I had a great conversation with a venture capitalist friend today about whether there’s a theme to my seed-stage investing.
At first I resisted the idea — I think if myself as a founder-centric investor who’s willing to follow the lead of talented teams with much deeper insights into the business problems they want to solve than I’ll ever have.
But as we talked about it, I realized that there is a theme — of sorts — that ties together much of what I’ve done as investor over the past few years.
As I’ve written many times before, I believe that technology is fundamentally changing the nature of work, both within and beyond the enterprise.
The net effect of that change — and the theme that reappears again and again in our portfolio — is Disaggregation (or Entropy, if you want to get fancy about it).
Within the enterprise, this manifests as the decentralization of technology choices: for business functions, the shift from from monolithic ERP + CRM systems to best-of-breed departmental SaaS; and in technical functions, from standardized tech stacks and on-prem datacenters to polyglot platforms, development environments and hybrid cloud infrastructures.
But the same forces of deconstruction are at work on the enterprise itself: less and less of the human work of the corporation is done by full-time employees; more and more is performed by dynamically assembled teams of employees, vendors and contractors who work virtually across geographies, disciplines and organizational boundaries.
As an investor, I like ideas that tap into the disruptions and cultural changes that this tendency toward disaggregation causes. Sometimes it’s helping enterprise managers deal with the new complexities caused by their increasingly distributed work and systems. Sometimes it’s helping the workers themselves as they navigate the shifting nature of employment and career as independent economic agents. (And sometimes — but not as often as I’d like to think — I’ll still follow the instincts of gifted makers in directions that have nothing to do with either of these).
Ironically, while the economy at large is trending toward disaggregation, the technology business itself is increasingly concentrated, with a small handful of global giants (Apple, Amazon, Google, etc.) calling the tune for many of the most significant vectors of tech-driven innovation and monetization. These firms are at the root of the deconstructive forces at play in the traditional economy, but are themselves highly centralized command-and-control organizations.
I’m still processing this dichotomy between technology-driven disaggregation in the global economy and increasing aggregation of economic power within global tech leaders, but I’m grateful for the opportunity to surf on the gap between them, and to do so in the company of people much smarter than I am — like the friend who kicked off this whole line of thinking in a casual conversation this morning.
Happy 2013 to all of you out there — it’s still day one in the technology business and I couldn’t be more excited to see what this year will bring.
Chris, the technology-driven aggregation and disaggregation are happening at two different levels of the business. The basic economics greatly favors disaggregation at an operations level, and many of the opportunities in disaggregation are based on descending this gradient to its natural conclusion.
However, businesses built around data, data models, and large-scale network effects have a strong economic bias toward aggregation at that level of their business. Executed effectively, the marginal value of the core inputs to the data model increase through aggregation and the disaggregation of operations has allowed these data models to be scaled with relatively little capital investment.
A business can be built around either of those models but I think startups need to have a clear understanding of which level of the ecosystem their business fits and tailor their strategy toward that.
Great comment, Andrew — thanks for reading and weighing in. I agree that the fundamental distinction is whether / where resources can be pooled at increasing scale without negatively impacting performance, either of the system as a whole or in terms of single-user benefits. Very few organizations operate with fat enough margins these days that they can ignore the competitive / economic pressure to constantly drive cost out of the business.
Human organizations are very “loss-y” at scale because of the coordination, management and logistics overhead that comes with that scale. Certain kinds of technical resources — like data, storage and processing power — have increasing cost and reliability advantages at scale. And technical platforms with network effects — where each incremental user or participant increases the value of the whole — actually deliver accelerating value with scale.
When I look at the firms / organizations that are thriving in the current environment, it’s those latter three categories — where scale and network effects create positive or even accelerating benefits to scale — that are tending toward concentration even as most organizations and functions are tending toward accelerating disaggregation.
Chris, it could be said that this disaggregation, and the corresponding battle for control within the enterprise, has been happening since people started bringing PCs into the enterprise in the ‘80s. For knowledge-workers this has resulted in a blurring of their personal life and their work life; many deal with business issues during their personal time and deal with personal issues during business hours. Because of corporate disaggregation, knowledge-workers increasingly need personalized aggregation of information. If you believe thought leaders such as Marissa Mayer or Robert Scoble (writing “Age of Context” book) this personalization requires technologies that are context-aware; so that the person receives information that is relevant for the situation without being distracted by the irrelevant.
Great point, Joel — I agree that “re-aggregation” or federation of fragmented (often SaaS-based) data + capabilities is a huge opportunity in the enterprise. Disaggregation will continue – even accelerate – but workers + managers still need to be able to look across the enterprise with low latency + high data richness. I’ve been keeping my eyes out for great teams working on this problem – LMK if you’ve seen anything amazing along these lines.