Maybe the auto industry does need Steve Jobs

With the departure of General Motors CEO Rick Wagoner, and all the circus surrounding the Obama administration bailing out American car makers, it reminded me back to an open letter on Techcrunch, written by Todd Dagres. In his open letter, Todd contends that a new, innovative leadership needs to be installed, someone with the vision of a Steve Jobs. It is readily apparent to everyone that the U.S. auto industry needs an extreme makeover, and is not sustainable, long-term.

In his post, the comments thread went crazy saying everything from the fact that the article was ridiculous, Silicon Valley can’t fix everything and knows nothing, and that Todd has no concept of the macro-economic forces affecting the industry. The more I think about it, the more I realize that everyone is missing the point. Apple did not create the digital music player, they leveraged their strengths, created an ecosystem, and marketed the heck out of why it was superior, and continues to do so to this day. They made the digital music player sexy, and what’s lacking with U.S. autos? Being sexy. Does Apple have the cheapest phone or digital music player? Not even close. But they did create a more price inelastic product, in a space that is highly commoditized.

Doing my basic SWOT analysis, it appears that the U.S. has several strengths that has made itself a powerhouse: innovation, risk-taking culture, limitless access to capital (until recently), the American Dream, and every-present hype. Why shouldn’t the U.S. have sexy cars that the world demands? Let alone something that the American citizens want. Much of what’s being discussed to make the auto industry viable long-term is green this, green that, which is important. I’m afraid we don’t have that long to wait to perfect the system. We need to act now on short-term wins, while concurrently pursuing the long-term energy independence agenda.

Admittedly, I have a BMW, something I was attracted to because of the performance, prestige, and feature set. But more and more, I have come to realize how much better of an experience I could, and should have. In a post by Kristen Nicole, formerly of Mashable, now of AllFacebook, was able to experience Microsoft Sync in a test drive of the Ford Flex. In that experience, she noticed the deep integration between the car, the cell phone, and some compatibility with the Internet. In speaking with her about her experience, the car became just that, an experience. Some of the major barriers for having more Internet in your car include the potential distractions (public safety) and maintaining a consistent, strong signal while driving.

This is that opportunity for the auto industry to reinvent itself. Instead of minor attempts to integrate cars and social media, let’s open up the Apple development platform, allow the ecosystem of developers to create value, and let’s finally make the American car sexy again. Some of my current pet peeves is that if I am talking on the phone, enter the car, it doesn’t automatically shift to the bluetooth. If I look up something on Yelp, the directions don’t automatically pop up on my navigation system. I can’t assign addresses and locations on my car to specific people, and overall, there’s this big disjoint between the two systems. I need a more seamless experience.

Let’s integrate these platforms:the web, the car, the developer ecosystem, the home, and the mobile phone.  Let’s have the developer community contribute to a framework to create value for these cars as a platform that we use far more than we think. I don’t think that when the iPhone was about to be released, Apple had any idea of the magnitude of clever applications for so many different use cases. Imagine if we did that for the U.S. auto industry. Here, we’ve been talking about the connected home and the phone as the one platform that will be more important than the computer. Let’s connect them all. I think that with more access to capital for American consumers for American cars with a developmental platform, the American car may have a killer app to drive adoption and consumption in the near-term.

In many industries, new leadership that hasn’t had any experience in a particular space is brought in to shake things up, and lead the company in a new direction. With the auto industry against the ropes, in my opinion, this is the last chance. I think we need to give up on the idea of being one of the lowest cost providers. It doesn’t appear to be possible with our capital structure. Instead, let’s be the highest value provider.

Valuable companies come from companies that weren’t

One of the first-time entrepreneurial initiations is going around telling people about your new venture. You are filled with excitement, and hopeful that this is the opportunity that you’ve always dreamed about. This venture may make you financially independent one day, and you can retire your parents, long before they need to. You’ve been working secretly during odd hours of the day and night to build something of value, and you’re finally ready to tell the world.

Then comes reality.

You begin to encounter all the people who are chomping at the bits to tell you what you need to do, what you aren’t doing well, and why you won’t succeed. You hear about all the companies that are doing what you’re doing, and why the 800 lbs gorilla is just that. You meet the so-called “experts” who tell you the sad story about how they tried something like that a couple years ago and how there’s no market opportunity. Everyone quotes the latest BusinessWeek article, and points you to all the successful feel-good stories of someone’s magical ascent from bootstrapping entrepreneur, to mogul. The be like ______  chorus begins. What is never mentioned is that what makes you successful 3 years from now is completely different than what will make you successful today. Environments change, competition changes, and path to success changes.

The amazing part is very little of what you hear from others is reality. The only thing real is the precense of detractors.

I have recently had an opportunity to sit down and grab lunch with Mike Evans, co-founder of Grubhub. Grubhub just finished closing a $2 million Series B VC financing. If you read any of the sensational articles in BusinessWeek, you’d expect a company like GrubHub to have been founded eighteen months ago, and needed to raise $10 million, and burn through it in less than a year. The fact of the matter is that they grew the right way, with revenue, over five years ago, in the face of competition, without a huge bank account. This is the normal path of the entrepreneurial venture, not necessarily a made for TV story that the detractors like to quote when talking about building companies that matter.

Recently, Twitter just turned 3-years old. Media companies talk about it as if it was just recently conceived, but if you look at the first sketches, it is from 2000! There’s no way that Jack Dorsey knew that it was going to be one of the hottest distribution platforms created, but if you look at all of the comments about the launch, even from the pundits, you see that the initial reactions were much less than favorable.  If he would have stopped there and listened to the rants of the comments thread, Twitter would have never mattered. Instead, he created a valuable company from something that wasn’t valuable, which is the path of all start-ups.

If you’re starting a venture, stop listening to experts, and start evolving your strategy and continue to iterate your product or service. Nobody is going to know your market opportunity or how to attack it, and it’s not going to happen in day 1 or day 2000. I just finished reading Outliers by Malcolm Gladwell and one of the factors that he attributes to success is getting to the 10,000 hour mark. So get your startup to the 10,000 hour mark. Stop parading at every single conference listening to canned success stories, and instead, put your head down and do some real work. It takes time, patience, with very little fanfare.

In a good post on O’Reilly’s Radar,

Instead of focusing on hype and mega-growth, we can focus on building companies that serve customers in a fundamental way. That’s what matters.

Health Care 2.0: Where non-profit may mean no profit

In the Wall Street Journal today, there was an article today discussing the duality that exists in our health care system, maximizing revenue or serving the charitable mission. Interestingly enough, the article compares two non-profit hospitals in Chicago, Mount Sinai and Northwestern Memorial Hospital. This is especially important to me, because my parents began their medical careers at Mount Sinai, my mom working as a nurse in Recovery Room, and my father, as an Emergency Room resident physician. Additionally, when I have an ailment and need medical attention, outside of the care of my dad, I go to Northwestern Memorial hospital.

Mount Sinai, located on the west side of Chicago, is not in what most people would consider the best of areas. The Wall Street Journal says that Mount Sinai is “Located amid the blight of Chicago’s West Side“. In contrast, Northwestern Memorial hospital, located on the Gold Coast of Chicago, is in one of the wealthiest neighborhoods of Chicago. Both hospitals have the non-profit status, with one of the hospitals generating significant profits on a nice foundation of cash on hand and real estate assets, and the other hospital has barely over a week of cash on hand, with puny profits in comparison.

Guess which hospital is doing well?

Obviously, it’s Northwestern Memorial Hospital. To quote the figures, Northwestern Memorial hospital had a $140 million profit last year, whereas Mount Sinai had a $4.7 million profit last year. Given the size of these institutions, the Mount Sinai profit margin is much less than what you would think on first blush. Mount Sinai is sitting on $6.7 million of cash on hand, which amounts to about 8 days of operating income, with Northwestern Memorial hospital sitting on $1.8 billion amounting to 432 days of cash on hand!

I hope everyone is as shocked in the disparity as I am. One of the things I wish the article did was to show how many patients go through the doors of both facilities, making it more of an apples to apples comparison. Or even a comparison with the University of Chicago hospitals. Perhaps the facts are more skewed if Northwestern Memorial hospital takes on an order of magnitude more patients than Mount Sinai. Assuming that the patient throughput is approximately the same, as you’d imagine the reason for the disparity in profit margin is due to the fact that 70% of the patients at Northwestern Memorial have private insurance compared to 10% at Mount Sinai, 60% of patients at Mount Sinai are Medicaid compared to just 6% at Northwestern Memorial, and only 2% of patients at Northwestern Memorial have no insurance, compared to a staggering 12% at Mount Sinai.

Needless to say, this isn’t fair. Northwestern Memorial is a machine, and Illinois could sure use the tax dollars. The challenges with non-profits in general is that if you don’t run them like a profit-maximizing business, you significantly increase your chances of failing. At the same time, as a non-profit, there should be more initiatives to serve a charitable mission. With Northwestern Memorial hospital, according to the figures given by the WSJ, it appears as an outsider that they are doing very little to provide high quality medical care to those that may need it most. Perhaps they are doing quite a bit, but it would be better if the article addressed some of those initiatives. I look at the cash on hand, and I think of all the things that could be done to address the health care ills that Mount Sinai has a tough time fighting.

I know I am just starting my public policy Master’s degree program, but looking at this, there are some changes that need to be made. In my research on working on SavvyDoc, I’ve seen far too many non-profit hospitals with boatloads of cash, and no incentive to provide additional care and serve the charitable foundation they were founded upon.

Here’s what I propose for non-profit hospitals to retain their non-profit status:

Any hospital with over 180 (half of a year) days of cash on hand has to allocate the remaining amount to programming to serve the community and help with programs to provide health care services to blighted communities. They can also elect to do a luxury tax type of scenario that is used in professional sports, where the cash goes to the non-profit hospitals that aren’t making significant profit and are at risk of being eliminated by any external economic shock. Executive salaries can’t increase significantly from the previous year to prevent hospitals from giving higher salary and bonuses to their executives since they can’t keep the cash on hand.

The risk for this scenario is that you may have potentially removed all incentives for the hospital to see more patients, generate more revenue, etc. after the 180 mark has been reached. I’m not sure how to reconcile this fact.

What do you think? Does this seem reasonable?

Facebook schools us on what big companies need to do to stay on top

One of the most overused phrases for the startup trying to challenge the behemoth of an incumbent, is that the incumbent is too large, and that the startup can make quick decisions without the bureaucracy. I’ve used it in many meetings, and the more experienced I become, I realize how insignificant it is as a tactical advantage. Until you get to that point we call critical mass, you haven’t begun to become part of the conversation. But it’s interesting to see it play out with those companies that have hit the mainstream, and are within striking distance of potentially becoming king of the hill.

We’ve seen it with Wikipedia rendering Encyclopedia Britannica meaningless. We’ve also seen it with Google stealing the show as the gateway to the Internet, instead of Yahoo. We’ve also seen more recently Facebook taking the number 1 slot from MySpace, a company, that captured the throne from Friendster. It is certainly possible for the big companies to lose market share, especially in these days where we adopt new technology at an incredible pace. If you look at the adoption of the VCR versus the adoption rate of the DVD, you’ll see that we all adopt new technologies more rapidly than before. Moore’s Law seems to exist in the adoption of new technology. One of the things that irks me is when a company is crowned as the _________ killer because they are cool, and some early adopter techie wants to champion/evangelize it. Almost always, the so-called “killer” never pans out.

There are several commonalities that exist between all these guys that lost to the new rising star.

You have to be open…. to an extent

AOL was the prime example of what we called a “walled garden”. They forced anyone who wanted to consume anything AOL to pay the monthly subscriber fee. This was a cash cow for AOL. They received reoccurring revenue, if you wanted to connect to other folks, they had to subscribe as well (network effects), and AOL received great word of mouth marketing. It’s amazing. At the time, many people thought that the only way to get on the Internet was through AOL! Then, dial-up was supplanted by broadband, and everyone was able to have access to Internet Explorer, and get access to everything the Internet had to offer, for zero charge. I’d imagine that if AOL would have realized how the proliferation of broadband would have impacted their business and shift for the new Internet, they may have still been on top.

MySpace beat Friendster for several reason, one being the fact that Friendster had severe scaling issues, but I think the most important fact that everyone attributes to the initial success of MySpace was the first platform for the explosion of widgets, especially YouTube widgets that enabled everyone to take bits and pieces of the web and distribute it in so many ways. They were more open than Friendster, and MySpace enabled customization from an ecosystem of outside developers that created cool designs that enabled MySpace to become one of the first truly customizable sites out there. But MySpace was notorious for shutting down the competition, disabling widgets without warning, such as YouTube, Photobucket, and several others. It was a terrible PR move, and opened up the gates of opportunity for a rising star, Facebook, which blew the Internet open with the first open developmental platform for a social network. Facebook out-opened MySpace, and now we’re seeing right before our eyes, the crumble of MySpace. I can’t remember the last time I’ve heard of a major partnership with MySpace, and media outlets such as CNN are only mentioning Facebook partnerships and announcements.

Today, Techcrunch wrote about how the senior execs are leaving MySpace in droves, in a Yahoo-like fashion, and with the latest MySpace announcement being a co-branded credit card with a failing bank, Citibank.  I don’t have too much confidence MySpace can rebound, especially after a lukewarm response to MySpace music, which was supposed to set the Internet music space on fire.

You have to acknowledge your competitor and make tactical moves to disarm them at all costs

Right now, Facebook is doing something that I haven’t seen all too often from the big companies, acknowledge the fact that these startups are threats, and evolve the core strategy of the company to adjust to the new Internet trends. Currently, Twitter and Friendfeed are fast risers in the real-time web, a seemingly exploding part of what the web has now become. It used to be that just early adopters wanted news and information faster and quicker over several platforms, but now it seems like everyone has compelling reasons to need this type of access. Google’s CEO, Eric Schmidt seems to dismiss the potential threat of Twitter when he says that Twitter is a waste of time and a over-glorified e-mail system. Fred Wilson, VC blogger extraordinaire and investor in Twitter, believes that the value of Twitter is increasing with every day and that he believes that the real time search and information discovery is going to generate economic rents to Twitter that we will see in the near future.

But, as I stated before in my previous blog post, Facebook has made significant moves that will stunt Twitter’s future growth. The Status API release was a major release, even with Nick O’Neil of Allfacebook stating that this was a Twitter-killer. Not too long ago, Facebook made a $500 million acquisition offer (equity) to Twitter (with the $15 billion preferred stock valuation), and was unsuccessful, and since then, it seems like every release is positioning Facebook to become the leader in real-time search, people search, and become the backbone of the social web. They are making a hardline stance against Twitter, and today’s press conference about the new design and focus of Facebook indicates that they refuse to have an upstart take away their relevance and significance. All too often, people have said that Twitter and Facebook are addressing two different demographics, but it reminds me how pundits and researchers used to say that Facebook users and MySpace users were completely different. Today’s release brings brands closer to Facebook, and makes it easier for people to enable 1-way conversations so people, organizations, and brands can better broadcast themselves on the Internet.

All in all, Facebook is making every single necessary step to position themselves for the future. Most large companies are unable to move as quickly to respond to growing trends, and it’s apparent that although Facebook’s CEO has been criticized for not producing enough revenue and a couple of media flops, Facebook has maintained an innovative culture, despite it’s continued massive growth.

Somebody needs to create an eHarmony for business partners

Whether you are a first-time entrepreneur, taking your first business class, or reading your sensationalist business book on entrepreneurial success, one of the first things they stress is that you should work with great people, and team chemistry is so important, more important than the business idea itself. I’ve heard over and over that a VC would rather take an A team with a B idea over a B team with an A idea.

It makes perfect sense. The cliche about business partners being a marriage is so true. From my work with many talented people, I realized just how important they are to get something off the ground, and in a global economy, get it off the ground fast. I’ve also heard over and over again, don’t start a business with friends and family. What if they were the best people to begin with? Some mentors have even joked that the goal is to make enough money so you can pay them to be away from the business. But how can you possibly know who’s good for your business, or not good, until you are in the foxhole? One thing that I’ve learned about the startup process, and business in general, for that matter, is that whatever can go wrong will, so be prepare to engage every opportunity, with the downside risk in mind.

You learn a great deal about yourself and your business partners when you deal with the curveballs of business, but you only find out for the first time if you can work together, when things take a turn for the worse. Everything is perfect when things go well, just like when you hear about professional teams who have no controversy when they win every game, but let losing set in, all hell breaks loose.

That’s when I thought that an eHarmony for business partners may be interesting, or maybe it is just a really stupid idea that is gimmicky enough to work. Highly idealistic, but it would be interesting if you could assign an algorithm to business compatibility. I think before eHarmoney, many would have said it was implausible to think that a formula could determine if someone was marriage material for you, but looking at some of the biased stats that eHarmony puts out, maybe there is some truth to it. It would have been highly valuable to me to have potential business partners take a test to see how our business compatibility would score, and who knows, maybe some situations could have been avoided. I’m not saying that I’ve had anything out of the ordinary, but it takes that good team chemistry to take things to the next level.

The one thing to keep in mind is that no partnership is perfect, and will never be. Marriages end, and there is no way we’d know that just because they got married, that it was meant to be or a good situation. But reading about recommendation engines that are out there trying to determine the likelihood that a startup will suceed, I wonder if there was a way to quantify the likelihood that a successful partnership could be attained that would move the needle forward in increasing the chances that the startup would succeed.