In the World of Startups, it's Darwin all the Way

In February 2004, KnoWatt, Inc. a three-year-old Arizona company, underwent a reorganization through which the Company received an angel investment of $200,000-the first outside funding the company had ever received. The good news: KnoWatt is alive and well, with customers and the promise of more customers. The bad news: it still needs another round.

In the years preceding, the company had gone from a promising startup through the roller coaster ride of the Internet bubble. The founders, experienced in the energy information business and the statement generation business, laid down over half a million of their own money to develop the website and backend for its proprietary algorithms for energy management.

They then began to pilot test the product and to sell it - only to find that the sales cycle was long for technology from an unknown (everyone wanted to see if they'd still be around) and the funding climate chilly. Moreover, the first iteration of the software didn't work the way it was supposed to. A Chandler, Arizona technology company with good product development experience, DSSI, was persuaded to come aboard to fix the product in exchange for equity.

But although initial beta tests showed much higher energy cost savings than the founders predicted, it was difficult to get the word out without a sales force. The CTO was in Texas at a full-time job, the other two founders manning the phones, the accounting, and all the other functions of a company. To augment the founders, Dan O'Neill (now of Arizona Technopolis) and Stealthmode Partners hung out with the company for �deferred compensation.�

In late 2002, KnoWatt, lean and mean, was admitted into an �incubator,� and received advice and office space, along with the promise of securing funding. It soldiered on while all the fancy Silicon Valley companies got shut down by their VCs.

Time slipped by, and one of the founders had to take a job as a forklift operator on the night shift to keep the company alive. After two bouts of pneumonia, his family drew the line, and he borrowed money personally to save his home.

The product got better, and the sales got closer. And then, in December 2003, the unthinkable happened: the incubator shut down. Although DSSI quickly stepped off with an offer of office space, the company was within an inch of its life. The CEO had two little daughters to think about.

And then two miracles happened almost at once: a large retailer signed on for a pilot project, and an angel appeared with a check for the money to fund the pilot. By now, KnoWatt had been around long enough to acquire a reputation as a great product and as a company that had survived.

Fast forward. The cap table was restructured to reflect the conversion of almost all the company's debt to equity, and a short-term plan was developed, which laid out a product development and marketing strategy. This strategy called for completion of certain new aspects of the product so that KnoWatt could conduct several pending pilot projects as a way of beginning to generate revenue. Those projects were to be completed within a six-month period, culminating in a search for additional funding to get the company to revenue.

Six months will be up in July, and KnoWatt is precisely on target, meeting all of its milestones.

The retailer's pilot is under way and the Arizona results alone identified $20,000 in annual savings for the client due to a malfunctioning control system. KnoWatt has a letter of intent for a national pilot of up to forty-eight stores, and has begun receiving data from them. Preliminary results have identified 18% savings annually on eleven stores to date. The criteria for a successful test in the eyes of this customer were a savings of 2%.

A second pilot study is being conducted for an energy services company. Upon successful conclusion of this pilot, KnoWatt has a letter of intent to develop a licensing arrangement, through which the energy company would license KnoWatt's submetering functionality.

KnoWatt is also negotiating with one of Arizona's utility companies to develop an energy information solution for Arizona's public schools, which are about to lose their immunity from utility rate hikes. KnoWatt spent over a year working with the State on solutions for the education market, and is well-known for its expertise.
The Company is on budget from the re-organization. It will have spent $200,000 thru July and accomplished the pilot studies as planned.

Here's the kicker. KnoWatt still needs another round of funding to let it roll out the first customers. It is anticipated that $350,000 will bring KnoWatt to substantial recurring revenue from more than one Grade A customer. If not, the company probably won't survive.

In my world, this happens every day. Welcome to the world of the entrepreneur. Reach into your pockets.

Finally, after ten years of building everything from robotic vacuum cleaners and cell phones that take pictures��if you build it they will come� -- the technology industry has set its sights on actually HELPING every other industry rather than simply flexing its muscle for its own entertainment like a weightlifter showing off on a beach.

What this means is the end of complicated deployments, software that can�t be used after it�s bought, and baffling network outages. Instead, the next generation of technology is proving to be expansive and integrative, building on what has gone before. Technology is actually getting useful.

We haven�t even begun to see the potential of wireless networks and broadband, which have already catapulted half of the world�s population into an economy formerly closed off to them. Some of those newly developing populations, adopting technology more quickly than we are, have skipped over traditional communications infrastructure and gone directly to information delivered by satellite. We get Al-Jazeera, but they get CNN.

Although there are only about 140,000 wi-fi hot spots (wireless networks that use the 802.11b standard and operate over at most a 30-foot radius), the next generation technology called Wi-Max, will cover a 30 mile radius.

Only about a third of Americans have broadband to the home. And our broadband, to use the words of Intel CEO Craig Barrett, is half-assed. American DSL lines deliver information to the home at perhaps 512k or at most, 1 mbs. In China and Japan, broadband to the home comes in at 20MB or more. That�s one screaming phone line.

Here�s how broadband and wireless will potentiate the entertainment industry. The shift to digital technology in the entertainment industry has made more possible than just piracy of intellectual property. It has changed the economics of the film industry, creating new markets, new products, and new distribution channels. Entertainment will continue to be delivered in new, exciting ways, to your home, office, telephone or car. Think DVD, which has given new life to old film libraries. Think portable DVD player, which allows you to take those movies on the road with you. And think about the convergence of computer technology and consumer electronics to deliver information between the TV, the Tivo, and the PC over a wireless network. Then think of the digital delivery of movies to theatres via broadband, and their projection over Texas Instruments digital projectors. No more broken film. Distribution costs are being wrung out of the movie industry, which is no longer really the �film� industry..

At the same time, on the production end, inexpensive digital videorecorders have allowed young filmmakers to bring creative projects to market, and films that used to need casts of thousands to be generated by casts of gigaherz and megabytes. Documentary films, which never before were widely seen in theatres, are now winning prizes at the Cannes Film Festival and the Sundance Film Festival, exposing millions to the plight of Afghan women and the migration habits of birds.

The advertising model for television, too, has changed with the invention of digital video recording, or Tivo, which allows people to save TV programming to a hard drive and replay it on demand, editing out unwanted elements . 30-second spots are giving way to sponsorships and product placements as advertisers scramble to catch viewers fast forwarding through their commercials. And programming in the TV industry has been forced to change as well, because we are now �narrowcasting� over hundreds of cable and satellite channels rather than reaching large numbers of customers through only three networks.

In the healthcare industry, things are changing even more quickly, as the federal government forces Medicare and Medicaid providers to file claims electronically and other insurers climb on the paperless bandwagon. While office automation is coming slowly to the physicians� offices, hospitals use supply chain and inventory management systems that track Kleenex boxes from the vendor to the bedside to the hospital�s billing system to the insurance company�s reimbursement systems.

Most teaching hospitals already use wireless networks and PDAs to follow physicians on Grand Rounds, and many ordinary physicians use order/entry software to prescribe medications for hospitalized patients. Coming in the next decade will be the electronic medical record, currently being developed according to a set of open standards put forth by an industry consortium and the federal government. Soon you will have your entire medical history on a smart card you can either carry in your wallet, or access with your doctor via a web browser. Web MD is already blazing new ground in some of these areas, and the gap between what the doctor knows as opposed to what the patient knows is quickly closing. Patients routinely come to the doctor�s office with printouts of information from the Internet, asking the doctor to confirm the self-diagnosis they have already made and give them the treatment they have learned is the gold standard.

Also coming off the drawing boards is the use of wireless technology to remotely monitor patients in their homes, checking their blood pressure, blood sugar and oxygen saturation through medical devices that transmit the information over a cell phone or a computer to a call center where anything outside normal parameters will trigger a call to the physician � not by the patient, but by the technician monitoring the screen in a data center.

In fact, controlling the skyrocketing health care costs of chronic diseases such as diabetes has become so important that devices implanted under the skin of the patient that dispense insulin as needed according to algorithms defined by the glucose monitor, or even an implanted artificial pancreas, are being tested.

At all levels, the government has gotten into the information technology act with a slew of customer service initiatives, automating its contact with constituents through a series of efforts known collectively as e-government. In Arizona, no one has to go to the Motor Vehicle Bureau to renew drivers� licenses or vehicle registrations; the state has an IBM web services portal called, appropriately ServiceArizona, at which all these functions are handled online. Although Service Arizona is a demonstration site, it has been a big success and has been replicated by other states.

The best use of information technology by government has been the Internal Revenue Service�s initiative to convince taxpayers to file returns electronically. For individual tax returns, information may be imported into a TurboTax file from a Quicken or Quickbooks file, Turbotax asks the taxpayer to answer some questions about the information, the form is then error-checked (and checked for items that may cause an audit), and transmitted over a secure internet connection to the Internal Revenue Service. Once imported into Turbotax, the same information is re-purposed for the state income tax forms. Tax refunds are issued to electronic filers in as little as two weeks.

Diverse functions such as paying parking tickets, opening utility accounts, and protesting property taxes have also gravitated to the web, where it can be agued that the government has the most complete 360 degree of its customers of any industry. You may not think this is good, but it is slowly becoming true.

The world has become a vastly more interesting � and smaller � place over the past decade, and I believe it is destined to become even more so.

I am on more than one email list of disgruntled techies bitching about the outsourcing of high paying jobs to third world countries. I wrote about it once before, and I thought I had my place on the political spectrum all figured out-- square in the center. But now I�m being (indirectly) called a right wing conservative, and that is frankly baffling. How can this be? I�m a child of the sixties, the summer of Love.

The current thread on one of the groups casts people who believe in free trade as fascists who don�t care if their children have jobs, or enough to eat. We are lambasted as imperial plutocrats and corporate greed mongers with no humanity, The political cast to this threw me for a loop, especially as I am most often accused of being a bleeding heart liberal. In the early days of the Internet, I was in the camp that thought the Internet should be as free as possible, to allow it to be a place where the benighted peoples of autocratic countries could reach out and tell the free world how they are being persecuted. I still don�t believe goods bought over the Internet should be taxed. Nor do I believe in any form of censorship. And I was never for the war in Iraq.

So with these credentials, I thought I approached the subject of outsourcing with�if anything -- the credentials of the left. Guess not.

Outsourcing (offshoring, whatever) is a fact of life that has been going on for a long time, in all directions, East to West, West to East, North to South and South to North, and it is something that must be accepted and dealt with, not judged and blamed. In our era of instantaneous communication, national borders are becoming less important and a global economy is emerging. In America, we buy cars from Japan, cashmere shawls from India, cell phones from Finland, and TVs from China. We WANT those products. We want Wal-Mart to source everything from China so we can have lower and lower prices. We love our cheap cashmere (when I was a kid only the rich wore it).

So it�s not a political issue, but an issue of economic competitiveness, and we can become more competitive in two different (and pretty much opposite) ways: we can accept a lower standard of living by accepting lower wages and making ourselves equal to the Indian and Chinese labor that is �stealing� our jobs, or we can become more innovative and invent new technologies not yet known around the world. But we can�t put the genie back in the bottle, turn off the Internet, or turn off technology (because if we did, the techies would be out of work anyway). The same techies who laughed at the Luddites who fought computers are now on the other side of the fence.

Whether you are left, right, or center, you can�t argue too much with what I heard Craig Barrett, the CEO of Intel, say last week: in the past two decades, something has happened that can only happen once. An entire 50% of the world�s population has been added to the economy. Three billion people have had the lights turned on.

And that has meant not only the outsourcing of jobs, but the creation of purchasing power in societies that never had any. This is a liberal�s dream, not a conservative�s.

Barrett also said that 70% of Intel�s business is done outside the United States. That�s shocking. But it also explains why plants are being built in China, India, Costa Rica, and all over the �third� world. That�s where the CUSTOMERS are. And we don�t want that to stop any more than we want the cost of good at Wal-Mart to go up, because we are the shareholders of Intel, Dell, Wal-Mart and Microsoft � companies whose stocks are in our retirement plans and that we�re counting on to help us lead the good life.

To me there is no logic, left or right, in fighting the inevitable, especially when the US economy has itself generated almost a million jobs in the past 90 days. Come on, everybody, get over it. The real issue isn�t outsourcing; it is global competitiveness. We had better figure out how to compete in the world we are living in today, not try to re-create the world we lived in yesterday.

My mother�s mother died of a brain tumor. After her diagnosis, she had what was then referred to as �an operation,� lived a few more years � apparently with indifferent quality of life --and then died. My mother, who was sixteen at the time, either remembered little about the details or didn�t know them.

The doctor who treated her probably didn�t know them either. They couldn�t even see the brain in the 1920�s. If you operated on it, you were flying blind. The impulse to cut out a tumor was a response borne of frustration. Not only couldn�t we alter the brain�s function; we didn�t even know HOW it functioned. So when we cut out a tumor, we changed things by trial and error � perhaps the patient lost speech, or motor function, or sight. Sooner or later, we knew what areas of the brain controlled certain functions, but we still didn�t understand how the brain worked.

Almost ten years ago, my own daughter had a brain �lesion.� She was in law school at the time: she had a small incision cut behind her hairline, the lesion was removed and she returned to school in less than a week. It was called a �procedure.� She�s fine. The doctor who treated her knew just about everything: the type of tumor, its location, that it wasn�t dangerous, and how to remove it safely without changing any brain functions.

At the time my daughter had her procedure, I remember thinking that my grandmother probably had had the same type of lesion as my daughter, but before the advances in neurosurgery.

Now we know even more about the brain, and what we know can make even surgery itself outmoded. We not only can image the brain; we can alter it. We can effectively remove tumors without cutting. We can stimulate certain areas of the brain with magnets to improve the symptoms of Parkinson�s disease; we can surgically treat some mental illnesses. The surgery itself can be performed robotically or laparascopically, dramatical lowering the risk and recovery time.

But to see how we can really alter the brain�s function, let�s go beyond surgery into pharmaceuticals. We have had good pharmaceutical treatments for depression, bi-polar disorder and schizophrenia for a while now.

But we�re going further. We are testing drugs for concentration, sleeplessness, depression, enhancement (or erasure) of memory, and what we euphemistically call �executive function� �the ability to multi-task. College students who grew up on Ritalin when they had attention deficit disorder now use it to enhance concentration and keep them awake. Senior citizens take gingko biloba or anything else they can get their hands on to aid their memories. And many people are given anti-depressants to improve their concentration.

Many mental illnesses are now treatable through pharmaceuticals. However, it�s one thing to treat a mental illness and quite another to enhance the brain�s function the way athletes use steroids to enhance their physical function.

There is a fine line between curing disorders and illnesses, and enhancing quality of life. We crossed it a long time ago, probably with estrogen, or Prozac, or Ritalin. Certainly with Viagra. Not only do we think we must live forever; we now think we must live pain-free forever. And happily,at peak performance, forever.

But that�s what musicians in Harlem used to think when they became addicted to heroin in the �50s and Timothy Leary thought when he began dropping acid in the �60s. It�s what �80s disco dancers thought when they became addicted to cocaine. And it�s what welfare mothers think when they become addicted to crack.

Mind-altering drugs are not new. We have been able to change the function of the brain with opium for centuries.

And what have we learned? That a lot of these drugs have long-term consequences that we can�t foresee, some of them pretty deleterious. More important, there are ethical implications involved with their use. Usually, we blow right by these ethical issues, unless they come into direct conflict with religious views, as cloning has.

But can you envision a day when you will be competing for a job with someone who has a prescription for a memory-enhancing or concentration-enhancing drug? Or with someone who no longer needs to sleep? Can you imagine a day when your employer may demand that everyone take these drugs so productivity can be increased?

This day may come sooner than you think. It�s very hard to resist those legal drugs. To paraphrase the ancient Greek philosopher Socrates, the unenhanced life is not worth living.