Historically medical diagnosis has been in simplest terms largely a combination of observation, imaging and tests of blood and urine. The underlying logic of such an approach is the checklist. If certain boxes are checked you have bronchitis and one or two more boxes congestive heart failure. This type of approach does not require higher order thinking such as pattern recognition or metaphor, which is why it is used for routine things like pre-flight checks.
This type of approach has not changed in hundreds of years but the machines to gather data get better and better. No one has thought about how to use pattern recognition to do medical diagnosis. However, with advances in computing and AI, perhaps we should. I saw a pattern recognition-based medical diagnostic prototype this morning. The premise is that a particular disease has a particular color pattern when patient blood is put on a non-chemical proprietary slide. The disease pattern can only be identified given all the color permutations using pattern recognition and AI. The implications are staggering if we just consider cost and investment savings and timing and speed of diagnosis. Innovation perhaps at the scale of the transistor or the computer.
No one disputes the value of good doctors and a lot of money is invested each year on medical research and development. Perhaps equally beneficial will be the exploration of new diagnostic methods using AI in medicine.
In the early 1980s I invested in one of the earliest online retailers, Comp-U-Card. Comp-U-Card succeeded and went public by understanding that customers were only willing to buy hard goods, such as autos, TVs, air conditioners, etc, and would not buy fashion items and accessories. In the early 1990s shoppers grew comfortable with buying fashion online. Today we buy everything online, in part thanks to the success of Amazon.
Many have published stories recently about Amazon pulling its diaper product, including Venture Beathere. Venture Beat also lists other product or merchandising failures, such as a payment wallet and a phone. Everyone talks about these failures as if Amazon was a retailer. I think that is the wrong way to think about Amazon. Amazon is an exchange operator that facilitates the widest range of suppliers and customers entering into transactions. Amazon's expertise is in the infrastructure to support the exchange, which perhaps explains why they have been so successful providing a non-retail service like cloud services.
When Amazon starts to think like a retailer and introduce private label products, such as diapers, they move far away fom their expertise in IT infrastructure and fail. This logic would also explain why wallets and phones were not successful. Retailers succeed in part by selecting merchandise for their target customers. Exchanges succeed in part because their infrastructure supports the needs of the exchange users. While some expertise is needed at a product level, many exchanges tend not to be discriminating. This is the case with Amazon's strategy to sell everything, from consumer products to boat parts to building supplies. Think of Amazon as an exchange and not a retailer.
I just completed my fifth year teaching an IAP course at MIT Sloan on social entrepreneurship. The first two years the course focused on telling the One Laptop per Child story, the third year focused on better defining social entrepreneurship and year four and this year (5) focused on "scaling" social entrepreneurship. To some degree these courses have documented the evolution of my thinking on social entrepreneurship.
The approach to social entrepreneurship that I prefer is to ignore all of the normative hype and merely focus on solving the "social" problems. My cocktail party definition of social entrepreneurship is now:
"A commercially sustainable, scalable solution to a social problem"
In this definition, the selection of the problem the entrepreneur addresses will define them as a social entrepreneur or a traditional entrepreneur. I define sustainability simply in terms of cashflow and not in the alternative usage that includes social, economic and environmental benefits. I am not against a wider range of benefits, but I believe many social ventures fail because they define their mission too broadly to achieve all three types of benefits. Such a broader mission is more difficult to manage, more expensive to execute and more expensive to the disadvantaged person one is trying to help.
In one economist's definition, social entrepreneurship can be defined using the value creation-value capture model of resource-based theory. In this model social entrepreneurship "maximizes value creation and satisfices for value capture" (sufficient to stay in business). Value is defined as "utility". Originally I thought of this transfer of value as exclusively between the provider of product/service and the customer or user of a product or service. This limited definition of "value creation" has bothered me for awhile now because I think it ruled out organizations that are social entrepreneurs. The issue came up in class at MIT and a vigorous debate ensued.
I now believe that the social entrepreneur could transfer value to other stakeholders in addition to the customer. For example, selecting to work with new indigenous people to become suppliers would be a value transfer to the indigenous farmers. Paying above market wages would be value creation for local workers. Providing stock ownership to employees might be creating value for employees. Effectively, value creation can benefit any stakeholder of an organization provided enough value is transferred to the customer or end user to have an exchange (purchase). The exchange is required to meet the requirement for entrepreneurship.
Two additional themes were stressed for the last two years:
Social entrepreneurship offers the opportunity to redefine the role of government
Value proposition is just as important, or more important, in social entrepreneurship because the disadvantaged person may need more assistance to recognize and use a solution to a problem.
My lecture slides from MIT 2015 are available through this link. Download SCALING SE MIT 2015. I very much like the Scaler Model for scaling social entrepreneurship, which is explained in the slides.
Note: The original definition of social entrepreneurship using value creation and value capture was developed by Felipe Santos in an INSEAD Working Paper. He did not consider value transfer to all possible stakeholders in the article, "A Positive Theory of Social Entrepreneurship".
There was much discussion this weekend about Jerry Neumann's article, "Heat Death: Venture Capital in the 1980s", which chronicles the evolution of the venture capital industry from its start in the 1960s.
One interesting part of the article was how the industry learned about the difference between market risk and technology risk. Market risk is "will people buy it" and technology risk is "will it work". In the current period, VCs generally take market risk and avoid technology risk.
However, as I thought about this dichotomy, the logic of "do something better" kept coming back to me. This approach minimizes both risks or at least frequently does, by taking an existing technology and customer base and offering something better. Google and Apple computers would be examples where the state-of-the art was advanced a bit but there was little breakthrough in terms of technology or customer base. (Amazon might have been an example of market risk and Akamai might have been an example of technology risk when they launched.)
Perhaps one is well served to understand where the business concept is on the continuum of both market and technology risk and to realize that great opportunities may exist with small changes in the market or technology risk factor.
HBS Working Knowledge has an interesting new working paper by Gerald Carlino and William R. Kerr, "Agglomeration and Innovation". The paper discusses the academic literature and the authors' views on the factors that explain the geographic concentration of innovation. Not surprisingly, innovation concentrates in metropolitan areas. Innovation is defined in a classic way as "invention that is commercialized", which in the vernacular would be described as entrepreneurship. Other findings from the article are quoted below:
The benefits from local public subsidies for basic research may not stimulate growth in targeted communities, except for creating a few jobs for scientists and engineers.
They relate co-agglomeration levels [of innovation] to the extent to which industry pairs share goods, workers, and knowledge. They find evidence for all three mechanisms, with knowledge spillovers again the most localized.
For all industries, the localization effects of being near similar businesses decay rapidly with distance within cities—the positive localization effect from being within one mile of another company in one’s own industry is at least ten times greater than the positive effect realized when locating two to five miles away from said company.
While most thoughts of innovation clusters today naturally begin with Silicon Valley, it is important to recall that innovation clusters do move over time.
On the relationship between agglomeration and innovation… What is better established is the development and sharing of specialized business services. This has been especially true with the case of entrepreneurial finance (e.g., angels, VC). Traditional sources of financing, such as bank loans, may be unavailable to innovative start-ups due to their high risk, large financing requirements, and asymmetric information, especially in high-tech industries (Gompers and Lerner, 2001).
The strong concentration of the commercialization of innovation... to the need for specialized business services (e.g., firms specializing in market research and product testing, specialized patent lawyers, and the availability of financing) and similar infrastructure.
Knowledge spillovers are geographically concentrated
There is general empirical evidence that R&D at local universities is important for firms’ innovative activity. Audretsch and Feldman (1996) and Anselin et al. (1997) find localized knowledge spillovers from university R&D to commercial innovation by private firms
Setting aside the academic speak, innovation and entrepreneurship benefit from:
Like minded people very nearby
Support by research universities, and
Support services nearby, most notably capital.
The article should be required reading for politicians. Most government support for entrepreneurship appears to be mis-directed or wasted.
Note: While Miami has made progress in developing the entrepreneurial community, certain theoretical requirements still need to be further addressed.
A few years ago I ran a large salesforce. One lesson I learned is that the best salespeople could always adjust their behavior to maximize their income under any new bonus scheme. After you realize this fact, you spend ten minutes coming up with the monthly bonus scheme and two days checking that the anticipated behavior of the salespeople is consistent with the best interests of the company. Then you release the new bonus scheme.
A story in Pieria, "Show Us. The Money", reminded me of this lesson about salespeople...and many other people. The story talks in part about how Wall Street types everywhere in the world adjust their behavior in the face of new government regulation. In the face of constraining regulation, motivated buyers and sellers of financial instruments find new ways to satisfy a demand. The more successful the market is to find new ways around the regulation, the greater the supply of the new financial instrument and the greater the likelihood that asset pricing becomes distorted. When the volume of asset traded becomes large and pricing of the asset becomes distorted, the government has a new problem to consider regulating.
I see no evidence that the government considers how markets will react in the face of regulation. I believe that governments tend to be looking at history when they draft regulation and do not anticipate how the individuals in a market will change the way they operate.
Beta Boston has a nice story, "I’m a physician, and I saw the future of medicine at CES", about a doctor's visit to this year's CES show in Las Vegas. The doctor enthusiastically describes several devices that will improve healthcare. Right after reading the article I received a phone call. Transcript follows.
(Names are changed to protect the ....)
Caller: This is Dr. Bozo's office calling to confirm an appointment tomorrow with Dr. ...
Me: I responded to the text message to confirm the appointment; why are you calling me?
Caller: No one monitors the text messaging system for responses.
Me: Why do you send them out and waste my time?
Caller: The system sends the texts out and people don't all respond so we call everybody
The doctors may have great devices to use, but I am not so confident they will use the equipment in the most effective way.
A friend is a curator at a museum. One exhibition is of the journals of soldiers from a particular war. Interesting research material, but not available anywhere on the web in digital form. As time passes this material will be largely forgotten because it has almost no digital signature.
If teachers asked their students to read this material and transcribe it to a digital form, the students might be more engaged with history and this material would be available to the world online.
Obviously there is much handwritten material of historical significance beyond war journals that we should transcribe to digital. Might even be a way to teach foreign languages based on the material selected.
Friday morning I attended an event on how large companies can use innovation in business model to generate revenue growth. A previous post on this theme is "Innovation in Large Corporations". Much of the discussion focused on alternatives for partnering between startups and the Fortune 500 as a means to foster innovation. Some alternatives include
Venture capital investment
Joint ventures
Spinning off skunk works projects
Sharing problems
I particularly like problem sharing where the Fortune 500 brings a problem to a startup, design firm or university and the resultant solution is commercialized through a new business.
However, sharing problems brings up a new problem in innovation for the Fortune 500--they need to be much more transparent. Christensen has written extensively about why large companies lack innovation, but I have not seen mention of transparency. An example illustrates the point. Electronic medical records (EMR) are not shared between competing medical service providers because they feel such records aid competitors to steal patients (according to a pioneer in defining the format for EMR). To safe guard information at the expense of patient care I would classify as extreme lack of transparency.
Why do companies opt for a lack of transparency, hide behind government licenses and, in general, use contrived barriers. The answer is that it is much easier and lower cost to use contrived restrictions rather than create value for customers. However, the day is not far off when customers are going to break down artificial barriers to transparency in areas such as patient medical information. The balance of power is changing in favor of the customer for transparency and corporations need to recognize this change. One way for corporations to start being more transparent is with their partners, where it might foster more innovation.
After we move large corporations to transparency, we can work on the government.
To paraphrase William Faulkner, I do not know what I think until I read what I wrote. Reading yesterday's post got me thinking about Google. In yesterday's post I wrote:
"I have been using Feedly as my RSS feed reader since Google shutdown Reader (which prompted me to use single product companies for all my important apps, e.g. Dropbox, Evernote, etc.)."
There are two exceptions to my use of apps from single product companies:
Microsoft Office
GMail from Google
However, maybe these companies are single product companies or should be.
As the market has evolved Microsoft has become a two product company--Microsoft Office and gaming. Office is reportedly the largest profit generator and gaming is in many ways the product new users see. I do not believe there are any real synergies between the two product lines except that both products require excellent programmers. Therefore, logically they could be separated into two separate companies and some say more value would be created for investors.
The Google case is a bit more complicated. Google has two major products in my opinion:
Search
GMail
I think the jury is still out on Google Drive. If I did not use GMail on my phone, I would see no benefit to Google Drive over Dropbox or Evernote or 20 other products. (Opening a doc attached to a GMail and storing it for retrieval from the iPhone is easiest with Google Drive.)
I would love to ditch GMail in favor of a standalone mail app, but the ten new mail apps I try each year always have problems that bring me back to GMail. Would I give up Google search? Yes, in a minute. Google works and it is a little bit better than Bing and all the others, but I am nervous about how much Google knows about me, the search still lacks a lot of features I would like to see (e.g. academic articles showing up as preferred results based on my profile), and the ability to restrict sites from showing up in the results (e.g. Entrepreneur magazine).
Search and GMail probably have more compelling common characteristics than Office and gaming. The common characteristic is the use of artificial intelligence (AI) where GMail offers comparatively better search because of Google's expertise. However, I suspect that search is not a sustainable advantage in mail apps. I suspect that Amazon could duplicate high quality mail search in a year or less given their own work on search. Also, I suspect the mail search would improve faster if that was the sole objective in improving the AI. What this logic argues for is that Google should spin out GMail as a separate company, leaving Google as an AI/search company. (The spinoff agreement could still give Google certain exclusivity for a pre-determined amount of time.) Given the increasing popularity of notifications and messaging apps, GMail may be at its highest possible valuation today. Driverless cars and 100 other products based on AI could all be spun out. A more narrow focus to the continued development of the specific AI would probably produce better results (which Google could license back in the spinoff agreements).
If Google and Microsoft were to follow my advice and each spinoff one of their two major businesses, then almost every major software applications company would be a single product company. Hmmm, interesting.
Note: One could argue that both search and GMail rely on expertise in distributed processing, cloud computing. Therefore, they should not be separated. Were this to be the strategic insight to explain Google's development of both products, then Google has a much bigger issue because abnormal returns, even with scale, are quickly disappearing from the cloud space.
I have been using Feedly as my RSS feed reader since Google shutdown Reader (which prompted me to use single product companies for all my important apps, e.g. Dropbox, Evernote, etc.). Whenever one tweets an article from Feedly, "#Feedly" is added. Two thoughts occurred to me today after a tweet:
I suspect the people who use Feedly are better read and likely more intelligent than the average Internet user. Therefore, the feed "#Feedly" might be a high quality curated feed. Perhaps we just need to have a choice of Feedly tags--#Feedlybusiness, #feedlypolitics, etc. --to really create value through curation. Wonder how Feedly feels if I create the tag #Feedlybusiness but do not use Feedly to find the articles. Is this a form a of copyright infringement? Are hashtags all "open source"? Could blackmailers expropriate a hashtag?
The executives at Feedly have created a very good product, so I am going to assume that they track the number of "#feedly" tweets generated by the application. I would suspect that the number of such tweets are a measure of app engagement that the executives use in presentations with investors or when they want Twitter to make a special change in their app. Given that this info has a value, maybe I should be paid to use the #Feedly hashtag and not edit it out (which I normally do). Why should I promote Feedly without economic consideration unless, of course, it is in my self-interest to perpetuate Feedly.
Not having to endure another disappearance as was the case with Google Reader has a value to me, but for now I think I am just going to edit out the #Feedly hashtag from my Tweets.
