For I am troubled, I must complain, that even Eminent Writers, both Physitians and Philosophers, whom I can easily name, if it be requir’d, have of late suffer’d themselves to be so far impos’d upon, as to Publish and Build upon Chymical Experiments, which questionless they never try’d; for if they had, they would, as well as I, have found them not to be true. Robert Boyle, 1661
Generations of schoolchildren are familiar with Boyle’s Law, that is, how the pressure of a gas is inversely proportional to its volume. The less volume available, the greater pressure there will be — as also experienced by anyone who has tried to blow up a hot water bottle.
In 1660 Irish-born son of an earl Robert Boyle co-founded the Royal Society with the singular goal to further what was termed ‘the scientific method’, that is, to improve knowledge through a process of experiment. “We encourage philosophical studies, especially those which by actual experiments attempt either to shape out a new philosophy or to perfect the old.” Less familiar to schoolchildren, though recognised as a seminal work was his 1661 expose of alchemy, 'The Sceptical Chymist’, which positioned him quite rightly as the father of Modern Chemistry.
As we all know, the world has been profoundly changed by the explosion in discovery triggered by Boyle and his Royal Society fellows — Robert Hooke, Isaac Newton, Charles Babbage and Darwin, all contributors to the scientific foundations of the modern world. It’s also not hard to draw parallels with how dawn of science replaced the mysticism of the alchemists in the 17th century, and how we are seeing rationality come up against the unproven whims of many startups today, whose main desire appears to turn virtual lead into gold. Some lucky types do appear to have stumbled upon the magic formula — consider Instagram for example, which was launched in 2010 and sold to Facebook less than two years later, for a reputed billion dollars in cash and stocks. Or the Chinese e-commerce site Alibaba, whose IPO in September 2014 raised some $25 billion. Who wouldn’t look at examples such as these and try to replicate their success?
It’s clearly not easy to achieve, neither is it straightforward to understand how some great ideas work, while others flounder. For example, consider Vodafone's M-Pesa (“Pesa” is Swahili for “Money”) mobile payments system, which started out as a phone top-up card in Kenya but expanded to become a highly successful mobile payments system across countries in Africa, the middle east and eastern Europe. Why has it been so successful, when similar schemes in Western countries have not been widely adopted, despite years of trying? Why was Facebook so successful when its forerunners — Friends Reunited, MySpace and the like — were not? And what about Bitcoin, which is reputed to be more reliable, lower cost and more secure than traditional currency, why aren’t we all using that?
What we do know is that the time between seeing up a company and getting it to a billion dollar valuation has become shorter. Such companies are called ‘unicorns’ in the investment trade — an appropriate name given their generally elusive nature. Top of the list at the time of writing is ‘taxi firm’ Uber (in quotes because it doesn’t own any taxis), as well as AirBnB, Snapchat and a host of companies you may never have heard of — Palantir, Xiaomi, the list goes on. Despite such paper successes, venture capital companies are the first to admit that they are none the wiser about where the next successes will come from. To quote Bill Gates, “Its hit rate is pathetic. But occasionally, you get successes, you fund a Google or something, and suddenly venture capital is vaunted as the most amazing field of all time.” And the elephants’ graveyard of startups is only a blink away. What is a startup, asks Closed Club, set up to analyse why startups fail, but "a series of experiments, from conception of an idea to researching competitors, running Adwords campaigns, doing A/B tests…”
The models most widely used to explain mass adoption tend to see the journey from the point of view of the product, service or trend — Geoffrey Moore’s Crossing the Chasm, for example, or Gartner’s Hype Cycle work on the basis that all good things will eventually emerge, once the bad stuff has been filtered out. Such models worked well when everyone was trying to do much the same thing, and when most technology was corporate — indeed, they still have validity in big-bucks enterprise procurements. However they do little to explain small ticket, big-impact phenomena such as mobile apps, social networking platforms or cloud-based services.
Right now we are in a brainstorming phase which owes more to alchemy than to science, and within which, anyone can pick up a few bits of technology and ‘invent’ a whole new product category. It is impossible to keep up with all combinations. A few years ago an article appeared about how innovations have come from taking two disparate ideas and linking them together, such as the microwave oven. As says Gerhard Grenier, of Austrian software company Infonova, “Innovation is combining existing things in new ways to create additional value.” Many start-ups and large company initiatives appear to be games of “what if”; a random progression of combinatorial experiments, each testing out new selections of features and services on an unsuspecting public, to see what sticks.
The CES conference of 2014 was marked by having more than its traditional share of zany ideas: For comedy value alone the prize had to go to ‘Belty’ — a ‘smart’ belt that senses when its occupier is being a bit too sedentary, or even when it needs to loosen during a particularly hefty meal. “The amazing thing is that we haven't invented anything new,” remarked Cicret founder Guillaume Pommier. “We just combined two existing technologies to create something really special.” Perhaps more useful though less probable (in that it doesn’t yet exist) is ‘Cicret’, a bracelet-based projector which can shine your Android mobile device screen onto your wrist. Various reports have pointed out the more obvious weaknesses in this model, not least that it needs a perfectly sculpted forearm and ideal lighting conditions.
In both cases one has to ask about the contexts within which Cicret and Belty are being created. The crucible of innovation, it would appear, is an environment warm enough to have bare forearms, where people spend a lot of their time sitting around and eating. And while sitting at that al fresco restaurant table, someone thought these ideas were sufficiently compelling to become a real product, while other, well-fed individuals saw them as viable enough to put some money in the hat. We are right in the middle of a brainstorming phase and, as everybody knows, there is no such thing as a bad idea in a brainstorm.
And when we find, in hindsight, that only one out of a hundred ideas had any legs, we claim the experiment to be a huge success. Today everything in the physical world can be equipped with sensors, interconnected and remotely controlled, making such examples legion — chances are, if you think of a combo, such as soil sensors in a plant pot, someone will already have thought of it at CES 2015. As advocates of Geoffrey Moore might add to their marketing, “Unlike other smart plant pots…"
Not all such ventures stand a chance of succeeding, but as Edison himself once noted, it’s not the 10,000 failures that matter, it’s the one success but the absence of a magic formula is frustrating for anyone wanting to make it big. Experience pays off, as numerous articles on the subject express, as these deliver people with the right characteristics — relentless focus, ability to manage resources, the right relationships and the all-important but catch-22 challenge demonstrable track record. This also fits with the impression that charisma and informed guesswork are the main arbiters of what might work. “You won’t have all the answers about the space, but you should have an educated and defensible opinion about it… [^which] is what you bet your company on: “Yes, people want to share disappearing photos.” “Yes, people want to crash on other people’s couches instead of a hotel room.”,” says startup founder Geoffrey Woo.
Today’s innovation-led world could have more to do with the earliest days of science than we think. Boyle was one of the first to document synthesis, the chemical process during which a number of compounds react to form something new and, sometimes, remarkable. In the decades that followed his insights, and with the support of organisations such as the Royal Society, Boyle’s progenitors and progeny were to investigate every possible combination of acids and alkalis, crystals and solutes, often risking their own health (or, in the case of Carl Scheele, his life) in the process. Indeed, the mix-and-match approach is still in place within the chemistry research departments of today’s pharmaceutical giants such as GSK or Pfizer.
While the health risks of electronics and software may be smaller to the individual, they can have a dangerous effect on society as a whole. All the same tech startup company founders are exhibiting similar behaviours to the scientists of old, trying out combinations and seeing what sticks. Indeed, it is no coincidence that technology parks are attaching to Universities, in the much the same way as pharma companies fund campus environments for their own scientific research. The result, however, is a hit-and-hope approach, with only hindsight as the arbiter of whether or not it is a good idea — as has been pointed out, for every success story, many startups with a similar ideas have failed. It is understandable that, according to a recent poll of founders and as noted Bill Gross, CEO of business incubator Idealab, the single most important success factor is one of timing. In some ways however, even this conclusion is a cop out — if an idea fails ten times and then succeeds, the most obvious difference may well be temporal but it does not explain the factors representing the difference between failure or success.
Can we see beyond the experiments and reach any deeper conclusions about success, or indeed failure factors? Perhaps we can. In general the greatest tech success stories manage to identify a way of short-circuiting existing ways of doing things, joining parts of the overall ‘circuit’ and exploiting the potential difference between two points. Trade was ever thus, right from the days of importing highly prized spices from far-flung places and selling them for a hundred (or more) times the price for which they were bought. If, I work out a way to get the spices far more cheaply, for example by investing in a new form of lower-cost sea transport, then I can undercut existing suppliers and still make a healthy profit. This is exactly the model that DirectLine, a UK telephone-based insurance company, exploited: the company delivered reasonably lower prices to the customer, but with substantially reduced overheads, resulting in greater profits overall.
This phenomenon has been seen over and over again in recent decades, as we have already seen with Uber’s impact on the taxi industry and Vodafone’s M-Pesa use of mobile phone top-ups as a currency, as well as with companies like Amazon and eBay that have caused so much disruption to retail industries. The term originally used was ‘disintermediation’ — the removal of existing intermediaries — but in fact re-intermediation would be more accurate as consumers and clients still buy indirectly. This short-circuitry also explains how companies such as voucher company Groupon can grow so fast so quickly, only to vanish at a later point. In this way it’s like the stock market: if one person spots an opportunity, it isn’t long before numerous others come sniffing around, undermining any multiplier effects that can be achieved when one startup is in a new, and therefore monopolistic position.
Re-intermediation is essentially about re-allocation of resources, as it requires cash to flow via new intermediaries rather than old ones, at a sufficient rate to enable the upstart companies to grow. Something needs to kick-start this process, which is where venture capital comes in. In the early days of a startup, seed cash is not always going to be that easy to come by — new companies tend to benefit from ‘funding rounds’ each of which can be hard-fought (remember there could be hundreds of other companies looking for the same pot of funds). Looking at this demand for funds in chemical synthesis terms, the model is inherently endothermic in that it draws, rather than releases resources (in this case in the form of cash, not energy). The term ‘burn rate’ was adopted during the dot-com boom (even spawning a card game of the same name) to describe the uneasy relationship between sometimes cautious capital supply and hungry startup demand, with many companies floundering and even failing when on the brink of success, if the money quite simply ran out.
Energy should not be linked to capital alone, but is better considered in terms of positive value, either real or perceived. Facebook’s growth, for example, tapped into a latent need — the village gossip post — and the site used this to demonstrate its worth to advertisers. Amazon’s continued reputation as a loss maker has done nothing to damp investor enthusiasm or quell market fears about its voracious appetite, given how people keep using it. And the adoption of Google and Skype (the latter now owned by Microsoft) as verbs demonstrates an old tactic, familiarised by the likes of Hoover, which has assured a stable future for both.
This links to a common tactic among larger companies: the ‘embrace, extend and extinguish’ technique, originally honed by Microsoft in the 1990’s, is one of many ways to ensure both new entrants and established competitors are starved of energy. Other examples include the promotion of open source equivalents to draw resources away from the established competition — just as IBM did against Microsoft and Sun Microsystems in the early Noughties, so is Google doing with Android, to fend off Apple. Attempted strangulation, starvation from energy-giving oxygen, is recognised as a valid business strategy when competing against newcomers who are trying to outmanoeuvre, or overtake the incumbent players.
The chemistry set analogy bears a number of additional comparisons. The reaction rate, for example, which can depend on latent temperature, pressure and so on — once again, we can thank Robert Boyle for helping us understand this. So, just as positive value input can increase temperature, so can latent need and a good marketing campaign positively catalyse pressure. Indeed, crowdfunding models operate on both axes, driving demand while increasing available resources (and it is without irony that crowdfunding sites themselves benefit from the same models).
The ultimate goal, for any startup, is that its innovation reaches a critical point — that is, where the position changes from attempting to gain a foothold with a product or service, to it achieving ‘escape velocity’, in much the same way that a liquid becomes a gas, which can then spread through diffusion. Reaching such scale may require a level of industrialisation: "You're committing not just to starting a company, but to starting a fast growing one,” says Paul Graham, co-founder of Y-Combinator. “Understanding growth is what starting a startup consists of.” The chemistry-based analogy is not perfect, none is. However, it does go a long way towards explaining why some organisations segments struggle with technology adoption, (such as the UK NHS, being ’a late and slow adopter’ according to The Healthcare Industries Task Force): while the desire to make use of new tech may be there, a critical level of energy is not.
In 1737, in Leiden in Holland, Abraham Kaau gave one of the last recorded speeches about the dubious nature of alchemy. By this point, some 75 years after Robert Boyle’s ministrations, he was largely preaching to the converted. In today’s technology-flooded world, brainstorming we remain, against a background of dubious and unscientific ways of deciding how to progress which allow room for a great deal of risk as well as reward. This sets the context against which we can understand where we are, and what we need to have in place to progress: simply put, it will be difficult to put in place any structures as long as the world of technology remains so chaotic. But understand it better we must, not according to the general superstitions of the time but applying more scientific methods to how we synthesise new capabilities. Indeed, given how our abilities to oversee such things are themselves extending, theoretically smart startups are no better off than cobblers’ children.
The bottom line is that we have the potential for incredible power at our fingertips, but with power also comes responsibility. Enter: the smart shift.