Newco Shift | Covering the biggest shift in business and society since the industrial revolution

Tremors in Bank Land

Markets are putting Deutsche Bank through a safety drill. If we’re lucky, the rustle of investors fleeing Deutsche Bank late this week will prove to be a minor hiccup in the world of capital. If we’re unlucky, it will be the first domino to fall in another wave of financial disaster like the one we experienced in 2008. Deutsche Bank’s recent round of woes started with a $14 billion fine by the U.S. government for the bank’s sale of mortgage-backed securities during that last bank crisis, which sent investors for the doors (Fortune). Along with the recent scandal at Wells Fargo, which revealed that thousands of its employees had for years been opening fake accounts to meet sales incentives, Deutsche Bank’s problems remind us that, as a result of hard lessons learned a decade ago, our banking system’s safety protections got some upgrades, but they haven’t actually been tested yet. And if they’re not up to the next crisis, then we’re all going to be stuck paying the price — again.

When is a poll not a poll? When it’s an online survey in which anyone can vote and vote again. One of the foundations of data science took a beating in the political arena this week, as Donald Trump crowed over his wins in snap post-debate online “polls” even as the real polls started tilting in his opponent’s favor (CNN). Real polls, scientific ones, try to map the reality of public opinion through a process of weighted sampling. You might only ask 1000 people what they think; but if those thousand respondents match the national population in race and religion, party affiliation, income, and so on — or, if they don’t, you weight them a bit so they do — you’ve got a snapshot of something real. But if you just open the tap on the internet and ask anyone to vote, your results are nearly worthless. Trump’s wins are like Hank the Angry Drunken Dwarf’s victory in People’s “Most Beautiful People” online poll; a self-selected sample is just a gauge of partisan excitement level. In a larger sense, this overvaluing of online polls reflects our deeper confusion over how to use all kinds of metrics. By turning yardsticks into targets, we break them (Quartz). Your poll becomes someone else’s campaign; your Key Performance Indicator stops telling you anything useful because everyone in your organization is trying to game it. Without context and understanding, raw data is worse than useless — it can be toxic.

Musk to Mars: We’re On Our Way

By scott-rosenberg

The man who sold the Mars trip. You’ve got to hand it to Elon Musk. Equal parts engineer, huckster, and visionary, he has mastered the art of setting mad goals and then ushering them towards mundane reality. Tuesday he unveiled how he plans to take humanity to Mars: with a really big, reusable rocket (Quartz). One that’s refuelable, both in earth orbit and at its Martian destination. One that will carry 100 passengers to the Red Planet, at $500,000 a seat — $200,000 if enough people sign up! The whole project will cost $10 billion, Musk estimates, with characteristic optimism. To his credit, he has both the self-awareness to poke fun at his ambition with an underpants-gnome joke, and the honesty to admit that the effort will be crazily dangerous for the foreseeable future. (“Are you prepared to die? Then, if that’s ok, you’re a candidate for going.”) Like the protagonist of some old Heinlein or Asimov novel, Musk makes the case that we must become a “multiplanetary” species, with a backup home as insurance against catastrophe. Fifty years ago, such stirring challenges trumpeted from presidents, but today they come from our billionaire CEOs. Whether Musk delivers or not, his investments will kickstart a community with expertise in solving the problems of planetary explanation, one that will outlast any individual venture’s life span.

Amazon is eating the world. At the dawn of the Web two decades ago, Amazon cornered the online book market by providing the most comprehensive, useful catalog and the best customer service. Since then, the company has gradually swallowed up lots of other markets using the same strategy — to the point where today, one new survey says, more than half of U.S. consumers start any and every online product search at Amazon’s site (Bloomberg). Anything that can be put in a box and dropped on a doorstep, you get from Amazon. This has huge implications, not just for the future of Big Retail (looking at you, Walmart and Target), but for the fate of Google, too. It also means that Amazon founder Jeff Bezos will most likely have an even bigger war chest than Elon Musk to fund his dreams of space travel.

NewCo Debuts in Asia: A Report from the Field

By newco

By Rita Liao

September 13th, Shanghai. 8AM. There was anticipation and excitement in the air. NewCo attendees arrived at the cozy, wood-laden office of Chinaccelerator in the flourishing downtown of Shanghai beside the famous Jing’an Temple.

“Nothing like this existed in China before, where you get to visit the offices of the hottest internet companies in China and learn from the management what makes their companies tick,” said William Bao Bean, Managing Director of Chinaccelerator, which brought NewCo to Asia for the first time.

Nobody Covered the Wright Brothers

By scott-rosenberg

No one ever said changing the world was easy. If you believe that your work can actually put a dent in the universe, you’d also better be prepared for the universe to take its time figuring out what you’re up to (Collaborative Fund blog). From the automobile to the telephone, from the Wright Brothers’ flight at Kitty Hawk to Tim Berners-Lee’s invention of the World Wide Web, the innovations that end up transforming our lives often go unheralded when first introduced. That’s something to ponder as we return to our post-Labor Day labors: “Changing the world” is one thing, “convincing people that you’ve changed the world” is something else. If you hope to accomplish a mission, you need patience as much as you need brilliance.

Patagonia’s secrets of sustainable success. Patagonia started up in 1957 and spent decades growing and refining its approach to sustainability before most businesses had ever heard of the term. The company’s founder, Yvon Chouinard, told one of the classic tales of patient innovation in his 2006 memoir, Let My People Go Surfing. In an interview on the book’s 10th anniversary (FastCoCreate), current Patagonia CEO Rose Marcario talks about the company’s success at achieving profits while sticking to its ideals, and says its biggest challenge today is holding onto those ideals at scale. For instance, as a global brand with $750 million in sales, Patagonia needs a lot of organic cotton — but only 2 percent of the world supply is organic right now.

Lawsuit Profiteering: It’s Legal. It’s Smart. But Is It Right?

By scott-rosenberg

Startup formula: Big data + lawsuits = profit. Legalist, a startup founded by two Harvard undergrads that launched at Y Combinator’s summer Demo Day this week, tries to figure out who’s going to win business lawsuits — then bankrolls the winning side to collect a share of the award or settlement (Business Insider). Yes, this is similar to what Peter Thiel did to Gawker, except he was out for revenge, not returns. Maybe it’s just a total coincidence that one of Legalist’s founders is a Thiel Fellow. But the company’s concept shares the financier’s traits: It’s appealingly radical in its thinking, and disturbingly casual in its disregard for collateral damage. Once upon a time, Legalist’s business model was known as “champerty,” and was against the law. Today it’s called “litigation finance” and has become a growth sector. Hedge funds are already investing in lawsuits, so why not apply some big-data-fueled, deep-learning-powered smarts to win such bets? Maybe because that’s just begging for a backlash. A sustained public outcry might could get federal, state and local governments to reform their legal systems to make them less easily influenced by infusions of cash. That’s an outcome we could get behind.

Is Vanguard un-American? A lot of investors like index funds because they charge low fees and therefore deliver higher returns in the long run. The folks at brokerage Sanford C. Bernstein & Co. want you to know that such “passive” investing, however attractive it may look, is actually anti-capitalist and probably un-American, too (Bloomberg). They’ve written an article — titled “The Silent Road to Serfdom: Why Passive Investing is Worse Than Marxism” (but curiously unavailable on their website) — that attempts to make a moral and social case for the value-add that active investment managers provide. “A supposedly capitalist economy where the only investment is passive is worse than either a centrally planned economy or an economy with active market led capital management,” they write. Of course, this is one big hypothetical; nobody has advocated outlawing stock-picking fund managers, and there will always be people who think they can beat the market. Mostly, it sounds like Bernstein & Co. are frustrated that so many investors have finally started taking the market’s common-sense cues and abandoning the active funds along with the high fees they charge.

The Fortune 500’s Unicorn Hedge

By scott-rosenberg

How much is that unicorn in the window? Forget about fearing a tech bust, writes 500 Startups’ Dave McClure (Medium) — our next bubble trouble is likely to be in the world of old-line global public companies. These firms are only beginning to realize how thoroughly their universes are changing, and how that change could cut their value. So they’re adopting what McClure calls “the Unicorn Hedge” — the strategy of buying up and assimilating billion-dollar startups, their people and their ideas. The procession of these acquisitions — Unilever and Dollar Shave Club, Walmart and Jet, GM and Cruise — shows no sign of slowing down. What’s driving such deals? The hedge is an effort to buy a little piece of the future, in case these big companies’ stake in the present gets a sudden mark-down. (The accelerating tango between BigCos and NewCos is a focus of our upcoming NewCo Shift Forum in February.)

Fortune smiles on 50 big social-change innovators. Pharma heavyweight GlaxoSmithKline tops Fortune’s second annual “Change the World” list of 50 $1 billion-or-more revenue companies leading the charge in looking beyond a profit-only mindset. The magazine says “shared-value thinking” is going mainstream: BigCos are “moving beyond often-fuzzy notions like sustainability and corporate citizenship, and instead making measurable social impact central to how they compete.” Yes, they’re doing this without sacrificing “disproportionate shareholder returns.” And a lot of them are hiring. Fortune selects its list according to an impressive methodology, yet the rankings still seem a little opaque. The list is probably most useful simply as a compendium of the wide spectrum of approaches companies are adopting, from nonprofit partnerships to corporate governance remodels to clean-tech investments. What Fortune leaves out is a sense of the fertile interplay between these mega-companies and the nimble startups and NewCo ecosystems that so often introduce the innovations the giants run with. Oh, and of course, whatever those same giants might be doing that cancels out their well-intentioned efforts.

Sunlight Is the Best Disinfectant For Code

By scott-rosenberg

Who will watch the algorithms? Companies today often hand decisions off to code, because code can move faster, incorporate more data, and scale better than humans. That’s great, and algorithms are frequently where innovative new players find their edge. They’re the secret sauce — and they’re typically kept secret, because the more they’re documented, the more easy it is for them to be gamed. But secret algorithms are also an open invitation to discrimination and inequity (Pacific Standard). The more we use them in fields like banking, criminal justice, or hiring and human resources, the more important it becomes to hold them accountable — to open them up so individual users can understand why they were refused that loan or job. Ever combed through the errors in your own credit report? Then you know how meaningful such auditing of algorithms and their data can be.

Apps alone don’t make cities smart. The race to wire up cities with real-time data feedback loops promises to make urban life more efficient and manageable on many levels, from transport to utilities to human services. But we should be careful not to turn this application of Internet-of-things tech into a fetish or an ideology (Boston Globe). Boston’s alliance with Waze has helped residents cope with their region’s choked roads. And it’s little wonder that cash-strapped cities might be exploring ditching municipal bus systems for Lyft and Uber (Bloomberg). But a city’s stakeholders can’t delegate tough political choices to an app. If they do, they risk roping off information that should be publicly shared, driving up the price of housing, and promoting inequality.

Shorter Runways For Startups = Opportunities for BigCos

By scott-rosenberg

Deal frenzy means investors are holding back. Walmart’s acquisition of Jet.com — like Unilever’s purchase of Dollar Shave Club, and Uber’s sale of its China arm to Didi Chuxing — can be read as a sign of just how much scarcer venture capital has recently become (Wall Street Journal). Each of these operations was burning through cash, and each decided not to stick it out. Of course, the VC business is notoriously cyclical — no need to let the sound of its gears get too distracting. For anyone building a mission-driven company, the lesson here is about control. Selling to a bigger player can reward investors and employees and tack a tidy ending on a startup story. But once you hand the keys over to a new owner, the organization may wind up at a very different destination than its inspiring mission statement once mapped. Then again, big companies are getting religion around new ways to go to market — and so far this year they’re willing to pay for that privilege. Is this the start of a NewCo-BigCo trend?

Think tanks in the tank for funders. The next time you read a report from a big-name research mill, you might want to ask who paid for it. This week a New York Times series is going deep on just how broadly corporate money is shaping the studies that get published and the recommendations that get made under the esteemed scholarly logos of big think tanks. One story describes how Brookings took cash from a developer while it was promoting the company’s big San Francisco redevelopment project; another chronicles the work of an American Enterprise Institute scholar who received consulting fees from Verizon while he campaigned against net neutrality rules. These investigations aim to get your hackles up, and they should. But let’s pause before we all start chanting “Get corporate money out of our research!” We need more data, studies, and scholars taking on our intractable social problems and political logjams. If the private sector wants to pay, why not take the money — and for each new project, report where every dollar comes from? Instead of throwing out this research, let’s use real transparency to assess it, and then put it to work.

Hold the Mayo

By scott-rosenberg

Josh Tetrick at TED (photo: TED | Flickr)

Just Mayo in hot water. Newco Hampton Creek, maker of the eggless Just Mayo beloved by vegans, stands accused of buying its own product to goose demand and impress potential investors. According to a Bloomberg story, the startup paid contractors in 2014 (and maybe 2015) to buy jars of its stuff from Safeway, Costco, Walmart, Whole Foods and other markets. CEO Josh Tetrick says the purchases were mostly to check product quality, and the whole $77,000 program represented a tiny fraction (0.12 percent) of its total sales. But anonymous contractors tell Bloomberg they bought lots of Just Mayo and were free to eat it or toss it. Maybe the company was trying to win bigger orders; maybe it was just overzealous about quality control. This kind of “growth hacking” is seen across the startup world, but the line does get drawn at buying one’s own product. Fast-moving startups don’t always document everything as well, or manage contractors as carefully, as they should. But they’d better be prepared to explain their practices to their most important stakeholders: the customers who trust them, and the investors who backed them.

India creates one tax to rule them all. As Britain — along with, maybe, a trade-pact-shy U.S. — pulls back from the world, India is charging in. It just reformed its vast, tangled tax system — replacing a patchwork of 17 different taxes with one national Goods and Service Tax. That should make a huge difference to the country’s startups and e-commerce businesses (Quartz India), who will no longer have to contend with conflicting and overlapping tax regimes. Instead, they’ve got a “reverse Brexit” — an integration of the entire Indian nation into a single regulatory environment.

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By Rita Liao

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And that’s why I should have done this column in Prezi

The process of writing is an unnatural act for most of us. Sitting alone, contemplating a blank white page, then conjuring lines of coded symbols in such a way as to paint a picture inside someone else’s head? When you really think about it, it feels a bit…over-engineered.

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