decade of profitable growth. Despite their rarity, these successful firms are a bedrock of the U.S. economy.

A study out earlier this year from Bain & Company, where we work, shows that over the past 15 years founder-led companies delivered shareholder returns that are three times higher than those of other S&P 500 companies.

Such performance can sometimes continue long after a founder leaves. We analyzed examples of sustained success at 7,500 companies in 43 countries, visiting many in person, to determine what made them stand out. Great founders imbue their companies with three measurable traits that make up what we dubbed “the founder’s mentality.”

Those three traits: insurgency (i.e. disruptive innovation), obsessive focus on customers, and permeating the vision of the founder throughout the entire organization.

I have not had a chance to read their research, but it rings true. I did my dissertation on Apple, once led by Steve Jobs — perhaps the most unique founder of the 20th century; in America, only Henry Ford, Tom Watson Sr., Hewlett & Packard and maybe Howard Hughes come close.

Jobs was driven to make “insanely great” products, to the point of being a tyrant (slightly more human after he had kids). Since his death five years ago, they’ve had mediocre leadership and nothing they have done has come close (something us shareholders must lament).

One caveat: while I lionize great founders — and aspire to be a good founder once again — there is an important confound. Firms have their best people, best ideas, greatest disruption and greatest impact during their initial growth phases; a second round of growth and disruption (as in the Jobs II era, 1997-2011) is virtually unheard of. Big companies don’t grow as much as small ones, nor is the CEO (of any stripe) able to have the same impact. (And unlike Jobs, most tech founders have their greatest impact in this initial period, not running the stable successful mature company).

Still, nothing I’ve seen this year does as good a job summarizing the great debt society owes to those who roll the dice, take great chances and endure years of high-stress intensity to create a new company. The decline in US startups is troubling not only for economic growth, but for the lost opportunities for employees, customers and complementors as well.

Tech startups: cross-functional people or cross-functional teams?

Today was the culmination of the business plan class (ALS 458) here at KGI, with the final presentations by 6 teams — some of whom will be going on to formal business plan competitions elsewhere. So it was the day of the year that the students, and invited guests most celebrate (and ponder) the nature of tech startups.

Our students are unusual in having both science and business training: they come with a science (or engineering) degree, they take science classes, and they take business classes. So in effect, they are cross-functional individuals, with a little bit of knowledge about a lot of things in their heads. Similarly, a company like HP used to pick their marketing staff from among engineers who later got an MBA.

This is also how schools like Stanford and Berkeley set up a mini-business school (or “engineering management” program) within their engineering school. And it’s also why MIT recently set up its Engineering Leadership Program for undergraduates.

On the other hand, a number of schools run business plan classes and programs by assuming individual specialization and deliberately mixing the various specialists. The NSF-funded Georgia Tech Tiger program is perhaps the best known such program among those of us who teach tech entrepreneurship. To some degree, this reflects the supply limitations — you can’t get enough cross-functional people so you merge silo’d programs (with silo’d students) onto a temporary cross-functional team.

Obviously any good tech idea needs to be brought to market through a combination of technology, marketing, finance and manufacturing (or other operations) skills. How do you build such a team in a real startup? And who should be in charge?

I’m an engineer who went into B2B sales and marketing, so it’s easy to guess where my sympathies lie. And at a recent MIT club event on the “Gordon-MIT Engineering Leadership Program,” I heard veteran tech CEOs talk about how it takes a technical person to lead a tech startup.

Still, there are many counter-examples. For every Larry Page, there’s at least one (maybe more) Jerry Yangs.

Steve Jobs offers another model. Sure he was a great marketer — one of the best of the 20th century — and a great CEO. However, if you look at the recent Jobs biography, it was clear that his mechanic father and his childhood electronics experiments gave him an intuition about engineering design that many practicing engineers lack. (Alas, as the original Mac 128 death march demonstrated, he also had completely unrealistic expectations about how long things should take.)

So how do you form a cross-functional team to make the next great tech startup? And how do you allocate decision rights and authority among them? How does this change over the life of the firm, the industry and the technology? And what do you do with your hybrid business-engineers (or business-scientists)? They’re not going to be CTOs or CSOs (are they?), but do you put them as VP of R&D, or division managers, or CEO?

These are all interesting questions. Perhaps someone will research these answers.

Building a $50m lifestyle business

One of the more irritating habits of the academic view of entrepreneurship is when people disparage anything other than the next Google as a mere “lifestyle business.” In this view, unless the founders are maximizing their desired exit market cap, they’re just tyros doing it for fun.

I had lunch with a friend today talking about his next startup. He’s going to bootstrap and keep it small, both so he can do tasks that he enjoys and also not spend his whole life chasing after external funding.

For the average entrepreneur, a successful IPO is a fluke in good times and nowadays like being struck twice by lightning. Still, my friend’s plan would be disparaged in many classrooms as a “lifestyle” business, because he’s planning something that he wants to do rather than purely utility maximizing.

One argument is that job creation and wealth creation comes only from these IPO-bound high growth companies. So society — whether it be academic researchers, MBA teachers or government bureaucrats — ought to focus on these IPO-bound companies.

But what if my friend grows his new firm to a $50 million/year business? Is that still a lifestyle business? Over three decades, John Beyster built SAIC into a $7 billion/year Fortune 500 company with 42,000 employees before he finally decided to IPO.

Of course, many of the “lifestyle” businesses stay small. But the majority of the venture-funded rockets crash and burn. The chances of creating the next Google are even less than achieving an IPO that allows the VCs to sell their loser to an unsuspecting public.

And is market cap the only measure of venture success? About a year ago, I got to hear fellow MIT alumnus Sal Khan talk about his nonprofit startup, the Khan Academy. Sal is going to change how we think about education — either at the margins, or perhaps the standard K-16 modality for all of North America. Is this just a “lifestyle” business?

Finally, there are the inherent efficiency and effectiveness advantages of the owner-manager business. Investors, banks, the government, even academic theoreticians go to great lengths to solve the inherent principal-agent problem of having one party provide the capital and another manage that capital. As Enron and Worldcom and Government Motors demonstrate, sometimes these controls fail miserably.

If the owners are the managers, then all that effort is no longer necessary, because there are no abuses to prevent. Who has the most incentive to run a business for its long term success? The “lifestyle” business owner. Of course, success may not be as defined by some external economist or finance professor — but does that make it any less successful?

I hope to play a role in my friend’s new business. Perhaps he (or we) will grow it to a $10m/year business, or even a $50m/year one. I feel better about recommending this model of entrepreneurial development to my entrepreneurship students than gambling on VC and a successful exit.