Delivered at the HQ Equita Investor Meeting 2019 | Glücksburg, Germany

We are in the midst of a seismic shift in the way value is being created. A shift that will force us to reevaluate, and hopefully, question what we know to be true in how we deliver value for organizations and how we interact with one another. This shift will demand a change in perspective as well as a relearning in our approach if we plan to stay relevant tomorrow.

In Germany, like the rest of world, the seismic shift is about digital transformation. A transformation that has altered established business models based on their embracing or dismissing of exponential technology. That being said, in almost 99% of the time technology is the focus but I believe it’s really about us as humans and our ability to adapt and question the status quo.

What company is the best company to invest in and hold for ten years?

Source: CB Insights

Chapter 01: Platforms

Last year, the data company CB Insights ran a survey asking investors, “What is the best company to invest in and hold for 10 years?”. Starting with 64 companies setup in brackets (like the fußball World Cup or USA’s college basketball Final Four) each round was voted on by the readers. The quarter final consisted of Apple vs Netflix, Amazon vs Facebook, SpaceX vs Alibaba, and Alphabet (Google’s parent company) vs Baidu. In the end, Alibaba came out the favorite but what I found quite striking was the fact that the investors’ choices in the semi-final consisted of companies that all have a similar business model; platform-based.

In 2016, tech companies occupied the world’s top five most valuable companies by market cap. In doing so they surpassed the incumbents that made most of their fortunes in a single limited resource; namely fossil fuel or finance. Today, the most valuable companies consist of multi-sided networks where people come to consume, sellers pay to sell and the massive amount of data that is generated ends up generating even more value.

This rise of platform-based organizations has dramatically shifted the structure and strategy of businesses being built and run. Today, you wouldn’t build a business based on a bureaucratic pyramid…you’d build a platform, a network. Another way to look at is by comparing the ratio of employees to market cap:

Instagram had only 13 employees before being acquired by Facebook for $1 billion while Kodak in their heyday had 145,00. Another thing that sticks out is the year each organization was founded; Facebook was founded 15 years ago while Kodak was founded in the last century. Lastly, take a look at the valuation of each organization and  the amount of physical assets each organization owns and ask yourself why the markets have put so much value into the these organizations, into these platforms.

I believe it’s because of their ability to learn and adapt. For example, take Amazon and their successful pivot to a platform model. When Amazon was founded in 1994 it was like most of the incumbents with 99% of the their assets in physical goods. From 2001 – 2017, Amazon made the transition to a digital hybrid developing an open platform and orchestrating a marketplace for buyers, sellers and developers. As Jeff Bezos has demonstrated with Amazon, we cannot become what we want by remaining who we are.

Historical experience shows we are at the appropriate juncture for shaping the future.

Chapter 02: Patterns

When we look back at the past five technological revolutions there is a regular pattern of propagation: an installation period, a turning point and a deployment period. If we break it down even further, the installation period is about a technology that erupts resulting in the creation of a bubble of prosperity. As they say, all good things must come to end. In this case, it’s the turning point; typically a recession. Lastly, it’s followed by the deployment period which is a “Golden Age” of prosperity and a maturing of the technology.

As I wrote earlier, it’s not just about the technology; for a revolution to happen it also entails new lifestyles, new directions for innovation and a huge potential leap in productivity for the whole economy. In other words, the changes go beyond just a few places and encompass major technical, social and institutional shifts.

So, now that we’ve covered the installation period and the deployment period we can take a look at the turning point aka a post-bubble recession. Dorothea Lange’s photo Migrant Mother is one of the most iconic images from the 1930’s Great Depression. One would think we would have learned our lesson but today’s turning point reflects a majority of the conditions that existed in the 1930’s. Let me point out a few of them in the next three slides:

After 13 years in business, Financial Time Deutschland (FTD) closed on December 7th, 2012. It was a sign that the business of news was changing for publishers and journalists. If it wasn’t clear then, it’s clear now; the publishing industry was going through a radical shift. In other words, the ex-employees that weren’t able to find a job after FTD closed encountered what is known as structural unemployment; a mismatch between the jobs available and the skill levels of those unemployed. Unlike cyclical unemployment, it’s caused by forces other than the business cycle and occurs when an underlying shift in the economy makes it difficult for some groups to find jobs…similar to the 1930’s.

Executive Order 13769 (aka the Muslim Ban) was signed by President Donald Trump on January 27th, 2017 citing that it “would impose tighter vetting to prevent foreign terrorists from entering the United States”. With the rise of Alternative for Deutschland (AfD) in Germany, Brexit in the United Kingdom and one in 10 votes going to the Right-wing populist parties in the recent EU elections there is no doubt that xenophobia and racism are making a strong comeback. In the 1930’s, the Jewish were the scapegoats, today it’s the Muslims.

On May of 2018, the owner of an internet cosmetics business by the name of Priscillia Ludosky was living in the suburbs of Paris and did the math on the cost of gas. Unhappy with the fact that over half of the price of a liter of gas was taxes, she launched an internet petition calling for a drop in price. This was the start of the Yellow Vest movement which consists of those that rely on their cars to get to work and make barely just enough to cover their living costs. Priscillia Ludosky started it but the social unrest has since spread to a larger part of the French population and can be found in other parts of the world…similar to the 1930’s.

If we think globally, the three examples (structural unemployment, xenophobia and social unrest) I’ve illustrated are just a few examples we have now that we also had in the 1930’s…and the beginning of the end of a turning point. Right now, during the transition into a deployment period, is the worst time to fall back to old ways.

Humanism.

Three Questions. Three Answers.

Chapter 03: People

At a time when we are teaching machines to learn and answers are ubiquitous the human capacity for creativity is essential. Combined  this with an environment where people have a sense of psychological safety to explore beyond their comfort zones then there is no doubt in my mind that those that are audacious in their thinking and brave in their doing will be best suited for tomorrow. With that in mind, I have three questions:

We tend to stay within our comfort zone as we approach difficult challenges. But quite often, it’s the unexpected intersection of two ideas and different perspectives that result in something truly ground breaking. When John Hopkins University held a weekend challenge to design a better hazmat suit one of the participants was wedding dress maker, Jill Andrews.

Andrews was part of a team based at Johns Hopkins University in Baltimore that developed a drastically redesigned and simplified prototype of the Ebola protective suit. The single-piece, fully integrated suit cuts the removal process by three quarters to just 5 minutes. It takes the wearer just eight steps to shed it. Current models require 20 movements and an assistant. “It’s all engineering,” Andrews says. “If you can build a bra, you can build a bridge.”

Being uncomfortably excited is about trying something new, changing perspectives. Although we feel most comfortable when things are certain, we feel most alive when they’re not.

The things that shape our lives are born from an act of deviancy. These acts of rebellion, manifested from a person with a strong conviction to do it differently and the will to make it a reality  move us forward as a society. As more of what we do becomes less certain it becomes more important to create organizations that are designed for discovery

Amazon, Microsoft and Tesla all had founders with a strong conviction to do it differently. They also understood that software would become the competitive advantage in a world that was industrial.

The big question now: will Tesla become more proficient in the real-world production of vehicles quicker than incumbent companies such as Volkswagen can produce software?

In 1999, John Doerr (investor and venture capitalist at Kleiner Perkins) was looking to invest $12.5 in Google. At the time Google was the 18th search engine and Sergey Brin and Larry Page decided they wanted to sell Google to Excite.

They went to Excite CEO George Bell and offered to sell it to him for $1 million. He rejected the offer. Vinod Khosla, one of Excite’s venture capitalists, talked the duo down to $750,000, but Bell still rejected it. [via]

Doerr ended up investing in the duo but wanted to know a few things first: what to prioritise, how to keep team focused, when will we know when to stop (fail fast), and what data do we use to track progress?

That bet paid off in no small part to Google’s purpose, principles and values (culture) as well as being able to execute. Using John Doerr’s Objectives and Key Results (OKRS) framework that he adapted from Intel, Google would go on to IPO five years later making a 340x return on the original $12.5 million investment. Measurable impact is about moving beyond proxy metrics (measures of activities instead of measures of results) and understanding the value of outcomes to the business.

If Jill Andrews wouldn’t have put herself in the uncomfortably exciting context that was not immediately connected to wedding dresses we most likely wouldn’t have a better hazmat suit. If Elon Musk didn’t focus his attention on sustainable transportation we might still be thinking that electric cars had to be as utilitarian as the Nissan Leaf. If John Doerr wouldn’t have invested in Google and introduced OKRS we might be searching for something. In other words, the cost of not trying is, quite often, higher than the cost trying.

Platforms. Patterns. People.

The world that built the Industrial Age is coming slowly to an end. The world built on platforms such as Amazon, Google and other tech giants are becoming more and more pervasive. This is the beginning of the end for some and the end of the beginning for others. To stay relevant today means imagining what’s possible tomorrow and using creativity to make that a reality. Fundamentally, a platform is just someone’s opinion on how the world should work; it’s an idea made real based on imagination. As we all have the capacity to imagine, we all have a role in the future. It’s time to start building out what that role will be.

The important and difficult job is never to find the right answers, it is to find the right questions.

Questions for leaders: Are you embracing non-traditional experts or partners to help break through boundaries at speed? Does your culture celebrate leaning into the future or protecting the past? Are you setting goals far beyond the status quo?

If you live the questions life will move you into the answers

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It was my first time in Glücksburg, Germany (a small northern town outside of Flensburg that has a view of Denmark across the water) and it didn’t disappoint. Midsummer was a few days earlier so I  got up at 4:30am to capture the sun raise itself above the water’s horizon…and it was worth it.

Side note: To avoid the feeling of a Ben & Jerry’s kino spot [laughter], I delivered this in English instead of German. That being said, I do speak German so I asked the audience to direct questions and comments in the language they felt most comfortable.