IoWTF?

I'm happy, because there's finally a chance for me to write about something other than Energous - in this case to return to the topic of "Things That Just Shouldn't Be". Previous recipients of this attention have been Juicero (the "Keurig for Juice") and June (a $1500 toaster oven). Today it's the turn of Sunflower by ShadeCraft - The World's First Robotic Shading System which you can now pre-order for delivery this fall.

Not content with just being a shade, this has everything you've always thought you needed when out on the deck in the sun. It's got lights in case the shade is a little too much, WiFi in case your phone lacks that kind of connectivity, speakers (Harmon-Kardon!), an app to control it in case your lazy ass can't stand up and move it,  security cameras to stop someone stealing your shade because they're jelly, solar power to keep it all going, and of course Artificial Intelligence in case you're too dumb to work out how to operate it. I'm surprised it doesn't mine bitcoins for you. Among any list of "first world problems", this product has to be pretty near the top of it.

I had missed the initial publicity for this product when apparently it was 'launched' at CES almost exactly one year ago. According to Crunchbase, the company was founded in March 2016, and received seed funding of $2 million in March 2017. So 9 months after founding, the company exhibited at CES to launch a product (concept only?), then raised its funding 3 months after that, and now a year after initial launch you can pre-order and get it in almost a year. 

If you have to have one of these beauties, I suggest you order it soon - you can get it today for the massively discounted price of $5,220. (Yes, Five thousand two hundred and twenty dollars) Don't wait, because at the end of the month it goes up to $6,900, followed by $7,800 in March, and $8,700 in April. Yes, nearly $9,000 for a garden shade with speakers, a camera, and WiFi. Oh, and an app.

What on earth is going on here? Even at $1000 each for speakers, camera, shade itself, motors, and solar panels you can't hit that number. Any good engineering project includes as one of the constraints a cost target, based on who the target market is. In this case, either that wasn't done, or the target market is people who have so much money they can just throw it away. Like trying to sell a juicer for $700, this is going to have a hard time - or maybe it's $8000 of pure profit and they're counting on only selling a few.

A clue as to what they may be thinking comes from looking at a previous product from the famed CEO/Founder, Armen Sevada Gharabegian. You've heard of him, of course - the designer of... The Maximillian Chair.

Want one of these gorgeous chairs? That'll be $25,000 please! And no wonder, as apparently it took him seven years to design. Don't worry though, you get a certificate of authenticity with it. So I'm going to go back to what I said earlier and say "This shade is for people with too much money."

Armen must be a talented guy as according to Crunchbase he's the only employee at Shadecraft. If he's not designing and building it himself, then that would mean that CES was used to raise interest in a then non-existent product on pretty sketches and mock-ups, to raise $2 million of seed, to pay outside design houses to get to a prototype, to put on pre-sale to get the money to build to deliver (or to show interest to raise another round). If so, it's a pretty nice way of bypassing a Kickstarter - though the designers should maybe have been given a little bit more of a cost constraint.

This will be interesting to see if the production, logistics, and other support costs have been properly factored into the pre-sale price, and the expected pre-sale volume predicted correctly. Get that wrong and you might end up with not enough orders to get manufacturing discounts you were counting on, or cover the unexpected costs and delays of hardware development. Kickstarter and other pre-sold hardware companies, such as Lily, have a long history of such 'ambitious' projects failing to deliver. Good luck to them.

It looks like they have grand ambitions and the sky is the limit for size - here's one of the images from a recent patent application. (Yes, a patent application for an internet connected umbrella).

If that's to scale, that's a pretty big shade. I wonder what that will cost?

How Do These Keep Becoming Things?

Two weeks ago the Consumer Electronics Show (CES) gave its yearly insight into the tech we'll all be getting to buy in the coming months and years. Companies reveal major products like cool new TVs with more pixels and better colours, the latest phones, new processors and things we actually use - and then there are the more bizarre things which continue to show that for every joke idea an engineer can come up with, there's a marketing manager who is dumb enough to run with it.

This year had a high bar to try to beat the previous competition, with the likes of Juicero and the June Oven, but the tech world rose to the challenge and brought us toothbrushes with AI, mirrors to tell you that you are not the fairest of them all, and my favorite being the smart hairbrush to help you brush better. All these paled in my reaction, however, to the incredible wonder that was forwarded to me today - Moodo, the smart home fragrance box.

Moodo is an electronic air freshener, programmable with a variety of scents, and you can even create your own scent with it and then share with others. Who wouldn't want to create their own 'Gardens of Isphahan' or 'Cozzzy' scents and share them? It's an amazing package, and only took three years from concept to delivery (well, promised delivery), where you just pop your Keurig style pods in (yay for the consumable business model!), and use the wifi connection to your smartphone app (of course) to dial in the aroma of your dreams from anywhere! Who wouldn't want one?

Now, at least they aren't asking for $700 or $1500 for it, the Indiegogo campaign seems to have it listed around $230 retail for each unit (only moderately outrageous but still pretty expensive for an air freshener), but only $140 or so if you are an Indiegogo 'early bird'. It's the $20 per set of four fragrances for the consumables where the money likely is, following the printer model of giving the printer itself away at cost or small profit, but charging heavily for the ink. Except a printer is actually useful.

Normally I'd say I can see the pitch to the VCs, who really weren't paying attention to the product but saw the consumable sales, the hockey stick revenue growth, and the smartphone/wifi/app nature of it and the cheque was written - but in this case it may not be so ridiculous. The parent company seems to be Agan Aroma/ADAMA Agricultural Solutions which produce chemicals and components for the fragrance industry, and so if they can sell their products direct to consumers at whatever x000% markup compared to industrial purchasers then it's a good deal. So this is something that really seems like a pointless product, but you can understand why the company pursued it. What I can't understand though, is why a company that supposedly has between 1000 and 5000 employees (according to LinkedIn) would use an Indiegogo campaign to get $50,000 of funding to promote it? Seems an odd mix of approaches, and I don't follow the combination of bootstrapping and larger company product promoter. I'll keep following the Indiegogo numbers, as of now 44 people have put in $8,726, let's see if it hits the goal by the end of the month.

Before I leave this topic, there's an update to the Juicero story from the first "How is this a Thing?" Fortune reports that Juicero's new CEO has slashed the price on their product from $700 to $400, after he remembered his Economics 101 class where someone said that you sell slightly more of a useless thing at $400 than at $700. Or was it that you take a loss on each but then make it up in volume? Still, I laughed at the report saying:

Dunn and his team made the decision to cut the cost now after running a test on Black Friday. They priced the machine for less than $400 and doubled their current number of users in one day.

Great, you went from 1 unit sold to 2, (though maybe that was the new CEO's granny feeling sorry for him). Still, you have to wonder about the journalist who didn't follow up on this obvious statement and ask "How many have you sold in total then?". Even if they got a "Can't release sales figures" answer, it takes it from a marketing piece to something more akin to journalism. Come on reporters, how can you build credibility if you can't even take a swing at softballs like that?

Consider the Lily

Once again there's a ton to write about - Brexit, Theranos, Energous, Erin Griffith's article on Ethics in Silicon Valley, and recent developments with uBeam, but a combination of work plus, hunting for a house, buying a house, getting contractors in, and moving, are eating up all my time. Hopefully next month things will be a little more settled and I'll be back to writing more like a post a week.

In the meantime, I wanted to cover the startup story of the moment, Lily Robotics. Lily is a drone company, promising a simple to use drone (throw it in the air, that's it), that follows you and uses a superb camera to take great videos and stills without a controller - ideal for sports enthusiasts to create videos of themselves doing cool stuff. It looks fantastic, with great demo videos and a strong demand. They raised $1 million in seed funding in mid-2014, and then in mid-2015 started taking pre-orders following some amazing videos and marketing - its pre-order list reached 60,000, at over $500 each, for around $34 million in pre-sales. At the end of 2015 they then raised a further $14 million in VC (no surprises - who wouldn't invest with pre-orders like that!)

Units were supposed to ship to customers in Feb 2016, but that was delayed until summer 2016 - no surprises as hardware is hard, give the newbies a break. Then it was delayed again, this time until December 2016 (time-to-carrot of around 6 months), but once again that date came and went, until suddenly last week they simply closed down with a message to their pre-customers that they were sorry, they couldn't manage to make it, but refunds were on offer. A sad tale, a startup that bit off more than it could chew, and ultimately had to close but sought to return the money to the customers and make them right. Sad until it became public that the same day they shut down, they were sued by the San Francisco DA for misleading business practices and false advertising.

I'll leave the other details to The Register, sUAS News, and the EEV Blog, and hone in on a couple of the most interesting points in this case. Remember that one of the key parts of fundraising is to get VCs to think that there are huge numbers of customers out there for your product, and so once you have 'traction', that they want to invest (de-risked is a term used, others simply wonder why you need a VC once you have customers and profits). If you plan on 'hacking' the system to get the VC money, then you aim to get customers - but what if you have no product to sell? Then go with pre-orders! Show the customer an imaginary future product you plan to make, play up the 'plucky little startup' card, and before you know it you've got $34m in sales and VC's knocking down your door, giving you all the money and time you need to make the product and get it to your customer.

That would be the (mostly) legal way to do it, tell pre-customers it's a planned product, tell them what you are showing them is "hoped for" or "aspirational" and do your best to hit it. Or you could simply show them a faked demo and video and hope you've got time to make it a reality by the date delivery is due - 'fake it til you make it' - and this is what the SFDA is claiming Lily did. In effect, it's a variation on what it appears Theranos and others did, except faking the demos to customers, not to investors (who are still likely defrauded, if this is true).

The customers were led to believe the company had more than it did through their promotional video of the Lily in action, however all was not what it seemed. From the SFDA complaint:

Lily Robotics did not have a single Lily Camera prototype that had all of the features advertised in the Promotional Video. Instead, its co-founders Balaresque and Bradlow, who were present during the filming, brought several prototypes to use during the filming. Some, which looked good on the outside but were not fully functional, were used only for “beauty shots.” Others had some functionality but did not look like the product being advertised. Some were able to film video but even those were merely Lily Camera prototypes with GoPro-branded cameras mounted on them.

This is an important point as it highlights something I've seen happen and I think is more prevalent than most want to believe - showing mockups as working devices, claiming many features and achievements in the product, yet not revealing that not only are they not currently available simultaneously in the same product, but that they may even be mutually exclusive. The analogy would be to claim that your company's new aircraft can fly at 90,000 feet, at Mach 1, with a range of 5000 miles, carrying a 100,000 lb load and leading people to believe it can do all at the same time, when that is impossible. It can be done to investors, though they should have the resources and experience to vet such claims, so let's do it to consumers instead - they're gullible and good natured, let's fleece them! 

Of course, I'm being cruel to Lily here, founders never think like that. They're all starry-eyed idealists just looking to follow their dreams and change the world, at worst you can say they are true-believers who wanted to make it all happen, but their reach exceeded their grasp. Let's forgive them, they tried and failed, but at least they tried. 

And then you read excerpts of emails from a Lily founder talking about their demo video:

Are you sure that the GoPro lens does not create a unique deformation/pattern on the image? I am worried that a lens geek could study our images up close and detect the unique GoPro lens footprint. But I am just speculating here: I don’t know much about lenses but I think we should be extremely careful if we decide to lie publicly.

The founder was worried that smart people would find out the demo was faked, and explicitly and in writing admits that they know they are lying. It's the equivalent of being found at the murder scene, covered in blood and carrying an axe, with a signed letter about how you have to be careful if you decide to kill someone with an axe. Despite knowing it was lying and fraudulent, they decided to go ahead with it anyway. Why? Because the funding 'game' is structured to incentivize exaggeration, fabrication, and lying, and to punish honesty. Honesty doesn't get you funded, lying does. When there's millions of dollars at stake (amounts that people kill for), why wouldn't someone tell a few lies, especially when if they succeed, no-one will ever know? And that part is critical - they didn't think they'd get caught, and why would they? How many startup founders have you heard of going to jail for this kind of thing?

A further question that springs to mind is why the VC firm that invested after the pre-sales didn't spot this during their due diligence. Surely they learned that the promo video didn't match what was shown? If they didn't, they were either lied to and also defrauded, or it smacks of incompetence if they missed it. If they did find it, then it's even worse, because they're then complicit in the deception. Faced with being labelled incompetent, fraudsters, or themselves defrauded, I wonder how long before the VC in question joins in the complaint against Lily and sues.

Which then brings the next question - who gets paid back first? Normally in liquidation the VCs get pain off first (preferred stock), but if there is debt then that has to be paid first. In suing to get back their $15m the VCs will have to wait behind the customers' $34m of refunds (who themselves are behind a $4m bank loan) - thus surprising the investors that for once, they aren't at the front of the line. This is something I expect we'll see more of later this year, from companies where debt and convertible debt are sitting ahead of the institutional investors. It will be interesting to see how the VC community reacts to these new circumstances, and how they explain it to their LPs.

As for the customers and their refunds? Apparently there is over $25m in the company accounts, with the accounts now frozen other than to pay employees and debts, so once there is at least a chance customers will get some money back. Glad to see consumer protections working, while we still have them that is...

More Things That Just Shouldn't Be

A few weeks ago I wrote about Juicero, the "Keurig for Juice", and how despite it being a $700 juicer that required $120 million in funding to realise, there were reasons that an investor would put money into it (dumb reasons, but justifiable dumb reasons). Now it's the turn of "June", the toaster oven. To quote the company:

June is a modern appliance company dedicated to bringing intelligence to the tools you use in the kitchen. Our first product, the June Intelligent Oven, allows everyone to discover the joy of cooking at home by enabling precision cooking and restaurant quality performance on your countertop. The June Intelligent Oven's unique features and brilliant design put an end to guesswork and pave the way for faster, better cooking. Our team of designers, hardware and software engineers is committed to transforming the kitchen experience.

Now, apart from the fact that the joy of cooking is the constant improvement and learning through experience to produce tasty food from imperfect ingredients and tools through skill, it's a nice idea. Maybe they can help the average Joe who doesn't have time to learn to cook prepare quick and nutritious food at home rather than dining out or eating salt and sugar laden pre-packaged meals. Looking at Target and Amazon, the price ranges for most toaster ovens are in the the $50 to $150 range, with the highest rated top-of-the-line ovens going for about $225, so a superior oven may go for $300 to be competitive. 

What does the "June" retail for? $1495 (yes, one thousand four hundred and ninety five dollars).

So what do you get for this $1250, or 500%, premium over the best of the rest? Well it comes with a camera that recognizes your food, and then uses its "intelligence" to cook it to perfection, all the while sending you updates via your phone, letting you know it's ready. Of course, it's got that "Apple look" so that's worth a premium too, but that's about as far as the innovation goes. 

And what did it take to produce this masterpiece oven? According to Crunchbase, near $30 million (yes, thirty million dollars), and from their own website, it looks like June has near 50 people working for them. Interestingly, of those 50, I only count around 6 who are potentially involved in hardware design. It's no surprise, then, to hear that the actual hardware design was outsourced to Ammunition (who designed the Lyft logo). Yes, June didn't even design the hardware, and likely just gave Ammunition a list of key features needed without remembering to include "and a Bill of Materials of no more than $100". That, combined with the founders who are software and not hardware people, is probably why nobody said "Um. This is going to be way more expensive than the competition and not deliver substantially improved performance in any area, maybe we should rethink this."

Even the company itself is really struggling to push its virtues - the website uses this as one of the leading quotes from a review in the Wall Street Journal:

The June Intelligent Oven is an Internet-connected countertop system that can recognize foods and automatically cook them for you.

Wow, I have to get myself one of those! An oven that cooks! Amazing! The co-founder then goes on to really sell it well in a Techcrunch article:

“It’s always surrounding your food with hot air,” Bhogal said. “What’s cooked in the corner will always taste like what’s cooked the middle. We spent a lot of time adding precise temperature controls, and that’s not usually seen in this space. We spent a lot of time fine-tuning the cavity. We used a cavity which helps with heat, we fine tuned our insulation, and even the door itself.”

So basically it acts like every other convection oven, but - and here's the real key differentiator - there was a team of Silicon Valley startup engineers who spent lots of time fine tuning components. Yep, that'll make your food taste better and your wallet hurt less. (BTW, the engineers who make ovens actually do spend time working on things like that, they just know they're on a budget)

And this is both why this product is ridiculous, and why a large portion of the world looks at Silicon Valley with contempt. This product is not about the customer, or serving an unmet need. It's about serving the egos and notion of self-worth of a couple of people in the top % of education and income. The customer doesn't care how much time you spent fine tuning things, what the technology is, or how much you need to believe you're changing the world - what they care about is a product that solves their problem, makes their life easier, gets things done faster, all at a reasonable price. That's it. While the privileged few can worry about their feelings of self-worth, most people just need to pay the bills and get through the day as best they can.

It's why the likes of Uber succeed and despite their sometimes dubious business practices remain popular. They take a useful and needed service like on-demand transportation, that is currently underserved, and then make it frictionless and easy to use, all at a price point that's highly competitive. They tapped into a need of the customer, and met it. It's why in the traditional layout of a pitch deck that is presented to VCs by a startup, there are a couple of slides on things like "Customer Need" and "Pain Points".

So what would June have presented to VCs in this regard, to show the market need, huge potential for growth, and ongoing revenue? Well, I've sat here for a few hours trying to come up with the pitch that, like with Juicero, would make this product make sense, and I've failed. Here's the only thing I could come up with: One of the co-founders was the co-founder of Lyft. That's it. He previously co-founded a successful startup and even though it is not even in the vaguely same space, software/service rather than hardware, that's all that's needed. Everyone knows the hardware part is easy, and you just outsource that anyway.

Now, to be fair, they may have been pitching the larger play, in getting into "the connected home", and becoming a brand name like Nest, and therefore willing to pay an upfront cost of an expensive first product to gain the skills needed to iterate and improve - the long game, as it were. Even there I just couldn't see where the money comes in. However even if that's the play they've made a basic mistake, and that's in the outsourcing of the hardware.

In not building the hardware themselves, they clearly fail to appreciate the interaction of hardware and software, the necessary back and forth between the engineering teams. The adjustments, the compromises, the understanding of how things work together, are all key to building a product that meets a need in a cost effective manner. It's a common mistake from people with a software only background, when leading a hardware project, to "black box" everything like modules and view it as a Gantt Chart rather than as an interconnected system where feedback between the components is an integral part of the design and development phases. Now, even after $30 million in funding, they don't have the skills to do their next product themselves, it's going to have to be outsourced again. 

I can't blame the outsourcing company for taking the gig, after all, payment is not based upon the product actually selling, but rather satisfying the ego of a startup founder with millions of dollars of other people's money. I can't even blame the founders for taking $30 million, if it's offered. That VCs funded this without someone really looking at their business model is just stunning, but hey, hardware is hard, and the guy did co-found Lyft, so what more do you need?

All the actors in this play are just acting in line with the incentives. Put the money out there, and they'll play whatever part allows them to get a share of it. Without that money, or with different metrics for award of it, the world of $1500 toaster ovens might actually become one where there are products made that customers need.

And how well does the product work? To answer that I'll leave with this quote from a product review entitled "This $1500 Toaster Oven is Everything That Is Wrong with Silicon Valley Design".

Cooking has always been a highly personal, multi-sensory experience, where trial and error is the only way to become the all-star cook most of us know as grandma. But as I put the salmon on the table 40 minutes later than projected, I had no idea what I should have done differently, other than to never have used June in the first place.

All of this has happened before, and will happen again

I've been snowed under the last week or so and have had no time to write anything, so my various articles-in-process are just on hold for the time being. In the meantime, let me point you to another blog well worth reading - The Silicon Valley Way. It's an oldie but a goodie. Start at that link which is the first post, then read back through it chronologically, for another account of an engineer dealing with an insane startup and chronically bad management. It's told in a blow-by-blow manner as he experiences it, rather than remembered after the fact, which is a novel approach. Maybe for my next startup I'll keep a diary and then publish it starting a couple of years later...

There are Some Good Ones

Much of my writing is about pointing out the darker nature of the VC/startup/tech media ecosystem, and that is most easily highlighted by covering the mismanagement, fraud, corruption, and stupidity that's prevalent in it. There are, however, some intelligent, considerate, capable, and honest startup CEOs and investors out there, and I very, very occasionally have had the good fortune to work with them.

In 2013 I was running my own consulting company, mostly doing ultrasound and medical imaging work, but having led a software development business for some years I was occasionally contracted to work on software projects. A mutual friend introduced me to Anil Sethi, a veteran of three successful startup exits, looking to change the healthcare system with the company he had co-founded, Gliimpse. To quote some recent articles, the goal for Gliimpse was to "create a platform for securely collecting, managing, and sharing private health records", "turning information from labs, hospitals, and pharmacies into a single shareable report."

I was with Gliimpse in its earliest stages for several months in a variety of roles, helping his team get the company started, fundraising, and advising on business strategies and approaches. It was a great experience working with Anil, watching how he ran his company, placing the security and privacy of data first and foremost (even ahead of MVP delivery), and for the first time seeing a CEO treat their employees as valuable team members with thoughts and desires of their own. Until then it was my experience that a CEO would pay lip service to 'valuable employees' but still do everything to underpay and demoralise their staff, and react angrily when they would have the temerity to request fair pay or reasonable better conditions. There were several times with impending deadlines and deliverable dates that things grew stressful, but being part of that team and knowing that the CEO actually appreciated the work kept me pushing through.

I was beginning to approach full time even as a consultant, and during this time I also started doing consulting work for another company - for a period I was working a combined 80 hours a week. Something had to give, and I had to make a choice which to go with - and to my occasional regret I went with the other company, it had an extremely challenging problem I was interested in working on that would test the skills I had learned over the previous two decades.

As I ended my work with Gliimpse, Anil asked if I would consider joining the Advisory Board and continue helping them with business strategy and acting as a sounding board for him, and I agreed. (Yes, I know I've commented on some uses for Advisory Boards, but as I noted there they can be done well too) It was another interesting few years as Gliimpse struggled and grew, and watching this CEO be a decent ethical human being while running his company, and for once the good guys won - Gliimpse was purchased by Apple earlier this year. I couldn't be happier for Anil, his cofounder Karthik Harriharan, and all of the Gliimpse team, they absolutely deserve this success and I'm looking forward to seeing how the resources of Apple can propel their vision forward.

Now I have a hard rule learned through years of mistakes, and that's whenever you work you don't work for promises of future rewards, that everything is on paper, legally binding, and cash. It's unfortunate as study after study shows that high trust societies are more efficient, and result in greater economic gains for all. It can be a short term gain for someone to abuse that in a high-trust society, to get employees to commit effort on the reasonable expectation of fair future compensation that somehow never materialises. Beware the CEO who proclaims their fairness and promises huge rewards "when you prove yourself", but acts insulted when you ask for that committed to paper. The recent publicity around WrkRiot is a good example of this, and it's not an isolated case in my experience. Those CEOs who view the world through a 'zero sum' lens may gain for themselves in the short term but often impoverish society as a whole.

Anil is one of the very, very few whose word I would trust to actually deliver on his promises. How did he earn that trust? You don't see him publishing articles on his amazing backstory that ignore the company and team, he doesn't proclaim his genius and take credit for the hard work of others, doesn't give lists of "13 things I've learned as CEO and you should too", sacrifice employees well-being on the altar of an impractical "mission", or sit on conference panels taking pointless softball questions simply for the publicity. Instead, he gained that trust by acting consistently, honestly, ethically, rationally, compensating employees fairly, and being true to his word even under difficult circumstances. 

That's all. It seems simple yet so rare to find, and the story here is one that is easily missed - that this being Anil's 4th exit as a founder is not despite his character, but in large part because of it. There are others like me who have worked with Anil before, who will take his word and commit their resources to a project because they know him. He asks for help, he'll get any help I can provide, without looking to contracts and negotiations first. That trust is hard to earn, and easy to lose, but if you want to look at it in purely economic terms, is near priceless - yet the short term gains of burning your employees seems to be the preferred route today. To all the current and aspiring CEOs out there, I'd urge you to take a page from Anil's book, and when you're under pressure look not just to your current startup but the next one and the one after that. Even once you have VC money, there are some things that it just can't buy.

As for the other company I chose to work for instead? Well that was called uBeam. You may have heard of it...  

Honestly? Tech Startups are Giving Themselves a Credibility Problem

The last week has seen some intense scrutiny about the honesty and trustworthiness of some tech startup companies, with a former employee blogging about the startup that 'scammed them', Hampton Creek apparently being investigated by the SEC for its business practices, and Theranos admitting that data it recently presented at the AACC conference didn't follow basic procedures to protect patients. Given the frequency of these 'accidental' behaviours that always seem to financially benefit the company or CEO involved, it seems there might be a selection of personality traits that predispose those leading startups towards such actions.

It's certainly not all startup CEOs who are like this, I've had the pleasure of working for two CEOs who went above and beyond to be fair, reasonable, and honest in their dealings with both staff and customers, as well as a few who while not necessarily exemplary, made sure to follow the rules. Unfortunately there are few who have lived in Silicon Valley and worked in startups who haven't encountered a CEO most would consider between unethical and criminal in their actions, and it's often an expensive lesson for those of us who have been through it. There are enough of these 'bad apples' that make you wonder, like with the finance industry, is there something in the Silicon Valley startup system that's attracting and encouraging this type of person?

Looking at the three cases I mentioned earlier, we can get an idea of the types of scams that can be played on employees and investors, and why CEOs try them even when you would think there is a high likelihood of being found out.

Theranos. Again.

I've written about Theranos several times, a company reporting to perform many blood tests quickly with a finger prick of blood, but whose coverage was more focused on the attention seeking CEO, Elizabeth Holmes, than the company itself. It is under investigation by both the FDA and SEC for claims made about their technology to both patients and investors, and recently they presented at the AACC conference in an attempt to win over the scientific community. While they mostly avoided answering pertinent questions, they presented some new data from their systems, especially regarding a Zika virus test. They were attempting to have their FDA approval of this test expedited due to the urgency of the current outbreak, and it would help them sell the system despite their CEO from being banned from running a blood testing company. They did not win the approval of scientists, but were hoping that this would give them the thin veil of legitimacy.

Well it turns out that they didn't follow the standard basic patient safeguards when gathering this data, and have now withdrawn the test from the approval process. John Carreyrou at the Wall Street Journal continues his excellent reporting on this company, and not only do the company try this even under the scrutiny they are under, amazingly they still try to spin this as a positive for the company:

“We hope that our decision to withdraw the Zika submission voluntarily is further evidence of our commitment to engage positively with the agency,” 

They continue in the Big Lie - if they say it often enough, people might believe it. Their 'mistake' though is so basic that you have to wonder if anyone in Theranos has actual blood testing experience, or why those who do still haven't left in shame. Perhaps this is was done under tremendous pressure from the CEO to have data she could use and corners were cut, but regardless it points once again to a disregard for rules and the rights of others, as well as a lack of empathy for potential suffering. Given that the CEO has complete control of the company, this culture that fails to consider safety and process has to either come from, or be condoned by, Holmes herself.

Just Mayo?

Hampton Creek are a startup that claims it will soon be a 'unicorn', (valued at $1 billion or more), as they produce vegan mayonnaise and other 'healthy' products. It does seem that 'healthy food' startups are getting outsized funding and valuations, and as I've covered before there can be great pressure on a CEO to maximise the company valuations especially in the leadup to a new funding round. Hampton Creek are reportedly being investigated for sending consultants into supermarkets selling their mayonnaise and buying the stock, and then recognising this income as revenue just before a $90 million funding round. While claiming this was a quality assurance program, that's 'highly unusual' and even if so should have been accounted for separately. 

This may seem like a minor thing to do, but is far from it. While any company will want to get the best publicity for itself, artificially inflating sales figures or planting untrue stories in the press regarding deals or valuations move into the realm of fraud. The SEC are involved primarily because this was done just before a large fundraising round, and presumably want to know if investors were shown inflated sales figures in an attempt to artificially raise valuation. For many years Silicon Valley startups have assumed that such securities laws do not apply to them, however recently the head of the SEC has made it clear that this is not the case, and these laws will be enforced. I suspect we will be seeing more such cases in the coming years.

Any company that does this shows that lack of regard for the law, the belief that it does not apply to them, and possibly simply a need for admiration and to boost their self image - and once again in a startup, the founders/CEOs usually have near complete control and there is no-one to place a check on their behaviour.

"The Check is in the Mail!"

Penny Kim blogged about her experience after she accepted a job as Marketing Director of WrkRiot, and encountered an extreme form of a very common form of startup experience - being told that "your paycheck is coming soon!" when the money simply isn't there. Now running a startup isn't easy, and it's not uncommon to be waiting on funding coming in to pay bills, but not being honest with employees about the likelihood of their next pay check appearing is disturbingly common and seemingly acceptable to many. Most states view not paying employees very dimly, and there are can be significant penalties for companies that do so - on top of losing the loyalty of your staff. Every reputable boss I've worked for has been clear - employees get paid first no matter what, and if you can't pay them you talk and negotiate with them as soon as possible.

Having worked at a company that in the early stages chose to have everyone as contractors rather than employees, which then failed to tell us the money had run out (despite a week earlier talking about hiring more staff) and abused the monthly invoicing schedule to have us work 6 weeks without pay before telling us, it's not something you forget even when you later receive the monies owed.  (We later found out they actually did have money in the bank, but were saving it for 'more important things') What WrkRiot allegedly did though was even worse - it looks like they may have fabricated evidence of large wire transfers to the company so that the employees could be paid 'in the next couple of days'. If so, this is fraud, and likely easy to prove once a State Attorney General becomes involved. 

Once Penny Kim realised this, and both applied her legal rights and encouraged other employees to do so as well, the company retaliated and fired her (illegal). She finally received her wages, but not the other monies owed by contract, and in a situation I'm familiar with essentially the company makes it clear that to get the rest of what you're owed you're going to have to go to court. They know most people just don't want that hassle and expense.

What they didn't count on was Penny blogging about the experience, and it was soon discovered who the company was. The company, WrkRiot, then responded on their Facebook page calling her a "disgruntled former employee", that her actions were slanderous (even though 'libelous' is the word they were looking for), and the company would be pursuing legal action. This clearly hadn't been vetted by the company lawyer and soon disappeared.

As a "disgruntled former employee" myself, I want to point out that "disgruntled" simply means "angry, dissatisfied, aggrieved, resentful" and has no implications as to whether that is justified or not. Modern usage seems to imply there is something negative about the term - if what Penny Kim wrote is true then she has every reason to be disgruntled.

Overall this is appears to be quite egregious behaviour on the part of WrkRiot, however ask anyone living in Silicon Valley and working in startups for a time, and they'll tell you stories like this, or worse. Often, the companies in question are funded by large well known VCs or in national publications list of "Best Startups to Work For". What goes on inside such startups is often very different than the facade the media often portray.

Warning signs

It takes experience, and a few scars, to learn to spot the signs of companies and CEOs who behave like this - I've worked for a few and each time I've got faster at noticing the signs and protecting myself. It's still tricky, society and companies work better when there is trust, and most people want to believe the best of others - and it's that attitude a few take advantage of. It's only a small subset of society that think this way, but the large sums of money now in tech startups, along with the minimal oversight from the funders, attract these personality types.

How to spot them without going through the pain yourself? Firstly, not all CEOs who do such things are doing so deliberately, some are simply inexperienced, incompetent, or just out of their depth and panicking - regardless, it's your career and paycheque, and they've chosen to be in that position. You have a contract with your company, they need to honour it, and you don't need to do any more than is on paper - if they fail to meet their side of the deal, you don't have to meet yours (when it comes to that, get a lawyer, don't be cheap). Be clear and communicate with them, but in the end, protect yourself whether it's accidental or deliberate.

Watch what the company does and remember that only three things will tell you how they will act in future - their record of actions, their record of actions, and their record of actions. Don't listen to what they say, watch what they do. If they do it to other staff, they'll do it to you. Isolated incidents of problems do happen in startups, but put the onus on them to prove they are being honest. If things happen more than once, trust your gut and get out early.

I'd recommend reading books such as "The Wisdom of Psychopaths" by Ben Dutton and educated yourself on the patterns of their behaviour and how 'normal' they can seem at first. One poster 'Theodores' on the HackerNews thread on Penny Kim's post made a good observation that finally made clear something I've been struggling to tie together - CEOs who don't make the 'psychopath' definition yet have some similar traits and abuse their position seemingly without remorse.

Even if we have gone through the mill several times we may not be educated as to what is only going on. You have to be done over by someone at the extreme end of the spectrum of personality disorder to understand what really goes on with the tyrants and bullies that frequently own companies, start-up or otherwise. We even elect these 'personality disorder' types to high office without anyone pointing out that they are not fit for the role due to having these psychopath tendencies.

He then links to the Wikipedia definition of Personality Disorder Cluster B which lists the following behaviours:

• Antisocial personality disorder: a pervasive disregard for the law and the rights of others.
• Borderline personality disorder: extreme "black and white" thinking, instability in relationships, self-image, identity and behavior often leading to self-harm and impulsivity.
• Histrionic personality disorder: pervasive attention-seeking behavior including inappropriately seductive behavior and shallow or exaggerated emotions.
• Narcissistic personality disorder: a pervasive pattern of grandiosity, need for admiration, and a lack of empathy.

and I realised that this is the type of personality, excessive aggrandisement, attention-seeking behaviour, a disregard for rules, and an overblown view of their capabilities, that I feel many of those funding startups are actively looking for. By funding those who do not 'play by the rules' and inflate their apparent valuations, investors are encouraging this behaviour and inflicting it on all of us.

Solutions

There are no definitive solutions to this - their will always be unethical leaders, especially when money and power are involved, but there are things that can be done to minimise their impact. Employees need to educate themselves as to the personality traits of such people, to know their rights, and be willing to walk away from any such positions. Investors need to take a more active role in selecting more 'reasonable' people to run companies, and to not reward such personalities through funding. Further, once funded, investors need to take a more active role in monitoring their companies, and understand that they can't claim no responsibility, that the actions of these companies are at least in part their fault. It's also in their own interest to do so - a few more stories like the ones above, and potential purchasers of their companies will be more and more wary of buying at a high valuation. Finally, agencies such as the SEC and State Attorneys General must actively enforce existing laws on startups and stop turning a blind eye to it - only once heavy fines are imposed, along with jailtime, will this truly be taken seriously. There seem to be some movement on that enforcement front, and some have been warning that at some point soon, at least one prominent startup CEO will end up in jail for their actions.

As a last point, I want to congratulate Penny Kim on writing about her experience and drawing attention to the abuse heaped on some employees that is rarely covered in the press. It's hard to bring this to light, and the spotlight that falls on you when you speak out can be intense - but the more people who do this, the more awareness is raised, and the harder it will be to happen to others.

How Is This A Thing?

When talking about what sort of companies get funding from VC, I have a saying: 

Even when you take into account that VCs will fund companies more pointless than you can imagine, VCs will still fund companies more pointless than you imagined.

In that vein, I was amused today to read about Juicero, a company that makes juicers (the things that squeeze fruit and veg and make glasses of juice), and was funded to what was believed to be a total of $120 million. Yes, $120 million. I know it's been covered earlier this year but somehow I missed it, perhaps I assumed it was an April Fool's joke and ignored it, but it's for real.

So what is it? It's a $700 juicer that you buy (yes, seven hundred dollars), and then in the same way you buy different coffee pods for a Keurig, you buy different types of juice packets which range up to $10 each (yes, ten dollars). Hey, pre-cleaning and chopping organic (of course) fruit then putting it in a non-degradable packet is hard work! Pop the juice packet into the juicer, press a button, and a minute later you have a glass of juice. Then you throw away the packet, nothing to clean. But wait, there's more. The packet has a QR code on it (those square, 2D barcodes) and the system reads the QR code to compare with an internet database (it's WiFi connected of course) and see if the packet is in date - if you're in luck the system will press the juice for you just right. If not, or your internet happens to be down, no such luck and the $10 you spent will get you nothing.

So the skeptic in me sees:

• A solution to a non-existent problem. This solves nothing. No pain point other than a bit of washing up
• Vastly more expensive and environmentally damaging than the existing method
• Multiple points of failure and unnecessary complexity
• At best serves a tiny demographic

Buying the most expensive organic pressed juice in Whole Foods (you know, stuff someone has pre-cleaned and chopped and put in a plastic packet) and putting it in your fridge would be cheaper than this, wouldn't need an initial $700 investment, and you could still drink it when you the WiFi goes down. It's the sort of thing that you'd ridicule an undergraduate student for in their final year "Entrepreneurial Studies" final project, or congratulate them for the best parody startup you'd seen. But it got funded. For $120 million. How?

Industrial Design

The system looks beautiful. Just look at that sleek Jony Ive style design, it's like an iPhone on your countertop, how could you not want that? That alone makes it worth $120 million. OK, you think I'm, joking here? One of the things I've observed in the last few years of watching startup funding is this: Never underestimate the value of the mock-up, it's about the most important thing to show when fundraising. Not the prototype, the mock-up (but be sure to call it a prototype).

As an engineer, I've been more the "show something working even if it's a bag of circuits and wires, cleaning it up later is the easier part". More fool me. What I've learned is that such demonstrations press the 'off' button with investors - instead, show a mock-up or better yet the Industrial Design (ID). Best if you can put it into their hands, but an "artist's rendering" works amazingly well too. Seriously, investors seem to lose any ability to ask questions about the actual product when they're handed a piece of cardboard covered in plastic with a logo on it. "Hey, look how cool this thing is! It's amazing! All the hard work is done, all someone has to do is all the engineering/user design, validation, and testing to make it happen!"

I can see this having been part of the pitch deck to investors, a cool image and saying some ID firm run by ex-Apple designers is on it, and they'll think it's 90% done. Just be sure to accidentally say "prototype".

Market Penetration

Next I can see the slide showing some data on growth in juice bars, which if you live in places like SF or on Main Street in Santa Monica, there seem to be one every block running a 'special' of "4 for $30". I used to sit in the bar or ramen place opposite and count how many went inside during the day. If it got over a couple in an hour it was unusual, I've no idea how they survived. However, if you've got too much money then you all friends know people who 'juice', it's a health thing, and $10 for a juice isn't ridiculous so that's all OK.

Then we get the market equivalent - the Keurig. They'll have some curves showing Keurig's rise to around $4 billion in sales in 2014, and a tag line such as "The Keurig for Juice!". What's not to love about it? They sell the hardware, but then get the lock-in on the juice packets and receive ongoing revenue from that. Even better, the QR code means it won't work with third party packets, and unlike Keurig's failed attempts to create such a lockin, the fact the system is internet connected is the way they'll ensure that it can't be bypassed. Thought it was stupid that there was such a point of failure? No, to investors that's a positive! 

It's not even a system where they buy on demand like Keurig, nope here you go on a subscription and you get your supply sent every week. Better not miss your juice intake for the day, it's your health after all. They'll have that hockey stick curve of 1000 sales in year one, 10,000 in year two, and then a million in years three and out, with the consumables revenue from all those sales building nicely to make this a billion dollar company in year 5. Who wouldn't invest in that?

Supply Chain

Next they'll show how they'll corner the market in the consumable preparation, buying in vast quantities from the organic farmers and driving down the price, getting further margins there. They'll probably be something in there that shows how they can shift the content mix in each packet to use the cheapest ingredients available at the time. Something of a logistical nightmare, but it sounds great.

An Impulse Buy

It seems they aim for the "give away the razor, charge for the razor blades" approach of Gillette - except in this case they "give away" the first part for ~$700. Not a necessity and hardly in the impulse buy category, I have a sneaking suspicion they initially targeted a lower price point than this telling the investors it would sell for the price of a Keurig, with an entry level product in the $100 to $200 range, then just utterly failed to hit it. Right now I can imagine they're telling investors something like "This is the premium version, we've got a plan for cost down for the regular version!" when this probably was the standard version. It won't be the first time a CEO has demanded a product with every feature, in a really short timeframe, and then been shocked at the cost. When you're looking at time, cost, and quality, you only get to pick two, and time is never on your side as a startup.

That $700 may even be a subsidised number (though they claim not), but regardless if you assume that their COGs is around 30% of the price then you're looking at parts and labor of more than what an equivalent product retails for. They had two years to get this going, and while supply chain can take that long, without anything exotic in the design, time was not a restriction in getting this made, they should have had time to Design for Cost. Instead, I suspect a series of changing demands, feature creep, and failure to plan before initiating hardware builds made it take longer than should have been.

The Founder

And here we come to the main event, the CEO, Doug Evans. If ever you have a True Believer who is absolutely invested in this product and actually believes in what he's selling no matter how crazy, this is it. He compares himself and his product to Tesla, and that his method of squeezing gets more Chi, life force, and vibrational energy out of the juice. (Wait, vibrational energy? Maybe it can charge your phone at the same time!). 

How can you not believe in someone who can lead and inspire like this?

“Organic cold-pressed juice is rainwater filtered through the soil and the roots and the stems and the plants,” he said. “You extract the water molecules, the chlorophyll, the anthocyanin and the flavonoids and the micronutrients. You’re getting this living nutrition. It’s like drinking the nectar of the earth.”

He had the "Tenacity, Resilience, Perspiration" needed to never give up, so loved by investors. He even had Domain Experience, having run juice bars before. What does it matter this was a electro-mechanical system, consumer product, software app, supply chain, and retail play, none of which he had experience of. At least he later realised what a huge job it was to get it to market:

“I was just naïve,” Mr. Evans said. “I was like Forrest Gump. I had no idea what it took to make a piece of hardware that could ship to consumers safely.”

It's a pity more technically inexperienced founders don't listen to advice from those who tell them their timelines are ridiculous and that there are massive technical and safety concerns that shouldn't be ignored. 

What The VC Sees
Now imagine you're a Venture Capitalist, looking for somewhere to put your money for a possible 10x to 100x return and make your fund profitable, making up for all the other plays that tanked. Do you laugh this "Juicero" out the room, or do you make a mental list of all the positives and evaluate the risk versus the potential returns? If you did that, here's what you might get:

• A dedicated True Believer Founder
• A simple tagline, easy to understand 
• A comparison business model that shows billions in revenue
• Profit on the product, ongoing revenue from consumables
• A 'hockey stick' revenue curve
• No new technology needed, it's really an execution play
• Digital lockout of third party suppliers
• First mover advantage

Honestly, I look at that list and think "I can see why someone invested" especially if you can get them salivating over owning a part of "Keurig for Juice" early on and that it's going to be $200 a pop. If you even think there's a 10% chance it could match Keurig's $4 billion a year in revenue, a few million invested actually isn't totally ridiculous. 

So when you pitch your awesome idea to a VC and they don't invest, and then that VC pours a ton of money into a juicer company for a product that no-one is going to buy, have a look at how your business model compares to theirs. 

On paper, Juicero ticks all the boxes and makes sense as a VC investment. In reality, it's totally dumb. Do you see now why this is a thing, and you're not getting funded?

Update - Here's a link to a great Youtube video doing a breakdown of the Juicero. TL;DR - No cost constraints lead to lack of careful thinking, so overbuilt and clearly losing money on every one, to be made up for with the ~$2000 per year pack subscription.

Inflection Points and Hockey Sticks

The term "Inflection Point" is used repeatedly during startup pitches, and is one of those overused terms you grow a little sick of when you have to deal with that world, in part since it is rarely used to describe an actual inflection point. So what is it? 

In mathematics it's the point at which the curvature of a curve changes direction, like below:

But since we're talking about investing and startups, what's usually meant is that it is a moment of dramatic change, a sudden upturn (or downturn) in sales or growth. (Obviously, when business use the term they rarely want it associated with a downturn, but it is equally applicable!) It's pretty obvious where the inflection point in the below image is, and tends to be more of the business meaning.

When you're doing a pitch-deck in fundraising, you have to come to your predicted sales graph, and if you want funding, it better be a "hockey stick" - that is, flat for a few years, then around year 3 to 4 starts to uptick significantly, then leaps hugely in year 5. Without that, you get no funding. So pretty much every pitch deck for a startup shows a loss in year 1, a smaller loss in year 2, breakeven in year 3, modest profit in year 4, and $10 billion of revenue in year 5. Small exaggeration, but not much. Here's WeWork's numbers, with which they raised a substantial amount of money, nearly $1.5 billion

As an example of how this can play out, in a former life I was pitching for funds for a company that was developing software for retail. Creating a business plan, I thought that conservatively we could be at around $25 million a year in revenue by year 5, and as we were asking for $250k to $500k from angels, it seemed reasonable. Of all the slides in the deck, I got grilled on that on in pitches more than any other, and was flat out told that the company wouldn't grow big enough for it to be of interest. So I reran the numbers, changed some assumptions to be more positive, and pitched at $40m by year 5. Same result, and detailed questions on that slide, and disbelief.

At this point I really was struggling, as I simply couldn't justify moving much past that $40m number (which, for those of you who don't do this kind of thing, is a pretty damn good number to get a return for a ~$500k investment). Without money, we were going to have to stop work, but how to get it without plain lying?

My solution was this - I still showed the "$40m by Year 5" slide, but then had a second chart with the caveat "If extended to multiple verticals" and the numbers reached $150m a year by Year 5, and then made no claims as to the chance of achieving that. This was ridiculous, it was never going to happen, but here was the interesting thing - as soon as I did that, not a single question on the financials, we just moved smoothly on. It was amazing.

Finally, I asked one of the potential investors why he hadn't questioned me on that slide as it was clearly never going to happen and his answer was this:

It's not your role to decide to be conservative for me or to decide my risk. I decide that. You show me as good as it can get, I'll factor in my acceptance for risk. Investors expect to see curves like that, just show them.

So there you go - if you wonder why the funding goes to the charlatans that are prepared to lie or make outrageous claims it's because the people with money demand that you do. If you don't they think there's something wrong with you.

And if you wonder why startup CEOs use "inflection point" for things it's not even vaguely appropriate, it's because saying it got them millions in funding, so they just keep using it on everything else as it must be a Harry Potter-esque phrase of magic power.

Not Everyone is "The Next Theranos"

I've written a lot about Theranos in previous posts, principally because they are the poster child (in my opinion) of pretty much everything that's wrong with the startup/tech press/VC ecosystem. I'm not alone in the press for doing so, as "apparently falsifying health tests in order to boost company value" is fairly straightforward to understand. It's such a compelling story that there will reportedly be a Hollywood movie about it, starring Jennifer Lawrence as Elizabeth Holmes. Given who the director is, I'm thinking it will not be too flattering to Ms. Holmes. 

It seems everyone wants to write about 'The Next Theranos' and the phrase is bandied around without much consideration for the flaws of that company. To me, Theranos need to be highlighted for a number of reasons:

• Company defining the press narrative - a 'story' company
• Hagiography of the Founder/CEO, with an exaggeration of their technical talents
• Technical claims bordering on the impossible
• Claims that all the technical hurdles are solved, and productization is here or 'imminent'
• An apparent disregard for ethics, regulation, law, and safety
• A software like "ship it then fix it later" mentality
• Reported legal intimidation of critics and former employees
• Apparently being less than 100% truthful with investors

Theranos are a particularly egregious example of the "boost valuation by any means until you sell to a greater fool" mentality prevalent in Silicon Valley as it directly affects people's health. Their methods are what exist in other Silicon Valley companies, they just took it to the extremes and made it obvious to all. Many of these points, taken on their own, are reasonable for a company to do. It wants good press, and it can't be expected to speak negatively of their own products in public, and it has to do what it can to raise money as bills need paid - however they are expected to remain inside the bounds of the law, to not fabricate results, or to lie to investors and customers. That last part is what's going to cause the biggest issue for Theranos and its officers, as the Justice Department, FDA, and SEC investigations look likely to be turning up some damning evidence, and their only commercial outlet, Walgreens, ending its contract with them.

Beyond the legal and safety activities of Theranos, my frustration with them is that not only did they deny the funding they got to other, potentially useful, technologies but they have "poisoned the well" for future investment in blood testing, biotech, and made it harder for legitimate technical companies to make headway (especially those led by a younger female founder) with investors and customers.

On the positive side, it has highlighted many of the excesses and problems in the startup world, hopefully causing the tech press to be somewhat more skeptical and less willing to publish a company press release as fact, for investors to be more careful and demanding in their due diligence, and for companies to be more restrained in their claims.

So when I see stories talking about "The Next Theranos", I look for the hallmarks of what I list above, and that's why stories like Vanity Fair's "Is Google's Biotech Division the Next Theranos" had me spending some time investigating to see if there was anything to that claim.

For those of you who are unfamiliar, Verily is Google's biotech division, now under their Alphabet company. It was spun out from Google X, the company's research division whose goal is to "Tackle Big Problems", and aims to transform life science. Wikipedia lists some key projects as:

• Contact lenses that allow people with diabetes to continually check their glucose levels using a non-intrusive method
• A spoon for people with tremors
• The Baseline Study, a project to collect genetic and molecular information from enough people to create a picture of what a healthy human should be
• A disease-detecting nanoparticle platform
• A health-tracking wristband
• Advancements in surgical robotics, in partnership with Johnson & Johnson

This seems to be a fair mix of short, medium, and very (very) long term projects, with items like the tremor reducing spoon already available, health-tracking wristbands being a staple of the wearables market, and examples of surgical robots in actual use today. The Baseline Study seems to be technically possible but a Herculean task, though more importantly there have been questions raised over the ethics of this data collection and its actual practicality. The nanoparticle disease detection and contact lens efforts are on the verge of science fiction and what draw the greatest concern in the press.

The nanoparticle disease detection was hailed as the equivalent of Star Trek's Tricorder, and the details of it are explained here by Andrew Conrad, the CEO. To summarise, magnetic nanoparticles are injected into the body, and float around picking up information on what's going on, and as they pass the wristband (or collected there magnetically) then the information is uploaded and analysed. One of those "simple in concept, hideously hard in practice" things, and questioned by experts in how it can be readily productized, but not lacking in grand vision or societal value should it be made to work. Further, from what is reported in the press, and from what I hear from colleagues in the business, there is an impressive team of scientists and engineers behind it all.

While some find Conrad's statements to be too bold, I found his statements in the above YouTube link, and other sources, pretty reasonable for a CEO and not over selling. The company itself states the project to be:

a "very early-stage” project, “ambitious and difficult,” with “unsolved technical challenges. It’s our aspiration, with our partners, to solve these challenges, even if it takes years.”

Similar questions are raised about the contact lens project, aimed at monitoring glucose levels through tears with many pointing to the science showing the superiority of blood testing, but Novartis, their partner describe it as "in the research phase." Their Chief Medical Officer, Jessica Mega, goes further and says

Verily is not a products company... But it’s a company really focused on trying to shift the needle when it comes to health and disease.

Overall, Verily don't seem to be ticking off too many issues from my list, and the company and their partners seem to be aware of the realities of the work they are doing. They are not providing test results to doctors with which healthcare decision are made for patients, they are not passing off another company's tests as their own, have a range of products and research that by their own admission is challenging. While they do need to be watched to ensure that they treat the information they gather legally and ethically, the fact that they are taking on huge problems is overall a great thing. It's been a long time since industry invested so heavily in blue sky research, with the likes of Bell Labs producing key technological developments much of our modern world is based on. That a private company, with their own money - not a pension fund, not crowdfunding, but their own money - should be encouraged.

Too often a company has to be focused on the next quarter and puts aside long term development, leaving that to national level funding such as from the NIH or NSF, and if they maintain honesty with the public and their management about difficulties, timelines, and realistic expectations, then grand goals are to be encouraged. Just this month, Elon Musk spoke of sending a human to Mars in less than 10 years, and has received applause for his grand vision, and I don't see anything different here.

So to summarize:

• The CEO talks about the company mission - Tackling Big Problems - not himself
• They make technical claims ranging from the straightforward to extremely hard
• Make clear that these challenges may take years to solve to both the public and partners
• So far have not been accused of bypassing regulations or breaking the law
• Products shipped appear to work, and are not life threatening if they break
• Have not intimidated those who speak negatively of them, including former employees
• Are using their own money, not that of investors

I'm not seeing a problem here. Let's not throw the baby out with the bathwater, not every company is the next Theranos. 

Disrupted: A Resonant Tale

History Does Not Repeat Itself, But It Rhymes

Mark Twain (maybe)

I finally managed to get some time off last week, and had a great time in Vancouver meeting up with an old friend, followed by taking a cruise back home. This was the first time I'd been on a cruise ship, and I can guarantee you it will also be my last. I have a hard enough time boarding an aircraft, with slow people who wander aimlessly, can't get out of the aisle, and are seemingly unable to follow even the simplest of instructions - however that's nothing compared to a cruise ship. 

Imagine 3000 people, from families to your local retirement home outing, trying to board one ship, all in the space of a couple of hours. While I have some sympathy for the cruise lines in trying to deal with all this, being herded like cattle from pen to pen is not what I consider a fun time. It didn't get much better once on the boat, but fortunately I had a couple of good books with me and I pretty much sat on the room balcony and read them through. The first was "Disrupted: My Misadventure in a Startup Bubble" by Dan Lyons.

"Disrupted" is a book that hit home for me, and I read it cover-to-cover in one sitting. Here was a person who had built his credentials through 'traditional' companies, a focus on high-tech, had looked on with incredulity through his career as the most ridiculous companies were funded then sold, and eventually jumped into that world only to learn that it's more ridiculous than you could have imagined, and that in the end you just can't stop being who you are. 

Lyons was a former tech journalist who had joined "HubSpot", a company producing software tools for "Inbound Marketing". This attempts to have the customer come to you, not the old fuddy-duddy approach of having farms of workers cold-calling from paper lists and reading scripts to grab a sale. HubSpot were "disrupting" the old way of doing business and receiving huge valuations based on that fanfare - yet behind the scenes were using those "boiler room" techniques to promote their own product, and appeared to be pushing the appearance of growth at any cost to ensure the money kept flowing.

HubSpot is also famous for its Culture Code, their set of rules for a workplace designed to attract and keep the best talent. When I first read it (along with the Netflix equivalent) I was really pleased to see the main themes (minus the touchy-feely bits) were what I had tried, as best I could within the confines of a larger company, to employ when I ran a small division selling high tech software. Sadly, it turns out they were more "aspirational" than "actual" and mostly geared to reducing company financial liabilities such as paid vacation. I'll be coming back to these Culture Codes in a future post.

Lyons' experience had both similarities and differences to mine. Being on the inside of a startup and watching the insanity is something I'd had to deal with myself, and there were plenty of parts where with a simple name change to the characters it could have been something that happened to me. On the other hand Lyons joined later in the company growth, where it was nearly $100 million raised with 500 people in the company, and watched more from the 'regular employee' viewpoint, whereas I had been there from pre-funding, developed large parts of the core technology, and was involved (at least as an observer) in most business decisions for a period, giving me some insight into the interactions with the investors. (I'll add this experience was at more than one company.)

One of the themes that's clear in Lyons' writing is that the ageism in HubSpot was rampant - the idea that "younger people are just smarter" and do better for the business, when in reality it simply means "too inexperienced to realise they're being taken advantage of" and both cheaper and disposable. Hardware engineering, compared to marketing, makes this business ploy almost impossible to pull off. Most hardware problems are so interdisciplinary, and require so much understanding of the technology, processes, planning, and the realities of development that it's really only achievable with experience and talent. They also require time to move through to completion, often four or more years, plenty for naive new hires to wise up. Generally, once they're put into a real world hardware development role, even the most capable and arrogant engineer quickly learns not just that experience matters, but the problems are so large that there's no way to solve it on your own - you have to work in a team, and know your role in it. That ageism, fortunately, isn't something I have really encountered.

Another aspect of his experience that doesn't match with mine was with the "Kool-Aid" drinking of his co-workers. At HubSpot, the young staff truly believed they were working on something world-changing, that they had a mission, and they were part of a glorious revolution, prophets of a new religion that it was their destiny to bring to the masses. It seems apparent from his writing however that the founders and leaders of the company knew exactly what they intended to do, and it was a cold calculated method to game the system and make the company look attractive for an IPO. 

If anything my previous experience has tended to the opposite, where the Board and "C" level are the Kool-Aid drinkers, the true-believers, who ignore technical reports that point to failures, issues, and problems, as they are just the work of "heretics", or incompetent/lazy engineers. The average engineer, however, is under no illusion as to the real status of the company and the work - if they are any good, then facts and evidence are paramount to an engineer. Measurements, numbers, statistics all matter more than perseverance and pig-headedness. Maths and physics don't lie or bend to management directives. 

If C-level directives fly in the face of sensible technical choices, it's noticed and questioned. Sometimes you accept a poor engineering choice due to business reality of cost or timing, but if it's purely fantasy and you're being told to accept an impossible/stupid engineering choice then it simply forms an "us and them" mentality. It creates an odd situation where the lunatics are running the asylum, one where the patients are all sane and know it.

Lyons on the other hand was the sole sane man in the asylum, constantly surrounded by the insane, with no-one to turn to and laugh with. You can tell from his writing that at some points he questioned his own sanity, and was it he himself that was wrong and out-of-touch? It chips away at his self-belief, which had already taken a hit due to his earlier layoff from Newsweek. The whole process is insidious, as by breaking their self-belief, the company culture prevents someone from the clarity of thought and confidence to simply walk out, leaving the person feeling trapped and powerless - which I've learned over the years is something a lot of bosses like to have in their employees. You want to scream "Just get out!" at him, and fortunately he does have some friends simply tell him that. 

The psychological turning point for him seems to have been landing the gig writing for the show "Silicon Valley", spending weeks talking and working with other sane, rational people and laughing at the insanity he was dealing in with his regular job. At that point, he regains his self-belief and it's just a matter of time before he leaves, but he does what always amazes me about abused staff and shows a remarkable professionalism even in the face of egregious behaviour by his management. He continues to work and deliver product until it all finally blows up, and resigns giving them plenty of notice, but unsurprisingly is "graduated" (fired) immediately (definitely familiar to me).

Where the book really meshes with my experience though is in the observations of the startup and funding ecosystem - the game whereby VC's and founders manipulate the metrics not to produce better product or to satisfy customers, but to garner the appearance of growth to inflate valuations, and sell on to a greater fool, be it another larger VC, or the general public in the form of an IPO. It's not about creating an effective product, or improving productivity, it's about manipulating the employees, the unquestioning tech press, and the investment analysts into keeping the charade going long enough that someone has put so much money into it that either it's not allowed to fail, or you've banked the gains before it collapses. To quote from Disrupted:

"The one thing people do not appreciate is that these companies are incredibly fragile. There is so much less than people believe... The whole thing is based on companies trying to achieve escape velocity before they blow themselves up."

The book resonated with me on two main levels - the first being that Lyons is our "everyman" in a bizarre world, and he reacts as a sane man should, though often questioning his sanity. He reminded me of the titular characters in "Life of Brian" and "Blackadder", simply trying to make his way through life and doing what he can in the weirdest of circumstances. 

The second, stronger, resonance for me is his tying of the experience to the startup ecosystem, pointing out that, like the financial crises of the past, these valuations and investments are based more on sizzle than the steak itself, and that it's impacting our society in significant ways. Chapters like "Glassholes", "Escape Velocity", and "The New Work: Employees as Widgets" are really where the meat of the story is - a small fraction of the book but highlight the insidious effect "The New Work" is having on all our lives. These chapters alone made it worth reading, and the humour of the rest keeps your attention - go buy it. 

I'll leave you with a final quote from the book that in a few sentences perfectly covers what I have been trying to put into words. I doubt I'll ever be able to phrase it better than this:

"I've been in the Valley a long time. As far as I can tell, nobody here ever feels guilty about anything they do. What I have observed from these guys is that they have a strong sense that they are moral actors. They believe very strongly that they operate with high integrity. They believe they are the most moral folks on the planet. But they are not."

These are the people who claim they are making the world a better place. And they are. For themselves.