This is a grim fairy tale about a mythical company and its
mythical founder. While I concocted this story, I did so by drawing upon my sixteen
years of experience as a venture capitalist, plus the fourteen years I spent
before that as an entrepreneur. I’m going to use some pretty simple math
and…
For
years companies avoided defense deals due to uncertain government
spending. No more. Harris went all in with its Exelis acquisition and
isn’t going to stop.
by Lou Whiteman
When Harris Corp. (HRS) in February announced a $4.75 billion deal for Exelis Inc. (XLS), company chairman and CEO William M. Brown described the transaction as “transformational.” The company’s first quarter earnings report gave a clear picture of what Harris is trying to transform itself away from.
Melbourne, Fla.-based Harris on May 5 reported fiscal third quarter net income of $125.7 million, topping analyst estimates for adjusted earnings per share but falling short on revenue.
The weakness, which Harris had telegraphed in an earnings pre-release, was attributed largely to sales slowdowns in the communications equipment maker’s public safety and CapRock satellite communications units, with CapRock hurt by a slowdown in energy activity that has led to less demand for remote-communications capabilities…
The dual blessing and curse of Tinder is that you can’t tell much about a person when you swipe right on their profile — what their politics are, what kind of work they do… or if they’re in a relationship. It turns out, a lot of them are. But for those people, is having a Tinder profile cheating?
While mobile app developers have been abuzz about the launch of Apple’s smallest screen, the Watch, Flurry Analytics has seen increasing interest in one of its largest screens - the iPhone 6 Plus. Once upon a time, Steve Jobs said “no one is going to buy” a big phone, and we theorized that phablets were just a fad. Six months since the iPhone 6 Plus debut, we see the new iOS form factor has had significant impact on the global market.
To better understand the impact of the iPhone 6 Plus, Flurry from Yahoo examined the 1.6 billion devices it tracks every month to explore usage by screen size. To simplify analysis, we focused on the top 875 devices which accounted for 87 percent of sessions in March 2015. As a reminder, we categorize devices as follows:
Phablets More than Triple Share of Active Users
It seems consumers worldwide are smitten with the combination of a large screen size and good old fashioned cellular telephony. Indeed, in some early adopter markets like Taiwan and Hong Kong, the share of active users on phablets is 50 percent. Six months after the iPhone 6 Plus launch, phablets are now the second most used form factor, after medium phones (such as the iPhone 6). The growth in phablets from only a year ago is staggering: In January 2014 phablets accounted for only 6 percent of the used devices. In March 2015 the phablet share more than tripled to 20 percent! This growth has come mostly at the expense of medium phones, which lost 9 percent share in the past year. Full-size tablets and small phones also suffered losses in share while small tablets held their ground at 7 percent.
Despite Big Apple Launch, Android Continues to Lead the Phablet Revolution
Almost One-Third of Android Devices are Phablets
According to Flurry Analytics, 36 percent of active Android devices in the month of March 2015 were phablets, compared with only 4 percent on iOS. This is due to the fact that there is only one phablet by Apple, and it was just launched in September of last year. It might take some time for iOS enthusiasts to hop on the phablet bandwagon. To control for the replacement rate of devices (i.e., consumers may wait for their carrier plan to provide a device subsidy), we looked at the number of daily active users for the iPhone and the iPhone 6 Plus. Since the launch of these two devices, there have been approximately 2.75 times the number of iPhone 6s as Pluses. For iOS users, the phone is still winning over the phablet.
As the chart above shows, the number of models of Android phablets has exploded in the past two years. In 2013, only 10 percent of Android phones were phablets. By 2015, phablet share has nearly tripled to 27 percent, largely at the expense of medium phones. Android manufacturers are increasing screen sizes and introducing more and more models of phablets.
Phablets are Here to Stay
The pace of mobile growth and shifting of consumer preferences continues to be the fastest we’ve witnessed in our lifetimes. 20 percent of all active devices are now phablets, up from only 3 percent two years ago and we see no sign of this trend stopping. If there is one lesson to be learned in the phablet revolution perhaps it is this: Don’t bet against the Asian early adopter markets; they are usually onto something big.
While I feel semi-sorry for the people who waited for hours outside of Target to purchase Lily Pulitzer, and then were greeted with this upon entering….
……I actually feel more sorry that you don’t realize you were just punked by a retailer who used the oldest potato trick on the planet.
In the late 1700s King Frederick of Prussia heard about the potato and thought it would be a great idea to introduce potatoes to Germany. So what did he do? He ordered his people to plant potatoes.
One of the problems he faced was there were once traces of poisonous substances found in potatoes that caused leprosy. So of course, his people did not want to plant potatoes even though he knew they were a good crop with high nutritional value and good for their economy.
So what did The King do? He planted a potato field.
On Instagram he preached about how amazing potatoes are to the locals.
He had his soldiers guard the potato fields at night. This of course piqued the interest from locals.
The King then told his soldiers to continue guarding the potatoes, but to let some of the locals steal some without the locals knowing the guards where intentionally letting them sneak some out. So basically just let some of the supply leak, intentionally, but keep it controlled.
Demand for the potato surged. No Lily tunics for you for your trip to Marriott by the Sea. The end.
The opening of the exhibition, “Everything is Design: The Work of Paul Rand,” at the Museum of the City of New York led me to reflect on Paul’s life and work. Paul Rand
was one of the leading designers of the 20th century. He brought a
fine arts perspective to graphic design and helped to significantly elevate the
quality of the profession. There is a powerful mix of simplicity, restraint,
and at times, whimsy in his work that makes it especially memorable. He also taught
design at Yale and authored many books, including A Designer’s Art, which is how I came across Paul when I read it in
the 1980s.
Paul is well
known for his many corporate logos—ABC, UPS, Westinghouse, NeXT Computer, and
our own logo at Morningstar. I was fortunate to convince Paul to take on our
logo assignment in 1991 when Morningstar was just a small company.
I was impressed
with Paul’s work and design philosophy after I read A Designer’s Art. In 1990, as a six-year-old company, we started to
get serious about design. We wanted to create products for investors that were
beautifully designed and helped investors distill massive amounts of data into
reports that were clear and easy to understand. I knew a revamp of our design
program had to begin with our logo. So who better to call on than Paul Rand?
I called a few
designers in New York to track him down. The first response I received was
“Paul Rand? Isn’t he dead?” (He was 77 at the time.) But I persevered. I
eventually found him at his home in Weston, Connecticut. He answered the phone in
a gruff voice: “I’m busy now. Call me back in a month.” An odd approach to
customer service, but I wanted Paul, so I dutifully waited a month.
I called again
and got the same response. I could see where this was going. So I said, “How
about if I fly out to meet with you?” Instantly, his whole manner changed. He
was pleasant and agreed to meet me. He later told me he received many calls for
logo assignments, but no one ever followed up or came to see him. So that made
the difference.
I flew to
Connecticut and spent a wonderful morning with Paul in his home. He had a
beautiful, art-filled home with floor-to-ceiling windows on a wooded lot. It
was snowy outside, and we sat at his dining room table as his wife Marion came
in occasionally to refill our coffee.
Our
conversation focused on art and design. He recommended I read John Dewey’s Art as Experience. He was critical of
IBM for its approach to design. He showed me various works of his that were
never implemented, like a new Ford logo. He wasn’t a fan of decisions by
committee. It was a lively, wide-ranging conversation. But I found it curious
he never asked me about Morningstar.
When we were
wrapping up, he said, “Morningstar….you’ve got a ‘g’, an ‘s’…I’ll get back to
you when I’m done.” I then told him I had two requirements. First, I wanted the
logo and the word Morningstar to be one thing—like Coca-Cola’s logo—and not a mark
plus the word Morningstar. He groused about that but finally agreed. Second, I
told him I knew he designed many great logos, but Morningstar was really
important to me—my life’s work—and I wanted him to promise he’d give me his
best work. He groused about that, too, but finally said he’d do his best.
As we were
walking out, I thought I should ask about his fee. “What are your revenues?” he
responded without hesitation. I told him our sales were between $1 million and
$2 million. “That’ll be $50,000. Half upfront.” He was a shrewd businessman,
too. I immediately agreed, knowing it’d be a worthwhile investment because a
great logo is hugely valuable and the cost should really be spread over many
years.
I went back
to Chicago and waited. And waited. Our head of marketing asked me when the logo
was going to be ready because a new Morningstar catalogue was in production. I
knew from reading Paul’s book—there’s a part about good clients—that clients
shouldn’t bother the artist. Let him or her work.
But after
several months, I broke down and gave him a call. He was in a good mood and
said he was glad I called—he had just finished the logo the day before. He
spent months—and filled several books—with logos with stars in them, playing
off the word Morningstar. But then he remembered where the name Morningstar
came from. It’s from the last line of Thoreau’s Walden,“The sun is but a
morning star.” After recalling the origin of the name, he said he got the logo instantly—a
rising sun in place of the “o” in Morningstar.
Paul didn’t
present his finished work to clients. Instead, he created a booklet that
illustrated his design journey with the logo. At the end is a gatefold that
unfolds the new logo. He said he’d overnight the booklet.
It was a
beautiful, handcrafted booklet that began with the old logo and illustrated the
evolution in his thinking until he arrived at the final logo. On the cover of
the booklet, Paul attached a note: “Joe, here is my best work ever—with 11
letters. —Paul Rand.”
Paul was
very concerned that after he designed our logo “some hack” would make a mess of
its use. I knew from reading his books that a logo becomes great when people see
it many times in many different formats. But it must be used in a consistent
manner and in the right way.
So I asked
his advice on getting design help. He said I was in luck. His teaching
colleague from Yale, Philip Burton, had just taken an assignment at the
University of Illinois at Chicago. So I called Philip, and he agreed to help.
That conversation began a long and important relationship with Philip.
Philip led
us to David Williams, who at the time was heading design at the Museum of
Contemporary Art in Chicago. David and Philip have led design at Morningstar
ever since and helped establish design as one of our core competencies. It’s
something we consider in every aspect of our business, from our workspace
design to how we present information and how people interact with our products.
So Paul was responsible not only for our logo, but for our design leadership. He
cared passionately about creating great work and ensuring we used it properly. Sadly,
Paul died in 1996. He was a giant in the world of design, and we at Morningstar
owe him much.
“If you laugh, you think and you cry, that’s a full day. That’s a heck of a day. You do that seven days a week, you’re going to have something special.” — Jim Valvano, coach of the 1983 North Carolina State basketball team
March Madness is my favorite sporting event. I have the most precious memories of traveling with my youngest son to semifinal weekends and to Monday’s finals. Our trips to the NCAA men’s basketball tournament have, in part, defined my relationship with him.
And this morning, my thoughts are on a very specific game and an amazing speech — both of which can provide us with important life and investing lessons.
“We were such underdogs that even my mother took the Houston Cougars and gave the points.” — Jim Valvano
That game took place nearly 35 years ago in 1983. In that game (the NCAA finals), a seemingly outmanned N.C. State Wolfpack (Sir Denny Gartman’s team and alma mater!) faced the Houston Cougars who were led by two future NBA Hall of Famers in Hakeem “the Dream” Olajuwon and Clyde “the Glide” Drexler. Houston finished the regular season as the top team in the country and were collectively known as “Phi Slama Jama,” so named for the fast-paced showmanship of their game. Going into the championship game, Olajuwon boldly predicted “the team with the most dunks will win.”
Though only a No. 6 seed in their regional bracket, N.C. State Wolfpack was hardly a team of nobodies at No. 16 in the nation. It took an impressive late-season streak just to get them to that ranking, however, and nobody thought they had a chance against Houston (which had won 26 games going into the game against N.C. State). So it was quite a shock to see Lorenzo Charles dunk the winning two points in the last second of the game, and I will never forget Wolfpack coach Jim Valvano running around like a chicken with its head cut off.
And, oh, that speech (at the 1993 ESPY Awards) that Jim Valvano gave just eight weeks before he died of cancer. I still cry every time it is repeated on ESPN.
James Thomas Anthony Valvano was the mischievous middle son born to Rocco and Angela. When he was 17 years old he wrote down on an index card his professional aspirations. He would play basketball in high school (he did at Seaford High School in Long Island) and college (he did at Rutgers), become an assistant basketball coach (he did at Connecticut) then a head coach (his first head coach position was at Johns Hopkins, then at Bucknell and Iona), achieve victory in Madison Square Garden (he did while at Rutgers) and finally cut down the nets after winning a National Championship (he did with N.C. State).
Some elements of Valvano’s life lessons can be adopted into our investing strategy.
“No matter what business you’re in, you can’t run in place, or someone will pass you by. It doesn’t matter how many games you’ve won…. How do you go from where you are to where you want to be? I think you have to have an enthusiasm for life. You have to have a dream, a goal, and you have to be willing to work for it.” — Jim Valvano
The investment mosaic is a complicated one, and no one rule always works. How-to books may sell copies and make money for the authors, but they don’t usually make the readers much money. There is no substitute for hard work in delivering superior investment returns. There are 86,400 seconds in a day, it’s up to you to decide what to do with them. As I have repeatedly written, there is no secret sauce, magical elixir or special stock chart that provides clarity to our investment decisions — rather it is a byproduct of hard-hitting research.
“Be a dreamer. If you don’t know how to dream, you’re dead.” — Jim Valvano
In investing you must find an edge (or, as Michael Steinhardt calls it, a variant or differentiated view) by often thinking of factors/ideas that others haven’t thought. Importantly, you must also avoid being too early — especially if your investor base has a different time frame than yours.
Second-level thinking trumps first-level thinking in delivering returns. As Howard puts it, First-level thinking says, “It’s a good company: let’s buy the stock.” Second-level thinking says, “It’s a good company, but everyone thinks it’s a great company and it’s not. So the stock’s overrated and overpriced: let’s sell.” First-level thinking says, “The outlook calls for low growth and rising inflation. Let’s dump our stocks.” Second-level thinking says, “The outlook stinks, but everyone else is selling in panic. Buy!”
“I asked a ref if he could give me a technical foul for thinking bad things about him. He said, ‘Of course not.’ I said, ‘Well, I think you stink.’ And he gave me a technical. You can’t trust ‘em.” — Jim Valvano
I am often asked by investors (and others) why I don’t usually listen to company executives or the guidance of their investors relations departments. To me, it is preferable to speak to people in the supply chain or to company competitors, for (to paraphrase Warren Buffett) managements often lie like Ministers of Finance on the eve of devaluation.
“My father gave me the greatest gift anyone could give another person, he believed in me. ” — Jim Valvano
You gotta believe in yourself.
You gotta know yourself, too. Wall Street is not a great place to “find yourself.” (There is a reason why there is a cemetery on one side and a church on the other side of the New York Stock Exchange building.) Psychology can be important; it often trumps cause-and-effect relationships that have been in place historically. Above all, have confidence in your own analysis (as long as it is thorough), even if your view is at variance with the consensus.
And of course, Coach Valvano’s most recognized quote: “Don’t give up, don’t ever give up.”
Learn to survive under adverse market conditions by avoiding large losses, and learn how to prosper during good times. Generally speaking, by maintaining discipline and stopping out your losses, you can live another day in your investing life. It is not batting averages or on-base percentages that count in this game; it is how you control the risk in your portfolio. As an example, short positions can be hedged by owning cheap out-of-the-money calls, and long positions can be hedged by owning cheap out-of-the-money puts — especially in a low-volatility setting.
The V Foundation for Cancer Research (created in 1993 by Jim Valvano) has contributed over $100 million to cancer research. If you would like to contribute, here is the website.
Glenn Solomon is a managing partner at GGV Capital. He has led GGV’s investments in Pandora, Zendesk, Nimble Storage among other companies. This post originally appeared on Glenn’s blog. You can follow him on Twitter here: @glennsolomon.
Over the past 18 months, the world has witnessed ever larger and more frequent security breaches of trusted IT systems. Target, Anthem, Sony, Uber… the list is getting longer. The costs are increasing – executives are getting fired and companies are losing market value as consumer trust wavers. While all of this is terrifying, the consequences of future cyber crimes will be even more dire. The perpetrators – organized, profit-motivated global crime rings and state-sponsored entities looking to advance political ideologies – are getting stronger. As I mentioned in my ‘15 predictions post, I believe we’ll see the first major public breach of a governmental institution or agency with a corresponding declaration of cyber war by the US against an enemy. Many others are also focused on this trend. Journalists such as Nicole Perlroth and Danny Yadron have been tracking cyber security issues and have written many good pieces such as this and this, and Brian Krebs keeps an very thorough blog on this topic. Fred Wilson also predicted ‘15 would be a year of exploding cyber security budgets.
I’ve focused much of my VC career on enterprise infrastructure, and given all the headlines, I’m very bullish on cybersecurity. Now, it’s no surprise a tech VC would be interested in security — big deal. But, I want to share why we’re so bullish, what we’re seeing from companies in the space, and how we think the market will evolve over the coming years. Some of key themes emerging that interest us include the following:
Crowdsourcing – Hackers, whether profit-minded or state-sponsored, are organized and sophisticated. It’s an unfair fight when they target an individual company that has only its internal resources to bring to the table. To address this issue, companies developing solutions that extract wisdom, knowledge and coordination from the “crowd” are extremely compelling. Getting the benefits of a broad network of security professionals and experts to help identify threats and remediate these risks as they emerge will be a key strategy to successfully fight cyber-crime in the future. GGV recently invested in Synack to capitalize on this trend.
Analytics & Big Data – Much has been made of the growth in data volumes, both consumer and business related, and the infrastructure to store and analyze this data. While all this new data has become a key attack surface for hackers, there’s also opportunities to spot risky and possibly nefarious patterns in this data as well. Systems that suck in data of all types, correlate it, spot patterns and continually learn to identify emerging risks will be critical as cyber-criminals continue to become more sophisticated. GGV portfolio company AlienVault is doing great work here.
The Consumerization Trend Hits Security – While consumer-oriented, workplace solutions such as Slack, Zendesk and DropBox have been widely adopted in companies, security products are still stuck in the dark ages. Meanwhile most of the high profile cyber attacks originate from “social engineering” or the compromise of an unsuspecting employee or other person with access to a network and applications. Getting employees to comply with security best practices is a real challenge, but consumerization can help change this. Security products built for usability from the ground up, enabling users to seamlessly integrate protection into their existing workflows, will create big value.
Risk is Everywhere/ Protection Must Follow – It’s a great time to be a consumer. Our lights, thermostats, security systems and front door locks are connected and controllable remotely. Tesla has allowed us a glimpse into the future, when cars will be highly connected. Everything from the planes we fly to the medical devices and equipment used to keep us healthy is rapidly becoming IP-connected. This trend will unlock huge value but also creates massive new attack vectors for hackers. The consequences of a hacked front door lock, an airplane or an insulin pump are potentially dire. The bad guys are working on this already. Companies that seek to protect the connected-everything systems that are now proliferating are necessary and the payoff for successful players will be huge.
Cloud Security Coming of Age – Most security companies we meet support a specific form factor and deployment architecture. This is increasingly irrelevant. Hackers don’t care about form factor; they only care about accessing sensitive data and compromising applications. In a cloud world, this type of data can live anywhere and applications can run in a very distributed fashion. Winning security companies will build their solutions to be relevant for a cloud world – nimble, agile and form-factor agnostic to protect key assets regardless of location.
While the cyber security industry is poised to create some huge winners, it’s important to note that there will never be a perfect solution. No company can hope to completely wipe out all cybercrime; the best one can do is to try to stay on par with, or a bit ahead of, the hackers. As such, the best companies won’t build products for a point in time but will focus on continuous innovation. Additionally, as vulnerabilities proliferate, the best entrepreneurs will prioritize and focus on those with the biggest payoff.
If you’re interested in this space – as a seed or VC investor, a founder, an executive or a CISO/ security-focused IT professional, please reach out to me. I’d love to connect to compare notes and collaborate.
High-res
High-res
