The Empathy Economy

Op-ed published February 7, 2018 on Business Insider

Throughout history, different eras have begotten different heroes of productivity in industry. In the 80s, the stock broker was the rock star of the business world. In the late 90s and 2000s, it was the computer programmer. For the last decade or so, it’s been the data scientist. As the work of data scientists and engineers creates the Automation Age, the next industrial rock star will be the customer service specialist.

Before you scoff at the idea of what may be considered a lower-level job today, ask yourself what happened to the stock broker? When’s the last time you talked to one or even heard of one? Jobs ebb, flow, and disappear. The importance of a function today is not equivalent to the importance of that same function tomorrow, and it never will be.

Humans have three core capabilities with which robots cannot compete: creativity, community, and empathy. As we enter the Automation Age, where the fear of robots replacing human work is likely to come true, those three skills will enable the future of human productivity. The last of the three, empathy, should well be considered the most important.

Empathy is what most makes us human – the capacity for mutual understanding. As the Automation Age eliminates rote and some not-so-rote tasks, it will create an opportunity for humans to capitalize on empathy. The manifestation of empathy in industry is through unique and memorable customer service, no matter the business. Welcome to the Empathy Economy.

The Empathy Economy is an intentional spin on the Sharing Economy. Just as the Sharing Economy was a byproduct of a super connected world via the Internet and smartphones, the Empathy Economy will arise through the result of job loss from automation. Uber, Airbnb, WeWork, and countless other business have changed the way humans think about asset ownership and even asset leasing. If users own assets, they want to get more out of them. If users need assets, they want instant access to them on demand without the burden of ownership. The Sharing Economy, as with all functional economies, is efficient in matching two complementary desires. The Empathy Economy will similarly match humans or businesses who desire empathic services with those willing to offer them.

We see 3 core opportunities within the Empathy Economy:

  1. Services that augment human empathy: For example, a lightweight CRM tool that enables employees to instantly recognize customers when they walk in the door, remember details about their lives, and know their preferences for service at the business.
  2. Services that build empathy: For example, a simulated environment that puts trainees through various situations to help them understand why another person feels a certain way and how to best serve them.
  3. Marketplaces that match buyers and sellers of empathy: For example, a platform that makes freelance customer service experts available for various tasks that might require a human touch to differentiate and enhance a particular service.

Today’s businesses must adopt automation technologies and embrace the Empathy Economy simultaneously by leveraging empathic customer service specialists as the face of their automated tools. In other words, people will act as a truly human skin on the work being produced by robots.

In the future, H&R Block will leverage AI to automate every customer’s taxes, but it’s also likely that they’ll need a human, who may only have cursory knowledge about accounting, present the sensitive reality that a customer owes the government a few thousand dollars in taxes; or perhaps the joy that they’ll be getting a few thousand dollars in refund. Either way, the human presentation creates a differentiated customer experience that can be distinctly H&R Block. Using only automation as their selling point, which every other tax prep service will also have and may only vary slightly, will necessitate a race to the bottom in price. In this example, H&R Block could benefit by adopting services that help augment and build empathy as the core skill of their customer service specialists.

Another outcome of the Empathy Economy could be Target leveraging a marketplace for freelance workers with specific product expertise and high empathic qualities to deliver orders to local customers with personalized service. Similar to the tax example, this moves the discussion away from price towards experience, which can command a premium.

You may be wondering why empathy is the greatest opportunity in the triumvirate of uniquely human traits. Creativity and community already exist in a structured sense in our societies. Creativity has always been a democracy, but the Internet made the distribution of creativity available to all. There are numerous ways, both online and offline, to share creativity and get paid for it, YouTube and Patreon as examples. These platforms will only become more important in the Automation Age. As for community, traditional institutions provide this now – governments, churches, schools, local businesses, etc. Technology will help these institutions continue to evolve with automation; however, trusting relationships between people will remain the heart of community because, by definition, it has to.  Empathy doesn’t yet seem to have a defined structure for application in our world. We know it’s important and the best businesses find ways to implement empathy into their culture, but it’s still a nebulous, unmeasurable thing. The Empathy Economy will change that.

It’s cliché to say that empathy is in short supply today because every generation probably has the same sentiment. The good news is that automation will force humans to be more human, and the Empathy Economy will create opportunities for humans to monetize a uniquely human capability. True empathy isn’t easy, but it’s the most powerful expression of humanity. In a world full of robots, empathy can only become more valuable.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Simplicity Series: Augmented Reality

Last week we wrote about simplicity as a driving force behind the world’s biggest technology offerings. We’re extending our thoughts on simplicity into a series that explores the necessity of simplicity in frontier technology. First, we’ll dive into AR.

Simplicity for AR in 2018 must start with a question: “What does AR do?” Not in the literal sense. We all know it overlays digital information on the real world. What the question needs to answer is what undeniable and unduplicable benefit AR confers to its users. What can only AR do?

The smartphone put a powerful computer in your pocket that lets you work and play from everywhere. Apple makes the smartphone so simple anyone can pick it up and start working and playing instantly.

What can only AR do?

The Internet connected you with the world’s information. Google sorts it for you. Amazon lets you buy things you find.

What can only AR do?

The answer isn’t that it puts a computer with the world’s information in your eye. That’s only marginally better, maybe not even, than what we have now. Marginally better is fine as an emerging feature on smartphones today, but it won’t drive mass adoption of AR wearables that people wear all day long.

The problem is more obvious when asked what the killer use case of AR is. To be clearer, a use case the average consumer could engage in every day. It’s not envisioning a new couch in your living room or getting step-by-step instructions or doing facial/object recognition. AR doesn’t have the advantage of email, messaging, and web browsing as the smartphone inherited from the Internet. Because AR is a true paradigm shift in how we interface with computers, we need to rethink communication, information collection, and information consumption specifically for AR. That hasn’t happened in a meaningful way yet.

Our tone here is tough, but only because we think the AR space has been taking a pass at answering this hard existential question in favor of experimentation with hopes that customers figure it out for them. We remain bullish on the future of AR and think the answer to our core question here might have something to do with the relative “nearness” of information it creates. To elaborate, we’ve evolved from a limited keyboard-style interface to a touch interface to a mixed reality interface that might incorporate gestures, thoughts, voice, etc. Interacting with information is becoming much closer to how we interact with the real world. This answer isn’t perfect, but we think it’s in the right direction.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Thoughts on Closing Loup Ventures Fund I

We’ve got a long way to go, but we’re excited to report our early progress towards building a leading investment platform pioneering frontier technology. In late December, we closed on Loup Ventures Fund I, a $25 million multi-stage venture capital fund focused on investing in frontier technology companies.

Now, Loup Ventures’ mission is a shared one.

We’re honored to work for the team of limited partners that invested in LVI. We’re grateful for their belief in us as we build something from the ground up. That trust has given us a deeper level of respect for the opportunity ahead of us: to create a portfolio of entrepreneurs we believe in.

Thanks also to everyone that’s been willing to connect with us as new VCs and support us on that journey. We’re looking forward to returning the favor and paying it forward.

Every VC Should Have to Raise a Fund At Least Once. We liken raising a venture fund without a traditional VC track record to raising a seed round as a first-time founder. We had to sell investors on our team and our vision vs what we’ve done in the past. Asking someone to write you a check to do something you’ve never done before is incredibly hard. The weight of that responsibility does not sit lightly with us. Hopefully it doesn’t sit lightly with any other investor or entrepreneur that’s gotten the same vote of confidence. Our experience of raising money has given us an intimate understanding of what it’s like to sit on the other side of the table and be the ones asking. We try to be respectful of this process by moving quickly and giving clear feedback about whether we are interested in investing or not.

Finding Product Market Fit. Much like new companies, new venture funds need to find product market fit, too. We started Loup Ventures as a research-driven venture fund, publishing regular analysis on frontier tech. Some of our approach has resonated really well. Some of it hasn’t. We’ve tried to take the feedback from the market on what is and isn’t valuable and use it to inform our strategy. We plan on being around for a long time. The only way to do that is to keep iterating to make sure we’re providing value to all of our key stakeholders.

Raising Money is an Achievement, But Not the Achievement. While we’re appreciative of the congratulations we’ve gotten on raising the fund, that’s only the first step for us. Success for us isn’t raising money or even an exit in our portfolio, it’s building a team that consistently backs transformative frontier technology companies to generate great returns for our LPs. That achievement will take much more time than it took to raise Fund I, but we’re looking forward to the journey.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

What a Venture Win Looks Like

We met with a prospective LP recently to talk about investing in a specific company. This LP had a successful business career in a traditional industry where operating profits are the bar, so he had a hard time getting his head around how to value a business based on more abstract concepts like daily active users, platform engagement, and IP. To that end, he posed a simple question, “What has to happen for us to win in this investment?” A simple, but powerful question. It forced us to reflect on our experience as public market analysts and now VCs about why tech companies have liquidity events. We concluded that nearly every tech company that we’ve seen exit does so based on the promise of profit, not actual profit. There are rare exceptions like Google, Facebook, and Alibaba who were operationally profitable at their IPOs. It’s no coincidence that those companies also happen to be some of the best performing, and now biggest, public stocks of the past decade. But most exited tech companies, whether via acquisition or even IPO, do not generate an operating profit. Most don’t even generate an EBITDA profit. We analyzed 20 tech IPOs from 2017 to put some data to our observations. We found that 75% of those companies did not generate a net profit in 2016, a year prior to IPO. 65% are not expected to generate a net profit in 2017 based on consensus estimates (only 17 companies have 2017 estimates), and 67% are not expected to generate a net profit in 2018 (18 companies have 2018 estimates). Much like venture investors, growth seems to be the more important near-term metric. Of the IPO companies for which we found data, they grew an average of 78% in 2016 and are estimated to grow 46% in 2017 and 35% in 2018. But what does this really mean about a win for venture investors? In lieu of net profit, public market investors are looking at growth to help them build a case for profit tomorrow. A small survey of buy side investors from earlier this year corroborates this. When we asked 12 buy side investors to rank tech IPO traits including short-term profitability, short-term growth, long-term profitability, long-term growth, and visibility of revenue, long-term profitability ranked first, followed by long-term revenue growth. Even for exits that happen through acquisition, profitability factors heavily. When a Google or an Apple or a Facebook buys a company, it’s preceded by a careful analysis of what the expected return of the investment may be. That return may be very short-term in nature, or it may be long term. When Apple bought Beats, they were buying a music platform that they could quickly leverage into its own streaming service. Apple Music launched two and a half years ago (one year after the Beats acquisition) and now has 30 million subscribers. That business generates a run rate on the order of $3.5 billion per year gross, which should net enough to quickly pay for the $3 billion purchase of Beats. A similar calculus is possible for YouTube or DoubleClick or Instagram even WhatsApp, although the last still needs time to come to fruition. We’re sharing this because it’s easy to get hung up on user growth, media mentions, and other startup vanity metrics. Wins require profitability, or at least the potential of it. It’s something both VCs and companies should both remind themselves of frequently.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

The Underappreciated Beauty of Simplicity in Tech

Simplicity is underappreciated. In many things. But most obviously right now in our world of consumer technology.

Simplicity is a requirement of mass adoption. Look at the iPhone, Google, Amazon, and Uber as examples: The iPhone never shipped with a manual. Turn it on. Press the screen with your finger. It just works. Google gives you a box with two buttons. Type what you’re looking for and hit enter. There’s your answer. Amazon lets you order anything you can imagine. Even with one click. Then it shows up on your doorstep a few days later. Even sooner with Prime. Uber: I’m here. Take me there. Ok, done.

None of these products has a learning curve. They’re dead simple to use and they just work. You can make similar arguments for Facebook, Twitter, and Airbnb. Probably not Snapchat, and perhaps that is their biggest weakness.

This isn’t to say that simple products don’t have extremely complex technical underpinnings. Almost no iPhone or Google user has any conception of the software that enables their seamless technology experiences. The part they touch makes the technology disappear.

In this new wave of innovation, technology seems to be embracing itself. Tech is cool. Tech is sexy. And it feels like we’re trying less to hide tech with ease of use. With a friendly, non-tech face. That’s a mistake. In the consumer world, AI, robotics, VR, AR, even cryptocurrency, none of these will see mass adoption without the same simplicity employed by the incumbent giants.

Simplicity is also underappreciated in investing. It’s easy to overthink things and build reasons why something can buck the reality of otherwise. We’re trying to employ the concept of simplicity in our investments. We’re not afraid to invest in complex tech, but when we do, we make sure the tech hides behind a friendly front that’s simple enough for mass adoption.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.