7 ms·

The Unicorn Hedge

62 points by adamfeldman 10y ago

rtpg 10y ago
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.
- r00fus 10y ago
  > But if all the big companies buy the successful unicorns.... didn't the big companies win? This is the wrong assumption. The winners in this scenario are the investors who invested early in DSC and exited on purchase. Lather, rinse, repeat.
- shas3 10y ago
  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).
jacques_chester 10y ago
> 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 10y ago
  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 10y ago
    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_1750f6fc-c569-4b0f-9b1e-ee8938ac5f7f http://original.livestream.com/pivotallabs/video?clipId=pla_... Unfortunately, we flubbed the audio, so Cody is a little hard to hear, but if you can hear -- it's a great story.
DelaneyM 10y ago
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 10y ago
  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 10y ago
    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 10y ago
      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.
danieltillett 10y ago
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 10y ago
  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.
ohthehugemanate 10y ago
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.

62 points by adamfeldman 10y ago

rtpg 10y ago

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.

r00fus 10y ago
> But if all the big companies buy the successful unicorns.... didn't the big companies win? This is the wrong assumption. The winners in this scenario are the investors who invested early in DSC and exited on purchase. Lather, rinse, repeat.
shas3 10y ago
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).

jacques_chester 10y ago

> 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 10y ago
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 10y ago
  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_1750f6fc-c569-4b0f-9b1e-ee8938ac5f7f http://original.livestream.com/pivotallabs/video?clipId=pla_... Unfortunately, we flubbed the audio, so Cody is a little hard to hear, but if you can hear -- it's a great story.

DelaneyM 10y ago

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 10y ago
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 10y ago
  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 10y ago
    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.

danieltillett 10y ago

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 10y ago
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.

ohthehugemanate 10y ago

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.