Last week’s “open thread question” on The Diff was a request for examples of unusually capital-efficient companies. Self-driving startup comma.ai was my selection:

Comma AI is an incredible example of capital discipline. With ~15 engineers and $8.1 million raised capital, it's managed to win first-place in Consumer Reports' rankings of autonomous driving systems. This is partly due to their superior end-to-end learned architecture, yet also due to their superior business model. And these two things are deeply interconnected. The traditional autonomous vehicle is a Rube Goldberg machine of interconnected hardware, software, and ML subsystems; it requires tons of engineers and scientists ($$$) to develop, and cannot generate revenue until everything finally works. By restricting himself to not raising vast amounts of money, George Hotz forced himself to focus on figuring out the “sine qua non” of autonomy: an intelligent agent that (like the human brain) doesn't require perfect maps and perfect vision to drive safely.

George Hotz laid it all out in two blog posts:

https://blog.comma.ai/a-100x-investment-part-1/

https://blog.comma.ai/a-100x-investment-part-2/

One thing not mentioned in the above posts, but explained elsewhere, is the capital and labor efficiency enabled by Comma AI's development of OpenPilot as open-source software. Interestingly, before he got distracted and became a Tweep this past week, Hotz was working on a new startup (The Tiny Corp) applying these lessons to AI hardware accelerators: https://tinygrad.org/ . The first generation of AI hardware startups were probably doomed by their failure to understand the interplay between economics and Amdahl's Law. You can't beat Nvidia by 10x accelerating one type of computing operation, unless you also invest as much as Nvidia in all the other operations so that you're ~ as fast as Nvidia on those operations too. Open-source might fix this problem, as Jim Keller recently explained at TSMC's 2022 Forum: https://youtu.be/o70yKYWgtVI?t=693

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Further discussion:

My sense is that they have built a level 2 or level 3 system.

Their first product (essentially complete) controlled the accelerator / brake, their second product (in progress) also controls the steering wheel, and their future plan is to handle navigation to a destination. Because of this product roadmap, it doesn't really make sense to think of their technology in terms of autonomy levels. And this was a fundamental insight — because working on “level 2” as such allowed companies to waste time on non-end-to-end systems that could never scale to “level 5.”

They have also done this in a way in which there is no reporting as to the system's usage and successes or failures.

Capital and labor efficiency (keeping the target on your back as small as possible) is a form of regulatory arbitrage.

I also took Hotz leaving comma.ai as a sign that comma.ai is done.

No, he explained that he didn't feel like a good fit for the CEO role as the company continues to expand: https://geohot.github.io//blog/jekyll/update/2022/10/29/the-heroes-journey.html ”It’s well within comma’s reach to become a 100M+ revenue consumer electronics company (without raising again!), but I don’t think I’m capable of running a company like that. I’ve always heard it takes different people at different company sizes.”

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Bonus example of capital discipline:

I recently found out that SpotHero had 217 employees pre-pandemic, ~100 employees mid-pandemic, and 205 employees as of February 2022. This is quite impressive, compared to Uber with ~30k employees in 2021 and Doordash with ~8600 employees in 2021. A recent article described how it’s bouncing back from the pandemic:

SpotHero's bookings dropped 90% in April 2020 compared to February 2020, just before the pandemic started. … Its revenue in 2021 approximately doubled compared in 2020, with reservations increasing 72% year-over-year. The company hired almost 90 employees last year, bringing its headcount to 205, just a dozen employees short of its pre-pandemic total. … SpotHero, founded in 2011 with $120 million in total venture funding, says it's approaching $1 billion in parking sold this year. It's helped park more than 40 million cars to date.

#capitalism

In Freda Utley’s fascinating memoir, Odyssey of a Liberal, she wrote about her youthful interest in Machiavelli:

“In my essay on Machiavelli, I argued that there was not really such a disparity as generally supposed between the Florentine’s advice to tyrants, as expressed in his “Prince,” and his eulogy of Republican Virtues in his “Commentaries on Livy” – the Roman classical historian. As I saw it, when fifteen years old, men are usually ready to condone, or even approve, actions taken by their state or country which they condemn when taken by an individual, so that what seemed admirable “virtue” in the Romans was regarded as wickedness in an individual Italian prince. I wish I still had this old essay of mine. All I can now remember is its main argument that Machiavelli’s precepts for Princes – his description of how tyrants maintain their power, which came to be called “Machiavellian,” – was not different in essence to the precepts and practices of the Roman Republic or modern nation states.”

That’s one incisive high school essay!

If certain unchanging principles apply to ancient Romans, Florentine princes, and modern nations, it isn’t a huge leap to believe that these apply to businesses too. On the other hand, corporate Machiavellianism is arguably even less popular than individual Machiavellianism. These two opposing factors help explain why corporations are only Machiavellian to a moderate degree. And your estimate of this degree is probably correlated with your level of disapproval of it.

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This was originally published here: https://calvinmccarter.wordpress.com/2022/11/23/the-causes-and-impediments-of-corporate-machiavellianism/

#capitalism

On a weekly “open thread” for The Diff on the subject of layoffs, I wrote:

Although the founders weren’t laid off, they founded Health-Ade Kombucha in 2012 while at GSK when it was going through a series of lay-offs. Daina Trout and Vanessa Dew were both in sales at GSK, and in the early 2010s it was struggling to adjust to competition from generics. GSK notoriously mismanaged the process in 2010 by laying off sales reps just days after promising no layoffs at their sales convention: https://www.cbsnews.com/news/glaxosmithkline-layoffs-follow-promise-of-no-cuts-at-national-sales-meeting/

To improve morale and innovation, GSK started a rotational innovation / leadership program that Daina went through. However, after having this inspirational confidence-building experience, she was sent back to her old job in sales. The rotational program and repeated layoffs were both bad for employee morale by bringing “false dawns” followed by disappointment. Having said that, you might say that GSK’s choices did in fact build confidence and innovation, but only in ways that didn’t benefit GSK itself.

Daina Trout’s interview on the How I Built It podcast is great btw: https://www.npr.org/2020/09/25/916944612/health-ade-kombucha-daina-trout

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This was originally published here: https://calvinmccarter.wordpress.com/2022/11/22/on-the-unintended-consequences-of-leadership-training-programs/

#capitalism

Part 1: Why America Wins in the World of Bits

In The Diff, Byrne Hobart makes the following point:

Startup clusters don’t just happen in software: in Japan, there’s a growing number of [startups] in the materials and chemicals industries. Part of what creates a startup cluster is when there’s a big customer, or category of customers, that can be accessed by smaller ones. Silicon valley started out with a heavy defense slant, but eventually got plugged into the consumer economy. In Japan, the high value-added industrial export sector is relatively larger, so it’s a better category for new companies to sell into.

This makes me wonder whether the success of the American tech industry has actually been demand-driven. Even in the early days of the PC, the US had a large community of techie consumer hobbyists eager to spend money on a Mac 128K or IBM PS/2. This community also was happy to give feedback, and magazines like BYTE and PCMag also represented the “voice of the customer,” enabling and forcing PC makers to respond to consumer desires and complaints. In contrast, while Japan was a leading market the latest electronic hardware, neither Japan nor Europe had such a large number of early PC adopters.

This seems true for a lot of tech growth areas. In the early Internet-era, websites were generally able to extract more ad revenue (per impression and per click) from America than elsewhere, which meant the customer base of a web startup was concentrated in the US. Much of the demand for crypto coins and web3 products has come from libertarians, also a disproportionately-American population. The demand for enterprise software, SaaS, and cloud computing is disproportionately from tech startups which are setting up their tech stack and operations from a clean slate, and tech startups are also disproportionately American. And even big, established American companies (many of them grown-up-startups themselves) are disproportionately more open to trying out new enterprise systems.

Obviously, the US has also done well on the supply-side for tech startups (both producing founders and attracting immigrants who then become founders). But I think America’s lead as a market for new tech is an underappreciated aspect of our success.

Part 2: How to Win in the World of Bits — or Atoms

The uniqueness of the American tech market — large and profitable yet highly-competitive — suggests a non-intuitive path for foreign tech startups. If you’re a German government official or VC, it’s natural to think that the right initial niche for the Berlin tech ecosystem is to focus on meeting the unique needs and desires of German tech users, which Silicon Valley companies might tend to ignore. But if what really makes America special is that American customers are living in the future, you need to instead impose export discipline on your portfolio companies.

The preceding analysis offers an alternate explanation not only for why America wins at tech, but also for why tech wins in America. Peter Thiel has famously argued that innovators focus too much on the world of bits and not enough on the world of atoms, and that over-regulation further suppresses the supply of innovations in the world of atoms. But what if instead our problem is one of demand rather than supply?

Buying and selling in the world of bits is relatively depersonalized. Tech users and tech companies are low-loyalty: the only thing that matters is, “How much have you done for me lately?” Meanwhile, purchasing decision-makers in the world of defense, manufacturing, and infrastructure are heavily influenced by loyalty to longstanding suppliers and by personal relationships. They do not demand the greatest possible product at the best possible price, regardless of insider status. These sectors lack outsiders with new ideas and technical founders without glad-handing skills for a simple reason: such innovators are unwanted!

This also suggests a remedy for American founders in the world of atoms: go west! The most demanding, futuristic infrastructure customers are in Asia, so if you can make it there, you can make it anywhere — maybe even in New York. This is not patriotic advice, but product-market fit is a matter of survival for startups; you should compromise on market rather than on building a product you’re proud of.

The supply of innovation is driven by the existence of demand that is capable of choosing exit. A market consisting of customers willing and able to exit their existing relationships in favor of innovators will obtain the innovative products they desire, while simultaneously supporting a startup ecosystem. Aspiring innovators ought to follow the same path: they should exit and choose the customer base which demands excellence and innovation.

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This was originally published here: https://calvinmccarter.wordpress.com/2022/09/25/the-demand-driven-success-of-the-america-tech-industry/

#capitalism