Disruptive vs. Destructive Technology

Yesterday I had lunch with the CEO of a medical device start-up in Salt Lake City. He is playing in markets totaling over $30 billion, and if things go well, when he sells off to Abbott or Boston Scientific it will be the largest acquisition in Utah history (current record: Omniture to Adobe for $1.8 billion).

He introduced a concept based on Clayton Christensen's Innovator's Dilemma concept of disruptive technology shown roughly below:

For those not familiar with the concept, let me use computer processors and the figure above to illustrate (I apologize for the quality, I did it quickly in Paint).  Firms start entering in market 1 and VCs start investing capital.  The market hits it's apex around the time that other firms start entering in market 2 (disruptive technology) at which point less firms enter and less capital is invested in market 1 as the market becomes obsolete and the process repeats itself.  An important aspect is that the market starts over - zeros itself - during each disruptive cycle.

However, much of medical technology is different:

Let's look at cancer drugs for example.  The dependent variable here is the recurrence rate of cancer.  Entrant 1 produces a drug that has a recurrence rate of 80%.  Entrant 2 comes in with a better drug with a rate of 75% and so on and so forth.  But what happens when an entrant produces a drug that has recurrence rates of 4-2%?

At this point we have basically cured cancer and there are no more incentives to create new drugs.  The last entrant basically delivered a technology which destroyed the market.  Of course, entrants can always come in with cheaper drugs, but part of the problem is that VCs become uninterested in marginal improvements and aren't willing to finance expensive development processes (represented by the upward sloping line).  As capital markets dry up, fewer and fewer firms enter (represented by the downward sloping line).

One of the problems with the VC community is the way that VCs are compensated for their work - management fees.  As funds get used up, management fees decrease because they are based on percentages so VCs start raising new funds.  This means they pressure companies towards quicker exits.  To produce a quicker exit, firms cut corners and develop less effective technology.  The VC model shows many hash-marks on the percent reoccurance continuum because firms only have enough time and money to make incremental improvements compared to previous drugs.

Take away:  Because medical technology markets can be destroyed, firms can't hedge their risk by leveraging their technological capabilities into disruptive markets.  Instead of producing incremental benefits, firms should try invest in being the firm that destroys the market for all other firms; otherwise they will be destroyed and will have to find a new line of work.

By the way, according to my CEO friend, Clayton Christensen has already agreed to this.

TEDx is coming to the University of Utah

It's official. The thought leaders of the world are congregating in Utah of all places.

http://tedxuou.com/

Here's a thought: If Utah can get TED and the Olympics, what else would want to come to the Mormon Capital of the World?

free electric car anyone?

What an incredible summary of someone who is putting his money where his mouth is and actually building a zero emissions infrastructure instead of just talking about it.

If you're crunched for time you can skip the 8 min introduction, watch from 8-45 min and skip the last 50 min of Q&A.  Here's Shai Agassi's bio.

"it was the best day of my life"

...but I think I missed it.

How do you miss the best day of your life, you might ask?

Recently some incredible people have entered my life.  I won't name names because you know who you are, but these individuals have done incredible things for me and opened up doors and opportunities that, until recently, I've only dreamed about.  The kicker is that I didn't even know about it - I wasn't even present and now I'm reaping the benefits.  More on this in a few months.  

I ask myself why have they been so generous?  What has motivated them?  The only answer that I can come up with is service-based leadership.  Sheer humble, behind-the-scenes altruism and caring.  This post isn't about me - and perhaps it should be retitled because others really deserve all of the credit, but I'm tributing Bon Jovi so I feel OK about it - it's really about them.  All of those individuals who go around quietly making the world a better place.  It is a rare and precious virtue and one that I have much to be grateful for.

the big apple

"In New York,
Concrete jungle where dreams are made of,
Theres nothing you can’t do,
Now you’re in New York,
These streets will make you feel brand new,
The lights will inspire you,
Lets hear it for New York, New York, New York"

Jay Z hit the nail on the head, although after spending a week in NYC I admit that I didn't fall in love. In fact, I would say that I have a love/hate relationship with that city.  For example, who leaves 3 hours early to travel 19 miles to the airport and still misses a flight? 

I'll hand it to the folks who live there.  They have a ton of energy and were actually really nice, but it was a different type of energy than San Francisco.  I wasn't inspired to thrive there, just to do my tourist thing and get out.  

I would still recommend that everyone needs to visit New York.  It is definitely a marvel to behold.