Building a great startup requires more than genius and a great invention

Many entrepreneurs assume that an invention carries intrinsic value, but that assumption is a fallacy.

Many entrepreneurs assume that an invention carries intrinsic value, but that assumption is a fallacy.

Here, the examples of the 19th and 20th century inventors Thomas Edison and Nikola Tesla are instructive. Even as aspiring entrepreneurs and inventors lionize Edison for his myriad inventions and business acumen, they conveniently fail to recognize Tesla, despite having far greater contributions to how we generate, move, and harness power. Edison is the exception, with the legendary penniless Tesla as the norm.

Universities are the epicenter of pure innovation research. But the reality is that academic research is supported by tax dollars. The zero-sum game of attracting government funding is mastered by selling two concepts: Technical merit, and and broader impact toward benefiting society as a whole. These concepts are usually at odds with building a company, which succeeds only by generating and maintaining competitive advantage through barriers to entry.

In rare cases, the transition from intellectual merit to barrier to entry is successful. In most cases, the technology, though cool, doesn’t give the a fledgling company the competitive advantage it needs to exist among incumbents, and inevitable copycats. Academics, having emphasized technical merit and broader impact to attract support for their research, often fail to solve for competitive advantage, thereby creating great technology in search for a business application.

Of course there are exceptions: Time and time again, whether it’s driven by hype or perceived existential threat, big incumbents will be quick to buy companies purely for technology.  Cruise/GM (autonomous cars), DeepMind/Google (AI), and Nervana/Intel (AI chips). But as we move from 0-1 to 1-N in a given field, success is determined by winning talent over winning technology. Technology becomes less interesting; the onus on the startup to build a real business.

If a startup chooses to take venture capital, it not only needs to build a real business, but one that will be valued in the billions. the question becomes how a startup can create durable, attractive business, with a transient, short-lived technological advantage.

Most investors understand this stark reality. Unfortunately, while dabbling in technologies which appeared like magic to them during the cleantech boom, many investors were lured back into the innovation fallacy, believing that pure technological advancement would equal value creation. Many of them re-learned this lesson the hard way. As frontier technologies are attracting broader attention, I believe many are falling back into the innovation trap.

So what should aspiring frontier inventors solve for as they seek to invest capital to translate pure discovery to building billion-dollar companies?  How can the technology be cast into an unfair advantage that will yield big margins and growth that underpin billion-dollar businesses?

Talent productivity: In this age of automation, human talent is scarce, and there is incredible value attributed to retaining and maximizing human creativity.  Leading companies seek to gain an advantage by attracting the very best talent. If your technology can help you make more scarce talent more productive, or help your customers become more productive, then you are creating an unfair advantage internally, while establishing yourself as the de facto product for your customers.

Great companies such as Tesla and Google have built tools for their own scarce talent, and build products their customers, in their own ways, can’t do without. Microsoft mastered this with its Office products in the 90s, through innovation and acquisition, Autodesk with its creativity tools, and Amazon with its AWS Suite. Supercharging talent yields one of the most valuable sources of competitive advantage: switchover cost.  When teams are empowered with tools they love, they will loathe the notion of migrating to shiny new objects, and stick to what helps them achieve their maximum potential.

Marketing and Distribution Efficiency: Companies are worth the markets they serve.  They are valued for their audience and reach.  Even if their products in of themselves don’t unlock the entire value of the market they serve, they will be valued for their potential to, at some point in the future, be able to sell to the customers that have been tee’d up with their brands. AOL leveraged cheap CD-ROMs and the postal system to get families online, and on email.

Dollar Shave Club leveraged social media and an otherwise abandoned demographic to lock down a sales channel that was ultimately valued at a billion dollars. The inventions in these examples were in how efficiently these companies built and accessed markets, which ultimately made them incredibly valuable.

Network effects: Its power has ultimately led to its abuse in startup fundraising pitches. LinkedIn, Facebook, Twitter, and Instagram generate their network effects through Internet and Mobile. Most marketplace companies need to undergo the arduous, expensive process of attracting vendors and customers.  Uber identified macro trends (e.g., urban living) and leveraged technology (GPS in cheap smartphones) to yield massive growth in building up supply (drivers) and demand (riders).

Our portfolio company Zoox will benefit from every car benefitting from edge cases every vehicle encounters: akin to the driving population immediately learning from special situations any individual driver encounters. Startups should think about how their inventions can enable network effects where none existed, so that they are able to achieve massive scale and barriers by the time competitors inevitably get access to the same technology.

Offering an end-to-end solution: There isn’t intrinsic value in a piece of technology; it’s offering a complete solution that delivers on an unmet need deep-pocketed customers are begging for. Does your invention, when coupled to a few other products, yield a solution that’s worth far more than the sum of its parts? For example, are you selling a chip, along with design environments, sample neural network frameworks, and datasets, that will empower your customers to deliver magical products? Or, in contrast, does it make more sense to offer standard chips, licensing software, or tag data?

If the answer is to offer components of the solution, then prepare to enter a commodity, margin-eroding, race-to-the-bottom business. The former, “vertical” approach is characteristic of more nascent technologies, such as operating robots-taxis, quantum computing, and launching small payloads into space. As the technology matures and becomes more modular, vendors can sell standard components into standard supply chains, but face the pressure of commoditization.

A simple example is Personal Computers, where Intel and Microsoft attracted outsized margins while other vendors of disk drives, motherboards, printers, and memory faced crushing downward pricing pressure.  As technology matures, the earlier vertical players must differentiate with their brands, reach to customers, and differentiated product, while leveraging what’s likely going to be an endless number of vendors providing technology into their supply chains.

A magical new technology does not go far beyond the resumes of the founding team.

What gets me excited is how the team will leverage the innovation, and attract more amazing people to establish a dominant position in a market that doesn’t yet exist. Is this team and technology the kernel of a virtuous cycle that will punch above its weight to attract more money, more talent, and be recognized for more than it’s product?

Google Slides gets real-time automated captions

Google is adding an interesting new feature to its Slides presentation tool today that allows you to enable real-time automated captions to your live presentations. That’s a great feature for those who are hard of hearing or deaf, as well as those who understand better when they can read instead of listen. The new feature […]

Google is adding an interesting new feature to its Slides presentation tool today that allows you to enable real-time automated captions to your live presentations. That’s a great feature for those who are hard of hearing or deaf, as well as those who understand better when they can read instead of listen.

The new feature comes from the same accessibility team that previously introduced improved screen readers, Braille and screen magnifier support to Google Docs, Sheets and Slides. The automated captioning project started at an internal hackathon and is now rolling out to all Slides users who use U.S. English as their default language and Chrome as their browser. Over time, Google plans to enable this feature for other languages, too.

To turn on this feature you simply press the new “CC” button on the Slides navigation box and then use your computer’s microphone like always.

While this is mostly an accessibility feature, it’s also a nice way of creating a written transcript of a presentation that can then be used for other purposes after the presentation is over.

It’s worth noting that Microsoft recently introduced similar caption/transcription support for live meetings in its Teams product. Both Google, AWS and Microsoft offer their speech-to-text technology as APIs for developers, too, and a number of developers are now starting to build similar features into their applications based on these services.

Rich-text editing platform Tiny raises $4M, launches file management service

Maybe you’ve never heard about Tiny, but chances are, you’ve used its products. Tiny is the company behind the text editors you’ve likely used in WordPress, Marketo, Zendesk, Atlassian and other products. The company is actually the result of the merger of Moxiecode, the two-person team behind the open source TinyMCE editor, and Ephox, the […]

Maybe you’ve never heard about Tiny, but chances are, you’ve used its products. Tiny is the company behind the text editors you’ve likely used in WordPress, Marketo, Zendesk, Atlassian and other products. The company is actually the result of the merger of Moxiecode, the two-person team behind the open source TinyMCE editor, and Ephox, the company behind the Textbox.io editor. Ephox was the larger company in this deal, but TinyMCE had a significantly larger user base, so Tiny’s focus is now almost exclusively on that.

And the future of Tiny looks bright thanks to a $4 million funding round led by BlueRun Ventures, the company announced today (in addition to a number of new products). Tiny CEO Andrew Roberts told me the round mostly came together thanks to personal connections. While both Ephox and Moxiecode were profitable, now seemed like the right time to try to push for growth.

Roberts also noted that the merger itself is a sign of the company’s ambitions. “I think we’ve always been searching for how we could get that hockey stick growth to kick in,” he said. “I don’t think we would’ve done the merger if we weren’t hungry for that next level of success. So after two or three years [after the merger], we started to feel like we had the signs of a business that could grow into something significant and big and with some good numbers behind it. So were: ‘alright, now is the time.'”

While Tiny continues to offer its free open-source editor, it offers a cloud-hosted version of its service with a fee based on the number of users for developers who want the company to handle the backend infrastructure, as well as a self-hosted version that Tiny charges for based on the number of servers it runs on.

Roberts noted that quite a few developers try to build their own text editors. Yet handling all the edge cases and ensuring compatibility is actually quite hard. He estimates that it would take two or three years to build a new text editor from the ground up.

As part of today’s announcement, Tiny is also launching a number of new products. The most important of those from a business perspective is surely Tiny Drive, a file storage service that developers can integrate with the TinyMCE editor. Tiny Drive offers all of the file storage features that one would expect, including the ability to handle images and other assets. Tiny Drive uses AWS’s S3 file storage service and CloudFront CDN to distribute files.

Also new is the Tiny App Directory, which Roberts likened to the Slack App Directory. The idea here is to offer a curated list of TinyMCE plugins. For now, there is no revenue sharing here or any other advanced features, but it’s definitely a play for creating a larger ecosystem around the editor.

Tiny also today announced the first developer preview of the TinyMCE 5 editor. The updated editor features a new user interface that gives the editor a more modern look. Developers can customize it to their hearts’ content, with plenty of compatible plugins and advanced features to extend the editor based on their specific needs. There’s also now an emoticon plugin.

Talking about customized editors: You’re probably aware of WordPress’ efforts to modernize its text editor. The new editor, called Gutenberg, focuses more on page building than the current one, but as Roberts stressed, the underlying rich text editor is still based on the TinyMCE libraries. He noted that even the classic version, though, was always a subset of TinyMCE’s editor. What’s maybe even more important for Tiny as a company, though, is that none of WordPress’ changes will influence its business, even though WordPress and TinyMCE have long had what he describes as a “symbiotic relationship.”

“Tiny’s core business comes from a mix of software vendors, large enterprises, and agencies building custom solutions for clients that has little to do with the WordPress ecosystem,” he notes. “It is a popular and commercially viable project in its own right.”

Cloudflare partners with Microsoft, Google and others to reduce bandwidth costs

Say hello to the Bandwidth Alliance, a new group led by Cloudflare that promises to reduce the price of bandwidth for many cloud customers. The overall idea here is that customers who use both Cloudflare, which is turning eight years old this week, and a cloud provider that’s part of this alliance will get a […]

Say hello to the Bandwidth Alliance, a new group led by Cloudflare that promises to reduce the price of bandwidth for many cloud customers. The overall idea here is that customers who use both Cloudflare, which is turning eight years old this week, and a cloud provider that’s part of this alliance will get a significant discount on their egress traffic or won’t have to pay for it at all.

The alliance is open, and others may join still, but right now it includes virtually every major and minor cloud provider you’ve ever heard of — with one exception. Current members include Automattic, Backblaze, Digital Ocean, DreamHost, IBM Cloud, Linode, Google, Google Cloud, Microsoft Azure, Packet, Scaleway and Vapor. Some of these will now offer free egress traffic to mutual customers with Cloudflare, while others will offer at least a 75 percent discount.

That’s quite the alliance, but as Cloudflare CEO and co-founder Matthew Prince told me, once the first member joined, the rest of the pieces fell into place quickly. Surely it also helped that both Google and Microsoft have invested in Cloudflare.

Why would these businesses choose to do away with what’s a minor but high-margin business, though? “The argument that we made to them was a pretty simple argument: it makes sense for you to charge for transit when you are actually paying for it,” Prince said. Most of the time, though, those costs are very minor and Cloudflare, thanks to his massive number of global peering locations, can ingest the traffic directly from the cloud provider with no middlemen involved.

The first company Cloudflare partnered with was Google, thanks to that company’s CDN Interconnect program, which launched in 2015. Cloudflare was one of the initial partners in the program, though as Prince noted, there was still a lot to learn for all parties involved, especially because traffic was sometimes routed in very unpredictable ways that circumvented the cost savings mechanisms. Cloudflare learned from this, though, and is now using its own Argo technology to intelligently route traffic.

As Prince noted, though, one thing that turned out to be harder than anticipated was ensuring that the cloud vendors would know that one of their customers is a mutual customer. Some have that instrumentation in place, while Cloudflare needs to pass a special header to them so they can know where their traffic is coming from.

Prince also argued that this will make it easier for many companies to use multiple cloud providers without having to pay extremely high bandwidth cost. While Cloudflare’s early focus was very much on web traffic, Prince said that more than half is now API-based traffic, and that’s exactly the kind of user who will likely save quite a bit of money thanks to this.

The one company that’s not part of this alliance, of course, is Amazon with its AWS platform. Prince said that Cloudflare has talked to them, though, and the group is open to all cloud and CDN providers.

Spotinst, excess cloud capacity management service, snares $35M Series B

Spotinst, the startup that helps companies purchase and manage excess cloud infrastructure capacity, announced a hefty $35 million Series B today led by Highland Capital. Existing investors Leaders Fund, Intel Capital and Vertex Ventures also participated. Today’s round brings the total investment to over $52 million. Cloud infrastructure vendors like Amazon Web Services, Microsoft Azure […]

Spotinst, the startup that helps companies purchase and manage excess cloud infrastructure capacity, announced a hefty $35 million Series B today led by Highland Capital.

Existing investors Leaders Fund, Intel Capital and Vertex Ventures also participated. Today’s round brings the total investment to over $52 million.

Cloud infrastructure vendors like Amazon Web Services, Microsoft Azure and Google Cloud Platform run massive data centers to have enough capacity at any given moment to respond to customer demand. That means there are always going to be some machines sitting idle. To make use of this excess capacity, the vendors offer deep discounts of up to 80 percent, but there’s a catch.

If the vendor needs that virtual machine at any given moment, the discount customers are going to get kicked off. That leaves developers wary of putting anything critical on the discounted servers, no matter how much they are saving.

That’s where Spotinst comes in. “With machine learning and artificial intelligence, Spotinst can predict trends of availability. We know how long an instance will live and we can smoothly move our customers from one instance to another, allowing them to run complex or mission critical applications,” Spotinst co-founder and CEO Amiram Shachar told TechCrunch.

He sees the two trends of developers moving toward serverless and containerization really helping to drive his business growth. The company announced support for Lambda, AWS’s serverless product, last fall and they are also seeing a big rise in the use of containers. “What we’ve seen in the past six months is that our containers offering is growing exponentially month over month. And as customers are deploying containers we’re able to run them on excess capacity, and save them huge amounts of money,” he explained.

Spotinst management console. Screenshot: Spotinst.

Shachar is clear that they are not offering a brokerage service here. Instead, his customers sign up for Spotinst as a cloud service, and his company makes money by taking a percentage of the money customers save by using this spot capacity.

The company began by working with AWS spot instances, but has since expanded its market to include Google and Microsoft extra capacity as well. In the future, depending on their requirements, customers could potentially move across clouds seamlessly if they wish, moving to wherever the best available price is at any given moment, using Spotinst to manage the transitions. While that’s not something they offer now, it is on the roadmap, he says.

It’s worth noting that just yesterday, VMware bought CloudHealth Technologies, a company that helps customers manage a multi-cloud environment from a single console. Shachar acknowledges that a company like his could be also be an attractive target for a large company, but he and his co-founders are only looking toward building the business and continuing to improve the product.

The company currently has 100 employees, but with the additional investment, Shachar expects to double that in the next year between their U.S. office in San Francisco and their engineering office in Tel Aviv.

AWS cuts in half the price of most of its Lightsail virtual private servers

AWS Lightsail, which launched in 2016, is Amazon’s answer to the rise of Digital Ocean, OVH and other affordable virtual private server (VPS) players. Lightsail started as a pretty basic service, but over the course of the last two years, AWS added features like block storage, Windows support and additional regions. Today, the company announced it […]

AWS Lightsail, which launched in 2016, is Amazon’s answer to the rise of Digital Ocean, OVH and other affordable virtual private server (VPS) players. Lightsail started as a pretty basic service, but over the course of the last two years, AWS added features like block storage, Windows support and additional regions.

Today, the company announced it is launching two new instance sizes and cutting in half the price of most Linux-based Lightsail instances. Windows instances are also getting cheaper, though the price cut there is closer to 30 percent for most instances.

The only Linux instance that isn’t getting a full 50 percent cut is the $5/month 512 MB instance, which will now cost $3.50. That’s not too bad, either. Depending on your needs, 512 MB can be enough to run a few projects, so if you don’t need a full 1 GB, you can save a few dollars by going with Lightsail over Digital Ocean’s smallest $5/month 1 GB instance. Indeed, it’s probably no surprise that Lightsail’s 1 GB instance now also costs $5/month.

All instance types come with attached SSD storage, SSH access, a static IP address and all of the other features you’d expect from a VPS hosting service.

As usual, Windows instances cost a bit more (those Windows licenses aren’t free, after all) and now start at $8 per month for a 512 MB instances. The more usable 1 GB instance will set you back $12 per month.

As for the new instance sizes, the new 16 GB instance will feature 4 vCPUs, 320 GB of storage and a generous 6 TB of data transfer. The 32 GB instance doubles the vCPU and storage numbers and offers 7 TB of data transfer.

 

Amazon’s AWS continues to lead its performance highlights

Amazon’s web services AWS continue to be the highlight of the company’s balance sheet, one again showing the kind of growth Amazon is looking for in a new business for the second quarter — especially one that has dramatically better margins than its core retail business. Despite now running a grocery chain, the company’s AWS […]

Amazon’s web services AWS continue to be the highlight of the company’s balance sheet, one again showing the kind of growth Amazon is looking for in a new business for the second quarter — especially one that has dramatically better margins than its core retail business.

Despite now running a grocery chain, the company’s AWS division — which has an operating margin over 25% compared to its tiny margins on retail — grew 49% year-over-year in the quarter compared to last year’s second quarter. It’s also up 49% year-over-year when comparing the most recent six months to the same period last year. AWS is now on a run rate well north of $10 billion annually, generating more than $6 billion in revenue in the second quarter this year. Meanwhile, amazon’s retail operations generated nearly $47 billion with a net income of just over $1.3 billion (unaudited). Amazon’s AWS generated $1.6 billion in operating income on its $6.1 billion in revenue.

So, in short, Amazon’s dramatically more efficient AWS business is its biggest contributor to its actual net income. The company reported earnings of $5.07 per share, compared to analyst estimates of around $2.50 per share, on revenue of $52.9 billion. That revenue number fell under what investors were looking for, so the stock isn’t really doing anything in after hours and Amazon still remains in the race to become a company with a market cap of $1 trillion alongside Google, Apple and Microsoft.

This isn’t extremely surprising as Amazon was one of the original harbingers of the move to a cloud computing-focused world, and as a result Microsoft and Google are now chasing it to capture up as much share as possible. While Microsoft doesn’t break out Azure, the company says it’s one of its fastest-growing businesses, and Google’s “other revenue” segment that includes Google Cloud Platform also continues to be one of its fastest-growing divisions. Running a bunch of servers with access to on-demand compute, it turns out, is a pretty efficient business that can account for the very slim margins that Amazon has on the rest of its core business.

Google launches “Shielded VMs” to protect cloud servers from rootkits, data theft

New features lock down VMs, verifying security at boot—and preventing hostile snapshot “migration.”

Enlarge (credit: Donald Iain Smith / Getty Images)

This week, Google is rolling out a number of new cloud security technologies aimed at making the public cloud a safer place. Among them is Shielded VMs, a feature of Google Cloud Platform that protects virtual machines from the installation of rootkits and other persistent malware, as well as other attacks that could result in data theft.

Using a cryptographically protected baseline measurement of the VM's image, the Shielded VMs feature—launched in beta today—provides a way of "tamper-proofing" virtual machines and alerting their owners to changes in their runtime state. Shielded VMs also make it possible to prevent a virtual machine from being booted in a different context than it was originally deployed in—in other words, preventing theft of VMs through "snap-shotting" or other duplication.

Virtually secure

Major cloud providers have been trying to blunt threats to virtual machines and cloud application containers in a number of ways—with hardened operating system images for virtual machines and with "confidential computing" models that prevent compromises of the underlying machine's operating system from providing access, for instance.

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