Disruption Cubed
We’ve met with a number of venture capitalists over the last six months and one thing that has struck as interesting is the fact that many of them are incredibly conformist in how they view the world (not all of them…if you’re one of the innovators you know who you are :)). They want to invest in the industries and ideas where there has already been some proven success because that way if their investment doesn’t succeed they won’t look as dumb to other people. An investment in a video sharing service, social networking site or online bookmarking app is way more safe than something more unique because if it doesn’t work out a VC can go back to their LPs and say “Well, it didn’t work out because management didn’t execute but it wasn’t because we picked the wrong type of company to invest in.”
You can see an example of this in clean energy right now. Tons of investment is going into start-ups working in areas like renewable energy (something I fully support!). And it’s pretty easy for a VC to justify a clean energy investment because well, everybody is doing it. But no doubt there were many clean energy start-ups that died on the vine a decade ago because very few VCs were willing to take a chance on them at that point. And that’s a shame because more investment in renewable energy back a decade ago would have actually been a great thing for everyone. The VCs and entrepreneurs would have had a much less crowded space to operate. And we as a society would have benefitted by having more alternative energy options and more opportunities to minimize the impact of our reliance on fossil fuels.
So we’ll file clean energy in the “Better late than never” category for now and move on to something else. I’m pretty much a “skate to where the puck is going” kind of guy (to leverage the old Wayne Gretzky analogy) and as I look around I see at least two other major industries that are ripe for the type of disruption the energy industry is going through/about to go through:
Health Care and Education
These are massive industries (both in the trillions of dollars annually) that are facing the same problem: Increasing costs with descreasing results.
I’ll start with health care as its the industry that I know less about. Here you have this industry that by all accounts is sucking up more of our dollars than ever and yet as a nation and planet we have a rise in so many undesirablethings ranging from physical conditions such as obesity to psychological conditions such an anxiety. It’s not sustainable. And that’s a problem. So at some point there will be a wave of start-ups that will get funded that will tackle this problem head on. And when that happens the winners will probably have an entirely different approach to solving problems than we’re employing today. For example, more entrepreneurs and investors will take notice that more radical approaches to diet and exercise can cure the vast majority of our health issues. Sound strange? I’m sure large-scale investments in solar energy and hybrid cars did to most people a decade ago as well.
Finally there’s education, the industry that we’re focused on. It’s an industry with massive size (around $2 trillion is spent globally on education each year). Yet it’s seen precious little innovation in recent decades. A buddy of mine recently quipped that the most signicant change in education in the last 20 years was the movement from chalkboard to whiteboard. I don’t think he’s that far off. And yet little is more important to the future of the human race than the way our children our educated.
Massive industry. Ripe for disruption. Improvement critical to the forward progress of humanity.
Smells like a recipe for some wonderful early-stage investments eh?
Unfortunately not.
The reason is that education (like health care) is begging for some people to take the roles as investors and champions that people like Vinod Khosla have take in the energy sector. It requires people to see beyond education’s past and create a vision for education’s future and it definitely means stepping outside the box. It also means that many of the people benefitting from the system as it is will probably lose under the new system which is why the champions of this change probably won’t come from within the confines of traditional academia. After all, I can’t think of any alternative energy companies started by former executives of big oil companies. 
The people who do this will take a big risk. Not so much a risk that they’re wrong but rather a risk that not enough people will follow them. A risk that the timing isn’t right. A risk that they’ll look stupid (ultimately what more people fear than anything else).
But if you look back throughout the course of history, to the legacy of all the people that pushed the world forward in a significant way, at the people in the Think Different commercial, they all took that risk.
It will be a lot of fun to watch who steps up in each of these sectors. Who places the big bets that we can improve society in a meaningful way for generations to come. Who has the kahunas (pardon the language) to get behind the massive disruption that soon will occur. It’s really easy to be a “me-too” person. After all, ships are safe when they’re at shore.
But in the end, that’s not what ships are for.
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