Tech Brew Ride Home - (Bonus Bonus) The Alfred P. Sloan Era of the Internet Era

Episode Date: April 26, 2020

This piece: John Luttig's When Tailwinds Vanish caused me to go on a random jag this afternoon. Since I had nothing better to do than post it to Medium, I read it into the microphone too... PS: the medium piece I wrote up is here. Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to an emergency bonus bonus weekend episode of the Tech Meet Marit Home. I'm Brian McCullough. Everybody has been talking about John Letting's win Tailwind's vanish essay this weekend. I actually saw it late Friday, and I should have put it in the weekend long read suggestions, but I didn't because I hadn't actually read it yet. Well, now I've read it, and frankly, I couldn't help myself. That essay really scratched my

history itch. I have a lot to say. So let me spew a whole bunch of reactions at you that I just sat down this afternoon and punched up. I've never done an episode like this before, but consider this sort of a long read, but by me, a medium piece, if you will, sort of a long version of the rants that I sometimes go on on this show when I can't help myself. Please read John's piece for reference. There's a link in the show notes. But if you don't read it first, here to my mind are the most relevant graphs from John's piece. Quote, The vast majority of the country spends six plus hours per day online, frequent social media, uses a smartphone, and shops online. This usage will undoubtedly continue to grow,

e-commerce will continue taking over physical retail, and SaaS spend will continue replacing manual business processes. But people can't spend more than 100% of their time or money on the internet. As we approach full online penetration, new companies, will need to steal revenue and users from internet incumbents to grow. Like any mature industry, Silicon Valley must battle to maintain growth in the face of immense economic gravity. For the first time in internet history, startup growth will require a push from the company and not a pool from the market. Unlike the organic pool that drove many of the dot-com era successes, today's internet startups need to fight for growth by investing more heavily into sales, marketing, and operations.

end quote. John's ideas here actually tie into Alex Danko's piece. Debt is coming, which I suggested to you as a weekend long read a few weeks ago. Quoting again from John's piece, that's sort of referencing that. As the ROI of SGNA spend becomes more predictable, a non-VC financial layer will emerge within Silicon Valley, similarly helping to fuel its growth. This capital layer can help partially compensate for the slowing market-based growth tailwinds. This suite of services will benefit from a tech-specific approach, real-time debt offerings based on operating KPIs, securitization of software ARR, and retail investor facing SaaS bonds, end quote.

But that all is a layer above the structural ideas that I think are really at the bottom of what John is getting at in his piece. more immediately to my mind is this, quote, there certainly will be $10 billion companies started within segments slow to adopt technology, legal tech, construction, agriculture, and mining are all prime candidates for massive new technology entrance, but new $100 billion outcomes are less likely to come from pure internet companies, end quote. Again, obviously you should read the whole thing, but I think you can see why this piece called me to put on my history hat. The history hat doesn't have any superpower other than

pattern matching, but sometimes pattern matching is just too satisfying to resist. I said towards the tail end of the talk that I gave at Google a few years ago that the next generation of internet startups would inevitably be more interesting than any of the startups that we saw in the recent two decades of tech. Interesting does not mean better. When I say interesting, I just mean interesting, more sophisticated. The idea, as I said then, was that the days of simply being first to a market, the days of simply showing up and planning your flag and claiming unclaimed territory was probably over. The days of a handful of people coding up an app and getting a billion users overnight,

for the most part, with huge glaring exceptions, that's largely behind us. as John says in his piece, that can and still will happen. It just won't happen as often. The low-hanging fruit has been picked in internet technology, in the Tyler Cohen sense of that phrase. The bit that John's essay hit on that really resonated with me was the idea that paradigm shifts as fundamental as the one that we've all just lived through, that we're all continuing to live through, they don't come along every lifetime or even every century in a capitalist world. I'm talking about clear the chessboard, Cambrian explosion types of paradigm shifts like we've seen with the internet era, with the shift to digital technology.

We may want big shifts like this to come regularly, even every decade or every generation, but usually they don't. In an economic sense, there have really been only three fundamental, truly foundational paradigm shifts in the whole history of capitalism. Number one was the Age of Exploration, which was, let's find all the natural resources in the world and monetize them. Number two was the Industrial Revolution, which was, let's take all the natural resources in the world and turn them into products. And number three was the digital revolution, which was take all the resources and products in the world and digitize or virtualize them and then distribute them at zero marginal cost.

Epic-defining paradigm shifts are sexy and addictive because they create great fortunes and new power dynamics. And as the clear-the-chest-board and Cambrian explosion analogy suggests, they tend to slaughter the incumbents, often on mass, which, of course, clears the way for these new fortunes and these new powers to be made. Even smaller, echo-like paradigm shifts can unleash unbelievable creativity and value. See, for example, the shift from the desktop to the mobile web. But the key point about paradigm shifts are that they happen as big bangs and they happen irregularly as asteroid hitting the earth type events. They're short and they're sharp, but then they're often followed by longer eras in their wake, which is where the changes to society really settle in. And that's the era that I think we're entering. And the winners in these post-Big Bang eras, the winners in these times of consolidation, if you want to call them that, are more interesting to me, if I'm being honest.

After all, if you're a conquistador and you discover a new continent, then yeah, there are vast fortunes to be made by planning your flag and claiming all the resources you found. And a lot of the winners of both the early and late stages of the Industrial Revolution were called robber barons because they just happened to be at the right place at the right time when steel and oil, the combustion engine, what have you, turned out to be the coming thing in history. Similarly, the first people to successfully find the right mechanisms to connect all of humanity together via computers, they had some element of timing and luck to their fortunes as well. This is not to say that it's all luck. Inventing industries out of whole cloth does necessarily require deep levels of genius. Bill Gates made the software industry a thing when no one thought that there was any value to it.

Creating trillions of dollars of value in social networking when everyone thought it was a fad that the kids were into does require unparalleled vision. And you have to be wicked smart to make actual industries out of historical trends anyway. Like Rockefeller wasn't the only person to realize oil would someday power the modern world, but he was the keenest at taking advantage of that fact. With a big enough lens, the steam engine was probably a historical inevitability, but creating the railroad industry wasn't. it required vision. However, once any big paradigm shift matures, it becomes less and less likely that new fortunes will be made simply by being first, simply by being the first one to realize where history is going. It takes genius to recognize the tidal wave of history and stand in front of it, but it takes a different type of genius to organize the currents of history in such a way to create

a lasting business or industry. In the Big Bang, it's winner take all. And the field is so virgin and so vast, there can be lots of winners. But as John writes in his piece, after the Big Bang, it's a zero-sum game. The winners only win by taking share from others on the field. If that's the era that we're entering, another way to say that is, now you have to win by being better, cleverer, more interesting. This is what I was hinting at in my talk at Google. Being first, making the right bet in the face of a historical paradigm shift can hide a lot of sins. It can paper over the bluntness of your good idea. The new startups and the new products that were likely to see in this decade will be more interesting, more sophisticated because they'll have to be.

Henry Ford was an entrepreneur of a Big Bang paradigm shift, but Alfred Sloan, who turned General Motors into the axiomatic company of its time, was an entrepreneur of a post-Big Bang era. On a basic level, Henry Ford invented the idea of the car, but Alfred Sloan invented the automobile industry. Inventing the car, as we understand it, not only inventing it as a product of mass consumption, but also on the level of inventing the thing, i.e., you know, it has wheels, it has a sort of starting mechanism, it has a steering wheel that goes here. Heck, settling on the idea of a steering wheel as the standard interface. That takes a certain type of genius. I'm not denying that. But as the story of Henry Ford and the Ford Motor Company through the 1950s and 60s shows,

having that inventive genius can only take you so far. In a post-Big Bang era, you need an Alfred Sloan type of genius to come along and introduce concepts like brand architecture, industrial engineering, automotive design and styling, even things like planned obsolescence. You need to do that to create a mature industry. What John's piece crystallizes, I think, is the notion that, at least with internet technology, we might be in for a couple decades where the entrepreneurs that will be successful will be the Alfred Sloan's, not the Henry Ford's. Henry Ford could famously offer his cars in only one color, black, because he was first. And if you wanted a different color, you could go screw.

But in the mature era, one type of car lost out to Alfred Sloan and his annual model changes, and, you know, things like tail fins. Now, you could argue that one era is invention and the other era is merely refinement. And yeah, that's true to a certain extent. The 1920s and 30s saw an explosion of consumer products and consumer electronics and entire industries that pretty much stayed the same for the better part of the 20th century. I said in my book that before the internet era took off, entrepreneurialism, at least in the United States, hadn't been cool for many decades.

That's because we were in between big bangs. If my grandfather saw indoor plumbing, air conditioning, the washing machine, the dishwasher, the television, etc., all enter his household in the first decades of his life, really the only new thing in the second decade of his life was the microwave oven. He was born in an era of a big bang, and he matured and aged in an era of consolidation. But that doesn't mean that he grew in a stagnant world. That doesn't mean that the post-World War II decades of the 20th century were without entrepreneurial geniuses, were without great companies, were without innovations or efficiencies.

They were just different sorts of geniuses and companies and innovations and efficiencies. Big bangs are one thing, but the aftermath, the era of consolidation and ubiquity requires different skill sets and strategies from entrepreneurs and companies and businesses. And that is what John's piece crystallized to me. We're leaving a Big Bang era, and we're settling into an era of refinement, of consolidation. I'm not arguing whether or not that's a good or a bad thing, and I don't think John is either. I'm just pointing out, you need a certain sort of entrepreneur for the left side of an S-curve, and you need a different sort of entrepreneur for the right side of an S-curve.

And I think we're in the right side of the S-curve, at least for Internet technologies, at least for the next decade or so. and I think that that is what John is saying, too, when he says stuff like this. The Blitz Scaling Playbook is more fitting as a reflection of the past two decades than as a prescription for the 2020s. When the ecosystem-level dis-economies rival the company-level economies of scale, first to scale may become first to fail. Unit economics matter more than ever. Carefully measured growth will win, end quote. the idea of William White's organization man might have had a pejorative connotation even from the moment of its publication, but that doesn't mean that it didn't describe a playbook for great success in a very specific and quite long era,

an era that was, and let's not forget this, the most economically successful period in human history, the mid to late 20th century. I'll say what I said at the beginning of this. I think that the startups that will get this decade will be more interesting because they'll have to be in order to be successful. They'll have to be more sophisticated, more refined, more mature, more nimble, more enlightened. Being first, blunt force can't win by default anymore. Everyone in the Valley might still want to chase the next paradigm shift, waiting desperately for something, for anything, crypto, AR, VR, AI, to be the next big bang, the next big bang, the next,

opportunity to clear the chessboard, but history says that doesn't come along as often as we might want. It certainly doesn't come along every time you need a new thesis on which to raise a new VC fund. This is what I think John is suggesting when he writes, quote, The Silicon Valley of Tomorrow will not look like that of today. Success stories rarely repeat themselves, but new internet opportunities certainly aren't going away. Quite the opposite. recognizing where we are in the internet adoption curve clarifies the opportunities in front of us, end quote. That's what I'm saying too. If you're an entrepreneur looking to start the next great company or a VC looking to invest in one, don't get caught fighting the last war. Don't draw from

a stale playbook. History stands still for no one, and just because this decade won't be exactly like the last one doesn't mean it won't be interesting. It'll just be interesting in a different way. And the winners this decade will be the folks that recognize that first.