free html hit counter February 2016 - John Battelle's Search Blog

Growth Is Hard

By - February 28, 2016

Zuckerberg1The business story of the decade is one of insurgency: Every sector of our economy has spawned a cohort of software-driven companies “moving fast and breaking things,” “asking for forgiveness, not permission,” and “blitzscaling” their way to “eating the world.” For years we’ve collectively marveled as new kinds of companies have stormed traditional markets, garnering winner-take-all valuations and delivering extraordinary growth in customers, top line revenue, and private valuations.

But what happens when the insurgents hit headwinds? In the past year or so, we’ve begun to find out. The unicorn class has had its collective mane shorn. A quick spin through the “unicorn leaderboard” finds a cohort strewn with cautionary tales: Uber’s under continual attack by regulators and increasingly well funded competitors. Square and Box, both of which managed tepid public debuts, have consistently traded below their private valuations. Airbnb, SnapChat, DropBox, and many others have been marked down by their largest investors. And of course, there’s the cautionary tale of Zenefits.

While this news has evinced a self-congratulatory whiff of schadenfreude throughout the tech press, I think the reckoning is more fundamental in nature. The hardest part of running a company, it turns out, is actually running a company. Put another way: Growth can be bought, but growing up has to be earned.

Take Uber, for example. Once a poster child for a culture of “ask for forgiveness, not permission,” Uber is now taking a more traditional approach to new markets, meeting (and working with) local regulators, hiring seasoned pros, and learning how to play politics just like any other big company. It even gave itself a new grown-up “haircut.”

Young companies built on venture-fueled cultures of grow-at-all costs are facing a shift: The essential truth of business is that you must create value for all constituents — your employees, your customers, and your community. That last part may sound squishy, but it’s the soft stuff that can kill you. Learning to become a respected corporate citizen isn’t on the minds of founders and executives chasing top line revenue and lofty private valuations. But at some point, it will be. I think that moment is nigh.

Facebook is a good example. In 2014 it changed its internal motto from “Move Fast and Break Things” to “Move Fast With Stable Infrastructure.” Among companies I like to call “established insurgents,” Facebook stands out for mindfully transitioning from a culture of youthful arrogance to one of continual learning and partnership. I spend a fair amount of time talking to senior folks at large, established “BigCos,” the kinds of companies that spend hundreds of millions of dollars on platforms like Facebook and Google. Nearly all of them have commented on Facebook’s maturing culture, noting in particular that the company genuinely wants to learn from its big company partners.

What could Facebook possibly learn from a Nestle, P&G, or a Ford, you might ask? We sometimes forget that the current crop of unicorns aren’t the first group of companies to transition from roaring startup culture to Blue Chip incumbency, or from regulatory outlaw to lobbying insider.

Yes, the insurgents threaten the incumbents’ very existence. But they face their own existential questions as well: “How do I build a company that will last for generations? How can I maintain a strong corporate culture now that I have thousands of employees? How do I work productively with regulatory and policy frameworks, now that I’m an established player?”

Turns out, BigCos have decades of experience with exactly those kinds of questions. Over the next few years, I predict the two sides will increasingly engage in a dialog about how each might learn from the other. In many cases, the dialog has already spawned partnerships: Whole Foods and Instacart, GM and Lyft, Earnest and New York Life. In the end, the established insurgents and the BigCo incumbents have more to gain from working with each other than they do by tearing each other down. In the process, we might just re-invent the very nature of business itself — taking the best of both sides, and abandoning the worst. Let’s get on with it, shall we?

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The NewCo-BigCo Shift or, These Nine Things Will Change Business Forever

By - February 15, 2016
VIP Dollar Shave Club

Addressing the crowd at Dollar Shave before interviewing CEO Michael Dubin during NewCo LA last November.

(cross posted from NewCo)

Thanks to NewCo, I’ve gotten out of the Bay Area bubble and visited more than a dozen major cities across several continents in the past year. I’ve met with founders inside hundreds of mission-driven companies, in cities as diverse as Istanbul, Boulder, Cincinnati, and Mexico City. I’ve learned about the change these companies are making in the world, and I’ve compared notes with the leaders of large, established companies, many of which are the targets of that change.

As I reflect on my travels, a few consistent themes emerge:

1. Technology has moved from a vertical industry to a horizontal layer across our society. Technology used to be a specialized field. Technology companies sold their wares to large companies in large, complicated IT packages and to consumers as discrete products (computers and software applications). In the past decade, technology has dissolved into the fabric of our society. We all can access powerful technology stacks. We don’t need to know how to program. We don’t need a big IT department either. Now, technology is infrastructure, like our physical systems of highways and roads. This levels the playing field so new kinds of companies can emerge, and it’s forcing big companies to respond to a new breed of competitor, as well as a newly empowered (and informed) consumer base.

2. Big companies are on the precipice of the most wrenching transformation in history — and tech is only part of the reason why. BigCos change very slowly. They are cautious by nature and extremely suspicious of “the new.” BigCos study new developments and wait for proof before they change. As digital technology spread through society over the past three decades, big companies were slow to get a web page, slow to conduct business over the web, slow to lean into mobile and social, and slow to respond to new types of startup competition. Of course, now that the web is mature and consumer platforms like Facebook and Google are massive, BigCos have shifted resources to digital. But that last point — responding to startup and business model competition — is far more problematic, because responding to new kinds of competition isn’t something you can outsource. It requires a fundamental shift in corporate social structure — and culture is hard to change.

3. The next generation’s leaders don’t want to work at BigCos (if they don’t have to). In the past year I’ve met with senior executives at massive companies like Nestle, Publicis, P&G, Walmart, Visa, and McDonald’s. When I ask what keeps them up at night, all of them answer “hiring the next generation of leaders.” The best and brightest now see “launching a company,” “working at a startup,” or “working at a digital leader like Google or Facebook,” as a preferable career choice, starving BigCos of their most valuable asset: talent. While one might dismiss young professionals’ penchant for startups as a fad or a phase, there’s something far deeper at work, namely …

4. A job is table stakes. To win talent, companies must compete on purpose, authenticity, and organizational structure. Millennials are now the largest force in the global economy, and they have a markedly different view of work: Purpose and “making a difference in the world” are central in their work-related decisions. They’d rather work at The Honest Company than Unilever, if given a choice — and the best and brightest always have a choice. Members of the next generation want to be at a company where work means more than a paycheck. They believe work can be a calling (Reich) or an expression of our creativity (Florida). BigCos aren’t currently organized to enable their workforces in this way (human resources, anyone?), but NewCos — even the very largest ones like Google — most definitely are.

5. Today’s consumers are newly empowered and are making decisions on more than price. If millennials are choosing employers based on purpose and authenticity, it follows that they decide how they spend their money in similar fashion. Convenience, selection, and price are important, but new kinds of competitors are exposing weaknesses in big companies’ essential truths, and that’s an existential threat. Dollar Shave Club questions Gillette’s core premise, MetroMile questions Geico’s core premise, Earnest does the same to large financial institutions, HolaLuz to energy companies, and the list goes on. Companies profiting from practices or products that demonstrably create more harm than good in the world are threatened in an age of transparency and accountability. Regardless of good intent or excellent marketing, if your business makes people unhealthy, or depends on exploitation of vulnerable workers, or can be laddered to climate change, it’s at risk of mass consumer migration to businesses with better narratives.

6. The platform economy means traditional competitive moats are falling away. Today’s largest consumer companies earned their power by consolidating and optimizing their access to commodities (what their products were made of), manufacturing (how their products were made), and distribution (where their products were sold and how people became aware of them). They were built on humanity’s first global platforms: television and mass transportation networks. We all know that the Internet undermined this hegemony; physical distribution is no longer a surefire competitive advantage (just ask Walmart). But what’s not well understood is how quickly other parts of the product stack have become platform-ized. Just as startups can now access technology as a service, they can also access sourcing and manufacturing as a service (Dollar Shave doesn’t make its blades, for example). This of course bolsters point #5 above: If any company can access the same economies of scale, brands must compete on more than price or distribution, they must compete on voice, innovative (and information-first) approaches to markets, and purpose.

7. Cities are resurgent. I just returned from Mexico City, which earlier this month hosted its first NewCo festival. While there, I heard a refrain consistent with my visits around the world: The city is changing for the better and new kinds of companies are at the heart of that change. When people gather at NewCo meetups or inside NewCo sessions, I keep hearing “There’s just no way these kinds of companies could have made it in this city ten years ago.” Coupled with the horizontal force of technology and the rise of a purpose-driven zeitgeist, cities have become both the epicenter of humanity’s greatest challenges, as well as the birthplace of our greatest innovation. One generation ago, one-third of humanity lived in urban centers. Today, it’s more than 50 percent. One generation from now, more than two-thirds of us will reside in the tangled banks of a city center, and that number will surpass 80 percent by the end of this century. Cities offer access to capital, education, regulatory frameworks, and a collaborative density of human curiosity and connections. It’s where great companies are born and grow.

8. BigCos are deeply aware of all this — and a massive shift is about to reveal itself. For as long as I’ve been in the media and technology business, I’ve heard big company executives proclaim they were committed to change. But it always rang hollow: Large companies expended far more resources preventing change than they ever did committing to it. Over the past year, however, I’ve sensed a deep shift in the tone of my conversations with BigCos. These are some of the smartest people in the world, and they understand the technological, generational, and social tectonics at play. In their board rooms and C-suites, conversations are already underway about changes so significant, they’ll be viewed as “calendar reset” moment: Before Shift and After Shift. We’re already seeing leading indicators — Walmart’s commitment to sustainability, GE’s move to Boston, Publicis’s rewritten purpose statement and organizational structure — but in the next year or two, the pace will quicken. New CEOs at category-leading companies like McDonald’s, Ford, and P&G will most likely announce stunning new initiatives that would have been inconceivable a decade ago.

9. The best NewCos realize there’s a lot to learn from the BigCos. After years of feasting on BigCo markets, “established upstarts” like Google, Facebook, Uber, Zenefits, and Square are transitioning from cultures based on “move fast and break things” and “ask for forgiveness, not permission.” Their leaders are now turning to questions like “How do I build a company that will last for generations? How can I maintain a strong corporate culture when I have thousands of employees? How do I work productively with regulatory and policy frameworks, now that I’m an established player?” Turns out, BigCos have decades, if not centuries, of experience in answering these kinds of questions. In my conversations with leaders of both NewCos and BigCos, I sense a new kind of detente as each side realizes how much it has to learn from the other. In the coming months and years, I expect we’ll see a lot more cooperation between the two.

In the coming months, NewCo will be focused on exploring these business trends, with new media and event products. If you’d like to join the conversation, please follow us on Facebook or Twitter, share this post, and/or sign up for our daily newsletter. We believe this the most important story in business, and we’re committed to covering it for you.

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* A note on climate change: Our society’s response to climate change is one of the most remarkable issues ever to face humankind. More than 70% of Americans now believe that climate change is real, and more than half of the world views the issue as the most serious global threat to humanity. And climate change is to Millennials what mutually-assured destruction was for Boomers: An existential threat. Whether or not you believe in this threat, climate change is now a social and business fact, a force affecting billions of decisions large and small around the world. Consumers are voting with their conscience, forcing unsustainable businesses to adopt provable, net positive products and processes. When Unilever, Walmart, Pepsi and scores of others align with the Pope on sustainability, a movement is most certainly afoot.

Should a Company Have a Soul?

By - February 14, 2016

Much of the Republican debates have been expendable theatrics, but I watched this weekend’s follies from South Carolina anyway. And one thing has struck me: The ads are starting to get better.

This season’s debates have had the highest ratings of any recent Presidential race, and they’re attracting some serious corporate sponsorship. One spot in particular caught my eye:

This ad looks like a lot of others I’ve noticed coming out of large companies these days — dramatic, driving music, compelling fast frame visuals, an overarching sense that something important and world changing is going on.

The spot has one purpose: To make us wonder if a business can be alive. Here’s the ad copy:

Can a business have a mind?
A subconscious.
A power to store every experience, and call upon it through something called intuition.
Can a company have reflexes.
A nervous system.
The ability to react, precisely and correctly, faster than the speed of thought.
Can an enterprise have a sixth sense. A knack for predicting the future.
Can a business have a spirit?
Can a business have a soul?
Can a business be…alive?

Given our cultural fascination with evil, AI-driven corporations, I have to wonder how stuff like this gets through any big company’s Fear of Looking Scary filters, right? I mean, does the agency not watch Mr. Robot?

But somehow the spot resonates — if you work in a large company, don’t you want that company to be … alive? Don’t you want it to be fast, and smart, and nimble, and … soulful? Don’t you want to be part of something powerful and vibrant?

Clearly, the ad is working for SAP, they’ve been running it for well over a year, and they (or their agency) felt it was appropriate for the 13+ million folks watching the Republican debates on Saturday night. The ad leaves a pretty clear premise for the viewer: If you want your company to be alive, install our software!

But it begs a larger question: what is the role of corporations in our society going forward, if we’ve begun to accept that they are in fact alive? (And have the rights of people, to boot!)

I’d be curious if folks out there are buying this whole narrative. What do you think?

The Waze Effect: Flocking, AI, and Private Regulatory Capture

By - February 03, 2016


A couple of weeks ago my wife and I were heading across the San Rafael bridge to downtown Oakland for a show at the Fox Theatre. As all Bay area drivers know, there’s a historically awful stretch of Interstate 80 along that route – a permanent traffic sh*t show. I considered taking San Pablo road, a major thoroughfare which parallels the freeway. But my wife fired up Waze instead, and we proceeded to follow an intricate set of instructions which took us onto frontage roads, side streets, and counter-intuitive detours. Despite our shared unease (unfamiliar streets through some blighted neighborhoods), we trusted the Waze algorithms – and we weren’t alone. In fact, a continuous stream of automobiles snaked along the very same improbable route – and inside the cars ahead and behind me, I saw glowing blue screens delivering similar instructions to the drivers within.

About a year or so ago I started regularly using the Waze app  – which is to say, I started using it on familiar routes: to and from work, going to the ballpark, maneuvering across San Francisco for a meeting. Prior to that I only used the navigation app as an occasional replacement for Google Maps –  when I wasn’t sure how to get from point A to point B.

Of course, Waze is a revelation for the uninitiated. It essentially turns your car into an autonomous vehicle, with you as a simple robot executing the commands of an extraordinarily sophisticated and crowd-sourced AI.

But as I’m sure you’ve noticed if you’re a regular “Wazer,” the app is driving a tangible “flocking” behavior in a significant percentage of drivers on the road. In essence, Waze has built a real time layer of data and commands over our current traffic infrastructure. This new layer is owned and operated by a for-profit company (Google, which owns Waze), its algorithms necessarily protected as intellectual property. And because it’s so much better than what we had before, nearly everyone is thrilled with the deal (there are some upset homeowners tired of those new traffic flows, for instance).

Since the rise of the automobile, we’ve managed traffic flows through a public commons – a slow moving but accountable ecosystem of local and national ordinances (speed limits, stop signs, traffic lights, etc) that were more or less consistent across all publicly owned road ways.

Information-first tech platforms like Waze, Uber, and Airbnb are delivering innovative solutions to real world problems that were simply impossible for governments to address (or even imagine). At what point will Waze or something like it integrate with the traffic grid, and start to control the lights?

I’ve written before about how we’re slowly replacing our public commons with corporate, for-profit solutions – but I sense a quickening afoot. There’s an inevitable collision between the public’s right to know, and a corporation’s need for profit (predicated on establishing competitive moats and protecting core intellectual property).  How exactly do these algorithms choose how best to guide us around? Is it fair to route traffic past people’s homes and/or away from roadside businesses? Should we just throw up our hands and “trust the tech?”

We’ve already been practicing solutions to these questions, first with the Web, then with Google search and the Facebook Newsfeed, and now with Waze. But absent a more robust dialog addressing these issues, we run a real risk of creating a new kind of regulatory capture – not in the classic sense, where corrupt public officials preference one company over another, but rather a more private kind, where a for-profit corporation literally becomes the regulatory framework itself – not through malicious intent or greed, but simply by offering a better way.