The trick with technology is less about technology and more about adoption. When I was a young engineer at McDonnell Douglas, we developed the first bunker buster bomb in 30 days, taking a cannon barrel, turning it down and building this new design back in ‘91, a bunker buster bomb to take out Saddam Hussein. We could develop technology very quickly. Getting people to adopt it is a bigger challenge.
There are two sides to this: Where venture capital fits into the overall economy and where we have some opportunities in productivity, and then very specifically some things that are going on in the world of agriculture and health. A number to be paying attention to in this is that we spend trillions each year on healthcare cost related to poor nutrition.
You are all in the nutrition business. You can take that market share. Agriculture and the food system can take that market share from healthcare and should, innovation is ultimately the right way to get this thing done.
Innovation’s a deflationary force. That’s why it’s important. If you want to reduce the cost of good food, people will adopt it. If you reduce the cost of sustainability, people will adopt it. You don’t have to get into a fight. Digitizing everything is something we’ve been talking about, and that’s a little bit of what this game is. But to fix healthcare, you’ve got to fix food. Innovation is a better way to do things. It’s a basic principle.
I did not watch the State of the Union because politicians can’t drive innovation. People in this room can; the entrepreneurs we work with can; and the money we invest.
When you go back to the original founders, they changed the concept of life, liberty and estate, which was a classical definition of what people were thinking of at the time to pursuit of happiness. The idea of the pursuit of happiness was a shift in mindset that for a while you could make more money and you could improve productivity. And it was really recognition 250 years ago that the human mind has the capacity to double, triple, quadruple, 10x or otherwise exponentially grow productivity.
Look at GDP growth ever since 1810 all over the world. U.S. GDP growth has been consistently higher than every other country over the long term. Other countries will follow along and adopt similar processes but they never quite get the same productivity gains that we do, and that’s because those gains come from developing innovations around products. China, Japan, and other countries are good at copycat economies. They’re good at taking out what we have and figuring out how to do it cheaper. And that’s probably good. It’s good that they’re adopting it because it allows their economies to grow. But the advantage of the United States is its ability to innovate, take complex situations and deliver a gain.
Does anybody know the definition of total factor productivity? It’s essentially the amount of GDP that direct inputs can’t explain. It says if you use Google search, it improves your productivity. We don’t know how, but you get stuff done quicker. If you use email, it improves your productivity. We’re not sure how, but it’s better.
So, computers and electronic products have been the most distinct increase in total factor productivity in the United States. As venture capitalists what we’re doing is we’re modifying total factor productivity. This is the digitization, this is Amazon, it’s Intel, it’s everything that’s been going on for the last 30 years. What’s also notable is none of the other industries have it, not to the same degree, but some people say that’s because the other industries are too hard to change. Well, it was pretty hard to change if you were doing computers in 1980. And so that’s what we’re after.
How do we change the productivity in this equation? Because if we want to fix healthcare, if we want to live longer, if we want to address concerns about waste, what we need to do is come up with an economic business model that does that at a cheaper price with more effectiveness.
The entire limitation on inflation for the last 15 years, I would argue, is because of the gains in total factor productivity. Everything that would try to push inflation up got pushed back by the efficiencies of new business models by Amazon, Walmart, and others. It might knock out local businesses, but it’s bringing the pressure down that shows up at Target and everywhere else. That is the reason why inflation has been held back harder now because there’s only so much left for technology to do, but there are a lot of other industries to go.
So, as we look at the industry, a look across the supply chain and industry, at the top is technology software. But you look at the bottom at agriculture, it’s not highly digitized. Now we are digitizing a lot of things in agriculture, but not to the degree that they are changing business models. We’re digitizing productivity to make a far more productive to lay down inputs. But are we doing something on the farm that causes CPGs to change their product and move from selling sugar to selling protein? The verticalization of that data to change the business models is where the game is. And basically, every area on this chart that’s red is an opportunity for technology to come in and really change the game with digitization. Digitization is not moving over to email. Digitization is changing the business model with the information available from the data.
Amazon can understand what you want to do before you do. There are stories that Amazon knows that people are pregnant before they do based on their shopping habits. That kind of understanding helps improve the business model and run it better. Innovation is a fundamental deflationary cost. We have seen the cost of cars, clothing, cell phones, computers, etc come down realistically. But things like hospital services, college, medical care, all those things keep going up. It has nothing to do with the fact that everybody wants to live longer and so they’ll pay any amount. It has to do with fundamental inefficiencies in those systems.
Everything here on the red is something that we’re interested in changing. Agriculture and food and health are the ones we’re primarily focused on. The other opportunity is there are trillions of high net worth assets in the United States that are not allocated to venture capital. Investing in venture capital is hard.
When people say, ‘How do we grow GDP?’ the way you do that is growing venture capital so we can invest in more innovative companies. I think that all those entrepreneurs running around all those industries, agriculture and healthcare being the most important ones first, will fundamentally change the productivity nature of the country. And that will be effectively solving their own problems.
Right now, when you sit down with the bank, they’ll say the problem with farmers is you don’t understand you’ve got to stop using nitrogen. But the real problem is that bankers don’t understand biology. To think that senior people on the agriculture and the health and banking sides are sitting there with a fundamental misunderstanding of each other and how to work together is just fundamentally stupid. But, if we can start bringing those things together and teach investors that there’s a way to apply his capital in a more effective way to help solve the problems that he’s concerned about. Someday we can step back and say we’ve improved healthcare; we’ve reduced waste and we’ve improved our retirement savings because we’ve made money on this. We’re living longer, we’re happy. We don’t have to have a tradeoff fight.
Early on in my career at McDonnell Douglas, when we were trying to build the F-18, which you probably saw in Top Gun: Maverick, we were billions of dollars over on cost and we figured out by how to re-engineer the product to cut a billion dollars out, make a better product, put a better mission system on it, make the weapon more effective and improve it. We did. We traded off things through engineering to make it better and cheaper.
That’s what we’ve got to do as it applies to healthcare and the food system. And then we can satisfy everybody’s needs. We don’t have to fight for sustainability or the environment or any of those other things.
A lot of what we concern ourselves with as venture capitalists is around the idea that I can develop technology in a lot of different ways, but how do we get people to adopt it? How do we deal with the intricacies of adopting it? How do we deal with the supply chain? How do we deal with getting credit? How do we all those kinds of things get in the way, and really are the challenge behind what slows or speeds up innovation?
So, the next step we’re going to take is we’re going to take our database and we’re going to expose it to customers and let them ask questions so that we can understand from farmers and producers what challenges they’re hearing and maybe give them an inkling and view over the horizon of the technology we’re looking at and maybe connect the early emerging technology with early adopters on the farm. Not all technology works. Some farmers are willing to try it, others aren’t. Let’s connect that early set and start bringing them together.
Younger farmers are trying to think for the next 20 or 30 years, and they’re trying to figure out how to apply biologics and more. You go to your local retailer, your local retailer’s going to sell you a chemical and you know there’s a lot of challenges in there. Can we start to broaden that and open it up? Because we learn a lot from customers in that process. You are part of that process. Healthcare and food, there are a lot of people in the world. They all have to eat. They don’t have to have Facebook. They don’t have to have Twitter. They don’t have to have a cell phone. They all have to eat. They are driving protein demand as the world’s population increases.
Do people know why the population’s increasing? We’re living longer, we’re having fewer babies, but we’re living longer. That’s particularly true in Asia. It’s going to double protein demand. We don’t have enough farmland to produce that. And so we need to figure out how to lower the cost of protein and increase its scale dramatically over the next 15 years.
People in this room are critical to that. We need to figure that out. And there’s global demand for that. It’s not going to be plant-based or meat based, but it could be both. It might be more that moves to plant-based. Maybe not. We don’t know. If India’s going to be the largest population in the world soon and they don’t really eat a lot of meat, maybe it will be more plant-based. Maybe the producers here will be shipping stuff to India instead of China.
Impossible Burger is imperfect. Many articles are saying an Impossible Burger is as bad for you as if you’re eating macaroni and cheese or ramen noodles for a quick meal. But if that Impossible Burger is cheaper than beef, maybe that’s better than the ramen noodles. The shift here that we’re trying to go through is not monolithic. It’s not that everybody should eat fresh vegetables. Processed foods can have more nutritional densities.
My job at Boeing in 1997 was to figure out what we’re going to have to do to go to war with China in 2025. And we figured that out. We thought about that long term. What we’re doing from a venture capital standpoint is we’re thinking out into the distance and saying what’s going to happen now what this concept of exponential thinking. I mean, how many people when they saw Amazon selling books in 1995 thought that these guys are going to kill it with hosted web services someday?
Patience. The variable is patience. We are at a point now that is sort of like 1988 in the computer industry. The PC and the Mac are fighting it out. People are paying attention to Intel.
Maybe 10 years from now, health and nutrition are at a place where you don’t even think about talking to your doctor. You take a couple of assays at home. You determine that your diet isn’t right. You make some changes, you’ll make proper decisions about your nutrition because the food you eat will be enhanced with the right nutraceuticals that both solve you from a nutrition standpoint, a health standpoint, without you having to worry about it. That’s the journey we’re on together. It will be exponential. People will catch on.
Health is part of this discussion. If we improve people’s health and longevity, they get motivated. If we could all live a little bit longer and be happier and be healthy to our eighties, that feels like a good thing for us to invest in. And the reality is, some of the ESG movement is moving into a camp where they sort of say, you know what, if we apply our dollars to fixing nutrition and we don’t say that you have got to stop using nitrogen, it improves health. If people are healthy, they aren’t fat so they’re not eating food they don’t need and we have less waste. That’s an interesting trend going on in the background that we’re hoping gets people aligned.
This is a long-term investment. If you ever get a chance, pull up Amazon or Tesla’s historical stock prices and see that the first 15 years or so was pretty miserable for them. But if you were an investor on day one you’re probably pretty happy now because you’re up a 1,000x return. Agriculture is there now. And the people in this room all probably have better insights into what’s going on in agriculture and what it will do for nutrition than any doctors or healthcare providers do. Or better than Wall Street does. Use that to your advantage.
