
The Unicorn Hedge - adamfeldman
https://500hats.com/welcome-to-the-unicorn-hedge-2fd3c6b50f89#.8mtbr7tmq
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DelaneyM
The moment someone suggests that their advantage is being smarter than
everyone else (or that everyone over 40 is somehow stupid), I look for ways to
short them.

I know a handful of F500 execs, and they are formidable. Sure, they may turn
to IT to set up their new "iPhone BlackBerry", but they have tools in their
belt to compete with that most valley entrepreneurs don't even know exist.

They were the best, brightest and hardest-working of the previous generation.
They are us, with more life experience and better networks. Underestimate them
at your own peril. They might be dinosaurs, but who wants to jump in the ring
with a velociraptor?

~~~
xapata
Saying a large company has trouble innovating isn't necessarily a criticism of
the executives. Large bureaucracies are cumbersome, certainly more so on
average than a smaller company.

Let me offer the analogy of a big, old software project. It is far more
difficult to make a major refactor of some 20-year-old, millions-of-lines
system than a script you wrote yesterday. That's not saying the old project
was incompetent. It could have been very elegant, the best engineering of its
day.

~~~
DelaneyM
You're roughly describing the Innovator's Dilemma, which is an entirely
different beast (and definitely not what the author of the linked article is
referencing.)

~~~
xapata
No, I'm not describing the Innovator's Dilemma. That's essentially the problem
of getting stuck in a local maxima and the need to take a temporary loss to
find a bigger hill, so to speak. I was instead trying to describe the troubles
of maintaining an old system. They're intricate and all fixes must be hot-
patched. Now, if you could just reboot...

For example, suppose you're at a large enterprise that has a silly expense
policy involving taping physical receipts to a standard size paper, one
receipt per page, then mailing the packet to India, where the pages get
scanned and sent to the accounting department, which meticulously compares the
receipts against the Excel spreadsheet you filled out and submitted via VBA
macros (yes, this is a true story). How easy would that be to change? Compare
that experience with working at a 20-person company and asking the accountant
if she doesn't mind using Expensify.

Saying that a big company is hard to change isn't necessarily an accusation
that the CEO is myopic.

As for what McClure meant by saying public companies will be disrupted... I'm
not really sure, since he also contradicted himself saying that they'll
purchase their potential disruptors. Perhaps he meant that large enterprises
which do not acquire new companies will be out-competed by those who do.
That's somewhat of an interesting assertion, but I don't know of any large
enterprise that has only an M&A team or an R&D team. They all have both.

~~~
DelaneyM
Ok, to put it differently, the Innovator's Dilemma was the interpretation of
your description I could most easily agree with. It's also valid, because that
local maxima can also exist in a software project where maintenance has a
greater short-term payoff than refactoring.

In that case I'm sticking to my guns and just disagreeing with you. Many
companies are horribly operationally inefficient in many ways, but they often
don't care if it's not actively costing them significant market share. The
moment that expense report process starts impacting the bottom line you can
bet they'll be on the cutting edge of resolving it.

~~~
xapata
> Many companies are horribly operationally inefficient in many ways, but they
> often don't care if it's not actively costing them significant market share.

My experience suggests otherwise. Big organizations are bureaucracies carved
up into little fiefdoms, each little lord trying to maximize something
different. The boss of the receipt scanners wants to increase headcount, not
reduce costs. As a management consultant, I encountered that situation time
and again -- an executive choosing an outcome worse for the company, knowing
it'd be better for him or herself, or simply out of pride, laziness, or
malice. There's a reason why Dilbert rings true for so many office workers.

A new CEO can try to clean things up, but they can't fire all the middle
management simultaneously, so the ship turns very slowly. Going back to the
software metaphor, it's not the issue of short-term vs long-term thinking on
patch vs refactor, but the problem that the system is live and must be highly
available during maintenance.

~~~
dragonwriter
> A new CEO can try to clean things up, but they can't fire all the middle
> management simultaneously, so the ship turns very slowly.

Firing all middle management doesn't help: humans are self-interested. What a
CEO needs to do is align incentives for middle management with the interests
of the firm, so that self-interested middle managers aren't microoptimizing
their domains on criteria that don't serve the interests of the company.

~~~
xapata
> align incentives

That's a good buzzphrase, but I've never seen anyone do it in earnest. I was
once on a consulting project to help a "Director" pick appropriate KPIs as
part of a company-wide effort to improve departmental performance measurement.
They rejected my suggestions to measure their effect on profit. My manager, to
rescue the project, told me to ask what they wanted to be measured on, write
it down, and hand it back as the report. The Director loved that idea and
rattled off a list of metrics that could be easily sandbagged and had no clear
relationship with company profit. ... And yes, that company is very large and
well-respected.

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rtpg
The final advice is "invest in tech stuff, because there's a lot of
opportunities in the old big companies". That's true, but there's some stuff
in between about the old big companies being doomed (as in Oil companies going
bankrupt). I don't really agree with that reasoning.

The thing I don't quite know is how the tech culture is going to generate a
replacement to Johnson&Johnson in the next 20 years.

Unilever bought dollar shave club, right? So that's good for investors. But if
all the big companies buy the successful unicorns.... didn't the big companies
win? A win/win, sure, but not the "GE is finished" sort of opening.

I think that a core argument here is that SV can come in and eat these
conglomerate's lunches in certain verticals. But that's fine! So many of these
companies are in so many domains that having one division go to zero is
something that's happened at the beginning of time, right?

So there's an argument that going against these huge companies is a Good
Idea(TM). But the success of the SV company does not mean the collapse of
GE/J&J/Coca-Cola. Not to mention Wal-Mart.

Amazon is a good counter-example to what I'm saying, as it has taken
significant market share from so many different industries. I wonder if SV
really has the guts to make "real" capital investments like with Amazon again.

Space X happened because a billionaire just through all his money in, but the
"traditional" financing companies (banks) are making those kinds of big bets
all the time! I think we're still a ways off from capital-intensive startups
("real money") from getting those. Especially with the 20+ year lead time
necessary.

I kinda see the argument for oil going to zero, but transportation is only
1/3rd of oil expenditure. I think Exxon-Mobil will still sell stuff for a
while.

~~~
shas3
I totally agree! Also, there is plenty of variance and random luck in the fate
of companies. Kodak went down, yes. But many other similar companies survived
and thrived. GE once sold personal computers and 3M, magnetic tapes. But they
successfully extricated themselves from these businesses when they became
difficult to profit off of. While there are certainly deterministic reasons
for this, one shouldn't discount the effect of luck. People forget how
diversified these companies are. The positions they themselves hold, in terms
of markets, are hedged- with short and long bets. Just because they are
hedging their bets more by buying Dollar-Shave-Clubs and Jet.coms doesn't mean
there's a bubble.

Additionally, on the tech/start-up side too, there were many shorter-lived
companies that never lived up to the hype or declined from a position of
unrivaled greatness (Cray?).

If there is a fatal error in the OP, it is in the certainty and needless
cocksureness of McClure's predictions.

Given the huge sizes of these markets and the value of products and
commodities, it is laughable to predict an imminent decline in companies that
do pharmas, chemicals, industrials, medical devices, etc. based on metrics
cherrypicked to create such a narrative (e.g. shift in highest-revenue
companies).

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jacques_chester
> _They’re about to get disrupted by a unicorn / comet._

Assuming they just sit still, sure. But large companies aren't uniformly run
by Hollywood stereotypes.

More importantly: Large companies don't need to be better than startups to
crush them. They have the depth of finance to sustain a brutal fight.

They only have to be good enough to hold the line. Attrition will do the rest.

Add to which, a lot of F1000 companies have decided that disrupting their
_existing_ F1000 competitors seems like a jolly good wheeze and have been
studying up on this hunky-funky agile and lean thing.

Disclosure: I work for Pivotal and in Pivotal Labs, we've seen a massive surge
in interest from F500s who want to learn to dance. Some of them are quick
studies, too.

~~~
HillRat
I've seen some of the results of what you guys teach -- you do good work.

This is also the first year that I've regularly had senior executives and
C-suites (as opposed to tech) ask me about agile as a qualifying or
competitive factor. I'm always nervous when process becomes a qualifier (due
to the "best practices are no magic bullet" expectations management it
requires, often in the face of the competition's unwarranted claims), but I'm
happy to see plenty of F100+s thinking about how to effectively innovate
within their core markets without throwing $20m waterfalls at the problem.

~~~
jacques_chester
To tell the truth, we've had to re-learn how to teach in the past few years.
Pivotal Labs used to work almost exclusively with startups -- a scale at which
transforming most or all of a company's work is possible in a single
engagement. When the students are all willing and present, teaching is easy.

Now we work with a lot of enterprises, most of whom by employee headcount
outnumber us by 10-100x : 1. We can't boil the ocean. We have to do it a piece
at a time.

Often the C-suite are converted after just a few visits to our offices, or
after talking to our various office directors (nearly all of whom have come
from frontline engineering, product management or design). And typically the
engineers, product managers and designers we work with are quick to see the
benefits too.

But these companies are very large and sometimes the incentives are highly
heterogenous across different individuals and departments. But slowly, surely,
they change. And even when they don't completely change, it only takes an
isolated pocket of fast movement to keep a large company in the game against
disruptors.

That said, we've found that after a while, the ideas and practices begin to
spread by themselves. A good example is The Home Depot, with whom we've had
several Labs engagements now. Cody, from THD, even gave a tech talk about our
NYC office about the experience:
[http://original.livestream.com/pivotallabs/video?clipId=pla_...](http://original.livestream.com/pivotallabs/video?clipId=pla_1750f6fc-c569-4b0f-9b1e-ee8938ac5f7f)

Unfortunately, we flubbed the audio, so Cody is a little hard to hear, but if
you can hear -- it's a great story.

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danieltillett
I am shocked to learn that someone who has a large number shares in unlisted
tech companies is keen on others investing in these stocks.

More seriously nobody really knows what is a good investment these days. Years
of zero or negative interest rates have broken the old models and nobody knows
what is to come.

~~~
cheriot
I suspect VC with blogs want to use name recognition to get involved in more
deals. When a startup gets hot, they're the ones competing.

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ohthehugemanate
This is why all the smart MBA kids who wanted to get rich quick don't go to
wall street anymore. They go to silicon valley instead. Which is where we get
bro-grammers, and an emerging culture in tech that doesn't understand or care
about historical values like open source. When all the shallow people move to
tech, tech gets shallow.

