A billion dollars isn’t cool, you know what’s cool? A trillion dollars.
A bit more than a year ago, my friend Fred introduced me to John Prendergast who was in the very early stages of conceptualizing a platform called Blueleaf to help people better manage their savings and investments. As Fred knew, this kind of thing is right up my alley and so I set up a call with John to learn more about his plans.
As many of you know, for over a decade – since first discovering the enabling power of the internet and Moore’s Law – I have been very excited by the prospect of revolutionising the way 99.9% of people manage their personal financial balance sheet. (With the first 80% of this revolution being simply to help people recognise that they have a personal balance sheet and that it should be considered holistically and in the context of each person’s circumstances, constraints and aspirations.) I called this PALM – personal asset-liability management (but am not so naive as to think that this is the nomenclature one would use to popularise the notion…unsurprisingly most folks aren’t super aware – or inclined to be – of the importance of robust ALM…)
Indeed of all the various innovative ideas and companies I’ve looked at and invested in over the past decade, this concept of PALM is the one that actually lies in the Paul Graham vector of solving problems you encounter yourself. Indeed, I cannot wait to have a robust, networked, intelligent asset-liability management dashboard to help me manage my family’s increasingly complex balance sheet. And for once, I am also in fact part of the key or core demographic for this type of product (which is not often true!)
Although I would argue that people should start managing their personal balance sheet from the time they enter higher education or the workforce, the reality is that it isn’t until the 30s and 40s that real complexity typically starts to creep into the balance sheet: mortgage(s), other secured and unsecured loans, multiple savings and investment accounts including pension plans and other tax-driven structures, more complex compensation mixes (including equity and options), children, and the awakening realisation that they can’t count on the state or their employers to secure their financial future.
Adding to this complexity is the fact that financial products are almost always sold (and bought) in isolation – with at best limited regard to the consumer’s overall balance sheet – and choices are often driven by non-financial considerations (changing jobs, marriage, divorce, etc.) You might expect me at this point to go off on a rant about how awful this is and that our financial institutions are failing us by cynically selling us individual financial products rather than holistic financial solutions and that this needs to change. Surprise! I don’t have a problem with financial institutions selling products. That’s what they do. Worrying about that is like wishing the sky was a different colour than blue. Misdirected energy.
Ironically, most financial institutions actually spend a lot of time, money and energy pretending to and trying to convince you that they are looking at you “holistically”, that they are looking at the big picture but in order to do so, they need to control more or ideally all of your balance sheet. In other words, sell you more products. Well I don’t know about you, but whether your balance sheet is $50,000 or $500,000,000 – I think it is pretty intuitive that (a) it’s pretty much impossible to do all your financial business with just one institution and (b) even if it were possible, it is highly undesirable to do so. Pre-2008 this was obvious to me (as an ex-banker and someone with high financial literacy); post-2008 I think this is increasingly obvious to everyone.
The solution in my mind was an intelligent (online) wealth management / ALM platform that would allow individuals (and families or other self-determined groups) to aggregate all of their financial commitments – assets, liabilities, cashflows – and then allow them to risk manage (scenario analysis, simulations, rebalancing, etc.) and optimize their personal balance sheets according to their changing needs and circumstances. Mixing a high level of automation in terms of the basic record-keeping, data management and transaction processing with an intelligent user-interface allowing the user and/or their advisor(s) to make well-informed, contextual decisions. In essence, a meta wealth management intelligence layer that put the information advantage squarely with the individual, where it belongs.
I dreamed about building this…
So I remember when John started to describe his vision for Blueleaf to me on that first call, he had me at hello. The vision, the product, the approach all aligned with my vision of using 21st century technologies to bring institutional strength risk management tools to individuals. A few months of refining, learning, due diligence and progress later, and I was convinced that John and his team could deliver on their vision and I was delighted for Anthemis to become the lead seed investor in Blueleaf just in time for Christmas 2010. (And the cherry on the icing on the cake is that now I have a good reason to visit the great city of Boston every 2-3 months or so.) As you might imagine, building the technology to deliver this vision is not trivial and it’s been impressive to see them bring Blueleaf to life.
In closed beta since last fall, and by focusing on providing financial advisors with an amazing platform to help them help their customers, Blueleaf has (very quietly) already gathered over $1 billion (yes, billion…) of assets on the platform, including a significant number of multi-million dollar accounts. Often when people hear this, they are surprised – why would advisors trust a new start-up like Blueleaf with all the details of their clients net worth? I think it is relatively simple. First and foremost, because by doing so, they can derive real – measurable and material – value for their customers by using their platform, and secondly because it makes much much more sense for individuals and independent financial advisors to share a complete view of someone’s finances with an independent 3rd-party platform provider like Blueleaf than with any individual financial institution. In other words, it makes advisors look like rock stars and gives individuals a quantum upgrade from the still all-to-common wealth management user interface of a kitchen table covered in account statements… And the wealthier and more sophisticated (and older!) you are, the more you are likely to realise this is true. There are very good reasons to have multiple banking, insurance and broking relationships. The problem is that today, to gain the advantages of multiple relationships one has to pay a real cost in increased complexity that arises from having to manually manage and aggregate these accounts.
And just in case there are any private bankers reading, I think you will agree – if you are honest with yourselves – that almost none of your clients have given you all of their assets to manage. Is it because they don’t trust you? Well yes sort of, but (hopefully!) not in a toxic way. Let me explain: they know (and know that you know, that they know, etc.) that you need to sell them products. Perhaps you can take a long term view of this (which is good) but sooner or later, you need to book some revenue against each of your client relationships. Like scorpions, this is your nature. They also know that having all your eggs in one basket is generally not an optimal strategy. And they know that you might not be at that institution forever and – in a bit of good news for you – their relationship is almost certainly more with you as an individual than with the institution (despite the enormous sums your firm spends on brand marketing.) Hell that’s one of the reasons they have assets spread amongst 4 different banks: some of those assets followed you with your previous career moves…
In fact, I am convinced that the most enlightened private bankers, insurance brokers, financial advisors will embrace and celebrate a platform like Blueleaf as it will make their customers more intelligent, better informed and less paranoid and allow them to do their jobs better and build even stronger relationships with their customers. Of course the weak ones – who really add no value other than shuffling reports around and hoarding information – will hate it. But the clock is ticking on them in any event…
John’s vision for Blueleaf is to have $1 trillion of assets on the platform in the next 5-7 years. Yes TRILLION. Think that’s crazy?Think again:
That’s 1 million accounts of $1 million each (c. 34% of US HNWIs, 10% of Global HNWIs)
or c. 9% of US HNWI’s investable assets of $10.7 trillion (or 2.5% of global HNWI investable assets)
or 10 million accounts of $100,000 each (c. 25% of US mass affluent households)
Don’t mistake ambition and vision for hubris: it will take a lot of hard work and an amazing product and value proposition to get there, but the size of the market opportunity is clear. Equally importantly, I think the time is right to introduce a Blueleaf approach to the market: a combination of shifting demographics, increasing familiarity and comfort with web-based financial management products and the fundamental shift in private investor mindsets in the wake of the global financial crisis are all aligning to drive an increasingly holistic, transparent approach to investing and wealth management. Some of the key learnings from the 2010 World Wealth Report back this up:
Post financial crisis, HNW investors are now much more engaged in their financial affairs. HNW clients are re-evaluating their current wealth management provider relationships and moving assets to firms that can clearly demonstrate a more integrated approach to meeting their needs.
Three unequivocal demands HNWIs are making of their wealth management firms today are:
SPECIALIZED ADVICE: As clients become more educated about their own investment choices, they increasingly expect ‘Specialized’ or ‘Independent’investmentadvice, and are re-validating advice from their Advisors/Firms through other sources, including peers, the Internet, and other research alternatives. They also expect the advice to be aligned with realistic and appropriate goal-setting, based on their actual risk profile.
TRANSPARENCY AND SIMPLICITY: HNW clients want increased ‘Transparency and Simplicity’ and ‘Improved Client Reporting’ so they can better understand products, valuations, risks, performance, and fee structures. HNWIs are reviewing product disclosure statements and investment risks before even conferring with their Advisors. They also value better reporting and more frequent updates after being blind-sided during the crisis, when they lacked a real-time view of what was happening to the value of their investments. And increasingly, the type of products they seek out are the ones they can understand.
EFFECTIVE PORTFOLIO AND RISK MANAGEMENT: The vast majority of clients see ‘Effective Portfolio Management’ and ‘Effective Risk Management’ as important after the crisis. As a result, they increasingly want and expect scenario analysis on proposed allocations and products that is aligned to their individual goals and expectations, and in-depth research around all types of products so they can better understand the risks. For instance, many wealthy clients are very concerned about their exposure to markets and want to limit their downside risk. At the same time, they know they need to diversify and have global exposure, particularly to fast-growing markets. As a result, they want evidence through risk-scenario analysis to facilitate investment decisions that meet their goals while remaining aligned with broader volatility and risk-appetite limits.
These are a pretty darn good articulation of Blueleaf’s mission statement; it’s great to see this kind of independent confirmation. Now enough talking and back to work. Lots to do and $999 billion more assets to bring on to the platform. (And if you’re reading this from the US and are an early adopter type person or financial advisor, please request an invite. I think you’ll like it.)
I do have one complaint however: I just wish they’d hurry up and launch in Europe too!
Over the years he watched digital projects lose battles for research dollars. Even though film’s market share was declining, the profit margins were still high and digital seemed an expensive, risky bet.
He recalls efforts in the 1980s to drive innovation by setting up smaller spin-off companies within Kodak, but “it just didn’t work.” Venture companies in Silicon Valley are “pretty wild”, “in Rochester, people come to work at 8 and go home at 5.”
When disruptive technologies appear, there is a lot of uncertainty in the transition from old to new. “The challenge is not so much in developing new technology, but rather shifting the business model in terms of the way firms create and capture value.
These are just a few excerpts from a great piece “What’s Wrong with This Picture: Kodak’s 30-year Slide into Bankruptcy” from Knowledge @ Wharton that (inadvertently) does a terrific job explaining the context and gigantic opportunity that drove Uday and I to create Anthemis and it’s networked ecosystem approach to re-inventing financial services for the digital century. Let’s take each of these in turn:
< < Over the years he watched digital projects lose battles for research dollars. Even though film's market share was declining, the profit margins were still high and digital seemed an expensive, risky bet. >>
I lived this directly and in full Kodachrome color my last few years working for Dresdner Kleinwort, culminating in the creation and subsequent dismantlement following my departure (in 2006) of a new business unit in Capital Markets called Digital Markets. This was the brainchild of then CIO (of the year!) JP Rangaswami and myself, built on the basic premise that exponential technological progress was going to drive an entirely new optimal business model for capital markets activities (as opposed to simply enabling accelerating growth of the existing traditional business models which it had done so well for the previous two decades or so.) That technology, rather than simply being an (important) enabler of the business, was set to become the central driver and that accordingly we had an exceptional opportunity to get out in front of this disruptive change – embracing not resisting – affording us the once-in-a-paradigm-shift chance to fundamentally change (for the better) our competitive position. Further, we felt that Dresdner Kleinwort was ideally positioned in its mediocrity to seize this opportunity: we had much less to lose than the market leaders. (And as history shows, in fact the firm had pretty much nothing to lose…RIP.) But the problem was – and almost always is with large, established, publicly-listed companies – that the vast majority of decision-makers had significant vested interests in maintaining the status quo, and insufficient sensitivity to the downside. Classic agent/principal conflict. Turkeys just don’t vote for Christmas. It’s not rational for them to do so. This is a fact of life, not something really worth bemoaning.
< < He recalls efforts in the 1980s to drive innovation by setting up smaller spin-off companies within Kodak, but "it just didn't work." Venture companies in Silicon Valley are "pretty wild", "in Rochester, people come to work at 8 and go home at 5." >>
My experiences as a senior manager at Dresdner Kleinwort / Allianz led me to increasingly understand that there was a fundamental incompatibility between successfully managing a large incumbent organization and successfully nurturing dynamic, entrepreneurial, disruptive new ventures. I like to think of it as the corporate equivalent of Heisenberg’s Uncertainty Principle: just as one cannot simultaneously know the position and momentum of a particle, neither can one reap the advantages of a large-scale, established corporation and simultaneously drive and manage emerging, innovative new business models. (Call it Park’s Corporate Paradox?) And in the past 5 or so years since leaving the traditional corporate world, my empirical experience of working closely with start-ups (including starting one!) has only increased my conviction in what I now believe is a fundamental truth. Dresdner Kleinwort (and Paribas before that) – as old hands in the markets world will I hope attest – had positive reputations in the industry for their (relative) ability to innovate, to be at the forefront of new markets and ideas. I believe a key reason they were able to do this was actually because they were well, let’s just say “loosely” managed. They were anything but well-oiled machines. Which, frankly, if you are going to take best advantage of the benefits of being a large, established corporation, is what you need to be. The innovation that emerged in these organizations was a by-product of their relatively weak organizational structures. Put another way, if disruptive innovations are akin to viruses (which I think is not a bad metaphor) then these companies had relatively weaker immune systems (than their market leading counterparts like Goldman Sachs or JP Morgan for example.) However, that is not to say that they had no immune response, and ultimately the incumbent prerogative to maintain the status quo and protect the vital organs won out (in Paribas’ case accelerated by its acquisition by the more tightly managed BNP.)
The important truth to grasp is not that one (the incumbent) is better or worse than the other (the start-up), rather that they are incompatible – structurally, culturally, strategically – in the same host. Yet they are Yin and Yang, and need each other, “complementary opposites that interact within a greater whole, as part of a dynamic system.” The optimal state occurs when they exist in symbiosis – this is in fact the central tenant of Anthemis – our vision, our mission is to act as a substrate that catalyzes, nurtures and enhances this symbiotic relationship. We exist to “improve the health of other companies who grow near us.”
< < When disruptive technologies appear, there is a lot of uncertainty in the transition from old to new. "The challenge is not so much in developing new technology, but rather shifting the business model in terms of the way firms create and capture value. >>
It’s not really about the technology per se, it’s about what technology allows you to do. Often I hear people describe us as “financial technology” investors, but at the risk of being pedantic, this is not really the case. We invest in people and companies that use technology to enable better, often disruptive, new business models. Businesses that seek to address the fundamental needs of their customers in new and better ways that were previously either impossible or sometimes even unthinkable without the enabling power of fast evolving information and communication technologies. It’s not the same thing. And although we invest in these new companies, we are not investors – at least not in the mainstream sense. We aren’t a venture capital or private equity fund. We are ourselves leveraging technology to create a new type of organization, one that we believe is highly additive to the existing ecosystem of large incumbents, start-ups and traditional venture and growth investors. Complementary rather than competitive.
Too often, the conversation around innovation is framed as big v. small, good v. evil and works against the grain of what we believe is the objective reality. We want to re-frame the conversation, work with the grain of the history and the market to help the various different participants in the (financial services) ecosystem leverage their innate advantages (and mitigate their inherent weaknesses.) And if we succeed in this mission, we are certain that we will create enormous value for our own shareholders along the way.
Networks not hierarchies
We believe that the most successful companies of the future – both large and small – will be the ones who embrace a network-driven philosophy and operating ethos. The vertically-integrated Sloan-ian corporation of the 20th century, so ideally adapted to the economy of the Industrial Age, will increasingly struggle to remain relevant in the environment of accelerating cultural and technological change the characterizes the economy of the 21st century Information Age. Large, sector-leading incumbents will need to become more self-aware of both their defensible strengths and core competencies and of their inherent weaknesses and blind spots, which includes the ability to manage disruptive change. They will need to purge all vestiges of not-invented-here mentalities and pro-actively support (both financially and commercially) wider, outside innovation networks while developing optimized methodologies for bringing these outside innovations into their organizations as they mature. And continuously remain aware of the always changing ferment on the edges of their competitive space. Small, cutting-edge start-ups will need to become increasingly good at leveraging existing infrastructures – not just compute and storage infrastructure – but distribution and industry specific infrastructures, or as John Borthwick of Betaworks points out, the best new disruptive innovators “do what (they) do best and outsource the rest.”
This new paradigm creates a significant opportunity for a new type of company to emerge. Companies that are natively optimized to act as a connective layer between the old and the new. Companies that are deliberately tuned to operate within the new network-centric economy. Companies that are explicitly built to nurture ecosystems of talent, technologies and products and services. Anthemis is one of these new companies – a “third place” so to speak – positioned between the established industry leaders and the emerging new innovators, acting as a sort of “translation layer” helping the former to understand and adapt to the changing environment and the latter to identify and focus on the biggest market opportunities while leveraging the core strengths of the existing industry infrastructure. While our focus is on financial services and marketplaces, I am certain this same opportunity exists across any number of industries or markets. Indeed, Betaworks – “A New Medium Company” is a good example of a successful emerging company with a similar positioning and philosophy but focused on the media space. If they don’t exist already, I am sure similar constructs would work well in other industries.
Rusting away
Often when I give presentations on our vision of the future of finance, I am challenged with the question: “But do you really think [insert favorite giant financial services company] will disappear?”, I am at pains to make clear that (a) I don’t know (b) it’s possible, though not necessarily likely, or will take a very (very) long time and (c) that it kind of misses the point in that one would hope that their aspiration is to thrive and not simply survive.
There are a number of different failure modes for established market leaders, most of which are relatively unspectacular and many that don’t actually result in the company disappearing. We remember the Lehmans, the Enrons and the WorldComs but thankfully these are actually the exception. The greatest risk for these companies is not catastrophic overnight disaster but a slow inexorable decline into irrelevancy or even bankruptcy. Big companies typically don’t blow up, they mostly just rust away. The actual speed of this decline often depends on the nature of the sector, it’s “installed” base and particularly it’s regulatory “relevance” in particular. Leaders in highly regulated and deeply embedded (in our economies) industries like finance and telecoms can survive for years and even decades by deploying their considerable resources to protect their position and slow (but not stop) their decline. But how much better off would their shareholders, employees and customers be if they instead marshaled these same resources in a more constructive direction, embracing their real strengths and acknowledging their structural weaknesses in order to evolve and succeed in our changing world, rather that just settling for survival? (Side note: this strikes to the heart of the principal/agent problem that plagues many big, listed companies – for the middle and senior management of these firms, simply ensuring their company survives is often a more than good enough outcome, requiring significantly less energy and psychological commitment while delivering sufficient financial rewards and positional prestige to meet or exceed their personal aspirations. I am not criticizing so much as acknowledging that human nature being what it is, that it is damn hard to resist such a path, even for those with the best intentions.)
Say Cheese
The experts at Wharton note that “adapting to technological change can be especially challenging for established companies like Kodak because entrenched leadership often finds it difficult to break old patterns that once spelled success. Kodak’s history shows that innovation alone isn’t enough; companies must also have a clear business strategy that can adapt to changing times. Without one, disruptive innovations can sink a company’s fortunes — even when the innovations are its own.”
The world is changing. Financial services are no longer immune to these forces of fundamental change. Changing technology, demography and culture are unstoppable forces that if ignored will slowly but surely rust away the competitive advantages of traditional business models. Resist it or embrace it. But you can’t change it. It’s a bit scary sure but also incredibly exciting. Jump in. If you are in financial services, we can probably help.
It’s a better choice than waiting for your Kodak moment.
To meaningfully differentiate yourself from everyone else in the same space, you have to define the situation in the industry, segment, or category that you want to challenge. Here’s what a list of what you want to challenge might look like:
This is an area in which everyone seems to be stuck in the same predicament and nothing has changed in a very long time.
This is an area where profit performance is average—it really should be more successful than it is.
This is a category where growth is slow and everything seems the same.
Once you have a situation to focus on, describe it in one sentence: “How can we disrupt the competitive landscape in [insert your situation] by delivering an unexpected solution?”
I guess if you had to boil our mission statement at Anthemis Group down to one question,
How can we disrupt the competitive landscape in financial services by delivering an unexpected solution?”
would probably do the trick quite nicely.
Of course, our approach to answering this question is perhaps not to answer it directly but rather to seek out and support a constellation of passionate, brilliant, “what if?” thinking entrepreneurs who are asking this question with respect to specific sectors, products and geographies in financial services (banking, payments, risk management, identity, investing, etc.) and contribute our intellectual and financial capital towards amplifying their vision and improving their chances of success. For all you capital markets geeks out there, we think this approach generates (as close as you can get to) pure “alpha” in that our returns are pretty much divorced from general market movements as the impact on valuation of success (or failure) in building these new businesses far exceeds the second or third order impacts on valuation of prevailing overall public (or even) private market conditions. Clearly, our success is not guaranteed – not by any stretch of the imagination – but at least the input parameters, the choices we make, are the key drivers and within our control. (And not subject to the vagaries of a co-hosted blade pumped up with algos in New Jersey…cf my last post.)
This in our opinion is a much better set of reference terms. Even more so because it doesn’t rely on our unique genius, but rather structurally taps in to a deep and expanding pool of talented people, pursuing their own visions and goals, loosely-coupled through the ecosystem and networks we strive to nurture and grow. We don’t have to make all the decisions. We don’t have to have all the brilliant ideas. We don’t have to do all the heavy lifting. Which is certainly a relief to us and I suspect to our investors as well. If you want to take the ecosystem metaphor a bit further, I guess it would be fair to say that our position is akin to dirt in forest. Or swamp water in a wetland. ie Trying to provide a fertile and supporting substrate upon which the wonders of evolution and life can flourish and grow. Perhaps not a very sexy image, but ask any farmer and she’ll tell you there is nothing as wonderful as a field of deep, dark, steaming dirt.
And coming back to Luke’s three foundational criteria, I think it is clear to all that you can take pretty much any sector of financial services and it would emphatically tick each box. It’s an incredibly fertile environment for disruption. So you know, we’ve got that going for us. We just need to make sure we plant the right seeds.
Anthemis (Án-the-mis) is a genus of about 100 species of aromatic herbs in the Asteraceae… Nicknamed “the plants’ physician”, it seems to improve the health of other plants grown near it. (source: Wikipedia)
I was reminded the other day that I’ve never introduced Anthemis Group to the world. And our website, although not bad, definitely needs updating (we’ll get to it…) But in the mean time, I thought it might make sense to have a go at starting to explain who we are, our world-changing ambitions and our unique plan for achieving same.
As many of you know, I’ve spent much of the last decade thinking hard about how advances in information and communications technologies can enable a fundamental re-invention of business models in the financial services sector, and over the past four years I have focused my energies on figuring out the best way to go about catalysing the creation of new businesses that will drive and profit from this amazing opportunity. It hasn’t always been easy – advocating change never is – but ironically, the global financial crisis of 2008 was actually very helpful as it opened many eyes to the manifest weaknesses and diminishing returns of a financial system and actors that were finely tuned to operate in the “industrial economy” of the 20th century but poorly adapted to address the opportunities and challenges of the 21st century’s “information economy.” Anthemis has emerged out of this work and we are convinced that our approach is ideally suited to profit from the vast opportunity for disruptive innovation in financial services.
Our ambition is to build the world’s first “digitally native” financial services group: a group of companies and businesses uniquely adapted to profit from the emerging competitive landscape of the Information Age.
Anthemis Group is a holding company (think Berkshire Hathaway, DST, Naspers, LVMH…) organised around a small number of key themes and principles:
that an enormous opportunity exists to harness technology to fundamentally rethink how financial services are designed, consumed and delivered.
that a healthy, resilient and relevant financial sector is absolutely critical to the well-functioning of our economies and societies
that loosely-coupled networks and ecosystems (not hierarchies) are the optimal organisational forms in the information economy
that assembling and retaining teams of talented and passionate people is the key to building great businesses.
We’re not a venture capital or private equity fund, although clearly in some respects we share characteristics and often work closely with both; think of us as a fractal start-up – a company that deliberately seeks to connect and grow an ecosystem of complementary and vibrant new businesses by marrying patient long-term growth capital with expert operational and strategic advice.
In future posts over the course of the next several months, I will explore in more detail the themes outlined above and also dig deeper into both our operating model (we have three key operating pillars: principal strategic investments (anthemis | holdings), corporate advisory (ft advisors) and an innovative specialised expert consulting network (anthemis | edge)) and our investment framework (see if you can reverse engineer it by looking at our existing portfolio!) But today, I want to finish by highlighting a great post by Stowe Boyd (which inspired the timing of this post) titled “More Like A City Than An Army.”
In recent appearances, I have used a certain example to make a case about the openness in businesses of the future, contrasting today’s organizations with cities. ‘You don’t have to ask if you want to move to NYC’ I say. ‘You just show up, and start doing your thing, interacting with people, renting a storefront, buying things.’
‘Imagine a business where you can just show up and say, I want to work here. And you’d be engaged in the workings of the business by making connections with people.’
When I read this, it was immediately familiar: it resonated strongly with some of our thinking on how to best manifest the fourth principle above and indeed our business model in many ways adopts a somewhat analogous approach.
Cities exhibit superlinear performance, unlike businesses which are sublinear. As new employees are added to a business, performance decreases per employee. Cities are the only human artifact that break this trendline: they increase in productivity as more people move in.
So, business should aspire to take on the characteristics of cities — to the degree feasible — to break past sublinear performance.
Think of Anthemis as a city. Of our portfolio companies as neighbourhoods. And of our anthemis | edge business as municipal services and resources. The metaphor isn’t perfect of course but our structure and approach is indeed designed to achieve the superlinear performance Stowe alludes to. Before you get too excited, we’re not (yet?) in a position to let people “just show up and say, I want to work here”; I think reputation and trust filters – albeit not necessarily (just) the traditional ones – are relevant, but in terms of our starting bias, I’d say our philosophy is more in tune with this approach than the traditional talent paradigm. After all, why wouldn’t we want to embrace talented, energetic, self-selecting people. To be fair, Stowe acknowledges this potential problem and offers a potential solution:
Of course, the company would have to be organized in a vastly different way. People could ‘work’ at such a future Apple by just showing up, but they might have to convince others to let them participate on projects, or get an idea funded, or change a product’s features. (my emphasis) We’d have to have a wildly different notion of ‘management’: one that would be fully distributed in some way.
This theme is an aspect of what I call messiness-at-scale: for companies to go superlinear, they have to drop all plans to keep things tidy, and accept a state of near chaos, out at the far edge, where the power curve of innovation, creativity, and resilience is at its strongest.
Indeed, the biggest issue I see with a completely open-door policy is one of protecting the reputation and integrity of the firm – (which is really just the community of people associated with it.) Basically, the NAA (no assholes allowed) rule. But the fabulous thing is that in today’s world, it has never been easier to run this filter. Globally. Using both traditional social (old boys’) networks sure but also and much more excitingly (and more scaleable) by using the vast array of digital tools (Twitter, LinkedIn, Quora, Namesake, blogs, etc…ergo PeerIndex, an Anthemis company!) to build up a picture of a person’s authenticity (who they are, what they believe in, what they know and how passionate they are… (Which of course highlights how crucial it is to nurture and maintain a robust digital identity, something that is anathema to most of the corporate leaders of today…)
And if we can solve the reputation / authenticity issue, this just leaves the issue of how can you afford to pay people who “just show up.” We don’t have a fully-formed answer to this yet, but a starting point for thinking about this is: you don’t. Or framed less controversially, you provide them a substrate upon which they can ultimately earn their own way and in parallel you provide a framework by which the firm and its people can invest risk capital (time and money) into the new joiner to buy them the runway they need to become “cash flow positive”.
If this sounds similar to the general approach to financing entrepreneurs and start-ups it is not by accident. Investing in people or investing in groups of people working together on a project are fractals of the same problem set. A cynic would argue that this is just semantics and that what I have proposed aboveis effectively what any company does when it hires a new employee – essentially committing risk capital on the future expected productivity of that person. Sure, perhaps. But by making this social contract explicit – by devolving the process – making it bottom-up, emergent; not top-down – I am convinced that the resulting relationship is very different (and more robust, honest and mutually beneficial.)
So we’re working hard on putting the substrate and framework in place that will ultimately allow Anthemis to welcome all the talented, passionate, self-motivated people out there that share our vision and want to direct their energy towards building a digitally native financial system fit for the 21st century. We’d love to hear from you if you think you can help (but just remember we’re a start-up too, so please indulge us if we’re a bit uneven in our ability to engage, we know we have room for improvement in this department.)
“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” – Buckminster Fuller
I often, ok sometimes, get asked what I look for in an entrepreneur / company founder / ceo and despite having a very clear vision of the ideal profile in my mind, I used to struggle to articulate it clearly and concisely. Then last fall I read The Snowball: Warren Buffett and the Business of Life and found that the legendary Mr. Buffett (albeit in a very different context – can you guess??) – had done the work for me. With some paraphrasing and adaptation, here is what he said and what I’ve adopted as my “elevator” founders test:
When I invest in an entrepreneur, I’m going into a foxhole with this guy and he has to be the right choice. The question is, who has all the qualities that will provide leadership to the company, cause me not to worry for a second about whether anything was going on that would subsequently embarrass the company, or cause it to fail through lack of ambition or effort. When I talk to entrepreneurs what goes through my mind is essentially the same questions that would go through your mind if you were deciding who you wanted to be a trustee under your will, or who you wanted to have marry your daughter. I look for the kind of person who is going to be able to make decisions as to what should get to me and what could get solved below the line. A person who will tell me all the bad news, because good news always takes care of itself in business.
And when I look across the founders of our portfolio companies, I would definitely be comfortable with any of them being trustees of my will. As for my daughter, well they’re all too old for her anyway and besides they wouldn’t stand a chance…
Very excited to be making my first trip to Bulgaria later this week for TISEE 2011 which we have generously been invited to co-host by Pavel and Deven of Neveq who are the brains and the driving force behind what I’m sure will be a fascinating day:
The Technology Innovation Summit: Eastern Europe (TISEE) is an annual gathering of leading technology visionaries, executives, investors, and entrepreneurs. The event is focused on bringing exposure to the Eastern European technology landscape and connecting innovative companies in the region with global leaders in these fields.
There will be a broad set of events including keynotes, interactive panels, networking sessions, and a startup competition focused on emerging technologies, with a particular focus on Financial Technology, Mobile Technology, and Online Services (social media, personalization, etc.).
There is a great line-up of speakers, panelists and attendees both local and international. If you don’t have plans for Thursday, you can still book your place and jump on a plane to Sofia Wednesday evening. I’m sure you’ll enjoy it. If not, follow @TISEE2011 and/or the #TISEE hashtag on the day to follow along from home.
This weekend when catching up on my inbox, I stumbled upon a short article by Steve Denning opining on how Amazon was a different kind of company. His summary of how they were different really resonated with me and so I thought it would be republishing it here, not the least because it is a great characterisation of our portfolio companies at Anthemis and although we haven’t to date articulated it in exactly this format, it is an excellent proxy for some of the filters we run companies through before making an investment decision.
In effect, there are two kinds of organizations in the marketplace today:
Organizations that keep finding new ways to to delight you – and those that are trying to make money off you.
Those that help you solve problems – and those that are pushing their stuff at you.
Those that are steadily innovating – and those that are doggedly tweaking their value chain.
Those are responsive and agile – and those that are busy doing their own thing.
Those that are easy to do business with – and those that make you feel queasy.
Those that surprise you with unexpected extra value – and those who surprise you with unexpected extra charges.
We have a strong conviction that companies that behave in this way, that have this cultural DNA, will generate much higher risk-adjusted returns over the medium to long term than the other kind. Further, we believe that the performance gap between these two types of company will only get wider in the Information Age.
Until very recently, financial services have been relatively immune to the technology-enabled disruptive innovation that has swept through other industries over the past decade or so. This is now changing for a number of reasons, both technological, economic and societal:
continuing advances in communications and information technology – in particular ubiquitous cloud computing and smart devices – is enabling economically viable new approaches to delivering all types of financial services (payments, risk management, investing, banking, insurance…)
demographic change is creating a large addressable population of financial services consumers who have a different expectations (in terms of transparency, control, etc.)
the financial crisis of 2008 has broken many of the bonds of trust that contributed to significant customer inertia wrt financial services providers.
This is opening up one of the most important sectors of our economy to new entrants with new ideas, new approaches and new technologies.
I’m going to give a short presentation, hopefully setting the scene and getting some creative juices flowing before the more interesting part of the workshop where my partner Uday and I will be working with those attending to ideastorm potential new approaches, business models and services that are natively adapted to the technologies and economies of the 21st century. Attendance will be limited to 30 people so if this is something that excites you and you’d like to contribute, don’t wait too long to sign up. The workshop is at 9am on Friday, February 4th and of course you need to be signed up for the conference – if you haven’t already you can do that here.
And if you have any ideas for what you’d like to see or hear or discuss at the workshop, please don’t hesitate to comment below. Hope to see you there!
Update:
Workshop went well I think and I was really lucky to have such an engaged and interesting group. Would have loved to have had another hour to explore the ideas that emerged…here’s the presentation I gave as an intro:
Betterment ticks the box on so many of our investment themes and fits so well into our vision of digitally native 21st century financial services that they had us at ‘hello’…but the clincher was the amazing team and impressive execution to date.
When asked, I often tell people that we invest in the “emerging Apple’s of financial services”, ie that we look for companies who use technology to create powerful, intuitive, user-friendly customer experiences by essentially abstracting complexity away from the user (not ignoring it, but managing it – with skill and dexterity – behind the scenes) rather than exposing it in all its glory to customers with the implicit goal of profiting from then managing (exploiting?) their confusion and disengagement. Of course the Apple analogy is not perfect but probably can’t be beat in terms of a pithy soundbite summary of our approach.
So with this in mind, think of Betterment as having a Jobsian approach to savings and investment: combining a intuitive and powerful user interface with a robust back-end execution platform, Betterment allows anyone to quickly, easily and without mystery manage asset allocation and risk budgeting using a simple, multi-asset class portfolio. No hassle, no time wasted, no blizzard of trade confirmations. The first time I saw it, I immediately wanted to be able to manage all my cash balances using their platform. (Unfortunately they are currently only operating in the US so not super-practical for me personally but you can bet we’re keen to help them expand their horizons…) Say goodbye to the money market account. Indeed, if you are based in the US and have a bunch of your savings tied up in money market accounts or CDs, you should definitely take a very serious look at replacing these with a Betterment account. Have a look at their product tour:
But the most exciting thing about Betterment is that they have only just got started and it’s scary (good) to think what Jon, Eli, Kiran and Anthony, can and will do over the next couple years. And it’s a great fit with our nascent but growing ecosystem and we look forward to helping them work with other great digitally native financial firms like BankSimple, Blueleaf, FX Capital Group and others as they grow their business in the months and years to come. And the icing on the cake is getting the opportunity to invest alongside guys like Rob and Eric at BVP who bring a lot more to the table than just capital. Congratulations guys and thanks for inviting us along for the ride.
And was just thinking this might be the right track for their inaugural global marketing campaign…
In closed beta since last fall, and by focusing on providing financial advisors with an amazing platform to help them help their customers, Blueleaf has (very quietly) already gathered over $1 billion (yes, billion…) of assets on the platform, including a significant number of multi-million dollar accounts. Often when people hear this, they are surprised – why would advisors trust a new start-up like Blueleaf with all the details of their clients net worth? I think it is relatively simple. First and foremost, because by doing so, they can derive real – measurable and material – value for their customers by using their platform, and secondly because it makes much much more sense for individuals and independent financial advisors to share a complete view of someone’s finances with an independent 3rd-party platform provider like Blueleaf than with any individual financial institution. In other words, it makes advisors look like rock stars and gives individuals a quantum upgrade from the still all-to-common wealth management user interface of a kitchen table covered in account statements… And the wealthier and more sophisticated (and older!) you are, the more you are likely to realise this is true. There are very good reasons to have multiple banking, insurance and broking relationships. The problem is that today, to gain the advantages of multiple relationships one has to pay a real cost in increased complexity that arises from having to manually manage and aggregate these accounts.
, lays out 
As many of you know, I’ve spent much of the last decade thinking hard about how advances in information and communications technologies can enable a fundamental re-invention of business models in the financial services sector, and over the past four years I have focused my energies on figuring out the best way to go about catalysing the creation of new businesses that will drive and profit from this amazing opportunity. It hasn’t always been easy – advocating change never is – but ironically, the global financial crisis of 2008 was actually very helpful as it opened many eyes to the manifest weaknesses and diminishing returns of a 
And if we can solve the reputation / authenticity issue, this just leaves the issue of how can you afford to pay people who “just show up.” We don’t have a fully-formed answer to this yet, but a starting point for thinking about this is: you don’t. Or framed less controversially, you provide them a substrate upon which they can ultimately earn their own way and in parallel you provide a framework by which the firm and its people can invest risk capital (time and money) into the new joiner to buy them the runway they need to become “cash flow positive”.
and found that the legendary Mr. Buffett (albeit in a very different context – can you guess??) – had done the work for me. With some paraphrasing and adaptation, here is what he said and what I’ve adopted as my “elevator” founders test:
