David Green has achieved remarkable success in bringing medical practices and technologies to people who lack the ability to pay the prices that those in the developing world routinely pay for such treatment. His talk was titled ‘Humanizing Capitalism’ and was wide-ranging in topic and scope. A small number of us, including myself, went upstairs for dessert with David to talk further. David Green, Ashoka Fellow (2002) and MacArthur Fellow(2006), keeps himself busy with more than 10 projects at at time. One of his critical successes has been Aurolab, which provide cataract surgeries and eye care products to people in India and works closely with Aravind Eye Hospital. He is currently working on projects with low-cost hearing aids and solar power.

First: pricing.  Pricing strategy is what Green excels at. How do you address pricing disparity to make products affordable to those who really need them? How can pricing strategies be used to create self-sustaining (read: profitable) businesses that still keep the social good at its core mission? Green has gone about this from both angles: a) how much money does it really cost to make a final product and b) what sort of pricing system can yield the best possible business model? For example, there is a device for cardiovascular problems that is priced at $6,000 for people in the developed world. However, it costs less than a thousand to make. The manufacturer wants to go in developing world markets, but can’t figure out how to price it such that enough people would buy it and to avoid backlash in the developed-world when those customers see that the same product is selling at much lower prices elsewhere.

Let’s look at Aravind Eye Hospital. Blindless is an enormous problem and a majority of cases come from cataracts, which is when the intra-ocular lens becomes clouded. This kind of surgery is routine in some parts of the world, but there are million so of underserved people in India. With the idea of “if McDonalds can do it for burgers, why can’t we do it for eye care”, Green and a colleague set about creating Aurolab, a nonprofit company that manufacturers intra-ocular lenses and other materials/products used for eye care. Aurolab is situated next door to Aravind, but sells products worldwide (has around 7% world market share too). The difference between cost of an intra-ocular lens of Aurolab and its competitor is astonishing: $2 vs $160.

Aravind Eye Hospital (founded back in 1976) has performed 3+ million surgeries to date and last year’s profit was $8 million. It uses a tiered system of payment. Around 50% of its patients pay nothing, a quarter pay around $12, and the remaining quarter pays much more than $100. The differentiation comes in the experience of the patient and is driven entirely by consumer choice. The free service customers don’t have the nicest waiting room or living accomodation. Those who pay money would get a nicer waiting room or outpatient room (hypothetically, maybe the difference between being 2 in a room vs 10 in a room). And for better or worse, the consumer choice comes in because more wealthy patients will pay more for the surgery to avoid sitting with the lower income people. This being said, it is critical to note that the quality of care is the same. The same surgeons, the same materials, etc. When it comes to the actual procedure, everyone is the same.

What are ways that Aravind lowered their costs?

• Increasing staff efficiency. Aravind surgeons perform 2000 cataract surgeries a year, 6x the Indian average.
• Lowering operating expenses. By prepping a larger operating room and treating more people at a time, setup costs are reduced.
• Smart international purchasing.
• Community outreach. Community resources can be mobilized on a fairly massive scale for short period of times. Aravind sets up eye clinics in communities that serve as advance diagnosis, screening,  and identification centers. It works with communities to provide transportation and meals to get people to and from the hospital, and later to assist in out-patient care and followup with Aravind doctors.

The “David Green Formula”

How do you go about figuring out a price? Appropriate prices change depending on your geographic and social position. When Green was working on expanding the Aravind system to Egypt, he had to determine the pricing structure.

First, figure out the paying capacity.  Segment the society into high/middle/poor and determine each segment’s average monthly income. For each segment, forecast what % of those you might have as customers.

Now, for Aravind there is a formula: per surgery cost = total operating expenses / # of surgeries performed = the average monthly income for the bottom 60% (income wise) of the population.  A word of caution: this is what I quickly jotted down during the talk, so don’t take this at 100% face value, and this is how it has worked out for Aravind. Smart purchasing and community outreach are drivers to reducing operating expenses a big reason why Green knew Aurolab was an important link in the chain), and staff efficiency is a way to increase # of surgeries. Green said that when he arrived in Egypt, he started talking to everyone he met to get some data points, and then guessed the pricing breakdown. After the deep dive was concluded, the numbers matched Green’s quick estimate. He’s good at this. Very good.

By no means are the results 100% reproducible. Each place has their own sustainable point. In Egypt, 55% of patients are free and 45% are paying. In Nepal, only 7% are free, 4% pay $12, and  89% pay over $35. But we’re still talking millions in profit.

A word on Aurolab. When I say non-profit producer of eye care products, I don’t mean low quality. Aurolab’s products meet the FDA mark regulatory requirements and get the same approvals as the commercial ones that sell for much more.  Aurolab has customers in 120 different countries. Aravind and Aurolab also carry out major education and training projects — a school to train eye care personnel and researchers.

Financing for Social Ventures, Finding Talent

Something Green has been examining is the financing process for companies that have social good as their fundamental goal, rather than shareholder return. Self-sustaining businesses are one that turn profit, and in our case, re-invest the profit into the company. One observation he’s made: registered non-profit organizations are not allowed to use leverage to increase the valuation of its assets, which is something that for-profit companies can and do routinely. The trick is to have a for-profit company with strong and bulletproof governance principles to ensure the social mission is the top priority, but the advantages of this structure are significant. I need to think through more of what this observation means. Another tactic that has become viable in the last few years is obtaining funding from foundations. Typically they aren’t allowed to give to for-profit companies, but there is some form of ‘social mission of investment’ clause where they can give foundation money as long as the mission of the investment is for social return — or rather, it’s about aligning the social mission with the foundation’s tax-exempt status.

The challenge in taking equity financing is creating the right structure. Green has worked with the Deutsch Bank to serve as the ‘first-loss cushion investment’ for these types of social ventures.

One person asked Green how he gets these collaborative projects started. He said that he doesn’t work with companies; he works with individuals. Individuals with extreme technical competence and with deep rooted integrity.

Hearing Aid Project & Solar PV

Hearing loss is a big problem and developed world solutions are expensive, requires multiple setup and fitting visits, etc. Green is working with experts in the Chicago area in a new venture, Conversion Sound,  to create a hearing aid device for the developing world. They are using innovative technology to dramatically shorten the fitting and calibration process.

Another thing endeavor Green has taken up is to figure out  a better way of bringing solar cell electricity generation to low-income people in developing countries. He seems to be approaching it more from the financing side and logistics — where & how can the production and distribution costs be lowered. He helped bring people from different backgrounds (entrepreneurs, academics, foundation, venture firms, investment guys, technologists) for a 1 day summit to figure out the problem areas and possible ways of moving forward. Green envisions a sort of Solar Fund that will invest in opportunities towards this purpose.

A final thought.

Green described what drives him with a sort of Chinese accupuncture analogy.  How do we redirect flows of energy from where its concentrated most to where it is needed most?

It was a great talk and Green was such a down-to-Earth and honest person to talk with.  He spoke plainly on some of the luck that he has had: he found a trusted colleague because a current partner was in the midst of an embezzlement charge and felt so bad that he was stealing from a non-profit org that he told Green that a competitor was a really good honest man. At a summit, he happened to sit next to the 2nd-in-command and Wal-Mart’s health and wellness group who was excited to hear about Green’s hearing aid project that she invited him to speak to Wal-Mart’s executive team. Or a contact in Mexico he made through a network that proved to be extraordinarily well-connected and influential. It really showed me the power of networking.

I finished up around 2:30pm, and walked around Market St. to get my bearings. I called up my friend Melih to see if he was free for a coffee, and was soon on the MUNI down to the AT&T ballpark (where the SF Giants play). Melih is a friend from NC State – we met in the EE program but he went over to Computer Science and stayed on to get his Master’s (he has also taken many courses in economics). His father taught at NC State and is an accomplished entrepreneur. He is also an outstanding photographer and was a lead photographer for the Technician student newspaper. He came out to San Francisco at the end of summer to work at TokBox, an 18 month old startup which pioneered entirely web-based and easy-to-use video chat. This startup caught my eye a long time ago (one of the few I saw on TechCrunch that I actually went and used) and continues to impress me today. I was so glad that Melih started there — he pierced through the bubble of the NC State CS program.

We greeted each other and walked down to the Panera bread for a light late lunch and coffee. It was easy to recall why I enjoy talking with him — Melih has a keen awareness of the world (we both come from immigrant families) and is quickly able to grasp the fundamentals of almost any topic below all the surface sheen. He spoke to me about the kind of learning experiences he is getting at TokBox, and it’s immediately clear that he has a better handle on the core issues than some budding (and even practicing) webpreneurs I’ve interacted with (Simon, as I’ve mentioned before, is the same way..freakishly sharp.). There’s another quality that I like, and is hard for me to succintly describe. My friends and family know oh too well how loquacious I tend to be, but honestly, in my opinion maybe half of what I actually say is meaningful. With Melih it always seems closer to 100%. Keep an on this guy, folks. He is going places.

After lunch he invited me up to the TokBox office, housed in a converted warehouse. It oozes with Silicon Valley startup vibe — exposed ceiling, spreadout bullpen style cubicles and tables, dim lighting, an amazing breakroom and kitchen (with an enormous 12 foot long island) and a lounge with comfy chairs and a plasma TV. I also discovered that TokBox shares the floor with EventBrite, the amazing event management website that we used last year for the Krispy Kreme Challenge and that blew me away with how awesome their solution was. I love those guys.

Finally, I headed back down to Palo Alto. What a nice day in the City!

Khosla spoke to us about his approach to the energy problem, highlighted several companies he has invested in and why, and took many questions. Among hardcore environmentalists, he has taken flak for his lack of interest in the push to change US society’s behavior regarding energy usage — he utterly dismisses one claim on how we should only use 1 square of toilet paper, for instance. He asked people who drive a Prius to raise their hands, then said that instead of the extra $5,000 they paid for the Prius, they could have painted a 10 ft x 10ft white square on their room and have the same carbon reduction. He is a technology optimist that and says we as a global society need to produce 10 times as much energy as we do today — AND we can do it without causing the harm we do the planet today.  People protested and seem to think that Khosla doesn’t care about efficiency and conservation, but I disagree. He is smarter than that. His whole family drives hybrids. He is just thinking long-term — energy efficiency gains are only 10% to 20% of the problem, and they are vital to lowering the hurdle for upcoming alternatives. We should as a society adopt these changes, but Khosla is placing the bulk of his time and energy (and money) into going after the Goliaths — oil, gas, materials. The BIG sources of carbon.

I greatly admire and respect Khosla and agree with his approach. The talk was outstanding and I left feeling inspired. As soon as it’s online I’ll link to it.

After the Khosla talk I got a free Jamba Juice (they always mess up Nader’s order) and then we went to hear a performance of “Bagpipes from Around the World.” I like bagpipes, but in short quantities. It’s unusual in that it has a drone, but as Nader pointed out it removes any silence from the music, and often moments of silence is as important as the notes themselves. Still, it was pretty cool. I finished up by heading up to Nola’s on University Ave for a Social-E dinner where I had great conversations with Andi and Silvia.

• Jeff Bezos, founder and CEO of Amazon.com
• Marc Andreessen, creator of Mosaic, Netscape, Ning
• David Heinemeier Hansson, creator of Ruby on Rails
• Michael Arrington, founder of Techcrunch.com
• Paul Buchheit, creator of Gmail
• Sam Altman, founder of Loopt
• Paul Graham, founder of Y-Combinator
• Greg McAdoo, partner at Sequoia Capital
• Jack Sheridan, partner at Wilson Sonsini Goodrich & Rosati (the tech law firm)
• David Lawee, VP of Corp. Dev. at Google
• Peter Norvig, Dir. of Research at Google

There are over 500 people there who flew in from all over the country. The talks ranged from how VCs think about ventures, the legal issues of starting a company, how to get publicity, how to scale your business, and core principles can serve you well. My personal favorite was David Heinemeier Hansson, who gave a very entertaining but solid presentation on the flip side to web startups – you don’t have to be the next Facebook or YouTube or Google! Imagine if you (gasp!) charged money for your service, you could get profit! I mean, he had a picture of Eric Cartman on one slide and a lolcat reference (“I can haz scaling probs plz?”) on another. It was great. Paul Graham stressed the value of being good, Paul Buchheit described the importance of listening, and Michael Arrington gave a rather thoughtful (perhaps a tad bit melodramatic) about the troubling state of the community here in the Valley.

It was neat to see and hear from so many famous names, and during the breaks there was always a buzz of…yes…the next Facebook or YouTube or Google. Overall it was a great way to spend a Saturday.

Here is one of my favorite parts of his talk.

What he says exactly summarizes my own beliefs about how to make decisions when working with really smart, passionate people.

You can click on the video and leave comments too. Check it out and share it with your friends. Let’s give them a traffic boost.

Update: Small version of player embedded below:

I learned today that WaterPLUS is one of the 7 teams out of 35 to be accepted the pilot phase for BASE, the Business Accelerator for Sustainable Entrepreneurship at UNC-Chapel Hill. We also got some good feedback from judges in the Duke Startup Challenge, where we are currently in semi-finalist standing. Our business plan is due this Friday for the Carolina Challenge, and with all these recent developments our first ever ‘all hands meeting’ on Wednesday should prove to be well worth it, both for enjoying how far we’ve come and for charting our course into the future.

The attention to detail is pretty nice: if your playlist is long enough, the tape will spool and unspool from side to side.

At 1pm I went over the Stanford Terrace Inn to meet the Engineering Entrepreneurs Program group; they just landed today for their spring break trip. It was great to see Tara, Dr. Walsh, Dr. Miller, and Dave Mainella again. I recognize Pavak of course and I’m glad that Glen Garner made it on the trip too this year. It’s a more diversified group, with a few students from the college of management and one biomedical student. Doesn’t seem, on first impression, that a lot of seniors chose not to come.

I’ll rendezvous with them tomorrow for dinner briefly, then back to work on amplifier. The amplifier will be more or less non-stop until Friday. I wish Dr. Lee would extend it to next Wednesday. The strategy class as sucked away so much time…most of it I don’t mind too much but that forced-participation into that rubberband innovation tournament was just bad.

For context: the day before, the 16 invited teams had the first round of presentations. Kari, Will (who both arrived wednesday night) and Naman (arrived thursday at like 1am) presented in the morning. Six teams would advance to the final round.

We gave our 10 minute presentation which went well, and followed by 10 minute question period. The finalist judging panel was five people and they asked very pointed very detailed questions. Kari and Will said that these questions were orders of magnitude over the questiosn they had yesterday. We did our best and watched the five other teams go. It was readily clear that three other groups had truly impressive financial analysis and projections. The Akan Energy team from Cornell was particuarly strong. The last group was Help For Malaria, and Naman was a bit skeptical of some parts of their presentation, the health science side of it anyway. I’m saying this not as a conflict of interest as a competition — I wouldn’t be surprised if Naman is currently considered a world top 50 malaria researcher. He knows his stuff regarding malaria.

Anyway, we were really hungry (skipped lunch) and eventually the bus left to a convention center downtown where they had the awards banquet. The groups milled about outside the dining room for almost a hour before it got underway. I should mention two people here: Duane Dunk was the mentor that we were introduced to via GSEC. He is Director of Drinking Water at HaloSource, a Seattle-based company specializing in point-of-use water purification units. Duane has had experience is so many countries (is taking his 20th or 30th trip to India on Monday!) and is a tremendous resource. He was there the whole week meeting with Joel and our team and providing invaluable feedback. I spoke with him at length that night about point-of-use vs community approaches, difficulties in patent enforcement in the developing world, distribution and sales models, possible partnerships, etc. Amazing guy. Getting to know him is probably the best thing we took away from GSEC. The other is Eric Reed, the UW team ambassador. Eric is a senior in HR at the B-school and was a lot of fun to hang out with and took good care of us while we were there.

The dinner was like the ones for the Park finalist dinner only a bit more nicer. Li Li joined us for this and that’s actually where I got to meet her. A lot of distinguished guests in the audience from Seattle businesses and the UW. They asked all the teams to come up and say something they learned from GSEC. One of the students from the India Institute of Management said that he learned to a) speak slower and b) how to pitch to American investors: use more pictures, fewer numbers. Best line of the night. Bill Clapp, a major figure in microfinance world, gave a keynote address. The “People’s Choice” award for a poster talk given on Monday was given to Help for Malaria. The ‘Investor Award’ for the company most likely to be a real business was Slag Works, a team I’m not familiar with and not one of the finalist teams. The final awards were in two categories: normal and global health. Seeing as two of the six finalists were health related, we knew what might happen.

WaterPLUS took 2nd place in the global health category, while Help for Malaria took 1st. In the normal category, a business plan regarding a sunflower farm to combat poverty won 2nd place, while KAITE, a German-Zimbabwe partnership venture won the grand prize. I thought KAITE had a great chance — they have been going since 2007. KAITE was working with Zimbabwean villagers to create organic products like essential oils and herbs and sell them at a premium in the booming European market. They already have EU Organic certification, pretty cool.

We hung around the hall for a while, meeting other people. I spoke with the President of the Grameen Bank (the microfinance bank started by Muhammed Yunis who won the Nobel Peace Prize in 2006 for this). An investor came up to us afterward and told us to keep him up to date on how we are progressing. We also said goodbye to Duane, but we’ll be keeping in contact with him going forward.

We took the chartered bus back to UW and were too tired to go out on the town. It was around 10:30pm this point. We bid Eric adieu at the bus stop and made it back to Li Li’s house, we sat in the living room having tea and just having some really thoughtful conversations. I felt so at ease and comfortable with all of them, despite Naman being the only person I’ve met personally for more than a few days. Tremendous people.

Our flights were scattered, with Will having to leave around 9am, Kari at 12pm, me at 5:45pm, and Naman at 10pm. We ended up heading to sleep around 1:30 or 2am.

I’m heading out the door on the way to the airport. I’ll update later from Seattle.

I was able to snag a photo of him with me and a few friends!

 It was snapped really fast before Moore left the stage.

• The ’2nd Digital Decade’ will result in more transformative changes than the first. Bringing the power of content creation and computation to the masses is a fundamental shift to where PCs first began.
• He has a strong personal interest in natural user interface, such as gestures, MS Surface, etc.
• Microsoft spends $6 billion a year on research, often long term ideas.
• Started research centers in China and India, jokingly saying that if you have a billion people, they’d put a research in your country too.
• The China research center started to deliver quality work much faster than MS initially thought (just ~2 years) whereas the India research center has taken longer. This was because of idea of graduate research work is not well institutionalized in Indian universities.
• It used to be that the mathematics was the language of science, but we’re starting to see computing become the new language of science. Gates showed a video about a collaboration between a Harvard neuroscience professor and Microsoft Research. The human brain would need 1 million petabytes to be stored in harddrives. 1000 terabytes = 1 petabyte, and 1000 gigabytes = 1 terabyte. A 1mm cube of a mouse brain requires 1 petabyte. The professor’s team took this and cut thin slices which were then imaged. Microsoft Research created an innovative viewer which could analyze the layers and using image processing algorithms re-create cortical columns and the 3 dimensional neural circuitry within this. Gates had a live demo of this.
• Gates pointed out that the research that goes into solving baldness versus malaria research is 50 to 1. The majority of R&D and money is spent on marginally improving things for the people that need the least. The marginal value-add for the worlds poorest is significantly higher.
• Pointed remark: “We had social scientists in our research center in India go out to the poorest villages. Even a 10-cent laptop isn’t going to provide the help/change these people need.” Are you listening, OLPC?
• Gates remarked that one thing he wishes every college student could do is to go and see what the daily experience is for most of the world, and it’s not what people go through in America. I’m honestly waiting for the day that a school makes a study abroad trip to a non-firstworld mandatory for graduation.
• Bad governance is a huge problem in developing countries. Gates noted that for health intervention, it isn’t so much of a problem. What is a warlord going to do with 100,000 vials of polio vaccine or 50,000 bed nets? The problem starts creeping in when you start talking about infrastructure, education, etc.
• There is often a total misunderstanding in the 1st world about expectation. A person in Mozambique could go their entire life without ever seeing a real doctor. When people here say “oh well a doctor could intervene” in many places that’s a fantasy. Vaccinations often have be kept cold, which is trivial for 1st worlders, but a real obstacle in the developing world.
• Talent shortage is a huge problem. Africa has 10,000 agricultural scientists, China has 1,000,000. Guess which leads the world is agricultural output? Gates is trying to encourage the 2nd world to start sending talent to the 3rd world too.
• As for what students can do here, Gates offers two things
  • use your power to vote. Compared to the rest of the 1st world, America isn’t as generous. While absolute money is huge, as a percentage it is more stingy that other European countries.
  • the challenges facing the developing world are huge in scope and depth. Pick one area and go deep. Make it something you care about and are passionate about.

Here’s something you notice when Bill Gates talk: you don’t think he’s just using buzz words when he mentions some health program or a disease or a developing country. He speaks with depth that makes you wary of discrediting anything he says. He is a very smart man who has an impressive grasp of knowledge. I for one have tremendous respect for what he plans to do with the Bill and Melinda Gates Foundation. I hope other successful people adopt the same model. I have a feeling that the good that can come about from the Gates Foundation will top even his incalculable contribution to the modern age.

The first company that spoke was Recyclebank. This was founded by Ron Gonen in New York. The idea is that people take part in city recycling programs but practically all of them never see any money come back to them for their effort. Thing is, the city saves a bunch of money by reducing their landfill diversion fee. So Recyclebank does is that they give people a large container outfitted with a chip, and add some sensor hardware to a truck that goes and collects the container. The chip tells the truck how much the container weighs, and the household is credited with Recyclebank dollars for their recycling effort. These Recyclebank dollars can be redeemed online or in person at a very large number of popular retailers. Recyclebank rolls out their service for free, but it signs 5 year agreements with cities in which they get 50% of whatever the city saves in landfill diversion fees. So far they have implemented this on the northern East coast.

Gonen is a lively and engaging speaker. He started by asking those that recycled in the past month to raise their hands. It was practically unanimous (450 people in the room). He said that’s why he loves California. “If it were New York, this tiny corner would raise their hands.” He then asked “how much of you got paid for your recycling effort?” And only 2 people raised their hands. “Exactly.” After he showed us the website and told us about, he took several ‘VC-like’ questions from the audience. Many of them quite good, about his business model, about how he wards against competitors, etc (“This is why I’m scared of speaking at Stanford. I see you all out there taking notes!”) Then someone asks “what about quality control? What’s stopping someone from putting a bowling ball in the container?” And he laughed. “See, that’s the first question I get when talking to people in New York! But in California, it takes a while before someone brings it up.” Overall, I think the audience was pretty responsive to Gonen’s idea.

The second company was Lucid Design Group, with CEO Michael Murray. I was very interested in hearing about this company, as many readers of the blog will understand immediately. Though not as dynamic of a speaker as Gonen, the demostration he did of their web dashboard for energy usage in a Emory dormitory was extremely impressive. NC State needs to get on board with this. (UNC has a dashboard in their Morrison Hall).

And finally we heard from the CEO of GreenPlug, with founder Frank P. Paniagua. Paniagua was the founder of the Video Electronics Standards Board, which got different vendors to talk to other and communicate their designs so video quality would improve in early computers. He and his wife was going to a wedding and he realized he was lugging around eight or nine AC/DC power converters. This is ridiculous he thought. Paniagua is much older than Gonen or Murray, and he had an easy way of talking to the group like a veteran. He gave some shoutouts to familiar faces in the crowd, and spoke overall in a matter-of-fact way. GreenPlug aims for companies to create a universal DC charging solution. His company has created a chip that lets electronics talk to each other securely about their power needs. So he envisions DC power hubs. “What’s the most coveted spot at the Starbucks or at an airport? The one by the power outlet! It doesn’t have to be like that!”. You plug into a hub with any electronic device, and your device will tell the hub how much power it needs and what voltage and current, and the hub supplies it. Simple. It’s an interesting take on the cleantech that can have a lot of promise — but relies on getting companies to start shaking hands. We’ll see.

Overall pretty interesting panel. I didn’t get to hear John Denniston of Kleiner Perkins talk. I remember seeing him at the social innovation talk last quarter when they had the founder of Ashoka speak. I sat next to a 1st year GSB student from Bulgaria and 2nd year enviro/energy graduate student.

http://www.kenaninstitute.unc.edu/centers/cei/?y=news.20080111&t=News 

We’re awaiting to hear feedback on the first draft of the business plan we sent in. We need to really expand on the competitor analysis and financial projection sections.

Ghosn appears to be the perfect man to lead  two global companies. Born in Brazil to Lebanese parents, he studied in France and is fluent in 5 different languages, with a sixth coming along. Ghosn spoke about the state of the automotive industry and the challenges of bring a very French company and a very Japanese company together towards success. He is an excellent speaker.

He spoke about the cultural problems in Nissan that made it plunge so low (not profit driven, not customer driven, and no cross functional teams). He said that leadership is about getting a group of people to work towards a goal they are uncertain of. When it came to the idea of failure, Nissan and Renault posed two different problems. In Japan, people feel shame when they fail. But failure is part of innovation — Ghosn says that shame comes with repetitive failure. In France, is it the opposite. If a person is doing a 95% great job, the French is likely to point at the 5% and complain.

He spoke at length about the new developing markets in China, India, Brazil, Russia, and sub-Saharan Africa.  In order to open up the possibility of owning a car to more people, they have to drive the price lower. In America, the cheapest car is $9,000. But people can’t afford that. He described a partnership that Renault-Nissan has with Bhajaj Motors in Mumbai where Bhajaj is designing the car while using the resources and technology of Renault-Nissan. Ghosn noted that India is designing cars with the Indian consumer very much in mind. He also gave an interesting statistic for China — the domestic car manufacturers only have 12% market share in China. This is the lowest for any other country. In Japan, that stat is 80%. In America, 40%. In European countries, closer to 50%. So Ghosn thinks there is still some time before Chinese cars flood the international markets — they have a lot to catch up with at home.

Someone asked about hybrid vehicles and Ghosn made a point saying that technological innovation is very different from commercial marketization — a point that I agree too many engineers fail to understand. There are 65 million cars sold every year. How many of those are hybrid/electric vehicles? 0.1%. Yes, it is growing but there is still time before it becomes a big commercial market.

Ghosn showed a quick mind, offered more detailed answers (with figures, percentages, time estimates) than what I would have expected from a CEO, and felt comfortable with the crowd. Someone described the Renault-Nissan alliance as a marriage, and Ghosn said that you don’t judge a marriage by the first sixth months…you have to look where it is after 5 or 10 years. A while ago GM was rumored to perhaps join the alliance, and Ghosn described it as “what happens if you like the father-in-law but think the bride is ugly.” He also noted that when it comes to management, people only care when things are going bad. When things are good, great companies can run themselves. When you’re flying on a plane, you don’t care who is flying until you notice the engines are flaming out and you want to make sure the pilot isn’t some rookie.

As I was watching Ghosn, it really impressed upon me of the notable difference between leadership and management. I know I’ve been taught these topics before, but still. A leader‘s fundamental role is to provide a vision for people to believe in and want to work towards. As Ghosn says, you cannot simply command or order people to be motivated. You have to inspire it. A manager is concerned about implementation and execution, and making sure you have total awareness of what is going on within your organization. I reflect back to the projects I’ve been a part of, and I wonder: have I been more of a leader, or a manager? As a major advisor to this year’s Krispy Kreme Challenge organizers, I realize that I failed to spend the time to truly communicate the vision of what Krispy Kreme Challenge was about and to inspire our group last year. My thoughts would first jump to ‘total awareness’ mode and start analyzing all the things that had to be done and how to execute. I think I did a better job with ARI, the senior design project, because in my role I was able to stay above the gritty implementation part and really make myself available to our undergraduates.

I need to be mindful of this differentiation between leadership and management, and wear their respective hats accordingly.

I have listened to close to 50 such speakers over the past four years, and this talk with Dominic Orr ranks in my top 3 favorite seminars. I truly enjoyed hearing his advice and found my own beliefs and thoughts aligned the same way. Click here to listen to it — I highly recommend it!

Q: Why go from Chairman of the Board to CEO/President?

Orr was first an angel investor, then board member, then Chairman, and finally CEO/President. Orr said that only a few times in a decade that you get a chance to take advantage of a big technology shift. He saw two major turning points:

• rapid mobilization of the workforce — employees now work anywhere
• flattening of companies around the world

The traditional IT infrastructure of companies assumes fixed locations — the good guys are inside four walls, the bad guys are outside. Not true anymore. Aruba had a winning architecture and it was exciting to be part of that.

Also, I was getting bored planting trees (over 200!) and cooking for the kids. ;)

Q: How did your experience with HP’s culture translate to Aruba being a startup?

There are different kinds of HP. The old HP, the transitional HP, and now the new HP. Orr left in 1994, and to summarize HP’s values, it can be distilled down to one thing: the productivity of your employees can be maximized by giving each of your employees dignity, freedom, and trust and let them run free with their passions. The potential problem though is ‘consensus management’ can occur, in which decision making is slowed. Thus, there was a shift to dictatorial management, i.e, increased in speed. Now it has changed back.

In a startup, it is doubly important to give each employee dignity and trust. The people attracted to a startup are motivated and respond well to that value.

Q: Aruba has decided to go head-to-head against giants like Cisco. How do you have the confidence and strategy to go after that?

Day-to-day, from a product level, we have two competitors: Cisco and Motorola. You can’t think of those giants as your competitors — you must treat it like an environment in which you must excel. Every product you build has to fit into this ecosystem that your competitors also live in. You have to fix problems they can’t.

It all comes down to one thing: speed. Speed of execution and speed of innovation.

An advantage of big companies is that they have inertia — the disadvantage is that they have inertia. They have a legacy of products, they have expectations from Wall St., etc. They often cannot afford to rapidly execute a vision because it would cause their expectations to tank. There was a saying when Orr entered the industry: God needed just six days to create the Earth because he didn’t have an install-base.

Let’s not fool ourselves — Cisco and Motorola have some great engineers that are just as good as our engineers. Aruba has been around for just over 5 years; the cumulative R&D spending by Aruba in that timeframe is the same as what Cisco spends for R&D in a week.

Q: How has going public changed your ability to take risks?

Orr commented on the difference of going public with Alteon in 1999 and going public with Aruba in 2007. Back in 1999, you go on your IPO road-show, the black limos are everywhere, the portfolio manager hasn’t even read your statement and just wants the photo-op. Now, they are reading everything, they’ve marked up the S-1 document, looked into your core competencies and business model, etc. There is smarter investing going on now.

For Aruba, going public was not so much about raising money (though $100M is nice), but it was more about branding. When you’re competing against giants, credibility is very important. Why would Microsoft choose you instead of the established Cisco? By going public, you get coverage in BusinessWeek, Bloomberg, etc. and you get an exposure to the CEO and CIO. Then, when their IT department goes to them they don’t say “Aruba who?”

It’s true you are more constrained by SOX, gap accounting, etc. But the branding process is important. Going public gave Aruba validation and credibility. One of Orr’s key objective was to establish Aruba as the clear alternative — break away from the herd of other solutions. By June 2007 they had achieved this by taking the #2 spot from Motorola.

Q: Where do you go for advice and help?

I have a great board. I picked two of my former bosses, even though people said I was crazy. I like going into the boardroom feeling challenged though. I also have been using psychology consulting. There is no lack of talent in Silicon Valley — but if you put all A+ players into a room, will they work effectively as a team? That’s what makes or breaks a startup; confidence in the executive leadership.

What is something that has surprised me? That people who are passionate take a lot of effort to change. This brings me to my management style.

If you want to go for speed — thoughtful speed — then you have to trade a lot of discussion and analysis and go with your gut. I have a phrase for what we use: brutal intellectual honesty. There are too many decisions to make and not enough time. Get all the information and facts available on the table, get a real debate and discussion going, and make a decision. To do this, you need the right people. People can get bogged down though in emotions or politics. If people put their passion 9which is good) with their ego (which is dangerous). When this happens, people put themselves in a corner and must spend time in politics or favors. This wastes time — which is your only competitive resource you have in your hand. Don’t invest your ego — let your intellectual honesty decide.

The phrase also applies to you as a person. Be brutal to yourself. If you find intellectually that another idea makes sense, you agree and accept it. You have to encourage people to be be thick-skinned and don’t defend ideas with their ego. Fundamentally though, for people to be thickskinned, they need to be confident. It takes work and counseling and get people to be comfortable with themselves in front of their peers to achieve their brutal intellectual honesty.

Q: Running a company at this speed must be a 26 hours a day job. How do you manage the work-life balance?

Orr amusingly said that he’s not a good example of work-life balance. But Orr pointed out that he feels that “work-life balance” is not the right word to use in Silicon Valley. He is sitting here talking to us — is that work? Is that life? It is hard for people who have passion to define what is work, and what is life. It’s a mixture. Ultimately though, don’t let technology become a distraction. Don’t check that Blackberry every 5 minutes.

In Orr’s case, he gets passionate about things he loses track of time. So a while ago, he hired an assistant to solely keep track of his time. He ceded all authority on time to this lady. Orr provides priorities. Orr describes the amount of time as a bottle and tasks like rocks, pebbles, sand, etc. How do you fill the bottle? They will say to put in the rocks, then the pebbles, then the sand. So in Orr’s staff meeting, they first put in the rocks, then the pebbles, and often don’t have time for the sand. Now, if they are moving so fast we’ve added a new term: boulders!

Q: You have experiences working around the world. What are your observations there?

Orr has moved around a lot. HP Software in Singapore, Hong Kong, a few labs in Japan, HP in France, he had a lab at Nortel at Ottawa, has been in Boston, Bay Area, etc. Orr didn’t want to provide a regimented way of looking at this complex topic, but he sees one consistent different in domestically (ie, Silicon Valley) versus the rest of the world. In the Silicon Valley, probably because of the emphasis on speed, we focus on transactions. In Europe and Asia, they focus on relationships between entities. There are more similarities though. One thing is that people work like crazy; they work incredibly hard whether you’re in France, Singapore, America, etc. He talks to engineers and has realized three common reasons for why they work hard:

1. People fundamentally want to make an impact. They want to feel that what they work so hard on makes a difference.
2. People have fun. They enjoy work, have good colleagues, have good bosses.
3. People want to be rewarded. Not just financially, which is important. But the other part that is less emphasized is that they want to be recognized. Sometimes small, like a pat on the back, or a mention at an award presentation, etc.

Q: What do you wish you knew when you were a student in school?

All throughout school, Orr was a science school. Orr said that academia is a meritocracy where the unit is the individual. Papers published in your names. Though with large projects you need to collaborate and such, but ultimately it comes down to giving people individual credit and merit. In the business world though, individual merit doesn’t necessarily matter. If a product doesn’t work, the customers don’t care who was making the decision. It matters about the team and the entire company — are the products selling or not. Obviously we give individuals recognition, but from day one its ultimately about the team. If the team wins, everyone wins. Orr wishes he had more of that perspective earlier on.

Now audience members got to ask questions.

Q: Is it in general a hopeful case that the big companies are so busy that the small companies can get a crack into the market share?

Orr says that the most important is to define success. Sometimes there is too much focus initial successes, like IPOs are given to maybe 4 or 5 out of 100 companies. Think about it though: When Aruba reported $41.7M last quarter, Cisco reported $9.3 billion? Is it something to celebrate when you can find a $41.7M crack in a $20 billion environment?

Good ideas are not difficult to find. It is execution – operational excellence — to get through productization and marketing and supporting your product. The 4 or 5 winners have the tenacity and operational management skill to execute.

This is no means of assurance to longevity.

In this industry that Aruba is in, Orr says that if you can achieve $400-500 million you’re a major player. When you’re that big though, your big rivals put the crosshairs on you and you need to be ready to withstand that. Orr constantly reminds his employees that now they have gone IPO, they have simply passed the qualifying round and are just now ready to play.

Q: (my question!) In relation to going IPO was about branding, How do you find a champion in a potential client so when you go to the executive team they feel comfortable choosing Aruba?

Orr said that he definitely doesn’t mind the extra cash either. ;) The ultimate thing in people’s mind is that they have more problems in their mind than creating a wireless network. You need to take problems off their plate. You need to understand, from an executive perspective, what their problems are; their pain points. If a CIO’s operational expense is a problem or his mandate it to gain an operational competitiveness, then that is something to build upon.

Q: How do you feel your advanced science degree has helped you in business?

Well, first of all I try not to tell people! If you ask most people, they will say doing the graduate degree helped in their analytical thinking, etc. That is kind of generic there. For Orr, the most beneficial part was working with cutting edge research and always dealing with questions about scope. It gave Orr one major psychological insight.
Working at the edge forces you to have the courage to face uncertainty. Good scientific research ventures into the unknown. “Brutal intellectual honesty” is demanded not only for success, but for survival.

1. Do something meaningful.

He put up a slide that had a picture of Al Gore with environmentalism and Condoleezza Rice with national security. He wryly noted that often one people like one of them and hate the other. He doesn’t care. The point is that an electric car helps the environment and can improve national security by reducing oil consumption. Three questions he asked when evaluating which alternative energy to use:

a) Net resource consumption per mile?

b) Net carbon dioxide output per mile?

c) Net reduction in petroleum?

Ultimately he settled on Tesla’s choice: large numbers of the lithium ion batteries. The AA kind, commodity good produced in mass quantities at very low prices.

Why have other electric cars failed? GM shut down the EV-1 cause there were never enough customers to make the business proposition viable.

2. Be bold

Eberhard wanted to fundamentally changed people’s conceptions of what an electric car could be. With existing automobiles, you either sacrificed performance for efficiency, or efficiency for performance. Why? Can an electric car be designed to be both? This is why Eberhard chose to go with an eye-catching roadster, to prove the idea. A bunch of Silicon Valley dudes didn’t have the know-how about cars, so they went to Lotus in the UK. Interesting challenge — “homologation” — which is understanding all the rules that you have to follow to make a car legal in various countries and states.

3. Think your idea through.

Write a real business plan — naivety only takes you so far. It will help you think your idea through and find the problems.

4. Build your company too.

Your product is only half the job. Think about what kind of you company you want — what traditions or expectations do you have? Eberhard showed us slides describing the continuing process of building the car, almost on a quarterly basis. Clay model, prototype of motor, first round of funding, first crash test, etc., etc. Some neat crash videos too (the car held up extremely well and matched computer modeling).
5. Face reality.

Wishful thinking is your worst enemy. He also mentioned some key obstacles:

a) they wanted to use commercial off the shelf headlights, but couldn’t get the styling right. They ultimately opted for customized headlamps despite the price.

b) the Lotus base they were working with had a door frame above the height of the seat, which made exiting the car awkward. Since this door beam is an integral part of the structural integrity of the car, they were hesitant to tinker with it. Finally, they decided to redesign it.

c) The unique transmission gave them several problems.

6. Hire the best people.

And get rid of the ones who don’t fit. He made use of Lotus ‘redundancies’ to hire some good talent.

Other observations:

• Battery efficiency has been improving at 8% a year for the last 20 years.
• The EPA tested Tesla’s roadster and found it got 245 miles per charge, combined highway/city.
• Doesn’t care to open franchise dealerships. Says they have very strange silly laws about them. Has slowly started to open stores that can serve and sell the car.
• Thinks hybrids are a good interim solution for the next ~10 years. But ultimately, electricity is the way to go.
• The next car will be built from scratch.

Interesting talk, though I would have liked to hear more about Tesla’s next step — a more ‘common person’ friendly car without the $100,000 pricetag. Eberhard appears to believe that he wants to bring the electric car to the masses in order to reduce oil consumption, thus helping the environment and improving national security. I agree with Eberhard that he needed to change what people think about electric cars, but I’d really like to know more what he wants to do besides the $100,000 roadster coupe.

This talk was smaller, and definitely more targeted towards technical folks. The speakers mentioned specific protocols and described some techniques they used to optimize their website, handle all the user data and backups, the data servers, the advantages of memory caching, etc.

Some things I jotted down from Nathan Schmidt’s talk:

• Amazon S3 for network storage — cheaper and more reliable
• PayPal — don’t bother with other things for the first $100k, PayPal is fine.
• Rent-A-Coder — useful for solving boring code problems.
• Google Analytics — use this for beginning stats
• We spend 5% of our budget on hardware — hardware is so cheap these days
• SOAP + XML was replaced by REST + AJAX
• Linux just works — many ops, logging, and management problems were solved 25 years ago
• Core daemons are free and rock solid: Apache, Lighttpd, Squid, MySQL, etc.

Nathan emphasized getting your ideas up on the web and out in the public. Have an eye for scalability but don’t waste so much time creating so much redundancy into your code — it will likely have to change due to changing consumer demands. Use your speed as an advantage.

Akash Garg, co-founder and CTO of hi5.com was next. Hi5 is actually the 3rd largest social networking site, behind MySpace and Facebook. They started with 4 people in their company, and grew to 70 million users in less than three years. Hi5 is a top 10 Alexa website.

Some notes from his talk:

• Hi5 has gone global much more rapidly than the other sites. Is translated into 6 languages.
• Uses PostgreSQL because they were familiar with it and didn’t see a pressing need to change. They did a tech review and didn’t find a need to change.
• Really concerned about user data and security. Major investments into data centers and opening new centers around the Bay area for greater safety.
• The development team moved to a monthly release for new updates to the system.
• If they have a new feature, they would release it to 5% of the users first then bring the rest of the users on over the course of a week.
• 1/3 of all new features will fail. You can’t get too attached — if the users don’t want it, be ready to cut it.
• Hi5 is up to 45 people now.

Pretty interesting talk. One person raised a question about when is the right time to start hiring. He said he and a friend made a Facebook application that has 7 million users, and its just the two of them. Pretty cool! At the snacks after the talk, the representative from a VC firm came up to one of them and wanted to learn more. I stood by observing the conversation, and thought “wow, these guys are lucky. They have a VC who is interested and wants to learn more.” I was disappointed to see the explanation of their product not come across very well. I could see the body language of the VC rep become less and less enthused. Oh well. They’ve got the app with 7 million users, not me.

Interesting seminar, though definitely geared towards web startups. I plan on attending more BASES events though in the future.

This week featured Donna Novitsky, CEO of BigTent. Novitsky also teaches a global entrepreneurial marketing class at Stanford, and spent a considerable part of her career with Mohr Davidow Ventures. She had a hands-on role and served as an interim VP-Marketing for sixteen different companies in their portfolio, accumulating experience in marketing a wide variety of ideas and technologies. When BigTent came along, she found a company that matched both her personal and professional passions, so she left MDV and become CEO of BigTent. BigTent is a social networking site that creates a platform that help community groups organize and manage themselves. Neighborhood associations, PTAs, Girl and Cub Scout troops, youth soccer teams, etc. are all customers. Prior to her time at MDV, she was a #12 employee at Clarify Business Solutions and helped it grow to a $100 million a year company with over 500 employees. She started in the trenches of entrepreneurship, joined at VC firm, and now is back in the trenches.

Tom Kosnik, a faculty member of STVP, moderated the discussion.

Q: Top 5 lessons learned?

A: As an entrepreneur: go big or don’t go. Is it going to be worth all the time and energy you’re going to be putting into it?

As a VC: determining what is the next inflection point where you can remove risk. working demo? customers? revenues/profits? The key is the align company goals with funding requirements. Nobody can do it alone.

Q: Many people do startups and then go to VC (ie, easy street). Why go back to the trenches with BigTent?

A: At MDV, I had a lot of hands-on experiences with a wide variety of ideas and technologies. I served as ‘interim VP-Marketing’ for sixteen different companies in the portfolio. I went to BigTent because the opportunity matched my personal and professional passions.

Q: What is the big difference between VCs and Entrepreneurs?

A: The best VCs are former entrepreneurs and operating officers. VCs have to judge markets, people, and technology. The day to day jobs are very different. VCs are concerned with strategy, entrepreneurs with execution. VCs are thinking about ‘what’s next’, entrepreneurs are thinking about how to build a team. VCs require diversity in their thinking, entrepreneurs must have a single interest and focus.

Q: What did you learn from serving 16 straight companies at VP-Marketing?

A: That you have to delegate. I learned about different style of boards and it helped me determine what kind of board I wanted when I did my company. Also: money is a commodity –> find investors that share your passion.

————

Now for some questions from the audience.

Q: How important is the company’s name?

A: Moderately. You need to get the domain name, it should be pronounceable. But a lot of startups spend too much unnecessary time thinking about branding and what color scheme their PowerPoint uses instead of focusing on the product and the consumers.

Q: What was your biggest success?

A: My time at Clarify. I joined as employee #12. We did IPO in 5 years. Were a $100 million a year company with 500 employees.

Q: Did you have leadership roles in school? What helped you become a leader?

A: I did the usual student council and some projects in college. My first job at Sun was as a product manager. That’s when you really learn because you are directly responsible for a product’s success (they have sales figures) yet you have no one directly responsible to you. So you have to learn how to talk with the programmers, with customer service, with the sales team, to get them to buy into your idea even though they don’t have to.

A nice seminar by Donna Novitsky. I hope to take her Global Entrepreneurial Marketing class in the winter.