Disruptive Tendencies

Your First Child is Windows 95

So, let me start by saying that I have been fascinated by the concept of The Singularity since having my mind blown by Kurzweil’s book, The Singularity is Near years ago. I have bought into the Law of Accelerating Returns, and that the rate of technological change is nearly impossible to grasp. I agree that the implications are profound, and that the continued progression towards an AI is inevitable.

I love thinking of the Internet as the central nervous system of the planet, and how devices like Google Glass are fundamentally changing the way in which we plug ourselves into the CNS, removing the friction associated with having to manually enter queries using keyboards and fingers. I also believe those who claim that someday, inevitably sooner than “we” think, there will be tighter man/computer integration, with Google Glass becoming a contact lens and ultimately an implant.

Recently, I downloaded Doug Wolens film, “The Singularity”, and finally had the opportunity to watch it on a flight yesterday. I found it to be a well-balanced, thoughtful discussion of The Singularity. What I found particularly compelling, was the multi-disciplinary cross-section of talking heads, forcing one to look at The Singularity through multiple lenses. Of course Kurzweil was prominently featured, but he was often rebutting skepticism by others. 

One speaker that struck me was Bill McKibben, Scholar in Residence at Middlebury College. I’ve never heard of Bill before, but his comments around the implications of parents modifying the genome of their kids struck a chord. 

“So you’ve gone into the clinic and made your first child, and checked off the things on the list that you want. Three years later you’re ready for another kid. You go back in…Everybody in this world is eager to tell you how quickly things change (referring to Singularity proponents). Three years is a long time in technology…Now you can intervene in way more places on the genome than you could before…You can get a kid that is much smarter, better. What does that make your first kid? Your first kid is now Windows 95. They’re not even the same thing. Each is moored on their own island of technological obsolescence…”

Bill McKibben, Scholar in Residence, Middlebury College

“The Singularity”, film by Doug Wolens

 

It definitely gives one pause to think that there will be different versions of “software” installed on various hardware platforms (people). What happens to the v1.0’s out there when the v2.0s come online? Tough question at a societal level, but also at the familial level as McKibben suggests. We all love when we get a shiny new device that does things the previous one didn't - but what if it's your kid?!?

Good books and film make you think. I still maintain that much that Kurzweil describes remains inevitable – the techno-Genie is not going back in the bottle. But thanks to Wolens, and his cast of characters, I now have other aspects of The Singularity on which to noodle.

That’s my .02!

Martin Suter

The Invisible Ones

“We’ve all see the man at the liquor store begging for your change.

The hair on his face is dirty, dreadlocked and full of mange.

…He asks a man for what he could spare, with shame in his eye.

“Get a job, you fucking slob”, is all he replies…

God forbid, you ever had to walk a mile in his shoes

‘cause then you really might know what it’s like to sing the Blues.”

(“What Its Like” by Everlast – iTunes)

 

For the past few days, much of the US and Canada has been gripped by a cold snap, “the coldest day in 2 years in New York City”. It’s been the trending topic in Facebook status updates from friends across Canada and the US. Friends with houses and apartments, friends with scarves, boots and gloves. Friends who, like me, pass by the homeless every single day, with cardboard signs and coffee cups, trying to survive, whether it’s in Toronto, New York, San Francisco or Orlando.

I see them every day, but I don’t see them - they might as well be invisible. Maybe a glance at the sign, whilst avoiding eye contact…a quickening of the pace…thankful for earbuds, so you can’t hear the plea. I’m willing to bet that I’m not alone here, but sadly, that my reaction is identical to nearly everybody, nearly all the time.

Yesterday, as I turned onto my street, I SAW, for the first time, a man sitting on the ground, leaning up against the wall, with hoodie hiding his face, but with the vapor from his breath clearly visible. He had the ever-present coffee cup in front of him. I’ve passed by him dozens of times before, never noticing or acknowledging him, but yesterday was different. It was cold, and for a brief moment I wondered how it is to live, and to even survive, when it’s bitterly cold out.

For the first time ever, I stopped. We began a conversation. He told me his name is Tito…that things could be a lot worse (“I’m alive”)…that he just turned 57 years old, and that he was going to live for awhile yet…that he’s going to be OK outside, because he’s a Marine. I asked him whether he had eaten today, and he said that he had not. I gave him some money and he said thanks, that he was able to get some Chinese food now, his favorite.

When I left for work this morning, bundled up against the cold, I walked by his form on the sidewalk, covered in blankets and a sleeping bag, as I had every other morning, but today I knew that there was a guy in there named Tito, a Marine, who likes Chinese food. He was no longer one of The Invisible Ones, at least to me, but sadly he remains Invisible to many others.

As I walked to the office, I passed by too many homeless people, as I do every day. My awareness had grown, but I didn’t stop and engage any of them. I didn’t ask whether they were hungry, or whether they would be OK in the cold tonight. Still Invisible. Maybe tomorrow. I'm not quite ready to be Jean Valjean.

I thought a lot about Tito today, and on the walk home was wondering whether he’d be better off with a bowl of hot soup or a loaf of bread, some cold cuts, apples and some apple juice. I decided that the latter would probably help him through the weekend, so I ducked into a local grocery store and did a small shop. As I approached, he said “Hi Martin”, and we resumed our conversation. I learned that he’s got an ex-wife with whom he has a 41 year old stepson, and a 31 year old daughter who lives in Hershey, PA. We talked about other stuff, and as I was leaving, I left him the groceries and told him I’d see him on Monday.

Funny thing is, I think I’ve made a new friend.

 

I Love You the Purplest

There are various inflection points in our lives, after which, things can never be the same again. Marriage, the birth of a child, the death of a parent, and I would add, your children leaving home.

“Empty nesting” has been a milestone to which I’ve been ostensibly looking forward, but perhaps more tongue-in-cheek than not. As with any inflection point, it is, however, an opportunity to reflect back on what this phase has meant, and how it has shaped our lives.

 Fatherhood has held many surprises for me, and has allowed me to learn more about myself than anything else that I have done in my life. When I learned, in 1991, that I was going to be a father, my initial reaction was fear – fear of dependence, of constraints, of inadequacy, of unconditional love, of responsibility. And this fear was not limited to the months before the birth of my first child; it lingered and manifested itself in different ways over the years. But as with any kind of fear, we make a choice – to be paralyzed by it or to overcome it. It’s taken me a long time, but I am no longer afraid of fatherhood.

 From the moment Roark was born, I felt an overwhelming sense of love, in a way that I had never felt before. It was visceral, unconditional and permanent. The feeling was unexpected and overwhelming. I knew, from that moment forward, that I would do anything for my son, and twenty years later, this has not changed. After Roark was born, we talked about having a second child, an idea that I resisted out of fear that, somehow, this would detract from my love for Roark. The biggest surprise for me, when Riley was born, was that I felt as deeply for him as I did for my firstborn. It was then I realized that love is additive not subtractive. In no way did my love for my second diminish my feelings for my firstborn. I wasn’t dividing a finite quantity of “love” and affection by two, I was multiplying it by two.

 As I reflect back on the years with my sons, I am reminded of a book that I used to read to them – I Love You the Purplest, in which two boys compete for affirmation of their mother’s love. As she explains to each of them, she loves them equally, but not identically, a simple, yet important, message. It is possible to love more than one person, albeit in different ways.

In the immortal words of Robert Munsch, from another children’s book we used to read…

"I'll love you forever.

I'll like you for always.

As long as I'm living, my baby you'll be." 

 

 

Our children are finally off on their own, but are not alone.

 I love you the purplest.

Fathers, sons, brothers, husbands…

This was the blog I was going to write, with much introspection, after having just seen “Warrior”, a much more thought-provoking movie than many would give it credit for on its face. I had it half-written in my head, as I walked back to the hotel from the theatre.

Then I got back to my home away from home this week, a condo in Toronto, and got a note from one of my best friends’ brother, telling me that my friend had just been diagnosed with pancreatic cancer. I am sitting here with tears pouring down my cheeks at this news.

There is a lot of shit in this world. This week, a first year student at Acadia drank himself to death, playing a drinking game with liquor instead of beer. It could have been my son. Debbie’s uncle Harvey, a good man in his own right, was also diagnosed this past week with pancreatic cancer. People get sick. People die.

Good people. People we know. Fathers, sons, brothers, husbands and friends….

As they say in Africa, “Hasa Diga Eebowai”!

My friend epitomizes the French phrase “joie de vivre”. He always has, and he always will. More importantly, and to paraphrase Tennyson, he is a part of all he has met. His joie de vivre is contagious and has infected all those with whom he has crossed paths. As college roommates and best friends, I can’t tell you how often he would bring a smile to my face. You couldn’t be sad around him. He is the rare individual who could, singlehandedly, lift the mood of an entire room (or bar or party).

My friend is a father, a son, a brother, a husband and a friend to many. He has given so much of his energy to lifting the spirits of those around him, but now it’s time for him to allow those near him to reciprocate. Let your children, your parents, family and friends energize you. Do not lose the joie de vivre that makes you, you.

Your friendship means more to me than you’ll ever know.

Je t’aime fort, mon ami.

Martin

 

Big Ideas: There If You Look

In today’s New York Times, Neil Gabler bemoans, “Ideas just aren’t what they used to be.”

He goes on:

“Once upon a time, they could ignite fires of debate, stimulate other thoughts, incite revolutions and fundamentally change the way we look at and think about the world.”

One can’t argue that a “Big Idea” would have these characteristics. One can debate whether they are as rare as Mr. Gabler laments.

Humans transcending biology. Immortality. The Singularity.

If this isn’t the mother of “Big Ideas”, I don’t know what is.

No one could dispute that Ray Kurzweil’s books have ignited fires of debate, incited revolution, and have fundamentally changed the way we look at and think about the world.

Much of what Kurzweil discusses in his books, in his TED Talks and in “The Transcendent Man”, is humankind’s propensity to extrapolate linearly, and that exponential growth rates are beyond our ability to grasp, which he refers to as “The Law of Accelerating Returns”. He spends a lot of cycles plotting growth rates to log curves to prove his point that advances in technology have been growing at exponential rates. He goes on to suggest that there is no reason to expect this to change, the implication being, of course, that change is happening at an accelerated rate that few grasp.

Ray deserves credit for putting stakes in the ground and for the transparency with which he supports and defends his predictions. By estimating the computing power of a human brain and projecting Moore’s Law, he tells us that in 2020, a $1000 computer will have the equivalent processing power of the human brain. This is different than a computer becoming indistinguishable from a human. That won’t happen until 2029, when a computer with Strong AI becomes the first to pass the Turing Test.

But for Kurzweil, it’s not just Moore’s Law and exponential growth of compute power (although it is perhaps that best known example). His Big Idea comes from connecting the dots across multiple disciplines, which he has coined “GNR”, a convenient acronym for Genetics, Nanotechnology and Robotics/AI.

Mr. Gabler, there are Big Ideas out there. You’ve just got to look for them.

That’s my .02!

Martin Suter

About.Me/martin_suter

 

Derivative Works: The Battle Over Purple Play-Doh

One of the most contentious areas in licensing negotiations is in the area of ownership of derivative IP. The most effective articulation of the issue that I have seen was by Jill Riola, a highly capable licensing attorney working at Carlton Fields in Orlando. During negotiations with a team of attorneys from a Fortune 500 firm that was licensing our IP, she brought it back to first principles:

·         We own our IP (blue Play-Doh)

·         You own your IP (red Play-Doh)

·         We are granting you the right to create purple Play-Doh, using our blue in combination with your red

·         But you do not own purple Play-Doh, because by definition, purple must contain some blue.

Furthermore, when viewed this way, all of the terms contained within the licensing agreement, including restrictions on Field of Use, royalty rates, etc., apply for all shades of purple Play-Doh.

We could get down in the weeds and occasionally lose sight of the issue, so it was amusing to watch how Jill would bring it back to first principles. “If it’s blue Play-Doh it’s ours…You own all of the red you can develop, but if it’s purple, you don’t own it, and you owe us if you sell any.”

Agree on who owns what Play-Doh upfront, and the specifics of the agreement will be much easier to draft later.

That’s my .02!

Martin Suter

martin.suter (at) iplicensing.net

Play-Doh is a registered trademark of Hasbro, Inc. Its use herein is strictly to illustrate a legal concept. No endorsement by Hasbro is expressed or implied.

 

Conflicting Goals in Asymmetrical Deals: Market Exclusivity

How many people have considered that Microsoft is, at its core, a licensing company? Or that the entire PC industry owes its existence to a licensing deal, the non-exclusive license to IBM for MS-DOS in the 80’s? How different a company would Microsoft have been had they signed an exclusive licensing deal? Chances are that it wouldn’t still be around. Bill Gates certainly wouldn't have become the richest guy in the world. As a licensing guy, I can only speculate on whether it was IBM's negotiating naivete or Microsoft's chutzpah that led to the deal being structured as it was.

Having sat on both sides of the table on various occasions, I have frequently found myself in a position where I’ve been able to help get to consensus because I understand where the conflicts may be and have been able to work through them.

Licensees almost always contend that they require some form of market exclusivity for competitive advantage. “Why would I sign a deal with you today if, tomorrow, my competitors can do the same thing?”

Licensors are thinking the exact opposite, “I can’t put all my eggs in one basket? I want to capture as much of the market opportunity as is possible, not be limited to a fraction of it.”

Perhaps even more importantly, what is the impact on the company’s potential for a liquidity event for its investors? Remember, once you’ve granted exclusive rights to a 3^rd-party, that prevents not only you, but any acquiring company, from pursuing that space. This may take a whole category of company off the list of potential acquirers at a later date. Try explaining that one to your investors!

So how do you reconcile these two positions?

The “need” for market exclusivity can often be a catalyst for M&A discussions, especially if the technology being licensed is the core franchise around which you’ve begun to build the company, or if the breadth of market exclusivity on the table prevents you from extracting value in other markets. But once again, these can be tricky waters to navigate. A technology acquisition requires you to consider valuation through a very realistic lens. The acquiring company will do an estimated build cost (# of person years x fully loaded cost per person year, around $200K per), and then offer a multiple based on their assessment of the value of time-to-market and your IP position, typically 3X-7X. As the inventor/entrepreneur, you need to be very realistic about their ability to get close enough to replicating that which you’ve built. Pride can get in the way, but do you really believe that Microsoft/Qualcomm/Oracle/Cisco engineers couldn’t do it?

If M&A discussions aren’t an option, then, in most cases, non-exclusivity should be the preferred path. One of the things, that the licensee doesn’t want to happen, is to invest its time and resources creating demand for a key feature, only to have a competitor come in and erode their margins selling the same widget at a reduced cost. A concession, that can help address this, is a form of price protection (MFN clause). In this type of clause, the licensor will agree to not license for less in comparable deals. The concept of comparability is key here. The consideration must be for similar product types, in similar quantities over a similar time period. If a subsequent licensee is pays a lesser royalty rate (or other form of consideration), a reduction in royalty rate will be accorded to the original licensee as well.

So, you’ve now heard that M&A is not an option at this time and non-exclusive rights aren’t either. Under what conditions can exclusivity make sense? My answer is twofold: Money solves a lot of problems, and that it is possible to tightly constrain the scope of a license, thus preserving your ability to license to others or for an acquiring company to practice in any field but the restricted field for which you’ve granted exclusivity.

How do you constrain the license grants? By placing boxes around the grants…I’ll explain more next time.

That’s my .02!

Martin Suter

martin.suter (at) iplicensing.net

 

IP Licensing – Gut Check Time!

So you’re now thinking that licensing makes sense as a means of accelerating the time-to-market and monetizing your leading-edge technology. You’ve identified the gorilla as well as the chimps in your space, and managed to get the attention of at least one of them. They’ve probably begun posturing and now they’re coming to the table to discuss terms. For most companies, this is a classic “Oh shit!” moment.

As I blogged previously, before you agree to sit down, it is imperative that you have established clear guiding principles. Your internal stakeholders must understand, talk through and agree to a position on the major issues. These are the “non-negotiables”, and can help prevent bad decisions from being made in the heat of a negotiation. Each of these must be taken seriously, as getting them wrong can have a huge impact on valuation and even exit potential.

Issues to lose sleep over

·         Exclusivity vs. non-exclusivity

·         Derivative works

·         Field of Use, Territory

·         Indemnification

·         Consideration (cash flow, NPV, etc.)

Each of these merits its own discussion. As my plane is now on final approach, I’ll have to get to these in future blogs.

That’s my .02!

Martin Suter

 

Before Taking the Licensing Plunge, Consider These 3 Things

If I had to impart any words of advice to a company that is seriously looking at licensing as a go-to-market model, it would be the following three things:

1.       Understand all of the implications of a licensing strategy, including its impact on valuation and potential liquidity events for the shareholders;

2.       Develop guiding principles outside of the deal;

3.       Assess every deal through a strategic filter.

The first of these is critically important and requires the full buy-in from the Board and investors. Don’t assume that they automatically appreciate what these are. Licensing has implications for valuation and exit potential, and while the benefits are many (focuses scarce resources on core technology development, time to market, leverages existing channels to market, non-dilutitive cash inflow, etc.), the risks are also real. But many of these risks can be partially or wholly mitigated by a rational approach to the deal, and it is incumbent on you to show them how.

Which leads us to the second imperative: Develop guiding principles outside of the deal. Get the Board to sign off on these and empower you to negotiate the deal within the deal framework that’s been discussed. The last thing you want is the Board “helping” you to negotiate a deal in real-time or proffering opinions at the eleventh hour. Given the implications of a bad deal, there are certain things that will not be negotiable. These may be dealbreakers, but it’s far better to know going in where you have the support of the Board and often, this makes for easier negotiations. At worst, you can cut bait.

Lastly, every deal should be looked at in a strategic context. Does it make sense to grant any rights, even non-exclusive, in the Field of Use that is likely going to be the driver for a liquidity event? Granting rights in niche markets is very different than granting rights in a core market.

In future blogs, I’ll discuss some of the issues that are worth losing sleep over.

That’s my .02!

Martin Suter

 

Fight or Flight? Why Big Companies Do Deals

I love the web and am constantly amazed at what one can find or learn from others skilled in the art.

I recently came across a very interesting piece in Marc Andreesen's blog: "The Moby Dick Theory of Big Companies", in which he suggests that "There are times in the life of a startup when you have to deal with big companies." He then builds a very interesting metaphorical case for SmallCo as Captain Ahab and BigCo as Moby Dick. It's an entertaining and enlightening piece, but I will endeavour to go a few steps further and try to delve into the psychology driving the players in this game.

Marc makes some interesting points about a BigCo's behavior being inexplicable when viewed from the outside. He suggests that there are some many moving parts and agendas, that the dynamic of decision making is highly unpredictable. While I tend to agree at a macro level, it's my experience that people (and a company is an aggregation of people) will react most predictably to fear. I think it was Intro to Psych class where we are all introduced to the concept of "Fight or Flight" and that it applies equally to business psychology.

SmallCo's are used to talking about the opportunities created by their disruptive technology: new markets, huge revenue, vast market share, value creation. This is a natural side effect from their creating business plans and pitching investors on how compelling the opportunity is.

Once they've convinced themselves and their investors that the opportunity is huge, they will often go out and try to convince one or several BigCo's of the same thing. Getting funding or landing a whale require different stories, but usually SmallCo re-uses their investor pitch in trying to get BigCo's attention. You may get nodding heads in meetings and even hear that they agree with your assessment of the opportunity, but all too often BigCo inertia takes over and nothing happens.

I first experienced this in a big way shortly after being recruited from a start-up into the Disruptive Technology group at Nortel in Q3/2000. MeshNetworks had just emerged from stealth mode with a classic, highly disruptive story that had the potential to impact many incumbent technologies and R&D programs in the wireless space. Nortel was heavily invested in 3G, having made a major UMTS bet, and I was advised to identify a new market opportunity created by this emerging technology rather than positioning it as a disruptor to 3G. So, I began the exercise of focusing on a net new commercial opportunity that this technology could enable for Nortel. It was a billion dollar opportunity in 3-5 years, yadda, yadda. I got the nods in meetings and the "Atta boy" from my boss at review time, but there was no sense of urgency to act.

Frustrated by this, and deciding to win big or die trying, I spoofed a news story using the San Jose Mercury News banner and inserting quotes from John Chambers and industry analysts. The banner read: "Cisco Leapfrogs 3G and Goes Right to 4G; Acquires MeshNetworks for $400m". I then printed off my mock-up and put it on the fax machine, sending it around internally. Within 5 minutes, my phone began to ring - "Holy shit! What the hell just happened? How could we have let this happen?!?"

Basically I then told them that we have a do-over, that this didn't really happen (yet). But I then asked whether this was a version of the future that we were prepared to accept. If so, not acting was a reasonable course of (in)action. If we couldn't contemplate this version of the future, then we needed to act urgently.

What did I takeaway from this?

BigCo's are largely risk averse. Status quo rules the day and that having a team of singles hitters internally is easier to manage than going to the free agent market and bringing in the guy who will either hit it out of the ballpark or go down swinging. Unless that home run hitter is also talking to another team in your division, which could lose you more games. The threat of him landing with a competitor usually changes the way in which you look at his availability as well as what you're willing to pay to get him on your team. It's the competitor pre-emption premium.

Winning vs. not losing. Opportunities or threats. Two different ways of framing the discussion.

After 20 years of dancing with 800lb gorillas, or hunting the great white whale, my experience is that BigCo action is catalysed more often from perceived threats than from potential opportunities. My hunch is that this is an 80:20 relationship, although I have no quantitative data to support this.

What happens inside companies when presented with a perceived threat? The Fight or Flight instinct kicks in. Corporate DNA is pre-disposed to fighting (they don't call it "competition" for nothing), while fleeing is anathema to most BigCo's. Status quo is not an option when under threat of attack.

You've decided, for whatever reason, that you're going to go hunt the big white whale. You've got a disruptive technology, well it's called disruptive for a reason. Change the lens through which you have them view you. Build your story around the threat to their status quo and you are more likely to get them to act with a sense of urgency.

But be careful what you wish for. You might just end up harpooning the whale and you then have to answer the "Now what do I do?!?"

That's my .02!

Martin Suter