How We Got To Now

2015-01-12

I really enjoyed Steven Johnson's How We Got To Now. I read a lot of history and science books, but this book stood out because 1) the anecdotes were entertaining and relevant, and 2) it got the process of innovation right.

I'll just pick one story here that I liked. Frederic Tudor was a Boston entrepreneur in the early 1800s who had the clever idea to ship ice from New England to the Caribbean:

The history of global trade had clearly demonstrated that vast fortunes could be made by transporting a commodity that was ubiquitous in one environment to a place where it was scarce. To the young Tudor, ice seemed to fit the equation perfectly: nearly worthless in Boston, ice would be priceless in Havana.

Not only was the ice almost free, but so was the shipping:

His New England base gave him one crucial advantage, beyond the ice itself. Unlike the U.S. South, with its sugar plantations and cotton fields, the northeastern states were largely devoid of natural resources that could be sold elsewhere. This meant that ships tended to leave Boston harbor empty, heading off for the West Indies to fill their hulls with valuable cargo before returning to the wealthy markets of the eastern seaboard. Paying a crew to sail a ship with no cargo was effectively burning money. Any cargo was better than nothing, which meant that Tudor could negotiate cheaper rates for himself by loading his ice onto what would have otherwise been an empty ship, and thereby avoiding the need to buy and maintain his own vessels.

He invested his life savings and years building his startup. Everyone thought he was crazy. The local paper wrote a snarky article about him: "No joke. A vessel has cleared at the Custom House for Martinique with a cargo of ice. We hope this will not prove a slippery speculation." He even spent two years in prison when he went into debt (this was before one of the greatest legal inventions of all time- limited liability). He finally got his ice delivered but failed to predict one thing:

Despite a number of weather-related delays, the ice survived the journey in remarkably good shape. The problem proved to be one that Tudor had never contemplated. The residents of Martinique had no interest in his exotic frozen bounty. They simply had no idea what to do with it.

We take it for granted in the modern world that an ordinary day will involve exposure to a wide range of temperatures. We enjoy piping hot coffee in the morning and ice cream for dessert at the end of the day. Those of us who live in climates with hot summers expect to bounce back and forth between air-conditioned offices and brutal humidity where winter rules, we bundle up and venture out into the frigid streets, and turn up the thermostat when we return home. But the overwhelming majority of humans living in equatorial climes in 1800 would have literally never once experienced anything cold. The idea of frozen water would have been as fanciful to the residents of Martinique as an iPhone.

There is a saying that entrepreneurs should create "painkillers not vitamins". This is bad advice. Painkillers are not very interesting businesses. Lots of people create painkillers, and they either work or they don't, and nothing more is generated as a result. The really interesting companies create vitamins. You don't know you want ice until you figure out what to do with it. Once you do, you discover all sorts of things you couldn't imagine before, which in turn create new opportunities for invention and entrepreneurship.

The stories in the book ultimately argue for public policies that support networked innovation:

[T]here are social and political implications to these kinds of stories. We know that one key driver of progress and standards of living is technological innovation. If we think that innovation comes from a lone genius inventing a new technology from scratch, that model naturally steers us toward certain policy decisions, like stronger patent protection. But if we think that innovation comes out of collaborative networks, then we want to support different policies and organizational forms.

People who understand how innovation really works tend to support open standards, lenient immigration policies, well-funded university research, employee stock options, and significant restrictions of patents.

Next post: VC investment vs Gartner hype cycle
Previous post: Flow

Views expressed in “content” (including posts, podcasts, videos) linked on this website or posted in social media and other platforms (collectively, “content distribution outlets”) are my own and are not the views of AH Capital Management, L.L.C. (“a16z”) or its respective affiliates. AH Capital Management is an investment adviser registered with the Securities and Exchange Commission. Registration as an investment adviser does not imply any special skill or training. The posts are not directed to any investors or potential investors, and do not constitute an offer to sell -- or a solicitation of an offer to buy -- any securities, and may not be used or relied upon in evaluating the merits of any investment.

The content should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Any charts provided here are for informational purposes only, and should not be relied upon when making any investment decision. Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, I have not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. The content speaks only as of the date indicated.

Under no circumstances should any posts or other information provided on this website -- or on associated content distribution outlets -- be construed as an offer soliciting the purchase or sale of any security or interest in any pooled investment vehicle sponsored, discussed, or mentioned by a16z personnel. Nor should it be construed as an offer to provide investment advisory services; an offer to invest in an a16z-managed pooled investment vehicle will be made separately and only by means of the confidential offering documents of the specific pooled investment vehicles -- which should be read in their entirety, and only to those who, among other requirements, meet certain qualifications under federal securities laws. Such investors, defined as accredited investors and qualified purchasers, are generally deemed capable of evaluating the merits and risks of prospective investments and financial matters. There can be no assurances that a16z’s investment objectives will be achieved or investment strategies will be successful. Any investment in a vehicle managed by a16z involves a high degree of risk including the risk that the entire amount invested is lost. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by a16z is available at https://a16z.com/investments/. Excluded from this list are investments for which the issuer has not provided permission for a16z to disclose publicly as well as unannounced investments in publicly traded digital assets. Past results of Andreessen Horowitz’s investments, pooled investment vehicles, or investment strategies are not necessarily indicative of future results. Please see https://a16z.com/disclosures for additional important information.