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January 5, 2009

The future is already here - it is just unevenly distributed. —William Gibson

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The entrepreneur-VC hybrid: the philosopher-king of innovation

The act of starting and growing a business takes a lot of faith, passion and endurance. Atomized enterprises and the resulting changes in the economics of starting a technology business, however, have opened the door to a new breed of innovator: one who thinks like a VC but executes like an entrepreneur.

Jeff Bussgang, an entrepreneur-turned-VC has written a fantastic BusinessWeek article on entrepreneurship that explores this theme a little. The central problem Jeff identifies is this:

Unbridled, unfocused entrepreneurial energy can easily be squandered and misdirected. In my last six years as a VC, I developed an appreciation for the attitude and vantage point that VCs have when sifting through business proposals and allocating scarce capital to the best opportunities.

Jeff goes on to talking about how thinking like a VC and executing like an entrepreneurs is desirable for employees, but I want to explore the significance of this advice for technology-enabled enterprises and innovation. Atomized enterprises are capital-efficient ventures born out of momentous, loosely coupled combinations of labor, ideas and capital. To keep permanent overheads low, atomized enterprises must necessarily pursue more rational resource allocation strategies than traditional enterprises.

The tightly-coupled nature (relatively speaking) of a traditional enterprise, where many non-cohesive functions are nonetheless integrated together, means fewer points where rational decisions are made on the basis of market prices. The act of paying a price is a powerful reminder to maintain efficiency and imposes a certain crispness on any transaction. The loosely coupled nature of atomized enterprises has two key implications for innovation:

• more functions are accomplished by relationships to external organizations, which are in turn mediated by rational behavior-enforcing market prices and;
• assuming a relatively liquid market of service providers–which is reasonable for the kinds of commodity functions that are outsourced to external providers–rational decisions to switch to more capital-efficient service providers will be far less expensive.

With sufficiently rational and efficient resource allocation, an entrepreneur may even be able to pull off multiple, loosely associated atomized ventures simultaneously. I came across one example of an atomized enterprise recently when I was speaking with a fully managed Web hosting provider. One of their customers is a dentist who sells dental drug compatibility data online with no overhead of his own, while simultaneously carrying on a full-time dentistry practice. As atomized enterprises become more widespread, I believe we will see more examples of entrepreneurs who manage not one but a portfolio of linked technology-enabled ventures while allocating resources rationally and dispassionately among them. These practitioners of the atomized enterprise, whose passion for execution will be informed by a perspective that enables them to make truly rational decisions, will indeed be the philosopher-kings of innovation.

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