Unlocking The Ivory Tower | Eric Ball

 

About Eric Ball

Eric Ball is a technology finance professional, investor, and board member. He currently serves as General Partner for Impact Venture Capital, which has made several technology investments. He also chairs the Audit Committee at Glu Mobile, a publicly-traded leader in 3D freemium mobile gaming.

Until May 2016, Eric was Chief Financial Officer at C3 IoT, which is revolutionizing the use of big data to make our power network and the Internet of Things more efficient.

From 2005 to 2015, Eric served as Senior VP & Treasurer at Oracle, one of the world’s premier technology companies. While there he was named one of the 100 most influential people in finance by the editors of Treasury & Risk Magazine. Prior to joining Oracle, Eric served in various finance roles at Flextronics International, Cisco Systems, Avery Dennison, and AT&T.

Eric holds a PhD in management from the Drucker-Ito School, as well as masters degrees from the University of Rochester and a BA from University of Michigan. He is the co-author of the book ‘Unlocking the Ivory Tower’ (released in April 2016 in Japanese language version) and has taught at three universities as well as online.

 

Interview Transcript of: Unlocking The Ivory Tower | Eric Ball

Alan
Welcome back. I’m here today with Eric Ball and Eric, welcome to the show.

Eric
Thanks, Alan.

Alan
So you’ve been involved in a lot of ventures I know currently you’re involved in a venture fund. But for the listeners here, I’d like you to walk us through your career path, which is very unique.

Eric
Well, sure I’ve, I’ve covered a fair amount of territory. I started life as an academic. I went to grad school to study economics, did all the PhD coursework at University of Rochester and then later got my doctorate at Peter Drucker School down near Los Angeles, and decided that I really enjoyed the teaching, but I didn’t want to make a career out of research. And I transitioned into working for big companies starting with AT and T in 1988. I spent five years in different finance roles at AT and T. And then, for years, that five years actually at Avery Dennison in Pasadena, and England, a couple years at Cisco Systems, which brought me up here to the valley in 1999. For years at Flextronics in San Jose, and then 11 years at Oracle from 2005, to 2015, serving as the Senior Vice President and Treasurer at Oracle, which was a really exciting role and kind of the cornerstone of my career. I spent a year at a startup after that, a C three IoT run by Tom Siebel. And then last year, moved to launch my own venture capital firm. So I’ve kind of moved from academic economists, to big company to small company to venture investor over a course of three decades.

Alan
Brett good breadth of experience, and along the way you wrote a book.

Eric
I did. In 2012, I published a book here in the US, that was republished in Japanese last year. And the motivation behind the book was to integrate my academic training with my corporate experience, with the idea being that there’s a lot of research done at business schools, which is not always relevant to practicing executives, but there’s a decent fraction that is relevant. And my goal was to distill that fraction of academic research that I thought could help people in their day jobs and, and highlight and expose people to that. So I co authored with a friend of mine, Joe LiPuma, out of Boston University, a summary of academic research that we think could be helpful for executives.

Alan
So it’s called unlocking the ivory tower. And what is the ivory tower is,

Eric
the idea is that is that the ivory tower is the Academy, which, which studies a lot of behavior. And occasionally, you know, Garner’s insights that that actually can affect the real world, not not all the time, but some percentage of the time. And I think some of the research is under appreciated in terms of how it can inform management thinking.

Alan
So recently the the jump into venture capitals, it’s it’s a crowded market, a lot of people already playing in the market, but but how are you finding the where we’re at with the markets today in the state of businesses, Silicon Valley?

Eric
Well, I think business is strong in Silicon Valley. And I think that the state of venture is strong. There’s some interesting dynamics going on in venture capital in the last year or two. One is that you’re seeing record amounts of venture capital being raised, but almost record low amounts being deployed. And as you see more companies taking a longer and longer time to exit and allowing themselves to grow larger and larger, before going public or being acquired. venture investors are responding by assuming that any holding period will be longer. So they’re, they’re fundraising to gather more money, but they’re being somewhat stingy about deploying that money. So it’s an interesting dynamic. I also see a distinction between late stage venture capital and early stage venture capital, where I think that a lot of money is being deployed in late stage venture capital, for a couple of reasons, but one is that a lot of people who’ve been successful in venture are raising larger funds. And when they raise a larger fund, their minimum check size becomes higher, and that almost forces them into later stage investments. Because an early stage investment, you might invest half a million or a million dollars, but if your minimum check size is 10 or 20 million, you’re forced to invest in more mature companies. And what my partner’s Dixon Dahl and Jack Crawford and I believe is that that creates an opportunity for early stage venture investing. And so our fund is is a modestly sized fund that’s going to be geared more toward the early stage companies.

Alan
Do you have any particular markets that you’re going to be focusing in on?

Eric
We’re not sector specific, it’s somewhat fashionable now to have sector specific venture funds. And we are not sector specific for for two reasons. One is that we think a lot of the firms that have created outline returns have created new categories. You know, 10 years ago, I’ve the pitch deck that Uber used 10 years ago, trying to raise money and struggling to raise money because people said, Well, why would you use the internet to order a taxi. And now every major venture firm has a digital mobility category. And so in a sense, I think that a lot of venture capitalists are fighting the last war. And that’s why we don’t want to necessarily drive toward a single sector. Another reason is that we think that a lot of existing technologies today lend themselves toward uses in multiple sectors from birth, rather than starting in one and then moving to adjacent sectors. We think that the IoT Cloud, SaaS based technologies lend themselves toward applications in different sectors from the beginning. And so that’s one of the filters that we use when we evaluate companies that we invest in, is whether it might have applications.

Alan
across and busy here to deal with their fall and Eric, that we need to take a quick break. And we’ll be right back after these messages.

Alan
Welcome back and bid me here today with Eric fall in New York in the first several weeks, we ended up by talking about impact ventures and this new fund that you became associated with. And when, when you’re looking at companies to invest or partner with, what’s your process?

Eric
Well, I think that there’s a process around evaluating the team and the process around evaluating the business. And there’s the same InVenture that you don’t invest in a product, you invest in a in a business. And so it’s not just about somebody who’s invented a product, because that’s not a sufficient reason to form a company. That’s that that can be built on to form a company. So it’s really, it’s really in two directions around around the humans that are at the core of the business and around the business itself. I think that in terms of the business itself, it’s attractive to have businesses that scale. You know, one of the things that I took out of my time, initially, and I started my career at AT and T, and I spent much of my career at Oracle. And what both of those businesses had in common was a real ability to scale. You know, if you build a cable across the ocean, it costs a lot of money to do that. But the incremental cost of one more telephone call on that cable is zero. And if you write software, once you write the software, if one person can use it, a billion people can use it at almost no additional cost. And so businesses that have that characteristic of being able to be used by a lot more people at only minimally more cost, are very attractive from an investment perspective. And there’s more to it than that. But that’s that’s one, just one factor that we would look at, on the on the personal side, you really want a team, you want a CEO that you think can inspire people to lead them. Not just because people will think that the business might be successful, but it’s, it’s really somebody that they respect enough to lead them into battle and just not take failure for an answer. And, you know, that’s really what you look for. I think that the less sector specific you are, the more as an investor you’re betting on the team as opposed to as opposed to an investment thesis which which drives you solely toward the the tools or the products, but but we really look at it both both the business and in the management.

Alan
We’ve seen a lot of discussion recently about artificial intelligence and moving out, where would you say we’re at in that process? Right now, we still have the very early stage.

Eric
Well, that’s at an early stage. I mean, there, there are some luminaries here in the Valley who say that artificial intelligence will eventually take all of our jobs. And we can drink margaritas in the bathtub. But I think that that that may happen, but that that that’ll happen over some period of time, one of the four initial portfolio companies that we’ve invested in at impact venture capital is a company that’s making drone operation autonomous, and sort of its AI applied to the drone space. And it’s displacing human security guards. So they’re finding drones to be cheaper, a cheaper way to ensure physical security of a perimeter than just hiring a bunch of security guards to walk around. So we’re an active part of unemployed security guards. And I think that there are similar companies that are unemployed, you know, other other skills. The self driving cars are getting to the point where I think taxi drivers are an endangered species. And pretty soon, truck drivers will be endangered as well, over the course of time, all of our jobs, may may be replaceable with artificial intelligence. But I think that the more the more of the job depends on sort of cognitive processing, the longer it will take. And so I think it’ll sort of move up the ladder from you know, vocational jobs to highly analytical jobs. But I think very few jobs will ultimately be safe.

Alan
When we look at the the Internet of Things, and and the whole landscape of this industry, it seems like AI is really, you know, hitting all aspects of it, then.

Eric
Well, yeah, it is no, I mean, AI is such a broad term that it encompasses. People can use that term to mean a lot of different things. But But broadly speaking, a lot of routine tasks, and I think increasingly more nuanced tasks will will be done better by computers. And in your even, you’re seeing that in a lot of fields, I mean, you’re seeing robot, robot surgery, where even as a skill, as advanced as a surgeon, can be done, at least in part, improved on with the use of, of AI and robotic tools. That’s what I meant by nobody is ultimately.

Alan
Eric, I need to take another break. And when we get back, I want to go back into the foot, unlocking Ivory Tower, right, but we’ll be right back after these messages.

Alan
Welcome back and been busy here today with Eric Ball. Eric in this segment, I want to talk about your new book, unlocking the Ivory Tower. And here’s what the inspiration for this book was.

Eric
Well, I’m somebody who is straddled a couple of different worlds I when I was in graduate school, studying economics and finance, I decided that I was never going to be a Nobel Prize winner, in theory, that I enjoyed learning the material, but, but I wasn’t passionate about the research as much. And you know, as an executive, I rose through the ranks. But, you know, I decided I wasn’t going to become CEO of General Electric either. But where I thought I might be unusual was that I had spent some amount of time in both environments. And I was struck by how little the environments communicate with each other. And my co author Jolla, Puma had a similar background. He’d actually started as a consultant for 25 years, and then become an academic later in his career. And we both lamented that academics often study problems that no one else thinks are interesting. And when they do study problems that are very applicable or relevant, a lot of executives don’t believe that somebody in a business school could possibly understand the challenges they face and so they may not I’d always be receptive toward research, which actually helps solve problems that they face every day. So we decided that we would be sort of the UN interpreters, where we would try to create a bridge between the these two worlds that don’t spend a lot of time in contact with each other.

Alan
Is management of people instinctive? Or is that something that is typically acquired through experience?

Eric
Oh, well, I think that there are certain natural talents, that that can help in the sense that, you know, if you want to be a professional baseball player, it’s good to just have good hand eye coordination and athletic skills. In the same way, if you want to be an effective manager, it’s good to have a comfort in speaking clearly, and communicating well. But for the most part, I think both management and leadership are more acquired than born, I don’t really believe in the born leader, the Born communicator, I mean, these are skills like anything else that improve with practice. And I think that, you know, the one of the points in the book, there’s some research which talks about, you know, management is dealing with complexity. And leadership is about dealing with change, and both improve with practice. So I definitely more in the in the mold that leaders are made and that they are born.

Alan
What are some of the common mistakes that managers will often make?

Eric
Well, you know, that could be a long list, because I think each manager invents new mistakes to be made. But I think there there are some common mistakes, or some myths that research shows aren’t necessarily true. One, I think institutionalized misperception is that the way to motivate people is by compensation. And there’s a whole set of research in psychology, this is usually in psychology departments more than business schools. But there’s research that shows that compensation is a small factor in the motivation for an employee. On the one hand, it’s not absolute compensation that matters, it’s relative compensation, people tend to seem less focused on how much they make in an absolute sense than on how much they make relative to the man or woman who sits next to them. And you know, if they get a 2% Raise, but the person next to him gets a 3% Raise, that 2% Raise wasn’t motivating. So people are psychologically prone to compare themselves to the people nearest to them, not, not in an absolute sense. And I think that’s under appreciated. But further than that, the research shows that people are highly motivated by a desire to do well and be recognized for their work. And that when when studies of retention and attrition happen, the the role of a manager in recognizing and acknowledging work, and and creating a sense of, of shared purpose and mission, often is empirically shown, this isn’t just ideology that’s empirically shown to have a bigger impact on retention rates than simply how much somebody gets paid.

Alan
What management practices today do you feel are critical in order for young companies to succeed?

Eric
Oh, I think that practices around agility are particularly key and, and that that covers a wide amount of ground. But I think that, you know, small companies aren’t going to be able to compete with big companies in terms of resources, talent bench, but they they can shift more rapidly. And that’s why a lot of the more successful companies don’t fear the fortune 500 competitors as much as they fear, you know, three smart young people in a garage somewhere, because you can turn a PT boat faster, and you can turn an aircraft carrier. And I think that’s borne out with the rise and fall of some of the local companies here in the Valley. I think, you know, HP had some difficulty changing direction and had a couple of rough years as a result. There are other companies, Google has an Oracle, I would put out as examples of companies that have remained relatively agile despite growing large. And so your question was about what, what people young companies should be doing. And I think that agility is the primary word that I that I would bring to mind for that.

Alan
Yeah. You spent a minute jump over to your career door. Cool. You spent a number of years as senior vice president there and what changes Did you see in the landscape of the whole tech industry during the tenure?

Eric
Um, well, that, you know, there’s so many changes, and I’m sure that that what I saw most closely was only a tip of the iceberg. But, but I was there for some changes. I, you know, Oracle, as well as many tech companies had not initially been acquisitive. In fact, Larry Ellison used to say in the 90s, you know, we, we don’t, we don’t buy good products, we make them and Oracle was not acquisitive. But Larry Ellison had, you know, he has the, the ability in the strength of of taking in new data and altering his course as a result. And I think he had fundamental insights around the scalability of software. And the fact that building a larger revenue base allows you to spread an r&d budget over a larger and larger base, which created a positive reinforcing loop. And around the time I joined Oracle, Oracle became highly acquisitive, one of the most acquisitive firms in technology and one of the most acquisitive firms in the world and proved to be very effective at that. So that was one change that I observed. And then I ended up participating in that change, because in order to be acquisitive, Oracle needed to borrow money, and my job in finance was to manage that process of doing very large bond deals. I my team borrowed $52 billion in my 11 years at a small number. Oh, no, it wasn’t. And we had, you know, we borrow the money. But part of the motivation for borrowing money was to fuel the m&a as well as some other uses of cash, Oracle actually had cash offshore, that wasn’t terribly tax efficient to spend onshore. So we managed investments with offshore cash, we borrowed money, onshore. And before we did that, before our first bond deal in 2006, no cash rich tech company had ever borrowed money, because the prevailing wisdom had been that in tech, the business is risky. So you have to offset a riskier business model with a more conservative financial profile, and therefore not borrow money. And Oracle, we were the first of the big tech companies to start borrowing money in a serious way. And after we did that, you saw Cisco do the same thing. You saw Apple come into the debt markets, and it became much more common and acceptable for big tech companies to borrow money, and to use least some of that money for m&a.

Alan
I’ve been visiting here today with Eric ball and Eric, we’re out of time today. But before we go, I’d like to ask if companies interested in in seeking that to get to know impact better, how would they go about contacting you guys?

Eric
Well, we have three general partners and impact myself, Dixon Dahl, who was a really an icon in the valley. And, you know, Dixon was the founder of Dol Capital Management, which was later renamed DCM ventures with a with a sterling career in Jack Crawford. Our third partner who went through the Kauffman Fellows Program with me in 2011, and I’ve had the chance to invest with both Jack and Dixon for years prior to the formation of impact. And our email addresses are all very simple. It’s Eric, at impact. vc.com Dixon at impact vc.com, Jack and impact vc.com. We welcome the chance to hear from entrepreneurs we’ve invested in for companies in 2017 that we’re very excited about a high performance computing company in in Santa Clara Konami, the drone company I referenced earlier, in Mountain View called Nightingale security, a fraud detection software company in Sacramento area called Pon Dara, and a mobile to mobile IoT company in Oakland called globe touch. We’re excited about those four investments. We’ve made it 2017 We have many candidates in 2018. But we’re always happy to, to hear more.

Alan
Thank you. Appreciate you being on today’s show. Thanks.

Eric
It’s been a real pleasure, Alan, thanks for having me.

Alan
We’ll be right back after these messages.

Alan
Welcome back I’m visiting here with Eric Ball. Over the break we began talking about this Stanford Prison study. And I thought it’d be good to have Eric back to maybe talk about the study and the and the results with this. You know, why it was put out and in the results of this Study?

Eric
I think the Stanford Prison Experiment, experiment was a, an example of a broader issue around organizational culture. And organizational culture is sort of what, what culture is to an organization. It’s what a personality is to an individual. It’s the set of implicit assumptions that aren’t always explicitly described, but motivate behavior within an organization. And in trying to understand behavior, we float into the realm of psychology. And I think one of the most powerful pieces of research in the in the area of psychology was the Stanford Prison Experiment. In 1971, Philip Zimbardo at Stanford brought together a group of undergraduates and conducted an experiment where they were randomly sorted into a group called prisoners and a group called guards. And they were thrown together for a week to roleplay. And what the the experiment discovered is that very quickly, the people who had been randomly assigned as guards started behaving quite cruelly, and even statistically toward the people who had been assigned as prisoners. And it got so egregious that after about five days, the experiment had to be stopped, because the the prisoners were being abused, physically and psychologically by the guards. And what this study revealed is that people perceive that personality drives behavior, but empirically, it appears that situations drive behavior, and that the culture that you put in place in the situations that you put people in, can create behavior that that can be, you know, unintended. You know, some anthropologists in different research looked at Silicon Valley, they brought in anthropologists who were used to looking at, like, you know, the primitive people of Borneo and other cultures. But what they discovered is that, if you look at the textbook definition of a cult, that a lot of Silicon Valley startups, even larger companies fit that definition, you have a culture that involves young people with a strong sense of shared mission and affiliation. not sleeping enough. And, and spending most of their time with each other. And that, you know, in some cases, that’s that’s how you define a cult. That’s also how you define a very successful startup. And so some of this research in psychology would suggest that you should be very conscious about what culture you’re creating, and what situations you’re putting people in, because situations can have that that effect on behavior in ways that you might intend, but also in ways that you might not intend.

Alan
It just thinks it speaks to the fact how important culture is your culture.

Eric
And structure, the structure of organizations and decision making, and and the relative power roles that people have work.

Alan
I really appreciate you being here on today’s show. And it’s been a pleasure having you with us. And for the listeners out there. Eric again, he’s one of the cofounders of impact ventures. The they launched this last year. They’re focused in on the early stage companies and for individuals wanting to reach out you can contact Eric at impactvc.com.

Eric
Eric@impactvc.com

Alan
Eric@impactvc.com

Eric
Thanks, Alan.

Alan
Thank you. Thanks for joining us on America Dreams to join us next week right here on this station.

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This transcript was generated by software and may not accurately reflect exactly what was said.

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