Research Note: Appetite for Disruption
So apparently Kleiner (Perkins) thinks
2.0 is over. Quelle horreur.
Actually, I agree - but not in the way you (or they) might think.
Yes, 2.0 is running out of steam.
But mostly - it's VCs
themselves who are ruining the party.
From the most naively analytical pov - purely based on simple numbers - there are huge, rich, fat veins of value creation left yet to be tapped by the ideas of 2.0 that venture dudes should be drooling over.
But VCs are failing their portfolio companies, consumers, their LPs - because they've lost their appetite for disruption.
And so what should be a tsunami of radical innovation is still just an outsized wave of value creation.
So let's do an analysis, and then a mini case study.
For once, I agree - wholeheartedly - with Rubel. His post a few weeks back, about how the hype is killing the honesty, was heartfelt - and spot on (mad pr0pz to anyone who can find a link).
But where is the hype coming from? Ultimately, the money. So, as I've pointed out before, the
real problem in this space is the money itself.
Venture guys investing in 2.0 still don't get it - they're the real chasm 2.0 has to cross. The "it", in this case, being consumers.
Most venture guys treat 2.0 investment either like investing in software or (worse) investing in mass media.
But next-gen media is neither mass media nor software: it's a new beast entirely. It requires a whole different order of strategic imagination, a capacity to advise to startups on next-gen business models, and a deep-seated appetite for disruption.
The problem is a structural one within the venture industry. Like any other industry, the problems are at the top: a lack of new blood means new ideas and new DNA.
Unfortunately, and I hate to be so blunt, the institutionalization of venture as an asset class over th last twenty years has eviscerated the incentives for failure, the passion, the sheer fun of the game, from Sand Hill Rd.
Many of the dudes on Sand Hill Rd are having
exactly the same effect as boardroom fatcats in corpocracies: they're killing innovation dead.
Of course, real venture investors - the ones with vision - have noted
exactly this dynamic.
We might, in fact, be better off without venture guys than with them.
Think I'm kidding? Consider the sad story of Zazzle.
From a strategic point of view, Zazzle should be utterly - totally - disruptive. Letting consumers remix clothes with brands isn't just brilliant - it's
economically hyperefficient and strategically dominant.
From the point of view of economics and strategy - it takes a lot to make an idea as brilliant as Zazzle
fail.
Kleiner Perkins, to their credit, got this much of the equation (maybe).
And what happened next? Well...nothing. Zazzle proceeded to go sideways for at least two years.
Why? Any marketing droid worth their consulting fee could tell you within five seconds - Zazzle was a play that bet on connecting consumers to crack open a dam holding back value creation in clothing, but whose entire consumer experience
sucked.
Zazzle looked, felt, and tasted like a Geocities site circa 1999 - it was ugly, messy, totally unusable, and, failed to communicate almost any aspect of Zazzle's value proposition.
More to the point - to really get consumers to connect, Zazzle needed to design a new clothing value chain. Making deals with suppliers was just half the battle - what about reaching consumers, providing context, service, and all the other downstream value activities waiting to be revolutionized?
But because KP was treating Zazzle like a software investment, consumers - in fact, anything downstream from the industrial economics of production - weren't part of the picture.
Now, years later, Zazzle and their investors are
finally taking steps to resolve this massive strategic error. It's signed a
deal with Myspace, to let connected consumer remix clothes for their favorite bands. Great - brilliant stuff: this is real strategic innovation. It's rethinking how and where clothing is bought and sold - the first step in a real new value chain.
But this is a trickle of strategic innovation, where there should be a flood.
If it takes the best venture capitalist in the Valley years to innovate - then is there really much hope for the rest of them? I don't think so - I think that they've fallen prey to the tragedy of success; they've lost the appetite for disruption.
