Certainty, Gossip & The Big Sort

How exciting! An extra-meaty column to make up for all those terrible Friday’s I’ve traveled. Let’s dive in.



First off: in our monthly premium issue soon to be released to subscribers, I sit down for an exclusive interview with Dr. Patrick Moore. And WOW does he let it rip! Moore is notable for being a founder of Greenpeace; more notable for eschewing it a decade-plus later (after its members traded scientific sanity and environmental ethos for political propaganda)—and most notable for turning from opponent to proponent of nuclear power.



John Maynard Keynes said, “When the facts change, I change my mind. What do you do, sir?” Woe for Havianas—it’s unfortunate that today’s short sound-bites and shorter attention spans throw “flip-flop” as an epithet at people who change their mind. We’re advised it’s better to be wrong with conviction than to harbor any doubt. This only serves to encourage in others a projection of confidence—and reduces my own confidence in their projections.



Dr. Moore was also brilliantly quoted by skeptical magician Penn Jillette on the topic of Global Warming: “It's become so complicated, there's so much snake oil around the whole subject... the best comment that was ever made was by Michael Crichton in his book State of Fear: 'I am certain there is too much certainty in the world'. And I am certain that he is right.”



Consider this. Technology has made it easier than ever to access every imaginable viewpoint—especially the ones that differ from yours. Oh the diversity! But wait! It’s also made it easier than ever to never encounter an opinion—especially the ones that differ from yours. Scott Stossel of the New York Times reviewed Bill Bishop’s book, “The Big Sort”. Here’s what he said, “The three-network era of mass media, which helped create a national hearth of shared references and values, is long gone, displaced by a new media landscape that has splintered us into thousands of insular tribes. We can no longer even agree on what used to be called facts: Conservatives watch Fox; liberals watch MSNBC. Blogs and RSS feeds now make it easy to produce and inhabit a cultural universe tailored to fit your social values, your musical preferences, your view on every single political issue. We’re bowling alone—or at least only with people who resemble us, and agree with us, in nearly every conceivable way. This separation into solipsistic blocs would perhaps not be so complete if people of different political views or cultural values at least lived within hailing distance, and encountered one another on the street or in the store from time to time. But, increasingly, they don’t. Over the last decade, as 100 million Americans have moved from one place to another, they’ve clustered in increasingly homogeneous communities….Congress is split right down the middle, or nearly so; the last two presidential elections have been achingly close; half the nation, almost by definition, must disagree with you politically—and yet you have probably met very few of your antagonists…. ‘“Mixed company moderates; like-minded company polarizes. Heterogeneous communities restrain group excesses; homogeneous communities march toward the extremes.’ “



Here’s the thing: When you get diversity breakdowns in markets, you get bubbles and crashes. When you get diversity breakdowns in societies, it’s ideologically similar. As Scott Page has shown, diversity (markets, ideas, ecologies) is a key to stability and growth.



Here’s what Warren Buffett’s partner Charlie Munger said in a speech last year, “When you’re young it’s easy to drift into loyalties and when you announce that you’re a loyal member and you start shouting the orthodox ideology out, what you’re doing is pounding it in, pounding it in, and you’re gradually ruining your mind. So you want to be very, very careful of this ideology. It’s a big danger. In my mind, I have a little example I use whenever I think about ideology. The example is these Scandinavia canoeists who succeeded in taming all the rapids of Scandinavia and they thought they would tackle the whirlpools of the Aron Rapids here in the United States. The death rate was 100%. A big whirlpool is not something you want to go into, and I think the same is true about a really deep ideology. I have what I call an iron prescription that helps me keep sane when I naturally drift toward preferring one ideology over another and that is: I say that I’m not entitled to have an opinion on this subject unless I can state the arguments against my position better than the people who support it. I think only when I’ve reached that state am I qualified to speak. This business of not drifting into extreme ideology is a very, very important thing in life.”



And here’s a reprint of what I wrote over four years ago in this Forbes column:



“We gush over gossip (whether of the local water-cooler or celebrity trade rag kinds): it's got a special place in our hearts. Harvard's evolutionary psych guru, Steve Pinker, said it best: "Gossip is a favorite pastime in all human societies because knowledge is power. Knowing who needs a favor and who is in a position to offer one, who is trustworthy and who is a liar, who is available and who is under the protection of a jealous spouse—all give obvious strategic advantages in the games of life. That is especially true when the information is not yet widely known and one can be the first to exploit an opportunity, the social equivalent of insider trading."



Forget Marx. Media is the opiate of the masses. In part, because we all want to keep up. We’re afraid of what we’ll miss if we tune out.



UBS’s Tech Strategist Pip Coburn shared an interesting point. Most people, especially the throngs on Wall Street, thirst for new things. And if a sector doesn’t develop immediately, they’re on to the next—never mind that the tipping point for the technology or market hasn’t hit yet.



In the market, there’s evidence of more and more firm-specific volatility, but one has to wonder if it’s because technology is changing at a faster and faster rate (it is) or is because investors have shorter and shorter attention spans (they do).



Like Buffett said, “companies get the shareholders they deserve”. Conversely, shareholders get the companies they deserve. Impatient, restless investors will leap like lemmings from fad to fad. In the long run, their thighs might be stronger, but the pockets will be emptier. As has been said, the only safe way to double your money is to fold it over once and put it in your pocket.



If you pay even remote attention to the media (and escapist attempts require a serious expenditure of energy)—the latest rages are “podcasting” and personalized media. The former is really a subset of the latter. (Someone asked me to start a nanotech podcast of this weekly letter. But my prediction on the fate of podcasting is this: hundreds of thousands of people will post audio files for the world to hear. Like a power law, a few voices (“podcasts”)--that wouldn’t have left their full-time jobs for radio or would’ve otherwise never been heard—will percolate to the top with very large audiences, benefit from positive feedback effects and early lock-in of listener loyalty and bite into the Satellite radio players. Simultaneously a few very rare casts, like “cooking hour for lactose intolerant dog-lovers” will find a loyal very, very small niche audience.

I’ m wrestling with the controversial idea that perhaps all this personalization has a downside. 10 years ago, MIT’s Nicholas Negroponte theorized a newspaper that pulled together all the things you’re interested in and delivered it --“The Daily Me.”



It’s here now and it’s not just to news via up-to-the-minute blogs or news-feeds. You’ve got Tivo for your shows, iPod for music you desire, Netflix for movies you want, and Sirius (or XM) for the radio you want. Empowering? Sure. But the downside seems to be isolation. All those music listeners walking about NYC with dangling white headphones are independent tribes of one, perhaps literally in an “I”-“Pod”.



People who follow nanotechnology closely recognize that the most dramatic changes will come at the boundaries (as all change does—whether in population ecologies, nation-states or on-campus quads). The biologist that bucks the border of his discipline is more likely to stumble upon a breakthrough than his colleague who keeps caged.



But it requires pressing up against the boundaries, not creating a bubble around one’s self. Perhaps the irony is this: many of our new technologies with rapid adoption rates from network effects actually making it easier to opt-out and isolate in personalized cocoons.



I for one, like listening to the radio or watching live TV, knowing there’s a network of people listening or watching to the same thing I am, having the same or opposite emotional response that I am at the same time. Sometimes popular TV shows aren’t necessarily popular because they are good. Sometimes they’re popular because they’re popular. (Just as people can be famous for being famous).



My last media quip for this week: the blockbuster movie business has morphed into a late 90s investment bank, churning out low quality offerings and relying on pre-marketing to pack them in and make their money. Contrast Oscar-nominated Sideways with blockbuster-bomb Elektra. Sideways opened on about 350 screens and took 10 weeks to gross about $25 million. Elektra opened on 10x as many screens and grossed $25 million in 1/10th of the time. The logic for the studios has become simple: spend big on advertising then pack people in, before they find out it sucks. Many investment banks used the same strategy.



Here’s my friendly reminder to disconnect tonight. Take the weekend and if you have spare time, maybe use it to read. As my childhood friends twisted the old library slogan to make fun of me, “reading is fun-for-mentals”. Or as Voltaire said, “You despise books; you whose lives are absorbed in the vanities of ambition, the pursuit of pleasure or indolence; but remember that all the known world, excepting only savage nations, is governed by books.”

Laughter, Smokers & Dam Breakers

Regular readers of these weekly words know my penchant for mental models drawn liberally from diverse disciplines.



Competitive edge comes from two sources: you’re either undeniably better than others at some thing or you’re undeniably skilled at combining lots of things others excel at. Like Isaiah Berlin or Phil Tetlock have noted: it’s Hedgehogs or Foxes. Willful practice or worldy-wisdom—and it’s often a combination of the two.



Combinations explain much: including (at least partially) laughter. It’s called “incongruity theory”: take two things that normally aren’t thought of together, mix them in a surprising way and voila: humor. It could be a dangerous threat that proves benign (like when your friend trips and falls but gets up safely or when your friend jumps startled at an air horn you sounded behind him). Author Jim Holt quoted Immanuel Kant as describing as “the sudden transformation of a strained expectation into nothing.”



Imagine yourself an alien witnessing an earthling human laughing for the first time: chest heaving, odd syncopated sounds and grunted breaths. Objectively viewed, laughing is actually pretty bizarre biologically. The closer you study human behavior the more you realize what curious creatures we are.



Consider an extreme case of mistaken cause and effect. We are pattern seeking animals, but consider the recently reported boy with an obsessive compulsive condition who thought himself responsible for the attacks on 9/11. Turns out the boy had a daily ritual including walking on a specific white mark on the road. When he broke habit one time, he ended up believing the disaster was the resulting consequence and his fault.



Other times, we think we know the effect we want and we think we know how to cause it. Instead all we get is unintended consequences. In a soon to be published book on risk and the science of fear, it was found that 1,595 road deaths were from people who refused to fly and chose to drive out of fear of flying after 9/11. This is more than 6x the number of people on board the 9/11 airplanes and about half of the total fatalities.



In a different example from a recent study: banning smoking resulted in drunk-driving deaths. Huh? Here’s how. Researchers found that the 120 countries with smoking bans in bars have higher drunk-driving and deadly car crashes due to alcohol--than the 2,000 countries that don’t—by over 13%. Why? One reason is that smokers drive farther to find a place they can go to drink and smoke. Sure enough accident rates were highest when residents jumped across borders to get to bars where they could smoke.



Consider another study where bees, rats and humans all responded the same way to risk and reward—an evolved and innate sense of odds—depending on whether the payoff is known. The “certainty effect” arises when animals are repeatedly faced with choice of getting a big reward infrequently or a small but more certain reward infrequently. Most choose the latter even though it can be less profitable over time. Then there’s the “reverse certainty effect” where animals don’t know the payoffs (they don’t know the underlying distribution) and they go for the bigger pay-off (swing for the fences) even though it’s far less probable. When we don’t know: we go for the bigger less certain prize. When we do: we opt for the smaller more certain prize.


As George Bernard Shaw noted, it is the unreasonable man upon which all progress depends. Sounds like a certain class of people I utterly love: entrepreneurs. Here I quote Eric Beinhocker on Joseph Schumpeter: “…for growth to occur there must be ‘a source of energy within the economic system which would of itself disrupt any equilibrium that might be attained’. For Schumpeter, that source of energy was the figure of the entrepreneur, whom he wrote about in almost heroic terms…technological progress occurred in a random stream of discoveries. The commercialization of new technologies, however, faced numerous barriers, ranging from the need for financing to the intransigence of old habits and mind-sets. Thus, like water behind a dam, the random rain of discoveries built up over time. In Schumpeter’s theory, entrepreneurs played the role of dam breakers, unleashing a flood of innovation into the marketplace. In this way, growth comes to the economy not in a steady stream, but as Schumpeter famously put it, in ‘gales of creative destruction’. The origin of wealth—lies in the heroic efforts of individual entrepreneurs. Wealth creation occurs when people like Henry Ford, Thomas Alva Edison, Steve Jobs battle the odds to turn the technologies of their time into successful commercial enterprises.” Well said.



Now to put some numbers behind all this, consider that just two years ago, tech transfer offices filed 16,000 new patent applications, licensees launched 697 products and spun out 553 companies.

Introducing EverSpin

As has been said, the future is here it’s just unevenly distributed. I couldn’t be more excited to distribute a bit of the future to you: a historic deal around a cutting-edge memory technology and one of the crown jewels of one of the largest semiconductor companies in the world. Freescale Semiconductor was taken private by Blackstone, Carlyle and Texas Pacific Group. Now, my Lux Capital partners Peter Hebert and Herb Goronkin, (himself former head of Motorola Physical Labs) just led a $20 million spinout from Freescale Semiconductor of an exciting new company called EverSpin. Our partner investors included New Venture Partners (Stephen Socolof and David Tennenhouse; ex-Director of Research at Intel), the brilliant Steve Jurvetson of Draper Fisher Jurvetson, as well as Sigma Partners and Epic Ventures. Here’s the breaking news from the New York Times:



Chip Maker to Announce It Will Spin Off Memory Unit (By MICHAEL J. de la MERCED)



Freescale Semiconductor, the chip manufacturer taken private in 2006, is expected to announce Monday that it will join with several venture capital firms to spin off a unit that focuses on a newer kind of computer memory.



The new entity, EverSpin Technologies, comes as Freescale seeks to pare its product line.



Freescale will give its portfolio of a memory technology called MRAM to EverSpin and hold a stake in the new company, the companies involved said. A group of outside firms, including New Venture Partners, Sigma Partners, Lux Capital, Draper Fisher Jurvetson and Epic Ventures, will invest a total of about $20 million, they said.



MRAM, which stands for magnetoresistive random access memory and has been in development since the 1990s, is intended to improve on current memory technology because it uses less power than conventional designs and is considered more stable. But it is not widely used yet.



“MRAM technology is one of our crown jewel technologies,” Lisa T. Su, Freescale’s chief technology officer, said.



Plans for the spinoff began about six months ago, as Freescale began talking with Lux Capital about a way to commercialize its MRAM technology. Memory technology is not Freescale’s core business, Ms. Su said, and while the company had not considered selling the MRAM unit outright, it and Lux had hit upon the spinoff as a possible solution.



But it also comes amid a tougher time for the chip maker, which was acquired for $17.6 billion in 2006 by a consortium of private equity firms. Since then, demand for its products from Motorola, its onetime parent company, and from automakers has fallen, and it is coping with the debt added after its leveraged buyout.



Ms. Su said the new venture was not linked to financial troubles at Freescale: “We’re not doing this for financial reasons, not for cash or anything like that.”



Stephen Socolof, a managing partner of New Venture, said his firm and others in the investor group would join in the manufacturing of MRAM and develop other uses for the technology.

Developing Rackets & Evolving Kudos

This week there are many kudos and congratulations to go around to friends of Lux. Last week, I quoted Lux Capital friend Bob Metcalfe, inventor of Ethernet, founder of networking giant 3Com and partner at Polaris Ventures. You can hear Bob speak at our annual Lux Executive Summit in October off Harvard Square (other speakers include famed inventor Dean Kamen and Sen. John Kerry). Here’s what Bob said, "I call it the global warming bubble. What bubbles do is they're an accelerator in technological investments to be made; they cause the status quo to be questioned. The trick of course...is to have a chair when the music stops."



Speaking of networking, scientist Albert-Lazio Barabasi published a paper this week (conducted in another country as such research would be illegal in the U.S.) that tracked 100,000 cell phone users’ behaviors. Over a six month period, they found that 50% of the people stayed within a 6-mile radius, 75% stayed within 20 miles of home and 83% stayed within 37 miles. The researchers noted: "individuals display significant regularity because they return to a few highly frequented locations, such as home or work.”



Yep, we are creatures of habit. But the really interesting implication is for using these patterns to predict and react to the spread of disease and epidemics.



Speaking of epidemics (and contagious success)—congrats this week go to Lux Venture Partner David Sinclair, PhD. As most know, David had a successful IPO and then sold his company Sirtris last month for nearly $750 million to Glaxo. David’s new startup Genocea, this week announced a major partnership with PATH and Children’s Hospital. As my Lux partner and Genocea co-founder Rob Paull said, “Genocea believes it’s important to address both the needs of the developed world and geographies where poverty, socio-economic challenges, and disease prevalence require public/private partnerships to bring innovative approaches to help those most in need."



Like Bob Metcalfe’s quote above, I’ve also spilled a lot of ink on the foolhardy behavior in chasing moonshine and sunbeams (ethanol and solar). As Eric Hoffer said, “Every great cause beings as a movement, becomes a business and eventually degenerates into a racket.” Or as 18th century French philosopher Voltaire said, “It is dangerous to be right in matters on which the established authorities are wrong”.



But here’s something on which the established authorities are clearly right about. Big congrats go to the team at the NanoBusiness Alliance, a group I co-founded nearly seven years ago. Executive Chairman Sean Murdock worked tirelessly and today he commended the House of Representatives for passing the National Nanotechnology Initiative Amendments Act of 2008. The bill reauthorizes and updates the successful federal interagency nanotechnology R&D program and it passed by an overwhelming bipartisan margin. "We are pleased that Congress continues to recognize the importance of nanotechnology," said Murdock. "It is imperative that the U.S. maintain its lead in the global nanotechnology race, and this bill will help make that happen." The bill updates the National Nanotechnology Initiative, first authorized in 2003, and adds new provisions in several key areas: addressing environmental, health, and safety (EHS) issues associated with nanotechnology; improving nanotechnology education; ensuring that new technology moves from the laboratory to the marketplace; focusing research efforts in areas of national importance such as electronics, energy efficiency, health care, and water remediation; and research into nanomanufacturing.



Monthly subscribers will find out which companies will be big beneficiaries and who stands to lose.