I’m planning to publish a series of “Stuff that Matters” posts over the next couple of months, each exploring a particular industry or opportunity in detail, including such areas as education, health care, open government, energy, disaster response, security, manufacturing, supply chain management, and many more. But before I do that, I wanted my next posts, after the Work on Stuff that Matters: First Principles piece I wrote a couple of weeks ago, to share a couple of stories that illustrate the economic impact of work on stuff that matters.
When they hear the idealism of “stuff that matters”, many people immediately think of non-profits. This is not entirely inappropriate. The heart of my message is that work on stuff that matters is a great hedge in down times: even if there isn’t a huge monetary payoff, you’ve done something that needs doing. And it’s certainly true that non-profit enterprises are often a good way to tackle hard problems that the marketplace doesn’t seem to be addressing.
But I want to make clear that I’m not just talking about charity work. I’m talking about the creation of real economic value. There are huge opportunities for entrepreneurs in solving hard problems, and in so doing creating new markets that can be exploited not just by themselves but by those that follow in their footsteps.
Online Financial Statements for Public Companies
The first story I want to tell is an unusual high tech success story. It is the story of an entrepreneur who created a huge market and set the stage for a big part of the modern financial world, via a non-profit project that he eventually donated to the U.S. government!
It was 1993. The world was just waking up to the commercial potential of the internet, but it was still largely a market of enthusiasts, people who were putting information online for the love of it.
Carl Malamud had a big idea: we, the people of the United States, were paying for a lot of great data to be collected, but we had very bad access to it. In fact, the government was providing the data to “value added resellers” who charged a pretty penny for public access. As Carl himself tells the story:
In the summer of 1993, I was helping my friends at Sun Microsystems give a demonstration of the Internet to the Subcommittee on Telecommunications and Finance of the U.S. House of Representatives….
After the demonstration, Chairman Edward J. Markey, came up to me and wondered if I could look into something that was bugging him. His subcommittee had responsibility not only for the telecommunications industry, but also for oversight of the Securities and Exchange Commission. A bunch of Nader’s Raiders had been sending in petitions to the subcommittee asking why the SEC filings weren’t available on the Internet. The initial reaction from the SEC was that the reason the data wasn’t on the Internet was that it was technically impossible, and that even if the data were available the only people interested in SEC fillings were Wall Street Fatcats and they didn’t really need subsidized access to data they were willing to pay for.
If something is technically impossible, I get interested. I looked at the EDGAR system and decided it was worth taking a crack at it. Our first cut at the problem was to try and work with the SEC. Chairman Markey’s Chief of Staff asked the SEC to come in and discuss the idea of giving us the data and letting us put together an Internet site. There was a bit of pushback, to say the least.
The problem was the 70′s era data processing system that the SEC had put in place in the late 80′s. The deal was that EDGAR was way too rough for consumers to digest. It needed, to speak the MIS lingo of the time, “value-add.” Who would add value? Well, the SEC had cut a contract with a data wholesaler who would add value. The wholesaler, in turn, would sell to information retailers who would add even more value. Then, the information would be sold on the retail information market to the Wall Street crowd who had an interest in the data. Obviously, if we gave away all this information on the Internet, it would subvert our entire Free Enterprise System.
In that meeting with the SEC and the Chairman’s staff, my favorite moment was when we got to the question of why in the world people would want to see EDGAR data. I maintained that the Internet was full of lots of people—students, journalists, senior citizen investors—who were dying for access to this data. The SEC felt that only a few people would want to see EDGAR documents, and besides the Internet (or “the ARPANET” as they kept referring to it) “didn’t have the right kind of people.”
Now, this was a cheap shot, and I understood that what they meant was “there weren’t a lot of people, just a few researchers,” but I couldn’t resist.
“The right kind of people?” I said, rising up in my chair. “I think the American people are the right kind of people.”
So much for the idea of working cooperatively.
Carl got a donation of hardware from Sun, a small grant from the National Science Foundation, bought a dump of the SEC data, and together with a couple of other visionary hackers, built a free Edgar online service that went online in January 1994, starting first with ftp access, and eventually creating a web front end.
Carl and his compatriots ran the service for 18 months, garnering 50,000 daily visitors (a big number in those early days!), proving the point that there was public demand. But, Carl continues:
Our goal, however, wasn’t to be in the database business. Our goal was to have the SEC serve their own data on the Internet. After we built up our user base, I decided it was time to force the issue. That’s when the fireworks began. When users visited our EDGAR system in August 1995, they got an interesting message:This Service Will Terminate in 60 Days: Click Here For More Information
Click here they did! One of the lessons I’ve learned from building Internet services is that when people get something for free, they want their money’s worth.
Just by coincidence, the SEC had scheduled an EDGAR Technology Conference for August 14, 1995. We weren’t invited, natch, but felt that it was a public meeting and it might be fun to attend. The purpose of the conference was to look at the question of filing EDGAR documents, not necessarily the question of disseminating EDGAR documents, but I suspected that our announcement on the Internet EDGAR service might skew the agenda.
I have to say that my faith in government was restored after this. The commissioners of the SEC had clearly not been aware of the issue, but there is nothing like pieces in the Wall Street Journal and 15,000 messages to the Chairman to raise the profile of an issue. We were called in to meet the commissioners and the Chief of Staff to explain what it would take to run an EDGAR service. The new head of MIS at the SEC, Mike Bartell, turned out to be a real live wire and he volunteered to have the SEC run the service.
After a bit of checking with the congressional oversight committees, the SEC said they were ready to go. We loaded a couple of computers in the back of a station wagon and drove down to SEC headquarters and set them up a system. On October 1, the day we had said we would terminate our service, the SEC was fully operational.
The point of this story is threefold:
- Non-profit activity can raise the floor, enabling new kinds of commercial activity. By proving the demand for public access to financial filings, Carl’s project contributed to the world we take for granted today, where sites like finance.yahoo.com and finance.google.com provide to the general public information that was once only available (at high price) to a small population of Wall Street insiders. I’m not saying that without Carl, E*trade and its ilk would never have sprung up, but there’s a reasonable chance that his work made possible more than one entrepreneurial fortune.
For even more graphic examples, consider the internet itself, and open source software, neither of which began with the profit motive, yet created huge commercial ecosystems. Look carefully at the world of non-profits, and you’ll see a shopping list of opportunities for entrepreneurs to build on. I’m particularly excited about opportunities in health care, disaster relief, and energy, all of which are ripe for transformation by new technology.
There’s a huge opportunity for hackers (read: people with good computer skills) to help along the ambitious agenda of the current administration to create a more open, responsive government. (I’ll address some of the most interesting current projects in a later post specifically on the government opportunity.)
- A small number of very technical people can often accomplish tasks that large, existing players consider too difficult, or prohibitively expensive. I’ll be returning to this topic in future posts.
Taking a Venture Capital Approach to Scientific Research
The second story is a report on a meeting I had a couple of weeks ago with Andy Rachleff, a former partner at Benchmark Capital, who has been working on the idea of how to inject more entrepreneurial energy into cancer research, and Lorraine Egan, the director of the Damon Runyon Cancer Research Foundation, who has become his partner in disruption.
Here’s a recent NBC video in which Andy and Lorraine explain what they are up to:
Lorraine also sent me some notes after our meeting, which she has given me permission to reproduce. She asks why we aren’t making more progress in the war on cancer, and answers:
There are a lot of reasons, but the one Damon Runyon is focusing on is the failure to invest in the high risk/high reward ideas of early career investigators. The thinking behind the Damon Runyon-Rachleff Innovation Award is that young people are the most likely to have bold, transformative ideas and the passion and drive to pursue them. They need “venture capital,” but they are not getting it. In fact, they are encouraged to think small.
The scientific community, it turns out, is risk averse and conservative. The National Institutes of Health, with a current budget of $29 billion, funds incremental research rather than new ideas. In fact, only .5% of its budget is specifically committed to new ideas. The culture of biomedical research has evolved into one where researchers focus on singles rather than home runs; where “elegant science” that can be published in journals is the key to success, rather than development of ways to actually prevent, diagnose or cure disease. Additionally, the NIH strongly favors senior scientists. The average age for scientists receiving their first independent grant from the NIH is now a startling 42 for PhDs and 43 for MDs or MD/PhDs. That flies in the face of what we’ve learned about youth and innovation from the information technology revolution.
To try to address this problem, each year Damon Runyon is giving out the Damon Runyon Rachleff Innovation Awards, each $450,000 over three years, to young scientists pursuing high risk, potentially breakthrough research. This year’s winners are doing research on early detection of ovarian and lung cancer, bone marrow transplant safety, and discovery of new genetic markers for cancer.
Now, here’s the point that’s relevant to this post. If any of these folks make real breakthroughs, there will be a big payoff. Much as is the case with traditional venture capital, investing in breakthrough research may lead nowhere, but the successes can pay for an awful lot of failures.
Where We Need Breakthroughs
I’ll be writing followup posts on each of these areas, but I thought I’d outline just a few of the high-potential areas where tackling big problems (problems perhaps now mainly tackled by governments and non-profits) will lead to enormous payoffs:
- Health care. Most developed countries have an aging population. If health care costs aren’t to go through the roof, we need real breakthroughs in reducing the costs of health care – health care delivery, diagnostic procedures, and overhead. There may be some systemic reforms that could reduce costs, but how about breakthroughs in actual technology? (I hope to write soon about a fascinating meeting I had with one entrepreneur who is working on a new diagnostic approach that could replace a $25,000 procedure with one costing 20% as much.) Meanwhile, developing countries will soon be consuming much more health care. If it’s as badly managed and expensive as ours, ouch! And in third-world countries, unmet health needs are a huge drag on the potential of those countries’ peoples to participate in the world economy.
- Energy. New forms of renewable energy, energy-efficient materials, smart devices that use energy more efficiently (think hyper-miling for your house, office, and factory, not to mention a smart grid, are all going to be fertile ground for new fortunes to be made by people doing work that matters.
- Reinventing Regulation and Risk Rating. With the intellectual bankruptcy of ratings agencies like Moody’s and Standard & Poors, there’s a crying need for new tools for financial transparency. What can we learn from reputation systems on the net, from anti-spam efforts, and other kinds of automated detection of malfeasance and breakdown?
- Education. Our educational system needs to be reinvented. Why are we still using 19th century methods in the 21st century? When will we take the best practices of self-starters and apply them to general education? When will we take the opportunity of networking to build educational communities of interest and peer learning? How can we take better advantage of the net’s ability to deliver information at lower cost and to customize learning paths?
There are many more examples. I hope to write in detail about each of these areas, with pointers to startups doing breakthrough work. I’d love your input and ideas. If you have a startup that is working on stuff that matters, or know of one, use the comments to put it on my radar. Thanks.