Non-Linear Growth

A glimpse around the next corner; mind the curves.

May 21, 2009 • 4:29 pm 0

Reactions from the Glue Conference

Last week I attended the Glue Conference here in Denver. As the name suggests, Glue is all about connecting things on the web; specifically, connecting infrastructure based services, to platform services through to applications and SaaS based services. Thematically, Glue is a rare targeted conference that fits well with my investment interests, which casually I describe as “all about platforms and services”. To have this conference in my “back-yard” was a real treat. First about the conference, I have to say that Eric Norlin, the conference coordinator did a great job with the agenda, which came off without a hitch. Eric made what is inherently a chaotic process look easy; no small feat. He had a big assist from the Foundry Group guys, and in particular Seth Levine. Great job to all!

A couple of key observations struck me after I’d had a chance to digest the two-day agenda and I wanted to share them here.

Bright Light on Services: For some time, I have believed that we were in the early stages of a major wave of service-based innovation. Certainly, there remains innovation in products and technologies that facilitate these services, but increasingly, services are where the action is. As if I needed further evidence, Glue offered it.  The amount of innovation going on in the loosely coupled web is staggering, all facilitated by cloud-based services delivery platforms.

“The Cloud” Remains Early: You know you are early in a market cycle when no-one can agree on the definition of the market. The cloud, its boundaries, remain amorphous and poorly defined. This is not to say that the opportunity isn’t real, it is simply to say that the market has yet to sort itself out with common language that has shared meaning. The same terms are used to describe varying concepts. Take the simple stack-based construct of a) infrastructure as a service, b) platform as a service and c) software as a service; where the lines of demarcation are between these layers of the stack remain fuzzy.

 One Size Does not Fit All: While one may be able to define the common architectural and infrastructure layers of the cloud with common language, applying them to specific business problems will take a much more flexible construct. The early innovation in the cloud seems to be in the social networking space where the use of APIs and cloud based service delivery platforms are comfortable to engineers. But I was amazed at how cavalier those with a focus on social were about applying cloud based principles to the enterprise space. I asked several people at the conference who would be accountable for quality of service, uptime, reliability, etc. to the the enterprise customer of small business owner in a loosley coupled application environment where multiple “services” were integrated into a single application environment (for example a third-party calendar application integrated into a CRM application. The answer I typically got was; “well the calendar is a small application so its no big deal if it goes down.” Really? Its as if I was speaking a different language. Krishnan Submaranian and I had the one thoughtful conversation I had at the conference on this topic. The topic of our conversation was “whose throat do you choke”, which he blogged on today. I couldn’t agree more with his post. Cloud and loosley coupled application developers will have to internalize these issues if they are to suceed in the enterprise and smb market.

 The Big Barriers: There are some big unresolved questions that I believe must be answered before one can expect massive customer adoption of cloud based computing platforms. The first category is around data portabilty and ownership. Who owns the data? How does the data get transported from one platform to another? Will the cloud platform vendors adopt open platform business practices? There was alot of discussion about standards as the “way to solve these issues”. I see it a bit differently, which is to say that until platform vendors adopt open business practices (as opposed to “standards” which are subject to interpretation), the cloud will hold itself back. Vendors will have to learn to differentiate their services on factors that are fundamentally valuable to customers, as opposed to holding customers hostage through data lock-in.

All in all, if you are intersted in the cloud and the loosley coupled, web, you really should attend Glue next year. I had a great couple of days, met some great people and learned alot. Most of all, I remain excited about the investment prospects in this area.

If you would like a more granular review of the two-day agenda, the guys at Cloud Ave. guys did a nice two-part piece which you can find here: Part 1; Part 2.

Filed under: Cloud, Conferences,

May 7, 2009 • 1:35 pm 3

The next generation of towers

A few weeks back, we at Meritage announced our investment in NewPath Networks. I didn’t have a chance to blog it then, although my Partner Stephanie McCoy did. I wanted to share some thoughts here; albeit delayed. NewPath is an operator of distributed antenae system (DAS) networks. NewPath operates these “active” networks on behalf of major wireless carriers, like AT&T Wireless, Verizon Wireless and T-Mobile.  

The wireless sector is one of the real bright spots in the network-enabled economy. Despite macroeconomic conditions, consumer demand for data services is really taking off. The recent launches of Internet friendly smartphones like the iPhone, the Blackberry Storm and phones based on Google’s Android operating system have only served to accelerate the pace of growth in demand for wireless data services. The big carriers have a great problem on their hands; how to serve this growth in consumer data demand.

To be specific, the problem for carriers is that their existing networks were optimized for carrying voice traffic. Those of you in the industry know that voice is a remarkably lightweight application in terms of data consumption. Yes, it is highly sensitive to latency and jitter, but it is not a data hog. Data applications are, by definition, highly data intensive, but for the most part, are not sensitive to latency or jitter. If you are wondering if that has implications for carrier network design, you are asking the right question.

The carriers are in fact serving data services out of an infrastructure that is optimized for voice, but not necessarily for data. This creates bottlenecks all over the carriers’ networks, including at the backhaul level and the equipment level. The carriers are making adjustments on both fronts by pulling fiber to their towers and re-architecting their networks for 3G and 4G radios. But there is a more fundamental issue. It turns out that towers, where carriers co-locate their wireless equipment, were also designed to serve voice traffic, not data traffic. So what is the problem with towers? First, they are high (40+ feet off the ground) and height is a disadvantage in data services. Second, towers are unsightly and more and more communities are fighting tower zoning (particularly wealthy communities where there are lots of iPhones and Blackberries). And third, some topologies are not conducive to more towers because of RF interference issues.

So what is a wireless carrier to do; ignore the demand? Not a chance; there are alternatives. It turns out that DAS is the solution that the wireless carriers are increasingly turning to. DAS is a fiber-fed, low to the ground, non-intrusive wireless network that connects to the wireless carrier’s infrastructure. DAS puts radios on light-poles and utility poles. It is ideally suited for driving data bandwidth to ground in areas where tower zoning is not feasible or where the topology is not conducive to additional towers. DAS is not a new concept; it is a proven network toplogy that has been around for decades. Consumer demand for data service is the driving force; and it is causing wireless carriers to implement DAS at a pace never seen before.

NewPath builds these networks for carriers and then operates the networks. Thematically, this is perfectly aligned with the trend toward carriers outsourcing their active networks. Getting into the DAS business is not for everyone. Running an active network on the part of AT&T takes a very high level of sophistication and frankly, a high-level of trust on the part of AT&T. This is not a landlord/tenant relationship like exists in the tower space. It is a long-term operating relationship, where by contract, NewPath will operate a network for AT&T or Verizon on an initial contract term of ten years. That is a long time.

Thankfully, the NewPath team, including Mike Kavanagh and Sean Coopriderare pros. Having been in the wireless sector for a long-time, they have the relationships with the carriers - and frankly the trust of the carriers - that is required to make the business work. I’m excited to have them and the entire NewPath team join the Meritage portfolio. Kudos to my Partners Stephanie McCoy and Jim Dovey for pulling this one over the line.

Filed under: New Investments, Portfolio, Wireless, , ,

May 4, 2009 • 10:56 pm 0

What it means to be non-linear

Some years ago, I promised myself I would start a blog, but only after I crossed the chasm of having been in the venture business for five+ years. After all, what could you possibly have to say that is of interest to anyone before you’ve seen a few great outcomes and a couple of disasters. Well, I’ve now been in the game for over six years and I’ve finally gotten off my duff to get this going.

I’ve learned a lot in my six years in the business. The first thing I’ve learned is that I have a lot more to learn. Failure is part of the system; you can not be a VC without encountering frequent failure. I’m pretty comfortable with that; the trick is to learn from your mistakes and learn fast. Nothing frustrates me more than hearing others attribute their investment failures to “external factors outside of my control” - an “irrational competitor”, a “tough market”, ”too much capital sloshing around in the space”. No, you made a bet and it didn’t work out; deal with it. If you attribute failure to factors beyond your control, you deprive yourself from an opportunity to learn. It turns out that one of the key personality traits that separates the great VCs from the pack is totally non-intuitive. Can you guess what it is? The answer later on.

The second thing I’ve learned is that things never work out quite as you plan them; even the successes. I’m a big believer in strategic planning. But I also believe that linear strategic planning (set a goal, create an execution plan and stick to it) is a recipe for disaster in emerging markets. What is required is “emergent” strategy, define the future you want to create, listen to the customers you wish to serve and meet their needs. Bill Taylor at Harvard Business School’s blog had a nice post on a related topic just the other day. In it he takes on the topic of whether MBAs or entrepreneurs are better suited to dealing with “tough times”. The results of the research are pretty interesting, although I don’t agree with the MBA vs. entrepreneur dimension along which the analysis is framed.

The difference in mindset, Sarasvathy concludes, boils down to a different take on the future. “Causal reasoning is based on the logic, To the extent that we can predict the future, we can control it,” she writes. That’s why MBAs and big companies spend so much time on focus groups, market research, and statistical models. “Effectual reasoning, however, is based on the logic, To the extent that we can control the future, we do not need to predict it.” How do you control the future? By inventing it yourself — marshaling scarce resources, understanding that surprises are to be expected rather than avoided, reacting to them fast.

I love that; defining the future, constantly re-inventing yourself, marshaling scarce resource, understanding that surprises are to be expected. If you break it down, whether your educational background includes an MBA or not has nothing to do with. It is all about a frame of mind, a way of thinking, an “emergent” view of building a great company. It is important to recognize that things don’t always, in fact rarely, go according to plan, but that not all is lost. Course corrections are just part of the game. People who think too much of themself tend to have a fixed mindset; “this is the way this will happen”; and when the plan doesn’t work, they can’t react fast enough.

Which brings me back to that personality trait that separates the great VCs (and entrepreneurs) from the rest. What is it? In my opinion; HUMILITY. Why? Because humility enables you to be introspective, to learn from your mistakes, and to know that things never go according to plan so you can make course corrections along the way. 

Introspection, learning and course corrections are all representative of the theme of this blog; non-linear. It is the way I view the world; everything is iterative; there are no straight lines to success. Success comes to those who are able to shape markets, to define the rules of the game, to respond when assumptions are dashed and to lay down the road ahead so to that others can follow.

Filed under: Lessons Learned, , ,

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