Don't Automate, Obliterate

On Friday we did our monthly two hour “deep dive.” That is when our entire investment team spends two hours going deep on one topic. This time we talked about how the Internet, twenty years in, has only really disrupted a few large industries so far and there are many that are largely operating in the same manner that they were operating before the Internet came along. Albert postulated that we are only now seeing these large industries be impacted by the Internet.

That led to a discussion about how to recognize the most interesting opportunities in these “laggard” industries. We went back and looked at our portfolio and what we have learned from that. I observed that many entrepreneurs look to use technology to automate a workflow as a basis to build a technology company, but we have learned that creating an entirely new workflow seems to produce bigger outcomes.

Albert brought up a famous Harvard Business Review article from 1990 by Michael Hammer titled Don’t Automate, Obliterate. In this article Hammer argues that reengineering industries using technology is much preferable to automating them. You can read the whole thing on the link above. It was written 25 years ago, but it seems as fresh and relevant today as it was when it came out.

So, to me, the thing to look for when investing in technology opportunities in “laggard industries” is entrepreneurs that want to obliterate business processes instead of automating them. That is hard to sell to the established companies. They will not willingly adopt an entirely new process. They will want you to automate it for them. So coming up with a back door into the industry is often better than a full frontal assault if you intend to use the obliterate approach.

Like most deep dives, we did not come away with a fully formed investment thesis. But we did come away with some important observations and words we can use to talk about them. Automate vs Obliterate is great and I am sure it will be quite helpful as we start looking around laggard industries for investment opportunities.


Comments (Archived):

  1. Tom Labus

    in his Annual Letter to shareholders, Jamie Dimon wrote that “silicon valley is coming to Banking”. He was only talking about the automation part too (lending and payments). Wait until he other part happens to that industry.

    1. YeahRight

      Nothing will happen to the banking industry because the earnings potential is automatically limited to a 3% max per transaction. At most multiple players can try to share that fee, but nobody can double it to 6%. In other words: you can try to pry it out of the cold hands of the credit card industry, but that is all the money you will ever get, no matter how much effort they put it. So what’s the point in going there? The full earnings potential has been exploited for 40+ years.

      1. leapy

        Everything will happen to banking. The returns will reduce to near zero as happened in music.

        1. Jon Michael Miles

          Money, money transfer, conversion, particularly if you look at stored value is an opportunity. Redefining money, now that’s obliterate.

          1. pointsnfigures

            I see ways to obliterate the industry. What you are talking about is chains of distribution. I have thought hard about that since 1999. Prior to today (and it’s not just bitcoin) the tech and reach weren’t there. Today it is.

        2. YeahRight

          Tell that to Katy Perry who has amassed a net worth of approx. $130 million with silly lyrics, not quite the best voice and an average rack.

      2. ShanaC

        there are lots of other areas of banking. Like the short term treasury paper market, which is effectively cash for companies. You could software that (and that is starting to happen)

        1. YeahRight

          If you can sell that to the little guy, more power to you.

          1. ShanaC

            there is a company already doing this, I believe, and making bank, because they charge way lower fees than commercial banks.

          2. YeahRight

            If they are charging lower fees, then they have to make up with volume just to break even, otherwise they are doing exactly what I said: splitting the existing profits.

    2. fredwilson

      lending club is obliterate

  2. JimHirshfield

    I’m thinking the music business is the poster child of this so far. The old way has almost been obliterated. The way we discover, collect, listen to, and pay for music are so different than just a few years ago. And the incumbent industry players have not been receptive participants.

    1. YeahRight

      Only the young ones believe that, we, the old still remember the mix tape, which was basically nothing but the music IP theft of its time.

      1. Jon Michael Miles

        And mixtapes, free ones, are how The Grateful Dead built their empire.

        1. JimHirshfield

          “If you get confused, listen to the music play…”Technically, those were not mixtapes, but concert bootlegs (albeit sanctioned by the band and label). Net effect, the same, and still supports the point you’re making.

          1. LE

            I would guess (despite my other comment) that the similar to “white house leaks” some of those bootlegs very well may have been sanctioned. The idea that back in the day you had sound engineers and people that had access to tapes, and that those tapes somehow repeatedly ended up being pressed or duplicated, is a bit suspect to me. Maybe not all the time but I think definitely some of the time.

          2. Jon Michael Miles

            That’s correct, my bad. All my jam friends would be wagging their blunts at me.

        2. LE

          The question is would the same strategy have worked for everyone?Probably not because then it would not have been unique, noticeable and talked about.The second question is if you assume that it wasn’t the unique part that brought PR benefits to the Grateful Dead, then what did they end up leaving on the table? Assuming money is important (and it might not have mattered of course) then what profit hit did that particular artist take by following that strategy vs. the incumbent way of doing things?In business you often see people break the mold and grab attention. Sometimes those things remain and continue to be effective and sometimes they are ditched. The fact that someone is the first and perhaps only one doing it though is significant. Once it fails to provide benefit and be remarkable it then becomes a cost or chips away at profit. Particularly when competitors simply follow suit and do the same thing. Then collectively they’ve all taken a hit.

          1. Jon Michael Miles

            I think the GD knew their community and assumed they would make the bulk of their money on playing shows. Superfans always spend the most, but they are also likely the ones who rip you off the most too.

        3. YeahRight

          Probably. IP theft is the best free advertising there is.

  3. JimHirshfield

    Is Uber the poster child of automate?

    1. fredwilson

      no, it is the poster child of obliterate

      1. JimHirshfield

        Oh snap! I got that one wrong.I guess they started by automating the process of calling a cab and in the process obliterated the incumbants – or at least directionally headed that way.

  4. Jan Schultink

    Back in the 1990s, management consultants jumped on the “reengineering” bandwagon to do cost cutting projects in big corporate head offices (I did one project like that). It was mostly about making small changes to cut out a form or process step here and there (and squeeze the number of people deployed to do them), rather than big revolutionary changes in how you do business.

    1. YeahRight

      And despite an enormous amount of ingenuity those processes have become actually more expensive, rather than cheaper.

    2. Ryan Connolly

      Very true in the context of selling products and services to existing/incumbent firms. The “reengineering” approach is non-threatening enough to serve as a way-in and opens the door for lots of follow-on work. The obliteration/revolutionary change pitched to an existing firm meets with resistance when the manager across the table sees that, if successful, your product/service will cut deeply into their budget/headcount.

      1. Dan Storms

        I’ve also done a fair amount of re-engineering and prefer to spend my energy now on transformative revenue generating. There will always be limits on costs that can be cut. But the market size is the only limit on revenue. Until you create a new market!

  5. Saim

    Great post! What do you think of “Obliterate and Create”? As old processes, work-flows and industries get obliterated, there’s a corresponding increase in opportunities to create value in novel ways.Take Digital Health, for example. Medication adherence is a $300 billion market, and can now be tackled because of smartphone adoption and connected devices. It’s similar to new drilling techniques increasing the total value of recoverable oil deposits over time.

  6. William Mougayar

    My last job at HP in 1994-1995 was Business Process Re-engineering Manager, and my task was to find what to obliterate before re-automating. I have attended Michael Hammer’s (RIP, 5 years ago) famous 3-day seminar on business re-engineering which he used to conduct at MIT (and was lucky to have listened to Peter Drucker there), have the sweatshirt, the autographed books, the seminar workbooks, the processes, the charts, the experience of doing it, etc… Basically, that was my world. I did this professionally, and when I saw the Internet coming around the same period, I saw it as a re-engineering enabler, although it was happening outside of the enterprise, not just inside of it.I would add to your conclusion, not only are there laggard industries (or segments), there are also weak incumbents whose business will be disrupted again by the Internet and the blockchain.

    1. ChrisS

      Dr. Hammer used to also say, “Don’t pave the cow paths”. We Bostonians understand that one all too well, as this is how our city streets got so convoluted. Chicago, on the other hand, was burned to the ground (obliteration thru conflagration) and rebuilt using fresh new ideas. Anyone interested in these concepts should read “Reengineering the Corporation” which Dr. Hammer co-authored with James Champy. As Fred notes in his post, this information is still as fresh and relevant today as it was in the early 90’s.

      1. William Mougayar

        Agreed. haha on the Boston streets… That book was seminal in so many ways. The only contextual difference I would add is that the book was oriented towards the corporation, i.e. this inner thing. Today, we must direct our re-engineering efforts to what happens in open networks and across people and companies, not inside corporations. Big companies will take care of themselves, but it’s the open collaborative environments that are the more exciting places for innovation and re-engineering.

      2. Cam MacRae

        Classic book; reengineered my brain about 20 years ago.

      3. fredwilson

        i like that”don’t pave the cow paths”

        1. William Mougayar

          Funny, 11 years ago, I had a phone call with Josh K & a common friend. Josh was explaining FRC’s thesis, and he said just that, adding “we follow the cows paths”. We were pitching him on an idea that seemed like no one had paved yet.

        2. Dasher

          I also like “No use putting lipstick on a Pig” to say the same thing.

    2. Nicolas Rodriguez M

      Thanks Fred for the article. Another paper that marked my thought process is “The Manager and The Moron” by Peter Drucker.First time I read it I couldnt believe he wrote it in 1967. We are just starting to realize the real impact of what he described as the information society.I try to read it every year:

  7. awaldstein

    This will take stages to happen to the largest incumbents and categories.For example–Uber is step one is trashing the perishable delivery chain. I ordered some bone broth and to test it, a luli blend, from a friend’s new business.One click, an hour later Uber Fresh delivered it.Listen hard–that is the sound of the last consumer mile in urban realities being reborn.

    1. JimHirshfield

      As has been said here before: it happens slowly and then it happens quickly.

      1. Matt Kruza

        Basically its an exponential growth curve which is really hard to detect (from the outside) when it is still very early … but the insiders can know they have product market fit..

        1. JimHirshfield


    2. Richard

      Notwitgstanding the money they have behind it, it seems like uberfresh is going nowhere (at least on the west coast).Interesting that UBerfresh is also the name of a juice co.

      1. awaldstein

        dunno.someone needs to own the last touchpoint to the customer for perishable goods in vertical carless cultures.they are popping up everywhere. order something and they re the delivery mechanism ringing the doorbell.they stand a better chance than i give Instacart from solving their value quotient at least in nyc.

  8. Dana Hoffer

    I have to smile, so much material has been developed but it seems if it wasn’t written within the last 18 months it is discounted.How about “24 Titles that are Nearly Timeless”?Does anyone have a sharp intern that can drive this for all of us?It could give us a leg up on our summer reading list.

    1. William Mougayar

      I’ve been on that same rant and wavelength for a while. We don’t have to re-invent everything. We can re-adapt, and adjust based on previous learnings. That’s a lot easier than re-inventing (in the context of applying knowledge and experience).

      1. Matt Kruza

        True as a general society and community. But individual entrepreneurs / leaders can’t develop a brand if they don’t re–invent for the most part. Sure there are exceptions, but I think its hard to disagree that you can’t make your name usually without something new (or just a new take or “interface” on something old..which then again is “re-inventing”). It is a skewed incentives game.

        1. William Mougayar

          Note I differentiated by saying “in the knowledge / experience context.” yes, I want entrepreneurs to break things and re-invent them continuously, but when as far as managing organizations and people, there’s a lot of previous learnings we can rely on.

          1. Matt Kruza

            Oh I agree with you a 100%, I guess I just think individual incentives are of. Out of school I worked for Deloitte strategy and ops consulting. One of top 3-5 management consulting firms to Fortune 500 and this problem was endemic. Insanely smart, well-meaning people, but our knowledge management sucked. We re-invented the wheel so much because that is how you established a name for yourself (ironically from what I have come to know from my contacts Deloitte is much better at re-using vs. the other few top tier shops where this is an even BIGGER issue). Guess what I am saying is the way you re-use better is 90% about management aligning a culture that focuses on results and outputs not on NIH (not invented here) syndrome. Takes a strong leader and leadership team to instill AND truly act on this.

  9. LissIsMore

    Nice context. I had not heard that phrase before – but it works. In my mind, the two industries most ripe for obliteration are Banking and Health Information.Of these, I have spent the most time on the latter one. I had a startup formed to provide a real Patient-centered Health Information Service, which I could not get funded so I shelved it. But I recently came in direct contact with the use case while my father was being treated, and eventually died, in a hospital. It is shameful, if not downright scary, how little information health care practitioners operate with. Many times a day, every day, some professional would come in and ask my father “what meds are you taking?”. If I were not there, in the room so my Dad could point at me and say “he has the list”, they would not know.Most people I talked with about funding were looking for “automation” opportunities. But we were promoting a new paradigm, and this made the funding options difficult. It may be that we had a poorly thought out business idea, and/or I am bad at raising money – but this post resonates with me. Thanks for sharing.

    1. William Mougayar

      You are right. The personal medical record is such an important aspect of healthcare, and is ripe for innovation due to archaic solutions. Lots of exciting work is being done in this area.

      1. LissIsMore

        I believe a starting focus on the two ends of the life spectrum – the first few years of life and the last few – would gain traction. In both cases you have surrogates (parents caring for children, and later children caring for parents) which provide immediate value for shared, transparent and complete personal medical records.

        1. William Mougayar

          Good insight on these 2 end-points. i would add – anyone with a medical condition(s) because the quantity and variety of data gets multiplied. (i’ll email you separately as you seem to have had experience with this)

    2. pointsnfigures

      Epic, Cerner et al are vertical silos that are ripe. They control everything inside that silo and their key driver is they own the CFO (billing software inside them is very efficient) The sales cycle in medicine is long-and it’s multifaceted. Knowing how to sell through and shorten the cycle will help startups. Here in Chicago, we have,, and the new medical school that combines engineering and medicine at Univ of Illinois.

    3. Matt Kruza

      The one thing I would caution with the health care space is the number one reason for the problems are govt. regulations and policies. I don’t mean this from a political angle, but simply that incentives are SO distorted because we have virtually no / to very little competition between companies and MOST (obviously not all) consumers pay less than 10% of costs out of pocket. I saw this working at a health care startup in college (that spun out of the Cleveland clinic) and also working as an insurance agent for a 12 month stint recently with how consumers are so underexposed to how things work. With such a lack of transparency it is very hard to innovate. Certainly not point just to complain or launch a tirade, but the practical insight is that in health care I would look at a bootstrapping or “capital light” approach that gets to profitability and intends for the big wins to happy over a 7-10 year approach vs. 2-5 with more traditional tech companies. This is because things will always (unless policy materially changes) move slower than any other part of the economy (short of maybe govt. services directly) and you need more runway to effectively learn theins and outs of the health sector

      1. JLM

        .Almost every opportunity to improve the actual delivery of health care to the masses — underserved or otherwise — is on the wrong side of a regulatory barrier.It cannot be stated with sufficient vigor how poorly the actual delivery of health care is impacted by the very rules that guide its implementation.A classic example is tort reform. It has next to nothing to do with the delivery of medicine but is, in fact, an Irish Sweepstakes lottery for bungled treatment and the lucrative business of liability attribution.And yet, where is has been addressed, the results have been extraordinary.As an example, Texas has tort reform — a balance of streamlining the process, limiting the recovery and ensuring the recovery ends up in the hands of the victims and not in the pockets of the ambulance chasers — and it works.This is a simple matter of national political will and is politics in its very worst form.Another example, is the idiocy of constraining insurance policies and insurance contracts to a state by state marketplace when people are increasingly more mobile and the actual terms of such policies and contracts are all regressing to a very clear standard.Again, this is politics and its bad angels.None of this anything to do with care other than it sucks the financial buying power out of the system which means we cannot afford real medicine because we spend so much money on baloney.JLMwww.themusingsofthebigredca…

        1. LE

          limiting the recovery and ensuring the recovery ends up in the hands of the victims and not in the pockets of the ambulance chasers — and it works.While I personally don’t like the term “ambulance chasers” [1] the interesting thing to note is that much of the problem with what you have seen is related to Barry v. State of Arizona which allowed lawyers to advertise. [2] I remember when that happened. The ability to advertise eliminated the need for lawyers to “ambulance chase” to find cases. And opened up an entire new world of clients to those attorneys who advertised anywhere and everywhere (park benches, billboards, yellow pages, tv). The irony of course is that that supreme court decision was as follows:The Court emphasized the benefits of the information that flows to consumers through advertising, positing that lawyer advertising would make legal services more accessible to the general public and improve the overall administration of justice. Haha on that, eh?You can see what happened and the unintended consequences.[1] What is fair compensation for taking on a case and fronting all expenses with the hopes of a settlement later?[2]

          1. JLM

            .Regardless of how one slices it, the slice of the recovery going to lawyers to tell their stories in front of juries and to seek punitive damages is an enormous cost to the health care industry.Tort reform does not mean the victim is no longer represented adequately, it means there will be no huge awards which are diverted from the legitimate victim to the likes of John Edwards and his particular brand of blood suckers.It is about streamlining the system and getting the dollars to the legitimate victims while capping damages for errors — human errors — which are unavoidable and not the result of gross negligence.JLMwww.themusingsofthebigredca…

          2. LE

            It is about streamlining the system and getting the dollars to the legitimate victims while capping damages for errors — human errors — which are unavoidable and not the result of gross negligence.In theory yes but I’m not sure that with an analog situation like that there is a clear way to legislate and be fair. If fair matters and I’m not saying it does. After all for the good of our country boys go off to war and get killed and what is fair about that?Fwiw I have spoken with several PI attorneys and MM attorneys in two different states (not Texas) and essentially the conclusion I came to was that the gravy train ended and the old model is no longer applicable. (Not scientific, anecdote). Back in college and high school (as I have have mentioned) I used to do photography for PI lawyers and essentially needed to bring back pictures which they could use to bolster their case. If someone slipped on a sidewalk I had to bring back a nice picture of something that they might have slipped on. And make it appear to be a defect. In one memorable assignment a grandfather backed a car into his grandchild and left a scar on the child’s forehead. Apparently I was told. I had to rub the forehead to make the scar appear in pictures.The insurance firms have finally (kind of in a Guilani “no sqeeqee men way enough is enough” have taken a strong stance against this (once again I am told haven’t verified). It is no longer possible to stick your hand out and collect money. They do fight and this is separate from whatever has happened in Texas.

          3. Matt Zagaja

            Tort reform does not impact how big of a slice of a settlement or victorious claim goes to attorneys. It merely impacts the size of the claim or settlement as a whole. The victims who are most hurt by tort reform are also the ones with the most severe damages since they will never see full compensation for their injuries. The most negligent doctors have their damages capped but the ones who make minor mistakes are fully punished. Tort reform is a weird brand of command and control economy to unleash on the practice of law in a place where people usually champion free market solutions.

          4. JLM

            .You are right and wrong — in my humble opinion.If a claim is made and the maximum award is a fixed amount of money, there is no money to be spent on the attorney. Victims can directly petition and get paid the max without using an attorney.Negligent doctors need to be removed from the profession and while the TMA (Texas Medical Ass’n) seems to defrock a lot of doctors, I am sure there are some deserving candidates that escape.The standard as to negligence — willful, gross, simple — is a difficult one to speak about dispassionately but there is some level of mistakes which are part of the danger of the profession. Easy for me to say.Tort reform is a reaction to a corrupt and obscene system in which lawyers become actors and juries become movie critics and courtrooms become film festivals and everything gets PhotoShopped and everyone punishes the insurance companies.The insurance companies, of course, pass it along to their insureds who, in turn, pass it along to their customers.It is a vicious circle but the customer ultimately pays.Medicine, unfortunately, is not a free market industry as it currently exists; therefore it is unfair to suggest that some aspect of it should be allowed to be run as if it were while others are artificially constrained.Tort reform is a good step in ensuring that doctors practice medicine rather than playing defense.JLMwww.themusingsofthebigredca…

          5. LE

            The standard as to negligence — willful, gross, simple — is a difficult one to speak about dispassionately but there is some level of mistakes which are part of the danger of the profession. Easy for me to sayThe devil is in the details (and the nuance) which is exactly why there are attorneys and why trials can last a long time. (As opposed to “tried in the media – let’s hang em..)What say yee to a case involving a doctor that perhaps made a mistake because they didn’t get enough sleep the night before? Or a hospital that didn’t have procedures in place that resulted in a particular mistake? Things that most likely a good lawyer could bring out during the discovery or subpoena phase? That an average person would say “yep surgeon shouldn’t have been drinking until 2am”. Who is going to do that due diligence and uncover facts?I know everyone wants to think this is like porn and they know it when they see it but it’s all a matter of degree. And with that degree comes abuse. How do you make it possible for the right thing to happen without an advocate?I play this game with my wife when she tells me stories at the hospital or when we watch one of those 48 hours or Dateline crime dramas on TV (with limited info presented). I come up with things and say “now if I was the defense attorney I would say such and such or uncover the records highlighting this or that….” showing how easy it is to throw water on a case or support it if you give it a little thought and know the basics of how normal people “the jury” think and act.

        2. Matt Kruza

          We are finally 200% aligned on an issue 🙂 I have plenty of VERY detailed proposals on what can be done, but I think the most effective is simply to increase HSA usage and attractiveness. The reason: it will expose people to the costs and they will THEN actually start to impart the changes needed at a political level. One local businessman I know (worth say $5-8 million I think) started analyzing his bill for a treatment where he was being charged abouot $100 for “saline solution”.. basically water. He asked the doctor if he could just bring a water bottle to drink aftr done, it was safe, and he saved about $500 a year. If his incentives changes, I sure think te average person would. Also lead him to shift companies plan saving a 100 person company north of $75k a year..

          1. guest54

            WTF, saline solution for 100$? I wonder how the saline solution provider got that contract.

          2. Matt Kruza

            Well it was after some sort of blood treatment, so the solution was probably like 10 bucks but the hospital was charging a 100.. just like the $3 PILL of aspirin which retails at like 5-10 cents.. health care providers are most anti-competition, price gougers in the US. But because health care can be “life or death” and there is this noble sentimentto health care providers few question them, especially when the don’t see the bill. As soon as consumers start to see the bill they start to question 🙂

          3. JLM

            .In much the same way that pensions were impacted by the conversion from defined benefit to defined contribution, the cost of health care is taking a similar path.Company insurance (defined benefit) is giving way to a set amount of money per employee paid into an account (defined contribution) which allows corporate CFOs to define their costs per employee with a degree of specificity that makes their tight fisted little hearts beat with joy.Wells Fargo, as an example, made such a conversion in the last few years. They know their costs down to the penny.The big issue will be the tax treatment of the cost of health care — before tax and not income to the employee for company sponsored plans v employee purchased plans (after tax plans and not really deductible) and health expenses cloaked as “savings” plans.The transformation is under way but it will take some legislation to make it work.This is, however, just accounting and funding — it is NOT health care.No employee cares about the cost of health care when the company is footing the bill.JLMwww.themusingsofthebigredca…

          4. Matt Kruza

            Agreed on taxation. it is the “original sin” of health care as the best minds in the industry say. HSA’s combined with ending the pre-tax nature of healthcare benefits would be ideal. Just really hard to do the second (politically), so I think HSA’s are more achievable in short run.

      2. LissIsMore

        I agree that government intervention in this market creates distortions that are profound. And I also agree that a long runway is required. The reward for someone with a long term vision, patience to keep their eye on the ball and funding to traverse the maze is also profound.

  10. leigh

    A friend of mine posted to FB the other day: “Different streaming services signing exclusivity deals for artists, movies or TV shows sends one message: Please just go back to downloading everything.”The entertainment industry and content business is exactly that – where they STILL are holding on to old business models. Your Kickstarter and Tarantino comment – Why they don’t just go to their audience and have more control. And we are seeing the radical shift in ad revenue as the Millennials become one of the most important demographics and they don’t watch Network Cable TV.Perfect Internet storms are definitely the catalyst for obliteration.

  11. pointsnfigures

    Farming. Logistics. Medium and small specialized manufacturing. Autos. Financial Services. Medicine. Gas and Oil industries. Telecom. Not the front ends that consumers see, but the interior processes-tech can even change how the distribution process is organized.

    1. fredwilson

      yes. those are some of them

  12. Guy Gamzu

    The industrial revolution was all about automation of older methods. The main drive to automation was scale. It is the natural meeting point – bringing together innovation and funding. Once automation becomes standard, the second phase is rethinking the automated process and focus on design and service as key differentiators.

  13. Anne Libby

    Another question: what will the entrepreneurs look like? I can’t find this paper online for “free” and remember it well from a bschool course, on “the corridor principle.”…Some of these opportunities are obscure, arcane and not sexy. Some who can/will obliterate will come from inside the enterprise, so to speak, people who can clearly see how the sausage is made. (And speak the language of the enterprise.)

    1. Matt Kruza

      That is an interesting point, and perhaps one reason that is so telling is most (at least many disruptors) are “outsiders” currently. Especially the prototypical “young gun maverick / coder” etc. They certainly can’t claim to be experts with 20 years of experience and connections so based on what you are saying (I think) they are not likely to be ones to obliterate the current process and fundamentally re-design. The flip side of that is most with 20 years of connection / experience and insight are making $200k+ and don’t have desire / incentives to roll the dice on a new venture

      1. Richard

        Fyi, this is exactly the opposite of the conclusion reached in yesterday’s video post here in AVC.

        1. Matt Kruza

          How so? I don’t think so from what I heard. He said they wanted someone with some sort of domain expertise. I am agreeing with that.. just saying that they are less likely to leave a $200k senior job vs a 20 something.. which part do you disagree with?

      2. Anne Libby

        The flip side of that is most with 20 years of connection / experience and insight are making $200k+ and don’t have desire / incentives to roll the dice on a new venture What makes you think this?

        1. Matt Kruza

          Reality 🙂 Now with my tongue out of my cheek, I am not sure if there are quantifiable studies (probably should be.. not sure of some exactly) but if you looked at billion dollar companies (or maybe choose $500 million if you want.. some metric for “transformative” / meaningful) I would bet more are started by 35 and under vs 35 and over.. Now I certainly understand the media distorts how young most founders there are. The main reason is simply what does a 25-30 year old have to loose… likely very little. But someone who is 40-50.. with a mortgage,kids to put through school is not very likely to leave $200k+ jobs, and certainly less likely as a %. Again, can’t define without a study quantitatively, but the theory is opportunity cost is greater and anecdotedlly (both personally and media narratives) seems to support. Why do you disagree? I think you work with many entrepreurs (have checked your blog / site a few times) so very open to data / anecdotes otherwise

          1. Anne Libby

            Check Kauffman Foundation for research on entrepreneurs. Check the BLS for data on employment in industries. Reference librarians are fantastic sources of information on how to find industry data.

        2. Matt Kruza

          Other difference (again just my perception, please challenge) is that many experts morph into a quasi – consulting / more conservative business, again I would suggest this is because they can’t go 2 years with no income and then maybe 5-7 with lower income. (Sure if they raise huge money they may not have to, but because they can’t stomach if their company takes longer to start off, they inherently get less transformative, even though they have more transformative insight). Again, I am 27 so my cohort is more my age (although I know many in the 35-50 professional world) and I could have a skewed perspective but as I type out these responses feel pretty confident this is the reality of how things have played out on average. Sure their our outliers (one great case being the people who started workday … $10B+ by a guy in 60’s I think from peoplesoft or Siebel I think?), but even he was mega-millionaire serial entrepreneur, not a guy/gal leaving a $200-500k job

          1. Anne Libby

            I don’t think so, on so many fronts. Check the largest industries in the US. Retail, hospitality…not exactly fields with tons of people making 200K. First off.Yes, you may have a skewed perspective.

          2. Vasudev Ram

            >he people who started workday … $10B+ by a guy in 60’s I think from peoplesoft or Siebel I think?PeopleSoft. David Duffield:…They were supposed to have had a great work culture and perks – way back before it was fashionable among startups.

    2. ShanaC

      but unsexy is usually so much more interesting underneath its clothes…

      1. Anne Libby

        Exactly. (Minus the innuendo.)

        1. ShanaC

          but my jokes!

  14. Guest

    Questions:What is the difference between obliteration and disruption? Is automating = disruption and obliteration is = to disruption on steroids?The problem with obliteration the way you describe it here is that it makes it harder to sell to consumer and to investors. This reminds me of the “Hey Ya!” song story where success music algorithm predicted this song was going to be a wild hit but when played in radio stations across the country everyone hated it, switched stations.It look studies and hours of observation to determine that while the song on it’s own had the musical potential for a hit, it had a major problem, It was too different from what people feel comfortable with. So the solution was to play the “Hey Ya!” song in between hit songs to gradually make it familiar until it went from being played once a day to 15 times a day at radio stations.The same way, I fear that obliterating product and service ideas may suffer from rejection at first and many will give up before they find out ways to dress those ideas in familiar clothes.Or worse, entrepreneurs will proactively try to dress their products as familiar and they will get rejected as automation and not obliteration.

  15. JLM

    .There are many things in the relentless forward march of progress that suggest — some might say force — us to consider false choices. This is another such example.The answer is not to pick either automation or obliteration but to use BOTH notions simultaneously — separately — and in tandem with each other.A bit of obliteration with a lubricating spritz of automation.One of the examples cited in the work is as old as the hills — the tracking of purchase orders, receivers and payment in the purchasing cycle. It is the most basic accounts payable process design.It is subject to both automation (using DBs rather than hard copy documents) and process re-engineering (using a single DB rather than seperate DBs for purchasing, receiving, implementation, accounting).Once the business decision is made not to pay bills without ensuring the product was properly ordered, properly documented, actually received, inspected/approved and was the right product — only then would accounting (accounts payable) actually pay the bill.Many companies did not have the discipline itself foremost in their minds, so it was first an education issue. Then it was a financial control issue. Then it was a fraud prevention and cash management issue.Once technology was created to stop using paper copies and to automate the database, the troubleshooting — which was the process efficiency being sought — time investment became comparatively smaller.I belabor this point specifically because it is not a transcendental, high tech solution but a simple automation, rejiggering of the process approach which applies to EVERY business out there. The market is huge.Too much current thinking — Re-Work — is being focused upon while the solid work of people like Drucker is being ignored. [Your generation did not invent sex. Or business. My utterance to every generation since FOREVER. Not personal.]This business of identifying a process, documenting a process, re-engineering/streamlining a process, obliterating/totally re-tooling a process has been around forever.A lot of it starts with the necessity of actually figuring out the base case — the original process. I constantly see business processes that are known but not documented. “We’ve always done it that way.”The big idea is simply this — process improvement (including both re-engineering and obliteration) has been around for a long time, tech makes it even better and it will be around forever. It is a constant iterative improvement cycle which will use copious amounts of automation and obliteration.JLMwww.themusingsofthebigredca…

    1. fredwilson

      not so easy. you can only be a slave to one master

      1. JLM

        .Excellent cryptic comment, well played for just its zen quality alone.Not sure exactly what it means. All the easy deals got done in the 1960s.In 33 years of CEOing and 5 years in the Army, the one thing I learned is that that Chinaman Sun Tzu was right — find and exploit the advantage. In everything. Do not become wedded to any single notion.Let the enemy (the marketplace) tell you what to do next once you are in contact with the enemy.The ability to be flexible, to pivot and pursue what works is almost as important as the original plan. More hard and hotly contested games are won by modifications made at half time than at any other time.If that means you have to enslave [I am never a slave to anything, I enslave things. Bristle.] more than one idea, then so it is.JLMwww.themusingsofthebigredca…

  16. Robert Heiblim

    That’s a compelling vision indeed. While letting the air out of balloons by cost reduction is worthwhile, it does reach its limits. I agree that we are still at the early stage of the effects of the internet. Much more change, disruption and improvement ahead.

  17. James Ferguson @kWIQly

    Genius >> So coming up with a back door into the industry is often better than a full frontal assault if you intend to use the obliterate approach.Many big industries deal with commodities one way or another, These generally must be distributed and the underlying physical networks are big and so have huge inertia.So to to avoid commodity trap they must differentiate (eg Energy is just undifferentiated usefulness as a service, UaaS ) or even Service as a Service ! ) – call it Utility !A classic pattern is to acquire into new verticals (look at LinkedIn this week) or in our field in the UK – E.On acquired Matrix – RWE/Npower acquired the SPI Group – SSE acquired ESGAcquisitions creates vertical diversification, but without horizontal integration provides zero sum gain for their clients.To win the provider needs to add a “back door” to add new value (in many industries across horizontal siloes), and so must engage horizontally. Talk not only to HR but also to Training, Purchasing and also Compliance etc etc. This moves the contact point up the hierarchy (strategic sales not tactical)Therefore I believe horizontal support services will be a winner, those that fit the intersection of two or more traditional functionsEg LinkedIn Education + HR = Linda.comEg Utility Energy + Systems Integration = Demand ResponseSo a mechanism to find new sectors would be to take a bunch of verticals as dimensions and look at their intersection. It worked in Sports:Sailing + Surfing = WindsurfingWindurfing + Kites = KitesurfingKite + Parachute = ParagliderTo get really sophisticated – combine more verticals. Effect – longer sales cycle initially at more strategic level – but explosive results when traction is found.

  18. David Feldt

    We’re facing this exact challenge with our JazLife platform which simplifies connection, engagement and task management for residential multifamily industry. Residents / owners love the simplicity of the platform (it obliterates old offline processes) but building managers / property managers struggle with it because they are stuck in their old, offline processes and do not like change … Classic case of laggard thinking.

    1. guest54

      Have you taught it to their admin assistants? I’m an admin assistant, and old-school 50-something managers are legitimately too busy, but then also don’t get the axiom about taking time out to sharpen the axe for better productivity, (or efficiency isn’t a motiving factor due to organizational structures.) If you’ve got the contract. but can’t get managers to use it, focus on the admin assistants, even just one.In my third week on the job at this elementary school two years ago, we had to all go to the board office for training for this program that allows you to take online payments from parents instead of cash. When I arrived, I realized I was the only admin assistnat under 35, and there were at most 7 of us under 50. Most complained that it was too complicated, but I was like fuck yeah, this is 2013 and this system isn’t in place yet? I knew my demographics were perfect for near 100% adoption rate, so when I went back to work, I asked/told my principal that we were going for mandatory adoption across the entire school. We provided tons of support to parents who complained/couldn’t log in, and training and support to the teachers (who some of them hated me for a little while) but they eventually saw how easier it made their lives. (There are legitimate problems with the system, too, that are routinely left unaddressed, so complaints are sometimes legit).Two years later, we have a 95% adoption rate among parents, 100% among teachers, and other schools call and ask how we did it. Of course, the principal and I had to come up with our own systems and policies, and we (I) had to sneak in a shortcut that we aren’t technically supposed to make, but when I saw the alternative (sitting there for hours counting coins), I couldn’t adopt fast enough.

      1. guest54

        P.S. I’m also looking for a job. Hint hint.

        1. Drew Meyers

          Shouldn’t you comment under your real name then? How would someone contact you?

        2. ShanaC

          shoot me an email, I’ll make sure you talk to fred or someone shana dot carp at gmail (the friendly mods strike back)

        3. Anne Libby

          An edtech company should want you in doing Sales!

      2. guest54

        Also, community schools with low-income parents can’t adopt like that, and that’s legit. The point is that this software provider doesn’t have a clue about what it really looks like on the ground to implement this. It means the champion becoming the lightening rod (temporarily) because nobody likes change. I thought, oh the software company will help me with the learning curve, but two years later I have yet to receive a call back from their help department.

    2. JLM

      .Also the property managers have had their own proprietary systems which have allowed them to charge a percentage of gross revenue for providing the system rather than a fixed monthly fee based on the actual work to be done.This is Charles Schwab v full service brokerage writ large.When everyone uses the same platform and software to manage communities, then the mystique will disappear and the business will be compressed.This is truly a commodity business and the notion that it varies in value with the gross revenue derived from the property is nonsense.JLMwww.themusingsofthebigredca…

  19. Salt Shaker

    Obliteration requires eliminating or, at best, neutralizing legacy systems, cultures and processes. In many industries, legacy systems/processes are perhaps far too ingrained for obliteration and/or severely hampered by legal and regulatory constraints.Both the music and entertainment industries are still very much in transformative stages w/ respect to BOTH development and distribution. Streaming music services, particularly those based on a fremium model, aren’t exactly lighting the world on fire. Too much money is being left on the table when a relatively low % of consumers upgrade to a pay model. I think the labels, rights holders, artists, etc., will come to the realization, if they haven’t done so already, that a fremium model isn’t in their best interests. Similarly, the traditional cable model is being turned upside down w/ content providers going OTT to cover downside risk from cord cutters. Not sure how beneficial this all will be to consumers and/or content providers, only time will tell, but the real losers will unquestionably be the many secondary/tertiary cable networks who will wilt and die when MSO’s balk at affiliate comp deals while their legacy financial underpinnings are under assault.

  20. Elia Freedman

    This strikes me congruous to Microsoft’s old “embrace and extend” strategy. Embrace their standard workflow and then obliterate it by extending it into new areas they couldn’t do before, thus making the company reliant on your new process. Soon enough the company will be asking how they did it the old way for so long.

    1. JLM

      .Plus garden variety packaging by extending not just capabilities but also the breadth and depth of the package itself.MS Office, Exhibit A.The 4 P’s still are relevant.JLMwww.themusingsofthebigredca…

  21. Richard

    There is something else that “could” obliterate an industry, climate change. Aka, drought in the siuthwest. This “could” break up large scale agriculture faster than travis obliterated taxis.And there will be opportunities to respond thereto.

    1. JLM

      .California is going into the desalinization business like Sherman burned Atlanta. In ten years, we will never remember why we were interested in rain in the first place.JLMwww.themusingsofthebigredca…

      1. James Ferguson @kWIQly

        Might be a Tragedy of the Commons.1. Desalination uses a lot of energy (rain systems are natures solar desalinator). 2. Done artificially and fast (as would be required) it requires massive amounts of energy. 3. This requires fossil fuels. 4. This drives climate change.5 This drives local droughts.See step 1.An industrial fix to bad design without a technological mitigation increases total process overhead.Maybe we should we all need to re-use resources better.

        1. JLM

          .There have been some very interesting systems proposed that have only recently been taken seriously.California has a number of off shore oil platforms that are stable and have been for ages.If you could marry a membrane — progressive membrane reverse osmosis — system with a packaged nuclear power plant and use the knowledge gained by siting these installations slightly offshore, you could use the same technology that distributes oil onshore to send water back to the mainland.Think in terms of some of these new packaged nuke systems that were originally derived from a US Navy aircraft carrier nuke propulsion plant which provided gobs of power and heat.An aircraft carrier, sometimes with a crew of 4-8K sailors, makes its own fresh water currently.A packaged nuke plant over water is also a much safer installation because it can be submerged to stop an out of control chain reaction though the Navy has never really had such a problem.The California water crisis is very real and has now hit a very interesting inflection point — promised agriculture water flows can only be met by limiting human consumption and use of water.California will have to choose between water for plants (green plants) and water for people.It will also happen in California first because their most populous cities are sea scented and located on the water.I predict they will choose desalination for people long term.One last note, this problem is also a perfect opportunity for long term development of alternative energy use — direct use — of tidal power, solar power and wind power to drive the effort.JLMwww.themusingsofthebigredca…

  22. PhilipSugar

    If that is your new investment thesis we might be talking. I have said for over a decade I am tired of competing against technology companies. Everybody is so smart, so driven, so well funded. I want to go after industries that don’t have any of those three.

    1. LE

      I have said for over a decade I am tired of competing against technology companies. Everybody is so smart, so driven, so well funded. I want to go after industries that don’t have any of those three.Then you are a pioneer and you will certainly have in many cases a more difficult time educating and converting prospects. (Taking the other side of this …)Otoh all of those companies out there banging on doors, advertising and getting PR are making companies aware and take notice and at least consider the product or service. Because it seems like “something is happening” and you know that companies love social proof to justify why they do what they do.Consider the person who commented here today about jazlife and the problems that he is having: Residents / owners love the simplicity of the platform (it obliterates old offline processes) but building managers / property managers struggle with it because they are stuck in their old, offline processes and do not like change … Classic case of laggard thinking.Consider this. What do you think would happen if had several well funded competitors making noise about doing the same thing? (Maybe they do don’t know this is hypothetical for discussion purposes..)That said I think what you really mean to say is that you are tired and annoyed with a bunch of people who have several years of funny money (runway) with little to no business experience (in many but of course not all cases) which makes it hard to compete if you are not funded in the same way. For sure it’s difficult or near impossible to compete against a bottomless pit of money.

      1. PhilipSugar

        My point is not to sell technology to building managers. It is to become the building manager and use my own technology.That is a classic example of where bootstrapping doesn’t work. You need outside funding

        1. LE

          So perhaps you meant to say “go into” not “go after”.

          1. PhilipSugar

            Yes, go into. I don’t want to sell technology to plumbing companies. I want to be a plumbing company and use technology to beat other plumbing companies.

          2. LE

            Which is a great idea. Off the top the experience I had (and I’m sure you had) with contractors is perhaps a very difficult but good example. (Not saying to do this but to illustrate).No follow up, very bad quotation practices (and I don’t mean the lack of automation) an absolute clusterfuck. You have been there of course on a large scale.Me, dealing with a bathroom renovation has been a nightmare. I don’t mean the work (it hasn’t started yet). I just mean the way even the reputable vendors do things. Their businesses practices, their follow up, and how hard they make it for you to make an actual decision by the way that they communicate and present information. The reason of course is that almost all of these guys aren’t very disciplined in their approach (which is most likely why they are contractors). Not that they aren’t smart or intelligent or don’t have street smarts. But they aren’t able to deal in a manner that makes it easy for a potential customer to feel as if they should get the job.In my first business (printing) I knew nothing about printing and other printers had better prices and did better quality. But we were good with follow up and not requiring thinking on the part of the customer. They cared about that more than pricing (once foot in the door of course so you lost on the 1st job). So we tended to get jobs just for that reason (really). We showed up and didn’t make a customer think. So it was easy for “mrs office manager” to give us the work it was one less thing she had to think about. So yes, this does work. After the first job, really not even asked for quotes that much unless an arbitrary project.

          3. JLM

            .I just finished up some renovations at my house which was built in 1950 and I added a second story in 1995 and then a pool and other stuff thereafter.The key to all residential renovations is a good written scope of work and a list of recommended contractors. When I was the neighborhood association president (the pinnacle of my political career in which I crushed all my opponents) I developed a neighborhood directory of contractors and posted it on NextDoor.It has been maintained and expanded since I started it.Competitive bidding based on the scope of work is the key to price efficiency. I had some floors repaired, sanded, stained, finished. The “big” approved custom home sub was $12K and the guy I went with was $2.3K.The little guy had no insurance — got USAA to cover me for 30 days on a construction policy for free — and he ran the operation from his cell phone.He had the same dust free equipment as the big guy but none of the overhead.The floors are done. The floors are perfect.He was, at times, hard to track down. In the end, like all construction, you don’t ever get what you EXPECT, you get what you INSPECT.I am always surprised by the range of prices I get from contractors. It never fails.JLMwww.themusingsofthebigredca…

          4. PhilipSugar

            Having an 1839 Federal, I agree, the price differences are dramatic.It is the only reason I can’t have my wife run the projects. She assumes that everybody gives a fair price (that is what she would do)But when you see 4x spreads, you realize it doesn’t work that way.

          5. LE

            Exactly. Otoh you have to feel sorry for some of these guys. The people that they are dealing with are not people like you who appreciate the better quality and more durable product. They will give a quote to the guy with the lowest price and take their chances. It’s a greed reflex. Now in a world with perfect selling and information you may be able to overcome that in many cases. But the actual product is most definitely (both materials and workmanship) a “commodity”.My point is that it’s a rough world where as I like to say “you can only be as honest as your competition”.The other thing to consider is that the guy who gets the job because he communicates the best (as in my printing example) may not be the guy with the best quality work or the best price.

          6. JLM

            .The most important thing in actually selecting the successful bidder is to ensure that he can do the quality of work you are expecting.This necessity to check references, visit other jobs and to actually see his work is critical.Rather than selecting the lowest bidder, I almost always try to pick the best craftsman and then ask him to get right on the price. I don’t mind spending a little more on the best guy.I also pay him the second the job is done. I inspect, hand him a check and always write a letter of appreciation.I have used some of the same contractors multiple times all to good result.JLMwww.themusingsofthebigredca…

          7. PhilipSugar

            Yes, yes, yes. Spec the work, don’t mind spending a bit extra, pay the second the work is done.The only thing I would add owning a 175 year old house.Tell them if they find something wrong (any house is a box of chocolates) tell me, spec it and get a change order.Supply the materials (to make money or not to lose it contractors will skimp on materials) Yes I agree if you spec (and as you say inspect) right that isn’t an issue, but if you aren’t an expert, one shortcut I have found is to buy materials, and just ask the contractor what is the best, if it doesn’t cut into their margins you will get the best.

          8. LE

            is a good written scope of work and a list of recommended contractors.Otoh to many questions or issues, all at the same time, will totally freak out the little guy 2.3k contractor and he will pass on the job.. I realize you were only doing one discrete element, the floors in this case, but I want to illustrate a point With respect to the bathroom job my wife had developed a list of all of the problems and questions that we had. When I saw it I said “this is going to totally freak them out” (and this was an operating business, but a small one). So I said “let’s verbally talk to him, get the answers and/or agreement, and just present the summary to him as “an addendum to the contract”. That he doesn’t have to type anything or get any anxiety. (It worked).I have always operated on the principle (talking about insurance) of “making it easy for the insurance adjuster”. Back before computerized estimating I would get an estimate (or 3 and pick the highest one) and when the adjuster showed up I would give it to him so he had a framework. (My version of what lobbyists do, eh?) And it typically worked. (Not really anymore of course the ship has sailed on that but it’s still a lesson to follow in other cases). IA didn’t want to reinvent the wheel and lift a pen and if the estimate seemed reasonable they went with it. Anyway, that’s the phrase that I use all the time.My ex wife learned this from me so when she comes with her hand out she fully researches and spends time knowing the detail of what it will take to get me to agree and think “I don’t want to spend the time to save a few bucks let’s just go with what she has come up with”.

          9. JLM

            .This is not my experience.I find the more definition I give the contractor the better performance and pricing I get.One contractor told me he spent almost all of his time defining the scope of work and when I gave him a written scope of work he was able to take off quantities and make his estimate within hours.JLMwww.themusingsofthebigredca…

          10. Drew Meyers

            “I find the more definition I give the contractor the better performance and pricing I get.”Just like estimating costs for websites/apps..

          11. PhilipSugar

            Exactly. Let’s say you just use technology to serve the clients. You win.

          12. JLM

            .The notion of jerking an old economy into the new economy is one of the most overlooked opportunities to create wealth.You are exactly right.I wrote about it extensively based on my personal experience of having done exactly that.http://themusingsofthebigre…Well played.JLMwww.themusingsofthebigredca…

          13. Drew Meyers

            Like Redfin in real estate industry?

    2. ShanaC

      i’d talk to you. I think those areas are interesting in general 🙂

    3. fredwilson

      it is not our new investment thesis. we are trying to make sense of this opportunity in the context of our existing investment thesis

  23. Guillermo Ramos

    There are very few industries that have been obliterated by internet by now (email, press)There are a lot of industries where some critical parts of its value chain have been obliterated (travel: some parts of the value chain will never be obliterated, ie catching a plane or sleeping at a Hotel)Agree?

  24. dolly singh

    Being a digital focused fund its makes sense to see the “internet” as the disruptive force which has revolutioned several industries and has the potential to revolutionize many others.However, it’s important to realize the software/digital revolution has been enabled by the hardware innovations in consumer electronics- so it’s key to acknowledge it is the progress in both hardware and software which has enabled the rise of new industries in the last 20 years, and that one is not possible without the other.Once this is established, the number of ‘laggard’ industry opportunities one can see in the world goes up significantly. Just as much as we need to support business developing the next great digitalPlatforms and goods- we (entrepreneurs, investors, journalists, etc) need to support business making hardware and real products.For example, my company ( is working on a product which which already generates $40B+ revenue a year (and growing), and yet, the product has been the same both from a design and manufacturing process standpoint for 200+ years, and causes direct physical harm to many users.Me and my team see the entire industry (100B+) as a huge laggard which can benefit greatly from the knowledge gained in recent years on structural design, advanced materials and textiles, process and lean engineering, and of course, the creation and development of digital commerce.Part of the challenge we have found is many investment houses understand software because a majority of their investments have been in platform plays, so they therefore narrow their investment interests to only software over time. Hardware is seen as higher risk, requiring manufacturing and supply chain- and so the investment Eco-system of today rewards everyone doing similar types of projects in software but often makes it more difficult for the companies trying to create a real product, in a space that is far more ripe for disruption, far more clearly qualifies as a ‘laggard’, and is far less contested and crowded.So long story stort; opportunities to obliterate laggard industry standards with entirely new approaches and products certainly have and will continue to exisit in software – but it would be prudent for investors to look to the world of hardware/consumer products and see what else can be reinvented based on lessons learned in the digital revolution and rise of Silicon Valley.

    1. JLM

      .Love your company. Good luck.JLMwww.themusingsofthebigredca…

    2. Vasudev Ram

      >However, it’s important to realize the software/digital revolution has been enabled by the hardware innovations in consumer electronics- so it’s key to acknowledge it is the progress in both hardware and software which has enabled the rise of new industries in the last 20 years, and that one is not possible without the other.Spot on.

  25. falicon

    ‘Automation’ can be a great way to build a ‘cashflow’ business (or improve upon an established business)…but it seems like ‘obliteration’ is def. the better candidate for building a hyper-growth (vc-backable) type of business.Awesome nugget to ponder…

  26. victorpascucci3

    Challenge of large entities that can only tolerate evolutionary change which is safe vs revolution change which is not, but is definitely more needed

  27. BillMcNeely

    insurgency Vs Conventional Warefare?

  28. LE

    Can’t help but notice the irony of these statements juxtaposed against each other:This time we talked about how the Internet, twenty years in, has only really disrupted a few large industries so far and there are many that are largely operating in the same manner that they were operating before the Internet came along.Now, note bold, my emphasis:I observed that many entrepreneurs look to use technology to automate a workflow as a basis to build a technology company, but we have learned that creating an entirely new workflow seems to produce bigger outcomes.”bigger outcomes”. Of course with to much money now chasing to few of the deals that seem to produce “bigger outcomes”, we are entering the phase of the scrapping of the bottom of the barrel so to speak. To wit per Albert:Albert postulated that we are only now seeing these large industries be impacted by the Internet.

  29. William Mougayar

    As an ex-Reengineering Czar, here are couple of key quotes from the book, an hommage to Michael Hammer and James Champy:- “Reengineering takes nothing from granted. It ignores what is and concentrates on what should be.”- ” Reengineering is about business reinvention – not business improvement, business enhancement, or business modification.”

  30. Asim Aslam

    Interesting thoughts. Agree with some of the sentiments. Coming at it from a technology perspective one of the things I’d like to do is abolish hierarchical structures within large organisations. As companies grow they somehow develop massive overhead and inefficiencies in all process and decision making. Classically in software development these inherit problems appear in monolithic development.Having been part of an initiative to alleviate ourselves of these problems I’ve uncovered the core of what can transform technological process and reform organisations to drive speed of execution.Hope to share more on this in the near future.

  31. Pranay Srinivasan

    another obvious lever in these industries is geography:1. where these industries operate: some may be globally distributed and internet may bring convergence.2. where the processes are established: well entrenched industries take years to change (USA – Oil, telecom) whereas new geographies without precedent will leapfrog geographies in adoption (India, China – mobile).3. An obvious benefit with targeting early stage cos attacking these geographies is also relatively low competition to fund these deals.please look at manufacturing / fashion / jewellery / healthcare / energy / transportation / air travel.

  32. Terry J Leach

    A thesis for discovering entrepreneurs who want obIiterate is not just those who are not automating existing processes, or I would argue those who want to build a “technology company” because technology is the means to creating the vision. Usually the vision is so expansive, it can only start with a back door or niche, so not to be perceived as a threat yes that is true.There are tremendous opportunities to obliterate some industries where the current “technology companies” automate processes by rewiring industries to create new value by accelerating deflation. It’s an very exciting time.

  33. David

    Fred,Thank you for spotlighting my father’s work on, coincidentally, the day before what would have been his 67th birthday. He had a fundamental belief in the transformative power of ideas, the sacred nature of work, and the need to ask ‘why’ long after others have stopped.I think you’re right to extend these thoughts to the modern-day startup economy, especially in the B2B world. Many startups need to start with automate-not-obliterate solutions to achieve initial entry in the face of entrenched inertia; but he certainly would have argued that the difference between those that will last and those that will not is whether they can use that position to reenvision the nature of the work they’re doing.David Hammer

    1. aweissman

      Wow did not know that your father was the Michael Hammer, David

      1. David

        Yeah, I prefer to trade on my own name where possible.

    2. William Mougayar

      Hi David, Allow me to say that your father’s work touched me and inspired me for several years starting in the early to mid-90’s. I have attended one of his famous seminars on reengineering, and applied his teachings in my job, and we met again once during a flight and chatted. His autographed book is on my bookshelf. He signed it for me on the airplane actually because I had it in my briefcase.

      1. David

        Thanks for the thoughtful note. It’s always deeply rewarding to hear from people who had found meaning in his work.

    3. ShanaC

      is there a midpoint about how to obliterate – what would your father have though

    4. fredwilson

      i agree that many startups feel the need to start with automate. but it’s hard to move from automate to obliterate

      1. David

        There are also lessons to be learned from the success and failures of reengineering as a movement. The initial revolutionary zeal of the reengineering movement turned to a sort of horror as its proponents watched it get manipulated into an excuse for downsizing and mass layoffs.Never underestimate the law of unintended consequences, even when incentives are aligned.

        1. William Mougayar

          Staff reductions was unfortunately a possible outcome of reengineering. In its implementation, there was “change management” involved. (This is in the corporate context of course).

          1. David

            Absolutely. The folks who created the theoretical underpinning of reengineering were a little bit stunned, though, when all these companies wanted to do with dramatically increased efficiency was cut headcount. To my father, at least, this was a fairly disappointing failure of imagination and vision.

          2. William Mougayar

            Agreed, especially as layoffs preceded said reengineering. When I ran the program at HP, the desired impetus was not staff reductions, rather it was about being more competitive, more agile, more efficient, being able to do new things, etc. We already had a culture of continuous business process improvements, and reengineering upped the ante even further.

    5. Joe Marchese

      I think Mike’s and Jim Champy’s insight on process design is the best I have ever seen. I regularly use excerpts from their book to coach teams on how to approach framing processes with clients.I worked with Mike when he was consulting to Merrill Lynch, and attended a Hammer Forum. I found the experiences influence my approach to this day.

  34. george

    There’s nothing more inspiring than a bold idea or thesis that changes the face of an industry (or investment). Truly great read and source of management wisdom, can’t believe this was written 25 years ago.My hats off to the Authors -the article provokes change of action!

  35. Pedro Torres Picón

    This is a super interesting debate, and one we have often at Quotidian where we focus exclusively on companies transforming those “laggard” industries w/ software. While I completely agree that the “obliterate” approach seems to have the potential for bigger outcomes, I don’t think it’s always the right way to go. With either approach, it’s important to consider the actual value created by the solution being proposed.In some cases, a company with an “automate” approach can create huge amounts of value and capture enough of it to become a massive company. A good example of this are SaaS platforms like, which makes a tool to super-charge regular old sales teams by making communication, tracking and benchmarking 10X better and more efficient, without necessarily “obliterating” the sales process itself.On the other hand, look at Uber. They decided the “automate” approach (maybe creating a tool for existing taxi companies to do e-hailing and manage their demand more efficiently) would not provide enough value to the market, so they decided to “obliterate” and create their own system. This approach is especially useful in the form of marketplaces or other innovative ways to deliver services that remove “middle men” like taxi dispatchers that use opacity to hoard a disproportionate share of profits.In the end, I think both approaches are interesting and have their own pros/cons, and it’s up to the founder to decide which to take to create a big company in a particular industry. The key challenge as an investor is finding the right founding team who can figure out the right approach in a given market.

    1. Richard

      Didn’t uber automate (vs obliterate) first? Using exhisting black sedans? I spoke to many a driver in the early days and most were full time independent drivers who Used Uber to fill in down time between regular customers rides. The obliteration followed by first allowing anyone who with a sedan to enter the market without the need to build up a client base and then with UBerX.

      1. ShanaC

        they dd, but it didn’t drive enough value.

  36. FranklinChang…Automation is a godsend. They just need to figure out a way to deal with the unemployed

  37. ShanaC

    Something I’ve noticed: in lagging industries, oblideration is almost impossible to understand without going through an automation phase. The future as an idea has yet to occur to most people in that industry.

  38. Julien

    This reminds me of Thiel’s book, ‘0 to 1’. Automation is merely going from 1 to N because it’s doing the same thing, better. Obliterating is probably going from 1 to 0 and back! You have to destroy what you know about processes to be able to re-invent them.

  39. Michael Assad

    The rail industry is one of those laggards. We are using IoT to automate. I need to think more about how to obliterate 🙂

  40. Michael Lisovetsky

    “It is time to stop paving the cow paths. Instead of embedding outdated processes in silicon and software, we should obliterate them and start over. We should “reengineer” our businesses: use the power of modern information technology to radically redesign our business processes in order to achieve dramatic improvements in their performance.”Obliteration is a lot more useful than automation, as it removes friction from industries instead of enabling them to operate as they’ve always done. It tends to lead transparency, removing middle-men and enabling the end consumer (or user) for success. “Effective obliteration” can only be achieved through a trojan horse into the target industry – it’s the only way to circumvent the existing processes without market forces pushing back.

  41. VidCruiter

    I like to think we do both here at VidCruiter. In recruiting, I noticed that if we sell ” automation of processes” that the HR team can recruit faster and we get less resistance to change… However our workflow system can also be customized to eliminate the recruiting team completely. Our workflow system allows for both cases and the users choose the level of automation/obliteration they want.The trick has been to allow both cases to work in one solution as to not alienate our market and users. I would be curious about your thoughts on this… I feel that is what Uber is slowly doing as well.

  42. Rodrigo

    Great post. Thanks Fred. I like to think of this as the Cortes decision; the willingness to scuttle your ships to prevent retreat. There are so many examples of where this could have worked for an incumbent were they willing to undo themselves from a path to familiar territory.

  43. lostdiaspora

    This strikes me as quite a recursive conversation, I’m commenting about a conversation that included a reference to another conversation that itself referred to yet another conversation and each conversation was essentially the same, “Bring on the Revolution cos we have X now”. (ok I could have just said echo!) We have had several revolutions over the same period, financial, economic, management and technological both hardware i.e. stuff and now digital. The objective truth is that in any information processing business, defined in the widest possible sense, the needle hasn’t really moved in terms of worker productivity adjusted for capital expenditure, e.g. is it easier to open a bank ac now or 30 years ago? (Oh, btw offloading the work on the customer is not productivity growth, its an temporary arbitrage).In a meta sense we keep doing the same thing, fixing some aspect of the corporation, lets replace rational economics with behavioural economics, lets replace workers with robots, lets replace those 1st world workers left with 2nd/3rd world workers, lets replace analogue with digital, lets replace sclerotic old boys club finance with Wild West anything goes finance, lets replace Taylor T&M management with, well pick whatever flavour you want here. In essence we seem to have changed everything but nothing has generated that huge lockstep jump it seemed to promise, that is not to say there hasn’t been tremendous change and opportunities as a result of those revolutions, e.g. Uber, Google, Apple, Microsoft but it’s sniping round the edges because the needle ain’t moving. The expected half life of corporations continues to fall, but productivity growth is at the very best low single digits unadjusted for capex and flat after adjustment.Perhaps a better question isn’t how will digital technology revolutionise but why haven’t any of the previous revolutions worked? I am put in mind of the definition of an idiot, we keep doing the same thing and expecting a different result each time. Perhaps a better approach is to ask what hasn’t changed in all these revolutions, target that and yes, technology will probably be part of the solution but to attempt it on it’s own would result in it’s castration by the turkeys cos turkeys can’t and won’t vote for Xmas. I also think that direction leads us to terra incognita where perforce “there be dragons” but also the chance of a real revolution of the order of the 18th & 19th centuries. Now thats disruption to aim for.

  44. Gari Nickson

    Completely agree with this observation! I run a European startup in the ice age industry of Construction. We started off with designing a completely new workflow where we connect the office to the site and found that users/companies need something they know (backdoor). Only requirement of the backdoor of course is that it should do the job better than what they currently hire to do the job for them. Thanks for articulating Fred what I have been subconsciously operating on.

  45. Bradford Power

    How can the principles of business reengineering be brought to a new generation? How could they play a role in the VC world?This conversation about the Harvard Business Review article “Don’t Automate, Obliterate” is very gratifying for those of us who are devotees of business reengineering, but also highlights the challenge of management fads and hype cycles. If business reengineering is still relevant today, how can it be introduced to today’s managers?Several years ago, I and 3 colleagues created a successor firm to Hammer and Company, FCB Partners, to carry on and share the principles and practices of business reengineering. We continue to teach his courses and a couple we have added, conduct research, and consult. In the 1990s, we worked with Michael Hammer and Jim Champy at CSC Index and Hammer and Company the firms that developed and promulgated business reengineering. I was the executive director of Quantum, a club and research service for reengineering “Czars”, part of the Center for Reengineering Leadership.We have a faithful following of people who took classes, but mostly like William, they are or were at large companies like HP, Shell, and Merrill Lynch. We are challenged in finding ways to connect with a new generation of managers, particularly at small companies, and startups.Do you have any advice for us?

  46. Sebastien Latapie

    This seems especially true for the healthcare industry – there has got to be a better way, and automating most of the processes isn’t the solution.

  47. Vincent Mikolay

    This article reminded me so much of @ClayChristensen ‘s key concept of Distruptive Innovation http://www.claytonchristens



  49. karen_e

    This is a goose-bumps post. Wow. My best friend’s father was part of the Reengineering conceivers at Index Corp and this thread makes me realize I have a lot of reading to do.

  50. Colin Crawford

    While the residential real estate industry has made some moves towards automation this is an industry where its antiquated and over complex processes, endless paperwork, limited information sharing and transparency need obliteration and re-engineering. The attitudes are very entrenched, it remains still largely a relationship business where the agents feel they “own” the listing. Change is resisted at many levels, investment in data and technology for the large part is limited. Not easy but an industry calling out for change.

  51. awaldstein

    resolving climate change?

  52. JimHirshfield

    Good point.

  53. awaldstein

    pre-ordered it.a topic close to my heart as a layman environmentalist, natural wine populist, owner of green products company and duh–i live in the downtown flood zone!