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Nick Hanauer - GeekWire Summit 2015
Nick Hanauer of Second Avenue Partners with GeekWire co-founder John Cook at the GeekWire Summit.

Investor, entrepreneur and civic activist Nick Hanauer has a knack for going against the grain to find and back new ventures that change the world. He was the first outside investor in; an early investor in drone company Insitu, before its sale to Boeing; and more recently a backer of breakthrough biotech company Juno Therapeutics — and those are just a few examples.

So what’s next? During his appearance at the recent GeekWire Summit, Hanauer talked about some of the areas where he sees the next big waves of technological and societal change.

But his core message about the future was this: Tech companies and entrepreneurs have a responsibility to focus as much on improving their communities and countries as they do on technological innovation. “If you do that, it’s all good, and if you don’t, you’re going to have problems,” he said.

Watch the full video of the session below, and continue reading for a transcript.

John Cook: Nick, we’re going to jump around on a lot of topics here, obviously, because you’re involved in a lot of different things. First, I just wanted to start by saying, when we first announced you as a speaker, some of the reaction was less than flattering including …

Nick Hanauer: Story of my life, John.

John Cook: … including one person who said, “Terrible choice.” There is a question here, though. In the tech community, why do you think you are such a polarizing figure?

Nick Hanauer: I’ve been a polarizing figure in more than the tech community. I’ve been a polarizing figure since I was a wee boy. I think that’s because most people in the world get the “We should all just do the same thing and get along” gene, and I got the “Eh? Let’s do something different” gene, which has made me a very good entrepreneur, I think, because that’s the gene that you need to be disruptive and to pursue the path less chosen, which is the essence of entrepreneurship.

Nick Hanauer at the GeekWire Summit 2015
Nick Hanauer at the 2015 GeekWire Summit

Obviously, you can antagonize legacy industries and competitors in the commercial sphere by being annoying, but in the civic sphere, obviously, that becomes political, and you can antagonize people in broader ways, which is something that I have been doing for a very long time.

The truth is that all civic and social change is friction. Politics is friction. The only way you can bend the arc of history is to create that kind of friction, which is something that makes most people incredibly uncomfortable but which, for whatever reason, because of my upbringing or because of my genetics, is something that doesn’t bug me. I’m very comfortable coming into conflict with people. It’s not something I prefer. It’s not a state a prefer, but it’s certainly a state I’m willing to be in. Obviously, you end up with people who think I’m a terrible choice.

John Cook: You have had the uncanny ability — even for those people who don’t like you, I think they would have to admit — to see around some pretty big corners, and invest in Amazon. I think you were one of the … if not the first, one of the first investors in Amazon taking a bet on a small e-commerce shop before there was anything called “e-commerce.”

Also, a lot of people might know this. One of the first in a commercial drone company was Insitu Group. This was many, many years ago, investing in Insitu before it sold to Boeing. Very early on that. aQuantive in the online advertising business was sold to Microsoft, obviously.

What are you seeing around the corner next in terms of where you think there is big opportunity, and are you putting your money to work there?

Nick Hanauer: We live in an age of increasingly rapid technological innovation, and that creates more and more and larger and larger opportunities, and it’s hard to pin down what the next big thing is, but certainly, something that’s at the top of my mind, both because of the business implications but also because of the civic innovations, all the incredibly exciting things happening in biotech here in Seattle.

By luck, this is just the Karma of good things … by luck, my wife and I made a big donation to Children’s Hospital cancer research and simultaneously backed the company that owned the IP in immunotherapy that was doing that. Me being the walking rabbit’s foot that I am, that turned into Juno Therapeutics, which is now probably the leader in immunotherapy.

When you think about what the next big thing is, like actually curing cancer here in Seattle is the next big thing. That is going to happen. This is unbelievably exciting thing, where you take people who were going to die, and you take a little bit of blood out of them, reengineer the blood, stick it back in them, and two weeks later, they are cancer free.

This is happening in Seattle, Washington. Seattle is one of the centers of this innovation on planet Earth, and it represents an enormous both economic and civic opportunity for the area. That’s a super important and exciting thing and probably … in my opinion, the most consequential thing that’s happening here in town. I know nothing about biotech at all. I wish I did, but for sure, this is going to be a really important thing.

Then, jeepers. There’s so many interesting things going on. Of course, what we broadly call the “sharing economy,” ways in which you can leverage technology to leverage existing infrastructure and people and stuff like that. Obviously, this technology is creating enormous amounts of wealth. It’s creating incredible new products like Uber, but it’s simultaneously disrupting a lot of the ways in which workers at businesses have worked together, which creates another set of problems.

John Cook: Talk more about that and the sharing economy because this gets into some of the economic thoughts that you have in terms of technology potentially disrupting the middle class, ruining lives and having a negative impact. Perhaps people losing many, many jobs because of this. I know it’s an important topic to you. Overall, do you think innovation is evil, and how can you use technology to maybe bolster the middle class when many people are running scared?

Nick Hanauer: Yeah. Prosperity in human societies is misunderstood if you think of it in terms of money. Prosperity in human societies is the accumulation of solutions to human problems. The difference between a rich society and a poor one is the number of problems that society solves for its citizens, and what that means is that technological innovation, which is how you solve problems, is the source of all prosperity. Growth really is best understood as the rate at which we solve problems, but with every technological innovation, you also get disruption, ultimately social and civic disruption.

It’s not worth going into, but you only have to think back a little bit to the industrial revolution or whatever it is, and you find these disruptions.

Technological innovation, which is what everybody in this room does and is after, is something that societies have to pursue as vigorously as they can with this caveat, that you have to innovate civically and socially at the same rate. Otherwise, you create these unfortunate disruptions that creates a political circumstance where you have people who actually start to oppose the technological innovation.

We find this playing out in our society where more and more people are upset about whatever it is. Uber or just innovation in general or technology in general or science because these things are disrupting their lives. We all collectively … particularly people who want to lead technological advancement, we have a responsibility, both to ourselves and our fellow citizens, to innovate socially and civically at the same rate.

If you do that, it’s all good, and if you don’t, you’re going to have problems.

Amazon and Jeff Bezos

John Cook: One of the rubs, and we’ve heard this earlier on the panel about Amazon, was that Amazon’s been incredibly disruptive …

Todd Bishop: Incredibly innovative.

John Cook: But hasn’t done as much to spark the civic aspect of it. You were an early investor in Amazon. What could they do more of to spark that part of the equation because many people in Seattle would argue that while Amazon’s a very entrepreneurial, innovative company, it’s not doing enough in the community. What are your thoughts on that?

Nick Hanauer - GeekWire Summit 2015Nick Hanauer: That’s a great question, but let me break the question into two parts. There can be no doubt that as a corporate entity could be far more civically involved in our community than they are, and I think they should be, and I wish they were. That’s not the bigger problem. There’s another thing, which is even more significant, which is the way in which these new business models ultimately and essentially inevitably disrupt the economy generally. We have to find a way to make sure that those disruptions aren’t civically, politically and socially harmful.

The first thing is Amazon’s fault, and shame on them. They should be more civically engaged. The bigger problem is, “What we do with people, good, hardworking people, whose lives are destroyed because of technological innovation? Do we chuck them away? Do we pretend it’s not a problem? What do you do?

I would argue that the most expensive, least constructive thing we can do is ignore the problem or pretend it doesn’t matter. Now fixing that isn’t Amazon’s problem. We have to collectively find ways to do something with, for instance, all of the people who used to work in bookstores don’t have jobs anymore. Just pretending like it’s not any of our issue that they can’t buy stuff in stores or anymore or pay taxes or participate robustly in our economy and in our community is stupid. It’s just stupid and shortsighted.

Todd Bishop: Taking that one step further, there’s another issue, and that’s Amazon’s impact on its own workplace and, by extension, serving as a model for other companies, potentially. We had David Streitfeld, the New York Times reporter who was one of the authors of that bruising report. What did you think of that story, and did you see the Amazon that you know in that story?

Nick Hanauer: Two minds. On the one hand, I think it is a fantastic sign of the positive evolution of our society that the story was a story at all. That a story could be written on the front page of the New York Times and go everywhere that a giant corporation was treating its workers crappy. Fifty years ago, this wouldn’t have made the news. It would have been like, “What’s new?” But we have changed our expectations in a way which made that a story, and I think that’s very positive.

Jeff is a very hard-driving guy, and look, I was very deeply involved in Amazon in the early days, and I remember, I don’t know, I think it was Company Meeting No. 2, where we had all these people who were basically working 24 hours a days. They occasionally needed food to sustain their work, and …

John Cook: They didn’t have Amazon Fresh yet.

Nick Hanauer: No, no. They occasionally needed food, and they were like, “We would like to order pizzas, and we feel like perhaps the company should pay for the pizzas at 3 in the morning,” and Jeff was, “No. No. Your food is your problem,” and I was like, “Wow. Hard-core.” It’s the same today.

John Cook: Why is that? Is that just the way he’s wired?

Nick Hanauer: Yeah.

John Cook:  Describe a little bit more about him since you worked closely with him in the early days.

Nick Hanauer: Yeah. He’s pretty hard core, and Jeff holds himself to a standard that is very, very high but ultimately, of course, Jeff benefits asymmetrically from the success of Amazon. As my dear old friend, Keith, used to say, “Tens of billions of reasons to work that hard.”

John Cook: What’s your relationship with him now?

Nick Hanauer: We occasionally see each other.

Boosting the minimum wage

Todd Bishop: One of the issues that is really a pillar of your public campaigns and your public interest is the $15 minimum wage. Why should tech entrepreneurs and tech workers care about the $15 minimum wage?

Nick Hanauer: We should care about it a lot, and we should care about it more than anyone else cares about it, because here’s the thing: If you run a technology company today, every single one of your employees almost certainly can afford to walk into a Starbucks or a McDonald’s or whatever it is, get a Starbucks every day.

Every single one of your workers is paying taxes, but you go to a Starbucks, you go to McDonald’s, you go to a Walmart, you go to a Walgreen’s, none of the people who work in those stores can afford to buy the products that we make. None of those people are paying taxes into the system. On the contrary, they’re getting food stamps and MedicAid and rent assistance paid for by the taxes that your employees pay.

This asymmetry is what I call “The parasite economy.” We have two economies in this country. We have the economy where people get paid enough to robustly participate both as consumers and citizens and innovators in our economy, and we have this whole other economy where workers, frankly, are exploited in this way, and we pick up the difference. Look, that’s a moral abomination, but it’s also incredibly inefficient. There is no early reason why giant, profitable corporations cannot pay their workers enough so that they can robustly participate in the economy.

We want every single Walmart worker to be able to buy our products, and every single Walmart worker to be able to pay taxes, not need food stamps. It is idiotic, and the only way you can do that is by raising the standard.

Look, all human endeavor, all human civilization is the act of solving collective action problems. Should we put out our own fires, or should we have a fire department? Should we build roads or should we hack our way through the woods from one factory to another? An economy is essentially a collective action problem, and look. There are some people who never saw a race to a bottom they didn’t want to win. You have in these systems some people who want to drag everybody else down.

The way these things work in every human endeavor where things are going well is the other people are like, “Screw that. Let’s have a standard and push things up.” The minimum wage is one of the most powerful, efficient and effective levers we have to raise the standard, because when every worker earns a decent wage, then every single business benefits from the demand that those wages represent, and every single taxpayer’s relieved of the burden of picking up the difference that you have when somebody earns $7.25 an hour or even worse, $2.13 an hour plus tips.

Todd Bishop: Why is this an issue that’s so important to you? Is it because you want your own businesses to succeed more, or is it because you feel there’s a societal need for this raising of all those.

Nick Hanauer: I am not equipped to answer. I don’t know why. I don’t know why I feel so strongly about it. There’s a moral issue at play that seems really, really obvious. The idea that Walmart, which earns $27 billion pretax per year employs a million workers, most of whom are in abject poverty. This is just nuts. Walmart could afford to pay each of their million lowest-paid workers $10,000 more a year, taking all of them out of poverty, eliminating all the need for food stamps and still earn $17 billion pretax. There is no earthly reason why they can’t do that, other than that they prefer not to, and who wouldn’t prefer not to?

Look. If you’ve got that deal, if you’ve cut this deal with society where we pay our workers poverty wages and you all pay the food stamps and the MedicAid and the rent assistance, why wouldn’t you take that deal? It’s a great deal.

The problem is, not everybody can have that deal because if everybody gets that deal, then who will buy the stuff and who will pay the taxes?

A political future?

John Cook: Nick, I’ve heard you talk about this issue and many others over the years including a state income tax, which I know you wanted to institute for people like yourself who are in the upper one percent. That actually failed in the state of Washington, but you are very, very politically motivated. Would you ever consider running for political office?

Nick Hanauer:  Almost certainly not. My wife and I have endeavored to live a life that would not hold up under that kind of scrutiny.

John Cook: I want to hear some of the Rich Barton Burning Man stories.

Todd Bishop: Would that torpedo the campaign?

Nick Hanauer: Yeah. Exactly. I’d last about one minute.

John Cook: You are passionate, and you’ve got a view …

Nick Hanauer: Absolutely. Absolutely.

John Cook: That resonates with at least a portion of the populace.

Nick Hanauer: Yeah. Whether what we do resonates with you or not, at the risk of sounding self aggrandizing, if you look at what we have accomplished over the last few years, I would argue that there probably aren’t any United States senators that have made a bigger civic or economic impact than me and my gang in the country. The $15 minimum wage, which we invented, is rolling across the country. It will become either the law of the land or the de facto law of the land … I could tell you about all the state-based campaigns that you’ll see in ’16 and beyond, but then I would have to kill you.

Whether it’s gun stuff or political economy stuff or whatever it is, we have invented a way of participating politically and civically, which we think actually is far more effective than being elected to office. I think what’s cool about it is that we use the same tools in the civic sphere that I used in the commercial sphere. All the same entrepreneurial and innovative techniques. That’s why we call it “civic ventures.” We think of it as essentially using tech innovation skills in the civic sphere.

Todd Bishop: All of us have been heads down at the GeekWire Summit today but there was in fact, another tragedy in Oregon earlier today. Nick, how do you decide what to say and when publicly about these types of incidents? You’re obviously a very big gun control advocate.

Nick Hanauer: Yeah. Yeah. My gang leads the gun violence politics and policy stuff here in the state, and we’re the tip of the spear nationally. Yeah. I’m horrible at knowing what to say in these moments and almost always say something that leads someone to say, “That guy’s an asshole.” If you work on this stuff, as I do, you take these things extremely personally. Those kids dying today, and a lot of kids died today, I take it as a personal failure.

The people in my office today are sobbing at their desks because this happened. It’s very emotional and very difficult for us. It’s awful. It’s a national embarrassment, and there is much work left to be done.

Todd Bishop:  We’re in the midst of the 2016 presidential campaign. Do you believe this could be a key issue, more so than putting up a wall at the border?

Nick Hanauer: Yeah.

Todd Bishop: Shouldn’t it be?

Nick Hanauer: I love the idea of a wall between us and Canada. Who is that guy, Scott Walker? Scott Walker? I think that was his big idea. We need a wall between us and Canada. My favorite movie is Canadian Bacon, by the way, if you guys have never seen that. It’s just outstanding.

Todd Bishop: Why isn’t this a bigger issue on the political stage?

Nick Hanauer: The thing is is that, in democracies, there’s often a disconnect between what people want and what their elected leaders think they want, and certainly, with respect to issues of gun violence, there was unbelievable unanimity around common sense regs on guns in the ’70s, ’80s, and ’90s on a lot of these issues. Unfortunately, in a legislative democracy, it only takes a couple of idiots to stop everything.

All you have to do is buy off one United States senator, and you can get anything done. Obviously, this is the craft of the National Rifle Association. We tried to pass in the last legislative session something called “Extreme Risk Protection Orders,” which is when the family of somebody is absolutely certain that they’re violent and dangerous. You can go to the police and the judge and say, “We’d better take the guns away from that person,” because with respect to almost every one of these mass shootings, everyone knew.

Dollars to donuts, when we find out more about the person who just shot these 30 kids or whatever it was at this thing in Oregon, his mom would be like, “Yeah, I knew it. He was going to do it. Like he told people he was going to do it. We went to the police, and they were like, “Until he kills a bunch of people, we can’t stop him.”

Extreme Risk Protection Orders, super obvious thing. They poll in the eighties. If you do a poll and say, “Should we do this?” Eighty percent of people are “yes,” ten percent are “no.” We tried to pass it in the legislature in the state of Washington last time. Stopped dead. By the way, by a Democrat, the Number Two guy. The person known in my office is “That idiot, Pat Sullivan.” That idiot, Pat Sullivan, he’s a big NRA … he takes a lot of money from the NRA, and he just wasn’t going to do it. That idiot, Pat Sullivan, stopped a very good law from being passed.

The future of Seattle

John Cook: Nick, when we started the session, we showed the post-apocalyptic Seattle, transformed largely by a technology industry. This industry is transforming Seattle in so many ways. How do you see that shaking out, and do you see the citizens of Seattle turning against the technology and innovation economy here?

Nick Hanauer: Like I said before, if we don’t find a way to socially and civically innovate at the same rate that we’re technologically innovating, bad stuff will happen. It is awesome, all of this growth, but most people don’t make what a software developer at makes, and if they can’t afford to live here anymore, you can expect that that majority will enact laws that will bring this party to a screeching halt. It’s just going to happen, which means that again, we have the responsibility of leading the charge to find ways to mitigate the disruptions that we create.

John Cook: What are the biggest issues that are stopping Seattle from progressing?

Nick Hanauer: Obviously, affordable housing is a huge issue. Again, not for the people in this room, but for almost everyone else who’s out there, Seattle has become an incredibly expensive place to live. We have a bunch of challenges to confront with respect to that. Obviously, transportation is a huge, huge issue. It’s going to get worse before it gets better. We have a terrible homeless problem that we have to come together to solve.

All of this stuff will involve investments, taxes and trade offs. Just pretending like we don’t need to deal with it or pretending like it’s not our problem is just not constructive. We’ll get bit by that. I just think that of all the people who have a stake in sorting this stuff out, this is the group.

Todd Bishop: What should we do?

Nick Hanauer - GeekWire Summit 2015Nick Hanauer: Be civically engaged. Be civically engaged. Look, for better or worse, the city has a plan for dealing with affordable housing. The city has a plan for dealing with transportation. These things need to be, of course, sorted out, but they need to be supported. I’d be stunned if 5 percent of the people in this room were up to speed on what those proposals were. These are crucial issues, and if they don’t get sorted out, the party will end. It’s just common sense.

Microsoft and the aQuantive deal

John Cook: Nick, we talked about some of your history with Amazon. You also have some history with another big tech titan here in town, Microsoft, selling aQuantive to Microsoft for $6 billion.

Nick Hanauer: Yeah.

John Cook: At the time, the largest acquisition. It’s perhaps the biggest failed acquisition at Microsoft. Maybe you could debate whether Nokia was a worse acquisition.

Nick Hanauer: No.

John Cook: What went wrong there, and what is your view of Microsoft after having sold the company you started …

Nick Hanauer: Yeah. I just feel like I need to say that when we sold aQuantive to Microsoft, it wasn’t vaporware. It actually was a big company doing a lot of revenue, generating a huge amount of EBITDA. I think we were headed towards … it’s been so many years now, but three-quarters of a billion dollars in sales and $150 or 200 million of EBITDA, three thousand people globally. There was something. It was a business. It wasn’t this idea that maybe something will happen someday.

Eighteen months later, it was pretty much gone, which is sad. It’s just a matter of cultures, and alignment and priorities. Microsoft is a very specialized ecosystem and environment. They’re really good at certain kinds of things, and they have adapted themselves to this niche. You could think of Microsoft as an amazing company, but they totally dominate this niche.

It could be any niche. It could be even a niche like where the water’s 800 degrees, and it’s at the bottom of the ocean, and there’s a bunch of stuff that’s just dominated, and they look outside, and they’re like, “Come on, everybody. The water’s warm. It’s great.” Then you get in there, and you’re like, “Aah,” and you die instantly. That’s basically what happened. It’s basically what happened to AQuantive when it went into Microsoft because it went into this water, which they thought was perfect, but it was 800 degrees and mostly sulfuric acid, and boom! My people were dead.

Which is to say, somebody should have thought that through a little bit in advance and tried to find a way to bring it along. At the same time, we just had a very different view. The difference between software business and the Internet business is, in software, it’s really easy to understand what people want and super hard to build. In the Internet business, it’s super easy to build stuff but really hard to know what people want.

In one place, you hire a thousand developers and you build this thing and you ship it, and in the other case, you hire five developers and you iterate, iterate, iterate, and these two cultures just don’t go well together. These two org charts don’t go well together.

Todd Bishop: How do you think the company’s positioned now with Satya Nadella in the leadership …

Nick Hanauer: I’m no expert on Microsoft, but Satya seems like a really smart person doing super intelligent things. Obviously, it’s a problem. How big is that Windows business? Like 10 gazillion dollars with 99% margins. When these things end, and it has to end eventually, things will be tougher for them, I would think. Being in charge of that transition has to be quite challenging, no matter who you are, how smart.

The future of the tech economy

Todd Bishop: The lightning round here at the end, the two questions we’ve been asking everybody. Most important technology of 2018. What would be the one thing that you would bet on technologically for 2018? Three years from now.

Nick Hanauer:  AI. It’s here. It depends on what you mean by AI. I don’t want to get into a philosophical argument about the Turing test and all this other stuff, but “Siri, would you find me a place to eat?” is here, and “Will you park my car?” is here, or it will be in ’18. I have a 15-year-old boy. Anybody else has a 15-year-old boy, you know they come with challenges. We’re about to give the kid car keys, which seems like an act of insanity given what you know about 15-year-old boy behavior.

I was like, “If it was just 2019, maybe it would be a self-driving car, and it would be so much better,” but these things are going to be here, and my son may be the last generation of kids who actually learns to drive. Think about it. In 10 years, cars may be self driving, and there won’t be driving school anymore. Like wow. Think about how that’s going to change the world. Think about how it’s going to change the urban landscape. Think about how it’s going to change everything. So exciting.

Todd Bishop: Are you concerned at all about a tech bubble? The possibility of a tech bubble right now?

Nick Hanauer: Complex systems, which is what an economy is, are non linear. Non-equilibrium systems. Anybody who tells you that there’s an equilibrium either is confused or lying. Bubbles are an intrinsic part of these dynamic systems and oscillations are an intrinsic part of these systems. The issue is not, “Will you have a bubble or not?” The question is, “How big will you let the bubble get, and how bad will it be when it bursts?” Of course, we’re going to be in these oscillations. We just have to manage through it.

Todd Bishop: Nick Hanauer, I, for one, think you were a fantastic choice to have a discussion with.

Nick Hanauer: Thank you.

John Cook: Yes, thanks for joining us, Nick. That was great.

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