How Steve Jobs proved Venture Capital wrong

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Steve Jobs

With great sadness did I receive the news today that Steve Jobs, Apple’s former CEO has died. He leaves behind a great legacy and a much improved technology world that is finally able to deliver some tangible socioeconomic value. We wish his family the best and great strength in time to come. Steve Jobs leaves a hole in the heart of those who cherish meaningful innovation.

Apart from teaching the technology world how to enter and own certain markets Steve Jobs demonstrated that in an industry built to engineer groundbreaking technology innovation, its financial arbitrage (venture capital) was wrong. Dead wrong.

Innovation is not uniform, nor is its financial support
The most disruptive innovation can not be caught by a fishing net of uniformity, simply because the catch is not uniform. Steve Jobs understood that technology innovation is merely a servant to social economic behavior and thus requires the composition of many types of innovation that blend into a cohesive new computing experience. Venture Capitalists are still stuck in the subprime uniformity that allows them to find only one type of fish, the same one everyone else is catching.

 

Capital efficiency is a lie
Steve Jobs never cared much about the cost to enter a $1B+ market. Simply because if there is one for the taking, the cost to enter is often irrelevant to the prize that awaits you. He would ask his engineers to come up with great ideas, telling them only to identify upside clearly – as he would deal with the downside risk (cost). Venture Capitalists unable to accurately identify upside risk still bet on the cost of entry (downside risk).

 

Markets don’t exist
Steve Jobs decided to enter certain “markets” not because by the sum of current purveyors analysts firms would claim them to be depleted, but simply because the majority of people on our planet were still not using them. The market share of suppliers is irrelevant if the majority of the addressable market remains untapped. And even today, more than 92% of the worlds population does not have a meaningful Internet application to enrich their lives. Venture Capitalists are stuck in the wrath of traditional market theorems, ignoring the most rudimentary innovations that change people’s lives.

 

Innovation is about ultimate experiences
Steve Jobs understood that building innovation does not necessarily require building all new components, but putting them together in a unique fashion so everyday people could use them would propel technology into new massive green fields. The ultimate computing experience is more than the sum of all individual parts. Venture Capitalists still remain stuck in the delivery of minuscule computing parts, many of which will never be selected to become part of an ultimate computing experience.

 

Innovation typecasting has failed
Venture Capitalists have aggressively type-casted certain innovations as unworthy, often stating their beliefs publicly. Yet Steve Jobs proved many type castings wrong. The desktop application innovation he pushed, yet Venture Capitalists have ignored each represent over a $1B product lines, including Media software (Final Cut Pro/DVD Pro/iDVD etc.) and even Office automation (Pages/Keynote/Numbers etc.). And while VC’s failed to find the opportunity to tackle the music industry and produce socioeconomic value to all marketplace participants, Steve Jobs took it by storm some five years later.

 

Not everyone in Silicon Valley is an entrepreneur
Steve Jobs was a tough manager who understood that hiring pure technologists would not give access to the adoption greenfield he was aiming for. Because great technology without the ability to make it usable to a large audience has only temporal value. He loved technologists that could stretch their innovation to reach the surface, and he would patiently hide technology innovation until it did. He redefined what it means to be an entrepreneur and made its outcome highly predictable. Simply because macro economic behavior is. Quite different from the gamble many Venture Capitalists take by feeding the masses of entrepreneurial wannabes $250K investment tranches and hoping for the best.

 

Foresight prevails, not proximity to hindsight
Steve Jobs understood that not capital efficiency nor operational excellence can save or propel a company or innovation. And so he pushed product capability and experience to the limit (sparing no cost), making “delicate flowers” in his company jump ship and customers love the outcome at the same time. Yet even though Steve was passionate about product, he realized that every product had to subscribe to the vectors (or macro-economic goals) he set out for the company. He projected products to subscribe to his foresight. While most Venture Capitalists simply chase a close proximity of hindsight.

 

Thanks Steve
There are many other facets we can describe that made Steve Jobs the great innovator he has proven to be. He reinvented the business of technology innovation with a passion and an authentic desire to bring it to everyday people everywhere. He did it with the vigor required to keep his many young and cocky technologists in line and focused, and to achieve meaningful innovation that improved all of our lives.

 

I personally was a believer in Apple more than 20-years ago (way before Apple’s fair weather friends hopped on board), as it dawned on me then that a technology company (under his stewardship) that built Quicktime capability right into the operating system understood that the evolution of computing was way larger than the convoluted and fragmented application of office automation by others. Steve Jobs was many years ahead of his time, and it took many of us this long to catch up with him.

 

May he rest in peace, and his lessons of innovation be a lasting guide to us all.

 

We encourage comments that are relevant to our observations, conclusions and the specific topics discussed in this blog, either in agreement or disagreement. Leaving your insightful comments here will ensure others can learn from them too.  Keep in mind however this is not a place to spew your own theories (go write your own blog), but the best place to question or approve our observations.

About Georges van Hoegaerden

Georges is a serial entrepreneur, venture catalyst, 4x CEO, board director turned innovation economist (by fate). His ideas have raised $14M in venture capital and produced over $100M in returns. More.

  • http://twitter.com/ViaNoveo ViaNoveo

    @venturecompany: How Steve Jobs proved Venture Capital wrong | #innovation #vc #apple #stevejobs http://t.co/N3faV8pQ”

  • Leigh Benson

    A beautiful meaningful eulogy.  Thanks for sharing

  • http://twitter.com/freephonelineCA Freephoneline.ca

    Great read Georges.  Thank you.

  • Rpennington

    Well stated. The guy was one of a kind…

  • Enerprema

    Yes, Rest in Peace Steve. You taughted us ENTREPRENEURSHIP  TO ITS CORE. The substance, the ideal mission in its pure simplicity and grandoise. Your  iphone 4, it will be with me ’till last and beyond.

  • http://twitter.com/martinsabry Martin Sabry

    Interesting article.
    Would like to hear more on ‘HOW’ the differences (for the various ‘WHAT’ differences identified)?

    best rgds

    • http://venturecompany.com/ Georges van Hoegaerden

      Thanks. More detail is provided on the individual blogs on this site. Feel free to peruse, or ask specific questions.

      • http://twitter.com/martinsabry Martin Sabry

        Hi. I like the article -though think title is bit sensationalist,and not quite right!
        I ADMIRE what Steve Jobs did in innovation and business HUGELY.
        He was an emense innovator -in tech it products and business

        I don’t think it as as simple as all that though:
        iTunes – awesome success, iPhone /mobile-OSx – also,but then surpassed in volumes by Android handsets, OneNote – great program! And am sure Ok commercially -but not close either of the others,nor PowerPoint i would expect?!

        • http://venturecompany.com/ Georges van Hoegaerden

          Well Martin, the out-performance of Apple is sensational as is the under-performance of Venture Capital during the same period. Period. 

          With regards to innovation, many vendors can flaunt initial traction by confusing a marketplace with purported alternatives, but the satisfaction of Apple products is way above any competitor today. Simple because Apple has a different computing focus, aimed at an adoption greenfield not technocrats (stuck in baby steps of fragmented evolution). Hence your assessment of great products may not be applicable to how non-technocrats make buying decisions. And the greenfield of technology adoption has spoken in favor for Apple.

          On the investment and business side Apple is now more valuable than Microsoft and it has done so by garnering less than 25% “market share”. Imagine what would happen if Apple succeeds further in tapping into greenfield (rather than stealing technocrat market share). The upside for Apple is endless. 

          The big question is whether Tim Cook can bring new products to the foreground that embody the same type of foresight Steve Jobs put in. Operational excellence is not going to provide a long shelf life to a company that doesn’t continuously reinvent itself. I have doubts about Tim’s role from what I see coming out (I don’t personally know him), and I have written about that on the INNOVATION blog on my site. 

          With regards to Venture Capital with endless diversification built into their funds, they should be utterly ashamed at the negative ten year performance that continues to drive Limited Partners away. Steve Jobs as the arbitrage of Apple innovation has proven the excuses of Venture Capital performance wrong at every turn. 

          Hope that helps clarify things for you Martin. Do peruse the many blogs I have written over the years on this subject, before you place another comment worthy of my response. 

          My stance is not as of late, but I have witnessed and reported on the systemic malfunction of our financial systems in general, and Venture Capital specifically as the arbitrage for innovation for a long time now.

          The truth needs to be told if we expect ourselves to get better. 

  • Madhav_narayan

    Extremely well written…

    A lesson to budding entrepreneurs!

  • http://www.startup-book.com herve

    I am not sure to understand your (biased) views against venture capital. Of course there si a stupid herd mentality. Indeed VC is not an industry, it is a people business. So if you consider that Intel, Cisco, Apple, Amazon, Yahoo, eBay, Google, Facebook, Twitter, Skype were funded by venture capital, I am not sure to understand your comments. Obvisouly these companies were built by entrepreneurs, not venture capitalists but without VC would we have had all these innovations? And do not get me wrong, we are in full agreement on Steve Jobs, as was Don Valentine, founder of Sequoia (the fund which put money in Apple, Cisco, Yahoo, Google, among others): “There are only two true visionaries in the history of
    Silicon Valley. Jobs and Noyce. Their vision was to build great companies…Steve was
    twenty, un-degreed, some people said unwashed, and he looked like Ho Chi Min.
    But he was a bright person then, and is a brighter man now…
    Phenomenal achievement done by somebody in his very early twenties… Bob was one of those people who could maintain
    perspective because he was inordinately bright. Steve could not. He was very, very passionate, highly competitive.” Yes, RIP Steve Jobs

    • http://venturecompany.com/ Georges van Hoegaerden

      Herve,

      The role of Venture Capital in its early days was indisputable, but it has completely failed to grow up and by turning subprime has destroyed the opportunity for disruptive innovation. 

      Please read the about 100 blogs written specifically on that subject on this site. It is perfectly acceptable for not all innovative companies to succeed, but it is not acceptable for Venture Capital with built in diversification to fail en-masse, while corporate innovation by Apple disproves their excuses at every turn. 

      The number of Venture Capital firms with a monolithic investment thesis to Venture that return any (or some) money to Limited Partners can be counted on one hand. And that despite the fact that the greenfield of innovation adoption remains at about 92%. Venture Capital by virtue of its “best practices” has completely and utterly failed. And it has failed because its arbitrage deploys the improper risk. 

      Read my many blogs and you will understand, I am not biased towards Venture Capital but I am biased about their performance vis-à-vis the opportunity of innovation.

      • http://www.startup-book.com herve

        Well, well, I am not sure an exception like Steve Jobs can illustrate any theory. But you might be right. I was a VC with an engineering background. I only looked for disruptive innovations, we tried a few, we invested in Skype, great, invested in others which did great (VRTA, NMTC) and invested in other great ones which failed. You might be right, but my experience is not exactly yours (though I have to read more about your blog). My experience is that the likeliness of success is very low and there is no systematic process to discover and help the great entrepreneurs. Are business angles or super angels any better despite different background and strategies? It is like the unlikely alignment of planets. There is a similar situation in science by the way. People like Einstein do not appear every year either. There are still many unsolved scientific questions and it is not because of a lack of talent or resources. But I promise to read you and come back to you when done!

        • http://venturecompany.com/ Georges van Hoegaerden

          Actually, success is more predictable than you think if you focus on the deployment of social economic risk (driven by predictable macro-economic behavior), but never guaranteed. The current economic model by which Venture Capital is deployed is (and has) guaranteed to fail. The answer to fixing Venture Capital is simple, and just like the introduction of the iPhone, highly disruptive.

          • http://www.startup-book.com herve

            Please give me references on the simple answer to fixing VC and success being more predictable. Steve Jobs failed with the Cube, it took him apparently 8 years to be convinced by and decide to enter the mobile market. Of course there are ways tp diminish risks of failure and therefore increase likeliness of success, but my 20-year experience in the field of (disruptive. high-tech) innovation had not taught me a systematic process about innovation. I am not lazy but if your blog has a synthesis somewhere, I’d be happy to learn!

          • http://venturecompany.com/ Georges van Hoegaerden

            Steve Jobs’ portfolio succes in arbitrating and supporting innovation is something the majority of VCs can only dream of. May I remind you again that only a handful of VCs return any kind of investment to LImited Partners and Apple’s market value increased some 43 times during the same period.

            The blog you are commenting on provides some of the clues as to how his success has trumped the venture capital innovation arbitrage by a long shot. Read it, again and again and pay attention to the words I use. The nuggets are hidden inside. Many of my other blogs contain deep dives on each topic. And I provide a wealth of information on this site to guide you. I would not judge you as lazy, but you don’t pay my words the homage they deserve. That is where you will find the cohesion.

            The fix to Venture Capital is just like Steve Jobs’ invention shrouded in secrecy today, because not the opinion of his innovation by his competitors (or Silicon Valley) mattered, but his foresight that drove the acceptance in the marketplace. My fix to Venture Capital is an innovation to the finance business that will be driven in a similar fashion. Undeterred by the protectionism of the current incumbents and patiently deployed with Limited Partners who believe in my foresight, rather than the hindsight of underperformance.

            Since you are not a Limited Partner with the wherewithal to make a change, the closest you will get to the fix I offer is the vast information provide on this website and my upcoming book. Of course, nothing will stop you with your 20 years of experience to develop your own. Such is the prerogative of great entrepreneurial minds.

  • jeevandas

    We in india talk about high in IT is basicaly backing of venture capitalist which never forget.we are seeing high rise buildings and millions of people daily going to IT is because of venture capitalist.Induvidually you may face some probelm from venture capitalist it cannot be generalised.American silicon valey is backed by venture capitalist.Never forget the role our venture capitalist played in the society.when bank refused to come forward with out collateral our great venture capitalist his giving the support and lots of company came into existence so we have to thank the millions of venture capitalist for their good deeds.why we should bring steve into this.million thanks for venture capitalist omconsultancy2012@gmail.com 

    • http://venturecompany.com/ Georges van Hoegaerden

      No, you are wrong. Venture Capitalists invest Limited Partner money. Venture Capitalists are merely the arbitrage in the marriage between the assets of entrepreneurs (ideas) and the assets of Limited Partners (money). And Venture Capital has failed as out of 790 original firms only a handful of them produce some kind of return. The vast amount of false positives and false negatives produced by the remainder is responsible for the warped and subprime nature of deployment of risk. And the noise in Venture Capital is drowning out the music. Subprime Venture kills the opportunity for innovation.

  • Roopesh Majeti

    Very good article, explaining Steve Jobs thoughts… Well…. could not comment on the comparison, as both has pros-cons. George, Not sure if this is the right question to ask.. but iam not sure.. as how many VC are readily coming forward to accept any new challenge/technology that comes through their doorway.

    • http://venturecompany.com/ Georges van Hoegaerden

      The question is not what “innovation” VCs are willing to take in, because with the majority of them in a self-induced subprime state, their default intake is subprime.

      The real question is what innovation can drive macro-economic attachment and thus yield socioeconomic value. Given that the number of VCs that actually produce some kind of consistent return to their investors (using Venture as the monolithic investment thesis) is about one hand full, the state of venture capital and thus the support for the investment runway to produce truly disruptive companies is extremely narrow and deplorable.

      As long as the arbitrage of innovation (venture capital) is not fixed (the economic model under which it operates), the vast majority of innovation that enters its door will either be tagged as false negative or dumbed down to subprime. And subprime innovation will continue to damage the trust of the public, as they too will (and have) find out that subprime innovation arbitrage can by economic principle never yield prime output.

      Yet a fix to Venture Capital is coming, if I have my way.

  • Cyril Demaria

    Seen from Europe, these emotional expressions are a bit puzzling. Let’s go back to a few elements of perspective:1. Steve Jobs was apparently a quasi-dictator, and not necessarily a model of management. The fact that Apple went down a first time when he had to leave and is expected to go down again after is death raises some questions about his qualities of manager. NeXT was a failure. Pixar was a success, but was it only Jobs who raised it to its status? Probably not.2. Just like a few other public personalities (think Michael Jackson), contested human beings pass away and almost become saints. It would be good to keep some measure: what did Jobs really create in our world? He reused existing inventions and innovations for his own profit. He was a control freak which limited innovation spill-overs and the anti-thesis of open innovation. Is this really something we should praise? He was a good marketer, attentive to details and had a sense to identify certain trends. That’s probably closer to reality.3. So why all this pathos regarding his passing? Maybe because Americans suddenly realize that the emblems of the rising 1970s, when VC was a cottage industry and innovation was possible because not only of ideas and capital, but also because clients were willing to take risks and trust Gates, Ellison or Jobs to deliver. These spoiled kids-entrepreneurs greatly benefited from an emerging and rich ecosystem, but did they nurture it back? Not really.This is why the VC business model of the Silicon Valley is “broken”: instead of projecting the image of technology, openness and collective success, they symbolize a “get rich quick and don’t bother about the rest”. It’s not philanthropic self-serving reputational initiatives which will change that: they impoverished an ecosystem and the damage is not compensated in any way.4. Jobs is gone before the real challenge will strike Apple: commoditization of its marketing innovation. The next industrial revolution, after the networks, is certainly not marketing fads such as Facebook, Zynga or Apple. It is, as usual, related customer empowerment: it was affordable electronic transmissions and communications for all in the Western world. It will be 3D printing, and hence the challenge to designers and marketers when everyone will be able to print a copy at home of an iWhatever for the hardware, and have inside an open source OS and free applications.Apple is the contrary of customer empowerment: it is based on simplification, constraints and infantilization of customers. The passing of Jobs is sad as any human passing. However, hopefully the new Apple leadership will understand that to face successfully the upcoming challenges of personal production (ie the transition from the standardized gizmos to truly personal appliances) it has to embrace partnerships, open systems and customer input.Not everyone accepts the frustration created by a corporate dictator. The figures of Android adoption (versus iOS) are just showing that: at the end of the day, we prefer freedom to Apple serfdom.

    • http://venturecompany.com/ Georges van Hoegaerden

      Steve Jobs was instrumental in making technology appeal to a greenfield of adoption rather than to technocrats. A focus where Google completely fails. Google is too much of a technology company selling to technocrats, and i predict Apple (if it does not trip up because of the absence of Steve) will leave Android completely in the dust when greenfield adoption starts to grow for real. In the early days of innovation to many it looks like Apple and Google compete, but they each target completely different users.

      We should truly admire Steve Jobs, as he made technology applicable to those with no interest in the workings of technology. The rest of Silicon Valley (and Seattle) is still pointing in the other direction. Having said that, Apple is the King in the land of the blind (I wrote a blog about that too), and a company willing and able to make a change on macro-economics can give Apple a run for its money. My blog, as you can see from the other articles I’ve written can hardly be called blind faith in Apple. But Steve Jobs led the way in transforming the adoption of technology on a global scale and I take my hat off for him. 

      Open is the most empty statement you can make in the technology business. OS X is open because it is in fact Unix (Berkeley) and embraces the development of tools on that platform. iOS is open because it has the largest installed base of third party apps running on it. So, the point is that all systems today are open, it just depends where.

      Let’s use a simple car analogy. I would rather have a single vendor build me a car that provides the “ultimate driving experience” and drive it off the lot that day, where they have done all the integration work, than purchase a chassis where I have to figure out which wheels, windshield wipers and exhaust I want with it and leave it up to the buyer to integrate a driving experience.

      Google’s technology focus is flawed by that principle, it will never be able to sell to a large greenfield if it does not stitch together an ultimate computing experience. So, ditch “open” if you want to appeal to a global adoption greenfield that is still at about 97%.

      Europe can hardly be called a reference point of innovation by any means (I was born and lived there for 30 years). So, perhaps your understanding of innovation is skewed by the lack of Europe’s role in innovation. That failure is not because of the lack of entrepreneurs, but the lack of appropriate risk deployed by innovation arbitrage in Europe, that is even worse than the current state of subprime VC in the U.S. Neither one deserves a reward today. 

      I am a realist, not an optimist and certainly not a pessimist (otherwise why would I bother doing what I do). I believe we as a society are responsible for the behavior of the people that take our financial system, that is responsible for innovation arbitrage, for a ride. So we better stop pointing fingers and start implementing the free-market principles that our forefathers instilled upon us, increase investor (and therefor arbitrage) competition and create a true level playing field so the best entrepreneurs have a real chance of changing the world.  

      Just like Steve Jobs did.

      • Cyril Demaria

        Thanks for taking the time to answer. 

        However, I would differ on a few points:1. Android is gaining on iOS, because it is cheap, and it empowers developers. Figures talk about it more and better than me: at the end of the day, not everyone can afford expensive Apple gizmos, and quite a few of users prefer an open environment. http://www.businessinsider.com/charts-of-the-week-android-blows-past-iphone-even-if-you-include-ipod-touch-2011-4#android-blows-past-iphone-even-if-you-include-ipod-touch-1andhttp://articles.businessinsider.com/2011-08-05/tech/30034827_1_android-iphone-ad-networkBy open, I mean a platform where you do not need the manufacturer’s approval for everything.2. I would not say that Europe is not a reference for innovation. Interestingly enough, we have a different model than the US – which may be more long term oriented and sustainable. Silicon Valley is an accident of history, as well as venture capital practiced in the US. It was fine for a wave of innovation based on immaterial assets (biotech, IT), between the 1970s and 1990s. It now fails to deliver because this wave of innovation is focusing on infrastructures again (new energies), on material assets (new materials), and strong network effects between public, large companies and innovative efforts. The shift is still under way, but my guess is that Singapore, Taiwan and a few other innovations centers will take the lead in these areas.3. I believe that:> VoIP (Skype)> P2P (Kazaa)> Linux (Finland)> mobile technologies (Nokia, Ericsson)> HTTP and WWW (Cern)are actually coming from Europe. So I would not call that “lack of Europe’s role in innovation”. I would go to the point to say that fundamental research, as well as key developments in technology, are from Europe and that the US have lost their edge the day they sacrificed the Xerox PARC (where Jobs actually found the mouse and other key innovations) and majors innovation centers (IBM, HP and key inventors). Intel and a few others still doing in-house fundamental and applied research may be the most valuable assets as for innovation in the US.4. The model in Europe is different, because we are a fragmented, multi-cultural, multi-lingual and diversified group of countries. Lean innovation is a standard here and if US groups bought a lot of European innovative companies – probably because of a different financial clout. European companies are probably the easiest targets: Asian companies lack transparency and are replicating innovation (China, India) more than anything. Israeli innovative companies understood the risk associated to the size of the local markets and re-incorporated in the US. So probably, what you count as US innovation is significantly non American. I would be curious to actually have a rigorous analysis of major innovations made in the US vs Israel, Europe, Taiwan and other innovation centers. 5. Simplifying for getting your message across can be useful, but I would be careful: the risk of oversimplifying could cloud your message. Maybe it is time for you to travel 3 to 6 months in Europe to see what is really going on – and think beyond communication, PR and marketing (where admittedly Americans are very good – and Jobs was a good example of that).

        • http://venturecompany.com/ Georges van Hoegaerden

          No, your perception of innovation can be modulated based on how you establish “the floating point ” of its definition. Again, I was born in Europe and apart from the few pin point successes Europe fails miserably in many types of innovation. So, keep in mind who you are talking to.

          That becomes very clear when you visit people and businesses in Europe, or hear about my friends behavior in europe. The jeans they wear were invented in the US, programs they watch on TV are copy cats of the US, almost everything you see in Europe is copy cat behavior of the US, including some of our bad inventions. Food perhaps being the current exception, but the US is encroaching with its massive renewed passion for quality food now too.

          Europeans have also copied our flawed financial system, economic systems and our rescue programs. Same goes for venture capital. So, while I coined the phrase “Not everyone can be an entrepreneur, but an entrepreneur can come from anywhere”, Europe has a long way to go by any definition of innovation. Again, not because it does not have the potential or expertise, but because its arbitrage of innovation (finance, social economic acceptance and culture) are quite deploring. I can give you many examples. Many entrepreneurs from Europe knock on my door.

          It is a subject I’d be happy to discuss with you in person, but a further elaboration here would not serve the readers of this specific blog entry. So feel free to email me on the contact page to setup an appointment.

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