Unblocked

by Alison McCauley

  There are many leaders working tirelessly in the blockchain space to educate individuals, teams, companies, and community groups about the dawning blockchain era and the opportunities it offers. The two executives discussed next are leveraging their deep personal expertise to educate their organizations about the potential in this technology.

  Lydia Krefta: Shared Knowledge Drives Innovation

  Lydia Krefta discovered blockchains on the job. Principal Product Manager at energy company Pacific Gas and Electric Company (PG&E), Lydia was working on an initiative to examine how changes to the grid like the growth of electric vehicles and solar on rooftops might impact PG&E’s business model. Phase I of the project was data collection and analysis; Phase II was evaluating pilot projects that could refine PG&E’s capabilities to adapt to changes in the industry. To evaluate each emerging tech initiative, Lydia created a chart that ranked each according to its nascency and its potential value. When the team had their results, there was a clear winner.

  “Blockchains were super nascent,” she says, “but had really high potential— far more than anything else on the list. I could already see not just how they could impact PG&E, but the entire energy industry—and so many other things outside of the energy industry as well. That was my aha moment. It was clear this was technology we should be paying attention to.”

  At that time, Lydia knew little about blockchains other than what her own analysis had revealed. A self-described “knowledge gatherer,” she plunged into an omnivorous study. “I’d stay up at night and read article after article,” she says. “I didn’t understand half of what I was reading, so then I’d go read more. Bitcoin, Ethereum, open source software, peer-to-peer transactions, hashing, smart contracts…you name it, I followed every lead, and I could not get enough. My husband felt like he lost me for a few months while I was really digging in and getting comfortable understanding the tech.”

  At PG&E her first hurdle was convincing people to pay attention to a technology that was still so new and unproven. But Lydia had an ally in leadership who was as excited about blockchains as she was. Together they came up with a plan to fund research. At that time 50% of Lydia’s role was focused on electric vehicles, and as they left the meeting where they learned they’d secured funding, her coplanner asked how she’d like to spend the remaining 50% of her time. “And I was like, ‘Blockchains, definitely!’” says Lydia. Thus Lydia built a brand new role for herself on a walk to the elevator. And within four months, she says, “It went from 50% to 150%.”

  One of the first things she did was form a blockchain learning group for anyone in the organization who was interested. “The initial effort was grassroots and scrappy,” she said. “People learned about it through word of mouth.” The first meeting drew six to eight people, including a director and a vice president Lydia invited to make the group official and to signal the importance of the work to the employees who chose to participate. They dubbed themselves the Blockheads, and gave themselves four months to gather use cases and figure out how to evaluate them. Part of their methodology included determining which use cases did not require a blockchain. “One of the things we asked ourselves was, ‘Is this really an issue that a blockchain can solve, or is this a process issue?’” Lydia says. Once they’d identified a top 10, they set to work testing the use cases.

  Because they were coming at this from a business standpoint, the Blockheads did a mini–business case for each use case. They intentionally targeted use cases that would help the company solve “now problems,” rather than problems 15 years down the line. Then the team came back together and mapped out each use case according to how PG&E defines value: 1) growth: how can this help create new products and services? 2) affordability: how can this help cut costs and make PG&E more operationally efficient? Their aim was to choose the top use case from each of the categories. The two winners had to be viable and reflect the company’s values, but they also had to earn the team’s excitement and enthusiasm.

  Lydia says they were surprised to find more viable use cases in the affordability category than they anticipated, but finally chose one. In the growth category, one in particular stood out: putting carbon credits for electric vehicles on a blockchain, which would incentivize charging at times when the grid is particularly green. “This one aligned perfectly,” she says. “We could pursue our mission of a sustainable energy future by promoting electric vehicle growth, the team was super motivated, and all the key players across the organization were behind it. The transportation team was gung ho, and leadership was convinced because our choices reflected PG&E’s values around sustainability and affordability.”

  The hunger to learn about blockchains has only intensified, and in response Lydia has launched three levels of education. The first is the Blockheads, who are still going strong. The second is a series of “lunch and learns” where anyone in the company can come learn for an hour. “We cover what a blockchain is, how it impacts the industry, and what PG&E plans to do with it,” Lydia says. Demand has proven high, with employees from all areas represented, from Gas Operations to the Customer Care team to Energy Procurement. And the third is a half-hour address for those in leadership. Requiring more than a year to develop, Lydia uses this presentation to educate leadership on what blockchains are, give them an introduction to how it works, and explain why PG&E is paying attention to it.

  And when a diversity of minds and a diversity of knowledge bases come together, new solutions or even new breakthroughs are generated. “I understand blockchains really, really well in its general applications and implications,” Lydia says, “but I’m not a subject-matter expert in, say, demand response or energy efficiency. But there are others out there who are, and my hope is that by going out and talking to the people who are experts in their areas I can get them to understand the potential value-add of blockchain technology. Those experts will find the hidden use cases and solutions I would never know to look for.” And this is already happening. After nearly every “lunch and learn” or internal course, people approach Lydia and suggest high-value use cases.

  For leaders who are considering blockchain education in their own organizations, Lydia strongly recommends finding advocates from both the grassroots level and from leadership. “I wouldn’t have been able to do what I’m doing at PG&E if I didn’t have both,” she says. A leadership presence is key to signal support to employees that are investing their time—and so is finding the people who really care about it. If you’re working with a team who isn’t very engaged while trying to apply new technology, you aren’t going to get anywhere. But an excited team will dedicate themselves above and beyond.”

  For executives responsible for long-range planning, Lydia recommends joining a consortium. “It’s incredibly helpful to have a consortium working together to develop a blockchain technology that makes sense for your industry,” she points out. “You can see lessons learned from what other people are doing so you don’t have to do every use case yourself.” A consortium doesn’t necessarily have to be organizational or even industry-specific, either. “Really, sharing the development is the whole point,” Lydia says. “Blockchains are inherently a distributed technology. Everyone benefits when knowledge is shared.”

  If you get in on the ground floor and learn it now, you can actually shape how this technology will impact your industry.

  “We had a lot of work to do in educating decision makers to understand the potential impact of the technology and separate that from the potential risk,” she says. “We wanted to shift the mindset from ‘We can’t do that because of x, y, and z,’ to ‘We should try it, but we’ll watch out for x, y and z.’”

  “Initially there was fear about how blockchains could disrupt the industry or introduce new risks, and one instinct in the face of fear or risk is to ignore the unknown. We took the view that if you get in on the ground floor and learn it now, then you can actually shape how this will impact the industry, rather than be left behind and have it h
it you on the side of the head like a bag of bricks in 10 years.”

  Diana Biggs: From Cypherpunk to Enterprise Innovation Leader

  Diana Biggs saw firsthand how the money system was broken while working in microfinance in western Africa. In a city with two ATMs, one of them always broken, consumers had few convenient options for accessing money, and using a traditional service like Western Union to send and receive money required hefty fees for each transaction. There had to be a better way.

  When Diana moved back to the States in 2013 to run a startup jointly based in New York, San Francisco, and Nairobi, mobile payment systems in the US were improving, but the artisans she worked with in Africa were still paying steep fees to move money around. “If we have the internet,” she remembers thinking, “why can’t we have global money?”

  As a member of the cypherpunk movement since the early 90s, Diana was more familiar than most with digital capabilities. “I’d first heard of bitcoin in 2011,” she says, “but didn’t pursue it then because I didn’t think it applied to anything I was doing. But the more I learned about its underlying technology, the more blockchains seemed to hold potential application in a variety of systems that weren’t working—not just money and ecommerce issues, but health care, supply chain, and even inequalities in society, where it seemed like the people in power weren’t doing the right thing for individuals.”

  Like many, she dove in deep with her exploration of blockchains, and very quickly got caught up in the excitement of the burgeoning movement. “It really felt like the early internet days,” she says. By late 2013 she was attending bitcoin conferences and forging close friendships with many of its major players, from bitcoin core developers to the cofounders of Ethereum, who used her New York flat as a crashpad.

  Eventually recruited by HSBC to start a new team focused on digital innovation, she continues to be fascinated by how technology can be used to promote financial inclusion and transparency, and how it can solve the problems that always vexed her—like making it easier for people everywhere to access and move money. “I felt that taking my background in mobile financial services and my passion for financial inclusion and then combining that with digital payments, open innovation, blockchains, and AI, especially at a large organization like HSBC,” she says, “is how I could be most effective.”

  And when Diana says “large,” she means really large: HSBC has more than 38 million customers in 67 countries, and 229,000 employees, which makes organization-wide educational efforts a formidable challenge. But Diana insists that large organizations “absolutely need to be prioritizing learning and getting themselves ready” for the massive changes that emerging technologies, and the resulting changes in our relationship with technology, will spark once they reach scalability. To that end she has implemented a number of creative educational initiatives at HSBC, including a lunchtime master class, a breakfast series called Innovation Mornings that brings in external speakers to talk about different aspects of tech, and internal websites with discussion boards so people can ask questions and share ideas and information on anything from AI to blockchains to data science. These initiatives are open to all employees, and Diana has found that it’s not just technologists or digital specialists who are fascinated by these emerging technologies and show up for the classes, but people from all areas of the organization, including risk, compliance, operations, the C-suite, and even individual branch employees.

  “It’s amazing to see people from such diverse roles getting excited and actively engaging in blockchain technology and thinking about the possibilities for where it could go,” she says. “Part of the importance of my group’s role is to make sure people feel empowered to be a part of all this new learning, and empowered to find ways to innovate in their own areas. Innovation is about breaking silos—and all of this works especially well with blockchains because they are inherently about collaboration and transparency and empowering users.”

  To help employees network and collaborate across such a large organization, Diana and her team have created company events that include time for networking, internal tools like the discussion board, a weekly email so employees can share the projects they’re working on and collaborate more effectively, and a monthly innovation forum so people from each part of the bank can share and discuss what they’re learning. They also actively create a culture that encourages experimentation. “New technology means new potential opportunities. But it also carries equally new potential risks, as well as new experiences—and people need to work with this technology to really understand all this,” she says. “So we make sure we’re promoting a safe space, a sandbox environment, for creating hypotheses, identifying which tools are best, and testing and experimenting.”

  You can be tech agnostic, but if you don’t test and invest now you’ll ultimately be left behind.

  Diana says everyone needs to accept that technology in general, not just blockchain technology, is changing things, and companies have a responsibility to keep pace. “You can be tech agnostic,” she says, “but you need to test and try and invest, or you will ultimately be left behind.” And though blockchains are still relatively new, Diana points out that “things are now starting to move into production and get real, and if you aren’t experimenting now you’ll miss out on a lot of valuable lessons.”

  Her advice for organizations looking to jump in? “Start investing in the future today,” she says. “Don’t write off new technologies like blockchains and think it’s all fraud or fad, or that it can’t work in a regulated market. That’s a comfortable response today that could quickly become very uncomfortable.”

  Chapter 13. CORPORATE INVESTING IN BLOCKCHAINS

  The blockchain is really going to change dramatically the whole nature of investing and saving in the future.

  Myron Scholes, Nobel Laureate, Economics

  Corporate investing in emerging technology is not a new strategy. Indeed, the few decades have seen leading multinationals introduce active strategies to participate in external innovation. Blockchains obviously offer a new wave of disruptive opportunity for organizations that have expertise, a vision for how the technology will shape their market, and the access to make smart strategic investments. However, blockchains are also poised to influence the way a wider range of corporations invest and raise capital.

  The Challenge and Opportunity in Early Moves

  There is strong motivation to understand and navigate investment opportunity even as it is still emerging. Together, Alison Davis and Matthew Le Merle, coauthors of Corporate Innovation in the Fifth Era and highly active investors and advisors in the blockchain space, have researched how leading innovators such as Alphabet, Amazon.com, Apple, Facebook, and Microsoft invest in innovation. Alison is also a board member and advisor to some of the oldest and most active blockchain investment firms, while Matthew is Managing Partner at Keiretsu Capital, an early stage investment network with over $750 million in funding and active investment in the space. Over dinner, the two shared their perspective on the corporate investment opportunity.

  “It’s a familiar pattern,” Alison explains. “When disruptive innovation arrives, it unleashes enormous value, but that value is not necessarily captured by the incumbents. In the industrial era, enormous wealth was created and transferred to new sets of people—the industrial tycoons and the financiers that backed them. Today we are all very fortunate to be living in the midst of a time of more disruption, innovation, and new technologies than any other humans have ever experienced before. New breakthroughs are unleashing new sources of value that are being captured by early entrepreneurs and the venture investors who back them—and this is especially apparent in the blockchain investment world.”

  Matthew sees many similarities between this moment and the early days of internet investing. He describes how when disruptive technology changes the world, early rounds of investing deliver far superior returns—but accessing these returns comes with great challenge. “Most people don’t
even know what questions they should be asking,” says Matthew, “much less have enough exposure to identify a strong project or company.”178

  So how are executive teams and corporate venture arms investing in this new area of emerging technology?

  Three Investment Strategies for the Corporation

  Blockchains offer new layers of investment opportunity for the corporation—and not just for the business looking to build their own disruptive capabilities. Because blockchains are also a key driver in creating what some are calling an entirely new asset class—cryptoassets—they hold the promise for new portfolio diversification and access to capital.

  We are already seeing new activity in three areas:

  Building capability via strategic investment

  Diversifying portfolios via cryptoassets

  Raising capital via tokenization

  In this chapter, we’ll discuss each in turn.

  Investing in Disruptive Capability

  While it’s a move reserved for those with depth in the space, some companies are making bold plays to invest directly in blockchain companies. A 2017 CB Insights report found that corporations participated in over 140 equity investments since 2012 and that the number of active corporate investors was fast approaching the number of active venture capital investors. While the financial services industry was the first to make direct blockchain investments en masse, investment is starting to come from a broader range of industries. Japan-based SBI Holdings, Google, Overstock.com, Citi, and Goldman Sachs were the leading corporate investors, according to the CB Insights report, with Overstock.com even building out an internal blockchain-focused venture and development team, Medici Ventures, that holds the broad mission of advancing the technology.179