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.
Financial institutions are already highly regulated and one could argue that at best, this has not achieved the desired outcomes and at worst has actually contributed to some of the most egregious behaviors as the clever folks in financial institutions lost sight of the end game (ie the products and services and customers that lie at the heart of their raison d’etre) and focused increasing amount of energy and talent to working the system.
And not unlike Br’er Rabbit fighting with the Tar Baby, getting stuck and then pleading with Mr. Fox not to be thrown into the Briar Patch, the large incumbent banks pleading with the regulators not to write more rules may just be a brilliant case of misdirection.
but do please, Brer Fox, don’t fling me in dat brier-patch
Of course more regulations hurt the large financial institutions, but they hurt new entrants more. And competition is a whole lot scarier than regulation to incumbents. If you want to get a sense of this, you could do worse than reading Aaron Greenspan’s take on US payment regulations. And similar examples exist across the spectrum of financial services and across the globe.
The irony is that most financial regulations are born through the desire to protect the little guy from losses, and to some extent they achieve this on one (direct) level but following the law of unintended consequences, the result to often is to create an environment where far larger risks (and losses) are incurred at a systemic level. And who pays for that? Well as we all know now, increasingly it’s all of us (including of course, the little guy.) Via government subsidies, interventions, increasing costs to maintain ever larger and more complex regulatory regimes, all of which need to be paid for with higher taxes and more importantly slower economic growth. Here the bankers are right, all these new regulations make our current system less able to produce growth which of course hits the 99% hardest. But then the bankers stop before asking for a level regulatory playing field that would pour fuel on the smouldering fire of new, innovative, disruptive entrants. Please Lord deregulate me, but not just yet.
Security theater is a term that describes security countermeasures intended to provide the feeling of improved security while doing little or nothing to actually improve security…Security theater gains importance both by satisfying and exploiting the gap between perceived risk and actual risk.
Regulators (and politicians) sensing the need to be seen to be doing something about the risk, fall into a trap of creating more and more regulations hoping to protect all of us from ourselves, only to create new (almost always) more dangerous and costly risks higher up in the system. Rinse and repeat. Until these risks reach the top of the pyramid and can no longer be shuffled and redistributed. At which time, they come tumbling down on all. This regulatory theater can be comforting in the short term but actually takes us further and further away from a sustainable solution to managing financial risks in our economies.
These risks exist and cannot be regulated away. Call it the 1st law of Financial Dynamics: the of conservation of risk. And I would postulate that pushed down to the base of our economic system, these risks would be easier and less costly to manage. With a more competitive and open system, with continuous renewal through many new entrants, the end users of financial services would get better (higher quality, lower cost) products and services with much lower risk of catastrophic systemic failures. Certainly – statistically – some of these new entrants would be managed incompently. Some would be frauds. People, customers would lose money. But the costs of dealing with these failures would pale in comparison to the multi-trillion dollar, economy-crushing losses that the existing system has allowed, nay encouraged to build up.
I’ll finish with an example, take UK retail banking. Concentrated, uncompetitive, legacy. No new entrants, no competition. Metro Bank, NBNK, Virgin/Northern Rock in my opinion are just shuffling deck chairs; better than nothing I would grant but essentially no real innovation, run in the same way with (mostly) the same assets, same people and same business models that previously existed. A token nod for the industry and the government to be able to say their is new competition (much as a dictator allows a hapless opponent to run in an election…) – window dressing. And even here, look at the hoops Metro Bank (who claim to be the “first new UK bank in 100 years”, QED…) had to go through to get a new banking license… If I were Cameron/Osbourne/Cable, the first thing I would do to start fixing the problem would be to create a new “entry” banking charter. Light touch. Basically just vet the founders and investors for fitness. Perhaps make them put up a certain minimum amount of the equity and/or guarantees as a percentage of their net worth. 90 days from application to charter. Nothing more. But restrict these new banks to say £50mn of assets until they have a 2 year track record (at which point they could apply for an increase in permissible assets and/or a full license.) Then oblige the large banks to open up their core banking infrastructure via APIs – analogous to obliging BT to make available their core telecom network to other operators.
I wouldn’t be surprised if within a year or two you had 30 or 40 new banks competing in various different ways, with many different (and differentiated) value propositions. And some would go bust. And some would be frauds. But even making the (ridiculous in my opinion) assumption that they all lost all of their customer’s money, and all of this money was insured by the government, we are talking about £2bn. Compare that to the direct losses of c. £23bn on RBS and Lloyd’s alone, not even considering the contingent losses and indirect costs born by the UK economy as a result of their predicament. Of course, I believe that many of these new banks would succeed and grow and any losses would be substantially smaller than £2bn. But none of these new banks would be too big to fail for a very long time (hopefully never) and although failure of even just one of them would attract headlines and aggrieved customers giving interviews on BBC1, especially if the cause of failure were to be fraud – it would behove us to put this into perspective. To not forget the difference between perceived and actual risk. To remember that huge failure even if diffuse and “no one individual could credibly be blamed” even if more psychologically comfortable, is actually much much more damaging than smaller point failures where cause and effect are more brutally obvious.
The world’s incumbent financial institutions are deeply mired in Christensen’s Innovator’s Dilemma, protected by regulatory barriers to entry that while not fundamentally altering the long-term calculus, have pushed back the day of reckoning only to make that day seem ever scarier. It might seem counter-intuitive, but I think we should be calling not for more regulation but for de-regulation of financial services (the real, robust, playing-field-leveling type and not the let-us-do-what-we-want-but-keep-out-any-competitors type). Competition is a far more robust route to salvation than regulation. Let a thousand flowers bloom.
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.
I don’t have much invested in traditional public equity markets, just a handful of relatively small positions in my (self-directed) pension fund. I haven’t done any robust analysis but my intuition tells me that my average holding period for these positions is probably around 2-3 years, with perhaps a bit of trading (lightening up or adding to existing positions) one or twice a year. And watching the markets from the sidelines over the past month or so certainly hasn’t made me regret this modest, passive allocation. When massive, mature companies trade up and down by 10 or 20% in a period of days – with no or little company specific news, confidence in the market’s ability to set prices in an orderly fashion clearly goes out the window. Indeed, the (public) equity markets are dangerously close to losing their ability to provide one of their key benefits: price discovery. And if/when this comes to pass, there will be serious knock-on effects on their other prime (and beneficial) function of capital allocation (and providing access to capital to companies and access to companies to investors.)
The risk is that a tipping point is reached at which the traditional public equity markets cease to be relevant venues for raising capital or investing. As many people have recently remarked (Kill the Quants Before They Kill Us, Beat high-frequency trading machines by not playing their game, etc.) possibly the key driver of this trend is the relentless increase in algorithmically-driven machine trading (high-frenquency or otherwise.) Now don’t get me wrong, I am neither a luddite, nor am I fundamentally opposed to these trading strategies; rather all other things being equal I would probably consider myself a proponent. In moderation, these types of trading strategies add both liquidity and heterogeneity to the market and as such help create a more robust trading ecosystem. But recently, the equilibrium of this system has come unstuck. Anecdotally, it is now assumed that upwards of 60% of trading volumes on the main public stock exchanges are accounted for by algorithmic/machine-directed trading. On some days and in some stocks, I understand that this can be as much as 80+%.
And most of these strategies don’t involve any judgement as to the valuation per se of a company; basically, as the Onion put it so brilliantly many years ago: they are just “trading” a “blue line”.
NEW YORK–Excitement swept the financial world Monday, when a blue line jumped more than 11 percent, passing four black horizontal lines as it rose from 367.22 to 408.85.
So nobody is actually setting the price! (…or more accurately, the “price-setters” in the markets are mostly being overwhelmed by the trend-trading machines.) This does have the side effect of creating real trading and investment opportunities for on the one hand a small number of smart nimble day traders and on the other hand a small number of very long term investors (who have the luxury of having deep pockets and patience) but for the vast majority of investors (professional or private) the market dynamics and extreme short term volatility make participation more and more painful. This is particularly the case in a low-return environment such as today. Clearly execution (entry and exit points) have always been important, even to long term investors, but never have they been make or break like they have been in August: who cares if you have a carefully crafted investment thesis that predicts a 20-40% appreciation over 2-3 years in Company A when depending on the day of the week on which you entered the position, the thesis is rendered somewhat moot by a 20% swing in the share price.
And it’s no wonder that strong, growing private companies are often loathe to have their shares listed: what right-thinking CEO wants to deal with that insanity???
So what’s the solution? I don’t pretend to have an answer, but I do have a couple suggestions that perhaps point in the right direction for smarter people than I to develop into actionable plans:
design structural dampeners (through exchange rules and regulations) that limit the volume of algorithmic trading to some maximum proportion (to be A/B tested to find the optimal point – 40? 50? 60? percent?); this could also be a dynamic number, for example increasing or decreasing with intraday volatility to damp same
encourage the continued development of private secondary markets (SharesPost, SecondMarket and others) and help to develop them as real alternatives (and complements) to traditional public equity markets.
It’s really important that our global capital markets operate robustly and efficiently. In fact it’s never been more important. I believe that reasonable, robust solutions exist (or can be developed.) But I fear that the inertia and prejudices of entrenched incumbents (exchanges, banks, regulators, governments and investors) will make finding these solutions exceedingly difficult. I hope I’m wrong. Until then, be careful out there (and think about re-allocating some of your capital to the private markets; you’ll sleep better at night!)
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
Markets in compute power, much talked about by me and others are now it seems finally here (from The Economist:)
Fundamentally, SpotCloud works like other spot markets. Firms with excess computing capacity—operators of data centres, cloud providers, hosting firms—put it up for sale. Others, who have a short-term need for some number-crunching, can bid for it. Enomaly takes a cut of between 10% and 30% depending on the size of the deal. But there is an important difference: SpotCloud is what Enomaly calls an “opaque market”, meaning that the firms offering capacity do not have to reveal their identity. Thus selling computing services for cheap on SpotCloud does not cannibalise regular offerings.
Our friends at Timetric are already tracking historical spot pricing for AWS, and I hope they’ll be able to do the same for the SpotCloud historical data.
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.
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…
Last week I spent the week in Amsterdam at Sibos 2010 where I had kindly been invited by Peter Van der Auwera to participate in the Innovation stream, and in particular in the Cloud Computing and Long Now streams within Innotribe. On Monday, I gave a short “scene-setting” talk on cloud computing and app stores in finance called The New Financial Stack (more on this / link hopefully later this week) and also I agreed to produce a video aimed at provoking and/or inspiring some original and non-linear thinking about the future of finance. Called “The Financial Reformation”, it sets the scene for two decades of fundamental change in the financial services industry based on the amazing democratising power of information technologies. I hope you like the result:
But as you might suspect if you have watched the video, this is just a start… Indeed, this initial video could be considered as simply the trailer for a longer form video which will look at the period from 2008 to 2028 in more detail; similar in some ways to the AmazonBay video of several years ago. The first draft of the script for this story is already written but I am very keen to build on and enrich it, not only with the fascinating concepts and insights that I absorbed in the Innotribe sessions at Sibos last week, but also – insofar as anyone is interested – with comments and ideas from the wise crowd of Park Paradigm readers. I’ve got a few ideas as to how best to go about this, and plan to post these later this week or next, but in the mean time if you would like to share your thoughts, please feel free to comment below.
ps I’d like to give a special thanks to the amazing team at Motherlode who were instrumental in turning my ideas into reality and who worked tirelessly to deliver the video in time for the world premier at Sibos; I’d also like to thank and congratulate Peter, Kosta and the rest of the Swift Innotribe team for what was simply an incredible four days. I hope Swift gives you the recognition you deserve!
, 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”.
