Posted 30 November 2004 - 06:51 PM
I continue to see astounding differences between the Alinea effort and what the Sand Hill Road and Winter Street venture capital communities do. In my first post I did not indicate which I prefer; actually, my main point is that the Alinea case is the good example and one that Sand Hill-Winter should learn from. The thousand or so MBAs at Sand Hill-Winter have a lot to learn from Chef Achatz and Nick Kokonas! Good for Alinea!
"I am indeed the generalist that Project accuses me of being, but I have at times been a specialist."
Oh, no! Clearly I didn't know enough really to "accuse" you of being a "generalist"! I just said "Mr. Kokonas seems to be the closest approximation to a 'generalist' ....", closest on the Alinea 'team', and how "close" left unspecified! My statement would still be true even if you were 99% as good a chef as Chef Achatz!
The business plan and fund raising process you described in "1)" makes good sense. I remain surprised at how different your process was from the Sand Hill-Winter process. Good for Alinea!
Directly for Alinea, my remarks on research were mostly just
"Yet, Alinea seems fully eager to exploit research and, possibly, even contribute to it."
I do believe that Chef Achatz and his staff are ready, willing, and able to draw from H. McGee's books and its references and just as easily could chat with chemists about pH, aerosols, aromatic esters and other flavor compounds, components of wines, contents of some 'secret sauce', chat with microbiologists about cooking without oxygen, chat with physiologists about senses of flavor and smell, and, from such chats, possibly draw from related research, recent or not. Here, then, is how Alinea might "exploit research".
Possibly "contribute" to research?
At some point, it may be that such discussions with scientists could result in some trials in the Alinea kitchens with surprising results -- uh, it was supposed to have nearly no taste, but it tastes great or it was supposed to taste great but is as flat as the floor and duller than the back of a Sabatier, why? -- that would stimulate further investigations in the scientists' laboratories and result in peer-reviewed papers of original research by the scientists with at least acknowledgement and possibly coauthorship for the relevant Alinea staff. Here, then, is how Alinea might "contribute to" research.
Of course with such things there can also be points of intellectual property.
My view is that, in 'information technology' the Sand Hill-Winter approach regards the contents of the shelves of the research libraries as distractions or at best worthless nonsense and any original research, even if already done and past peer-review, as more of the same. My guess is that this view is excused by the success of W. Gates, a college dropout. Really, the 'information technology' community is afraid of, intimidated by, contemptuous of, hung up on the 'risks' of, any contact with 'research', and this is a major mistake. Chatting with a scientist occasionally does not have to be a major business risk! Here Chef Achatz is or can be well ahead of 'information technology' easily. Good for Alinea!
"3) I see no difference between any ongoing production venture and Alinea when it comes to creativity. Intel spends billions per year trying to be innovative and creative. They try to hire creative engineers. I think it is the same here."
At times Intel has tried to be creative (I omit examples), but my view of Intel is that A. Grove has been single minded on just shipping faster processors with old architectural features for Microsoft's Windows and letting everything else slide and that almost entirely Intel's development expenditures have been aimed at building the next plant with smaller line widths and more gates per unit area and that otherwise their attempts at creativity and innovation have contributed surprisingly little.
I gave my view on creativity in Sand Hill-Winter startups.
Net, to me Alinea still seems especially, and commendably, 'creative' for US business, in particular, compared with Intel!
"I don't think that the VC's themselves always believe in these investment trends, and the good ones ignore them completely and keep an open mind."
Well, that's what the "good ones" really should do. Actually, mostly I blame the limited partners!
"Ever hear of the term 'due diligence?' You have no idea how intensively most startups are studied when serious investors come in."
Yes, I do have more than just an "idea"!
For evaluating technical work in 'information technology', the editors of the relevant research journals and the research problem sponsors at the US DoD, DoE, NSF, and NIH do well; the Sand Hill-Winter people have yet to get started. Partly I blame myself: When I was a professor in an MBA program, I made some efforts to say how to evaluate information technology but didn't get enough across clearly enough! Likely the VCs do much better with biomedical where it is accepted that advanced technical material is relevant.
"Anyone investing in Alinea would do so because of Trio. Similarly, most investors will invest in people with a successful track record. The lengths of business plans vary widely and wildly."
I believe that lengths of plans should and likely do vary "widely and wildly", but 25-50 pages is a quite common recommendation from the Sand Hill-Winter people. This recommendation may be more to reduce the effort to handle the 1000 plans that they reject than to better understand the one plan they accept. Also, even for a plan to be accepted, the shorter the plan, the less there is to check! Whatever the reason, the assumption that an elevator pitch, etc. should be sufficient for a clear explanation, clear enough to separate from, say, perpetual motion, for a business intended to generate the VCs' desired ROI is close to absurd. "Or, a billion dollars is just sitting there; here in 25 words or less is how to get it; although we have described the opportunity meaningfully in 25 words or less, still no one else can see this and beat us to it". Sure. Right. And if you like that, then I've also got this great bridge in New York you'd really be interested in!
Yes, the history of Chef Achatz at Trio, French Laundry, Charlie Trotter's, etc. was no doubt important for the investors, and clearly the Alinea investors were able to evaluate this history.
In contrast, in 'information technology', the Sand Hill-Winter investors commonly have a more difficult time evaluating technical accomplishments.
"Any tech company that does not engage in continuous product improvement quickly finds itself out of business. Version two follows version one, and there is furious competition between companies on the basis of features. Much more so than at most restaurants."
Thus, apparently we differ on 'creativity'. My view is that in 'information technology', especially in software, version n + 1 is not a very good example of 'creativity'. Much of version n + 1 is fixing bugs, adding functionality needed and originally envisioned but delayed, or responding to clear requests from customers. Really, it is as if all the creative parts were done before the first funding round and no further creative efforts are expected, attempted, or wanted.
For "furious competition between companies on the basis of features", I doubt that Alinea will see their menus quickly copied elsewhere, and, similarly, for any genuinely advanced product in 'information technology', there is very little, commonly really no significant, competition for functionality, features, etc. If there is so much competition, then the original work was not very creative! So, for a genuinely advanced product, I do not see "furious competition between companies on the basis of features".
For the Sand Hill-Winter investors, my view is that they want to see the 'creative' 'intellectual property' before writing the first check and will count any prospects of any future creativity as, with a dime, at best just enough to cover a ten cent cup of coffee and more likely a dangerous distraction.
I do believe that Chef Achatz and his investors are intending and counting on continuing creativity quite far beyond what Sand Hill-Winter consider and that here that Alinea fully correct and that Sand Hill-Winter are making some big mistakes.
Heck, I could even see some good Alinea customers coming once each two months or so eager to see what new creations they will find from Chef Achatz and team! Good for Alinea! Of course, the better Alinea does for such good customers, the more they will be creating a tough act to follow!
"Frankly, the R&D budget for most serious high tech startup represents a much higher fraction of expenditures than at Alinea."
for "R", there is essentially none budgeted for Sand Hill-Winter "high tech" start-ups or, as I understand it, Alinea. For "D" for "high tech", yes, but the work is rarely very creative; at Alinea, the work is fully creative.
So, I conclude that Alinea is more creative than Sand Hill-Winter are willing to entertain. Good for Alinea!
"High tech startups are often started by a partnership between technical specialists and management specialists. Look at a company like Google, that was started by a number of technical wizards, or Juniper Networks, or Amazon. All these companies depend on the expertise and vision of a very small core number of highly specialized people."
For this, my claim basically was that Alinea has a greater role for specialists and a smaller role for generalists than Sand Hill-Winter say they want to see. Good for Alinea!
You are correct in your "High tech startups are often started by a partnership between technical specialists and management specialists.", but Google is an exception! Apparently L. Page and S. Brin were graduate students at Stanford when A. Bechtolsheim invested the first $100 K and relatively soon got M. Moritz and J. Doerr involved. Quickly the investment rose to $25 M. E. Schmidt, to play the role of the 'generalist' or source of 'adult supervision' although he has an excellent specialized background, didn't come over from Novell until much later. Google is one of the high points of insight by Sand Hill, but as 'information technology' the original Page-Brin 'page ranking' ideas appear not to be very advanced. Basically Google is a telephone directory for those of the four billion internet protocol addresses used for HTTP on TCP/IP port 80; that Google could make so much from advertising, especially from their rather subtle approach, is amazing. So, even with Google, Sand Hill was not betting on anything very advanced. My view is that in being advanced the work of Chef Achatz is quite competitive which puts him up with one of the high points of Sand Hill. Good for Alinea!
For Juniper, it appears that T. Li was the technical wizard; I do not recall the rest of the original team. At Amazon, apparently J. Bezos was the main person; I am not sure there was much more of a team.
Google, Juniper, and Amazon aside, the Sand Hill-Winter people in what they say continue to put high emphasis on a team with generalists and at most secondary roles for the specialists, higher emphasis on the generalists than in the Alinea example. So, Alinea is ahead of at least what Sand Hill-Winter actually say. Good for Alinea!
"This is not the opinion of anyone who actually understands software. It is understood that creating and maintaining software is an incredibly expensive and tricky proposition. Consulting is, in fact, looked upon as a much safer business proposition due to the lack of development time and quick time to cash."
What I said was:
"For this growth, software is looked on with favor for its near zero per unit cost of production, e.g., just copy a CD; ...."
So, I said that making a copy of a CD was easy; I did not claim that writing the original copy of some valuable software was easy.
Could it be that I am one "who actually understands software"? Let's see: I have worked in software for years and done simple things, some of the most advanced scientific things, some of the most advanced military things, and some of the most advanced commercial things, hold a Ph.D. in engineering from one of the world's best research universities where my Ph.D. research was heavily in software, have taught the subject at the university level and, as a professor, developed and taught a graduate course in software, done successful research in software at one of the world's best laboratories of computer science, have a long string of peer-reviewed publications in software, have done serious work in systems management, systems administration, and systems planning. Gee, what does it actually take to be one "who actually understands software"?
"It is understood that creating and maintaining software is an incredibly expensive and tricky proposition."
well, this is correct in general in practice but has not been my experience or that of the best people I have worked with! The secret is to understand software, and very few in software do! Actually, quite powerful understanding has long been available but is routinely ignored in practice.
Far too commonly the software community rushes to get something that appears to work and later tries to patch the problems that appear in practice; this approach must create huge messes and does and explains what you have observed is common.
For a small connection with Alinea, I would urge the staff to generate detailed internal confidential documentation, possibly with a video camera, hopefully also with weights, volumes, times, temperatures, viscosities, and remarks on color, aroma, and taste, of just what they tried and what the results were.
"Consulting is, in fact, looked upon as a much safer business proposition due to the lack of development time and quick time to cash."
you will find that overwhelmingly the Sand Hill-Winter people regard consulting as a low margin business that is difficult to manage and not 'scalable' and want nothing to do with it!
While I do believe that Alinea is a good investment, generally on consulting and 'services' business I agree with Sand Hill-Winter that a software business where producing copy n + 1 is essentially free has a great advantage.
"Such innovation incubators as you speak of have never proven themselves in the real world. Innovation is way to erratic and dependent on bright individuals to be put under such controlled conditions."
You are correct that the 'incubators' were a big flop. That the "controlled conditions" were the cause is likely a good explanation.
But, I did not use 'incubator', and the investors I spoke of did not regard their direction as an "incubator". Instead, these investors just believe that, with their "deep domain knowledge", long industry experience, and great insight, they see the opportunities better than the entrepreneurs. The analogy would be restaurant investors that really like good coconut cream pie (I do) and then pushing their chef to concentrate on making such a pie. Clearly these would not be Alinea investors; good for Alinea.
I agree with your "Innovation is way to [too] erratic and dependent on bright individuals" and would say that it also implies that investors need to place more emphasis on the specific entrepreneurs and business plans.
For Alinea, it would be easy for an investor to say "Ah, the restaurant business, that's a low margin sector. We pass." But, for Chef Achatz and Alinea, likely not! So, once again, the Alinea investors looked more deeply than Sand Hill-Winter! Good for Alinea! The Alinea investors stand to enjoy their deeper examination on each visit to the restaurant and the bank.
"Frankly, Alinea as a business is a nearly risk-free venture ...."
for the reasons you gave and others, I agree. Alinea doesn't look like another Google (nearly nothing does), but it does look like a good investment, better than a lot that Sand Hill-Winter have pursued! Good for Alinea!
What would be the right food and wine to go with
R. Strauss's 'Ein Heldenleben'?