The New Frontier Of American Entrepreneurs with AOL’s Steve Case 

0:05Hello, I'm Anthony Scaramucci and this is Open Book, where I talk with some of the brightest minds out there about everything surrounding the written word, from authors and historians to figures in entertainment, neuroscientists, political activists, and of course, Wall Street. Sorry, I can't resist. Before we get into today's episode, if you haven't already, please hit follow or subscribe wherever you get your podcasts and leave us a review. We all love a review, even the bad ones. I want to hear the parts you're enjoying or how we can do better. You know I can roll with the punches, so let me know.

0:38Anyways, let's get to it.

1:08to bring our attention to entrepreneurship all around America, not just in the pockets we'd expect. I'm lucky enough to call Steve a friend and he makes a great case for America and its innovation in this conversation. Pardon the pun there.

1:29So joining us now on Open Book, a dear friend and a wonderful entrepreneur, best-selling author, New York Times best-selling author, the co-founder of AOL and Revolution, writing an amazing book for our times, The Rise of the Rest, How Entrepreneurs in Surprising Places Are Building the New American Dream. It's such a timely book for so many different reasons, but as we think about our country and we listen to the media, we sometimes miss the great entrepreneurs, large and small in the country, the great micro-innovations that are taking place around the country. And Steve, thank you for doing the homework on this.

2:07But let's go to you for a second before we get into the book. Let's head back into the 80s when you started AOL. This is before you were making pineapple pizza for Pizza Hut, I guess, or right around the time, right after that, I guess. You started AOL in 1985. Only 3 % of the people were online. You grew up in Hawaii, but there you were in Washington. So you are in the book, weirdly, right? Because that's you. You are rising from the rest with some no-name company you're calling America Online, but it becomes this transformational business. Everybody has an AOL account. That's my vintage, at least.

2:46Maybe you're not my kids, but I have, I stole my account tied to my Amazon. So there you go. Tell us about that. Tell us about your start, sir. Yeah, it was an interesting journey. I was born and raised in Hawaii, as you mentioned, went to college in Massachusetts and knew I wanted to get into the internet. I graduated in 1980, But there was no Internet companies to go to back then because it's still more of an idea. And venture capitalists certainly weren't backing 21-year-old kids back then. So I ended up working for Procter & Gamble in Ohio for a couple of years, then Pizza Hut in Wichita, Kansas for about a year, and then moved to the northern Virginia area to join a startup that promptly failed.

3:19But thankfully, two of the people I met there, Jim Kimsey and Mark Serif and I, co-founded America Online AOL in 1985. So that was the path, a little bit circuitous, but I knew what I wanted to do. It just took me a little while to get on that path. But I think some of that experience, as you referenced, both growing up in Hawaii and even starting a company in Northern Virginia, where there really was no startup hub, there really was no venture capital, I think gave me an appreciation for some of the challenges of entrepreneurs all across the country. And that's really, I think, animated a lot of our work, both as investors over the last decade, as well as sort of champions of regional entrepreneurship and ultimately led to writing this book.

3:54Okay. So before we get to the book, what did you see? Because you write about this, the visions that people have for their companies. 3 % of the country's online. No one's really using it as a format. What did you see that other people didn't see? And what were you looking at over from, let's say, 85 to 95 to 05? What were you thinking? Well, 85, we were just trying to raise the initial capital, get started. We were able to cobble together about a million dollars from venture capitalists in New York, San Francisco, Chicago, Toronto, none of it from the Northern Virginia, Washington area. That got us going.

4:28We established some partnerships with some of the major PC manufacturers back then. Commodore was big. Radio Shack was big. Apple, IBM were, of course, big. And those partnerships really got us going. And then about five years into it, we kind of relaunched it as America Online as our own brand name. Before, it was kind of white label partnerships with those PC manufacturers. And I think what got what was made us successful in retrospect was we really had a partnership bias. We didn't want to go it alone. We wanted to partner with major players who could accelerate our creating awareness and marketing trial, things like that.

5:00And also we, from day one in 1985, thought that the killer app of the internet was people. So we focused on a lot of what's now we think of as social media, things like message boards, instant messaging, chat rooms, all that kind of stuff that allowed people to connect with each other. At the time, our competitors were focusing on content, focusing on commerce. We were focusing really on community, also really focused on ease of use, trying to make it easy to use, useful, fun, and affordable. And so that focus on the consumer, focus on community, and focus on partnerships really took us from a fledgling startup that most people weren't paying attention to.

5:33The first internet company to go public in 1992, we raised$10 million, Anthony, you'll appreciate this, at a market value that day of $70 million. Nobody knew or cared about what we were doing. Seven years later, that$70 million went to$160 billion. So it was actually the best performing stock of the decade. And that's when we decided to merge with Time Warner and I stepped aside as the CEO. So it was a great journey. Well, you know, this is before you and I knew each other personally. I was on the sales desk with a guy named Michael Parekh. Remember Michael Parekh? Of course, he was one of the research analysts covering us.

6:06Exactly. So he was so excited about your business. He said, listen, I no longer want to be a salesperson. I need to move down to the research department and cover AOL, which is going to totally transform the internet and totally transform our businesses. And it did, frankly, you led to a lot of amazing innovations. AOL Messenger, we're still using that. We're just using it in different forms, as you know, but you guys obviously invented that. But I want to talk about the country that you and I love, because when I read your book, and I love the book for so many different reasons, but when I read your book, it reconnected me with the core values of this country and core values, your parents in Hawaii or my immigrant family here in New York.

6:50Tell us about your road trips and the country that you love. And what did you learn about the country when you were doing the research to write this book? Well, there's so much, as you know, so much focus on, you know, what divides us as a country, so much focus on, you know, what's not working. And I think by spending a lot of time over the last decade traveling around the country, visiting dozens and dozens of cities and meeting thousands of entrepreneurs, it left me with a much more optimistic take on America, that they're really great people all across the country with big ideas. We need to help those entrepreneurs who are willing to take the risk of starting a company, help them by providing some of that initial seed funding to get going, help them as they're trying to create some visibility, help them as they're trying to establish some partnerships.

7:34But if we can do that, we can not just continue to lead as the most innovative entrepreneurial nation in the world, but do it in a more inclusive way. So it's not just some people in some places doing well, a lot of people, a lot of places kind of feeling kind of left out and left behind. And so it just kind of redoubled my own commitment to do what I can to support these entrepreneurs, to champion these cities, these rising cities that are really fighting to become more relevant in the future by creating some of the new companies of the future, sometimes even creating new industries of the future.

8:03And if we can continue to do that, then I think this country can continue to lead the way, but it's not going to be what's happening here in Washington, D.C., where I am, or even in places like Silicon Valley. Those are going to continue to be important. But I think the real action is going to be all across the country. It needs to be all across the country. And the big surprise to me when I got into this work over a decade ago was that while small businesses are very, very important and big businesses like Fortune 500 kind of companies are very, very important, new businesses that are under five years old, essentially startups, are the biggest job creators in our economy.

8:36So if we want to create jobs everywhere in the country, we need to launch new companies everywhere in the country, not just tech startups, by the way, startups of all kinds. And that's what we're trying to do with Rise of the Rest. Well, do you see yourself, Steve, in some of these entrepreneurs that you met? Of course, of course. When I was in my 20s, I had this idea around the internet. I was able to kind of align with other people who shared the passion, build an initial founding team. We were able to raise some of the capital. It was a struggle. A couple of times in that first decade that we almost hit the wall, had to go through layoffs.

9:08It was, you know, look kind of dire, but we kind of fought through it and eventually came out the other side. And at our peak, about half of all the Internet traffic went through AOL and it was the most valuable Internet company. So it was it was a great journey, a lot of like it was kind of a roller coaster. And that is the story of most entrepreneurs. As you well know, it's sort of it's rarely an overnight success. It's usually 10 year in the making overnight success. So I love talking to people, hearing their stories and, you know, sometimes championing their successes, but also helping commiserate with them a little bit when they're having some struggles.

9:39Listen, I got tire tracks on my back. I know you've had various tire tracks on your back over the years. I think that's what makes the country so interesting. You know, Bill Ackman, who's a friend of mine, he's running Persian Square. He said something to me a few days ago, which I'll share with you, which you get intuitively. He's like, you got to just survive and you got to push forward. And no matter how bad it looks, if you keep pushing, you know, there's the pathway to the opportunities, the pathway to the riches, the execution, et cetera. You talk to 40 entrepreneurs in the book, and I know you wanted to include many more and you write about this.

10:12Tell us what you did to narrow it down. This book could have been 2000 pages, not 200 pages, given all the experiences we've met, people we've met, cities we've visited. But we just wanted to obviously make it more digestible and create a narrative that people hopefully would find compelling. So we did have to kind of edit a lot of things we wanted to include in the book. But some of the cities and some of the companies and some of the stories that I found interesting. I start off the book, as you know, in Detroit, which is where we did our first bus tour 10 years ago almost. And it's amazing what's happened in Detroit.

10:42100 years ago was the most innovative city in America. The car was the hot technology of the day. It was kind of the Silicon Valley of its time. It's the fifth largest city in America, going gangbusters. And then over a half century, lost 60 percent of its population. And the year before we rolled in on our bus, the city of Detroit declared bankruptcy. So it went from being this dominant innovation city to being essentially bankrupt. In the last 10 years, it's really fought its way back. We back companies like Shinola and StockX. And both those companies now have over a thousand employees in downtown Detroit.

11:15and it's really giving people more hope and sense of possibility in Detroit. So that was interesting to see. We also found companies like in Atlanta, a company called Hermes, it's building a Mach 5 engine. So you can go from Atlanta to Europe in like 90 minutes. And the Air Force, not surprisingly, is a big customer of theirs. The fact that that company is in Atlanta, not in, say, Silicon Valley, I think, is striking. Or not far from where I am now here in Washington, D.C., in Richmond, Virginia, There's a company called TemperPak that we backed that created essentially sustainable packaging, trying to rid the world of styrofoam.

11:49It's important from an environmental standpoint, but it's also important that pharma companies can get their drugs to people and keep them cold and food companies can get food to people and keep them cold. But we need something other than styrofoam. The team there decided to build that company to create more of a sustainable solution to packaging and do that in Richmond or in Baltimore. You know, this company, Catalite, is basically using AI, which a lot of people are scared of, to essentially help people understand what their real talent might be. And for a lot of people, nobody talked to them when they were a kid about what coding or some of that kind of career path.

12:23But if you're Catalite, you take a test and you do well on a test, Catalite will put you through a program at their own expense to teach you coding and then place you in a job. And so it enables people. I remember one was a UPS truck driver. Nobody talked to him about coding when he was growing up, and suddenly he realized he had that skill, got retrained, and was making, I think it was more than two times more in terms of his salary once he got the Catalyte training. So these are stories of entrepreneurs in different cities, building companies that are disrupting, reimagining different industries.

12:53And so it's not about any one company, about any one entrepreneur, about any one city. It's just if you take a step back, it's a broader story of this next chapter of America. I think it's so well said. Ed, you mentioned AI. It's very topical. Just 30 seconds, if you don't mind. Should people be afraid of AI? What's your opinion? Yeah, I think there should be some concern about any new technology, but at the same time, try to focus on the positive, figure out what are the things that it can do that can move things forward in different sectors. I think we're beginning to have that conversation.

13:24AI, as you know, is something that's been building for really 40 years. It just became something in the last few months because the really the success of chat GPT became much more a lot more attention so now we're starting to have a conversation about what can the technology enable what should the guard rails be in terms of you know kind of government policy so that you get the benefits of new technologies like AI or robotics or other technologies while also hedging against some of the downsides I'm glad we're now having that conversation yeah listen I I'm I have to confess that I'm addicted to chat GPT I can't tell you the questions I've had pretty good I mean you know And I could have, my producer and I didn't, but I could have said, hey, chat, GBT, what question should I ask Steve Gase on the rise of the rest?

14:07I'm sure it would have been better than the ones I'm actually asking. But I read your book and loved your book. So I wanted to focus on the things that I found so interesting in the book. Let's go to some of these stories. Let's go to Dallas, Texas, some of the people that you found there and some of the ideas. And I guess there's a very hopeful, aspirational book about America, actually. This is a book that Americans need to read to remind themselves what the country, the better parts of this country, the better parts of our angels are really like. What was going on in Dallas, Texas that you discovered?

14:39Well, it's true with all these different cities. As I said, it's not any one or two cities. It's really dozens of cities. In Dallas, it's historically been around kind of legacy industries, oil and gas, things like that. But Dallas, as well as Houston, San Antonio, and of course, Austin, there's a lot of momentum around some of these new technologies, some of the industries of the future. We back several companies in the region, including Nixon, which is basically reimagining apartments so that you can basically move into apartment and have it all set up for you. If you're only going to be there for six months, you can move somewhere else and not have to worry about storing the furniture or reselling the furniture.

15:14It brings kind of a hospitality lens to the apartment business or Canaris, which is focused on helping companies understand how to move more towards diversity, equity, inclusion and track things with metrics and different kinds of businesses. So there are just a variety of different things that are happening in these different cities that are really giving me hope for those cities and also hope for America. Louisville, Kentucky. Louisville, Kentucky is another example of a city we've actually been back to twice. We went there the first time and they led an effort and led the mayor and the university president and some other leaders in banking and so forth to get the bus back again.

15:54And then there are some amazing companies that are scaling there. Not too far from Louisville, in a different part of Kentucky, there's a company we back called App Harvest that is basically focused on indoor agriculture, the largest indoor controlled environment agriculture in the country. And they picked that area because it's really well situated within the country. But, you know, 80 percent of the American population is within a 24 hour drive of where they're headquartered and they're using 90 percent less water. So it ties in with a sustainable solution. And it's just healthier in terms of the fruits and vegetables that they're growing.

16:26And the other thing that's striking about that is the area where they built this very large production facility is Appalachia, which for decades has struggled with job loss and even loss of hope. And now there's hope in that area of Kentucky because of the success of an entrepreneurial company like an App Harvest. There's a very old investment banker, not old. He's only 70, but he went to jail for insider trading. His name was Dennis Levine. I don't know if you remember Dennis. I do remember him. He has started something called Water Garden Farms, which is in your neck of the woods in Virginia.

17:01And he's producing 6X. It's indoor agriculture. He's producing 6X the produce, making packaged salads for people indoors. Everything you just said, less energy, more efficient, 24-hour cycling process. So there's continual harvesting. You don't have to wait for the boom-bust climate conditions to create the produce. And so, I mean, this is another great example of innovation that lead to environmental success as well, right? Yeah, absolutely. And as you say, it's happening in many parts of the country and it's entrepreneurs reimagining farming, reimagining agriculture, reimagining our food systems so we can have healthier food that's also more sustainable.

17:44And it ties in with one of the real battles that's brewing and getting some attention now. We'll get more in the coming months. Essentially, battle for over water rights in the western part of the country, Colorado, California, Arizona. There's limited water and not everybody can get the water they need. And some of the water, a lot of the water right now is going to agriculture in California. Obviously, that's important. But some of these new solutions that allow you to do agriculture in other parts of the country and with using 90 percent less water are going to become increasingly important.

18:16Right. Well, we both agree on that. How about Puerto Rico? What did you find in Puerto Rico? Puerto Rico is interesting because Jose Andres, the chef who started a number of restaurants, Jaleo and others, but also started World Central Kitchen and is really even the nominated for a Nobel Peace Prize for his work around the world. He has been really loyal to Puerto Rico in terms of helping them in their recovery. And so when he was he's been a friend for 20 years when he heard we were doing these Rise to the Rest bus tours, he said, you got to get into Puerto Rico. and he would agree to kind of host it.

18:48And so we were there probably now four years ago, something like that. And there's still some recovery issues going on because some of the issues they've had with hurricanes and other natural disasters. But there's a really spirit of possibility there. People are focused going back to the agriculture side. How do they become more self-sufficient? You know, almost over 90 % of their food is imported from outside of Puerto Rico. So how do they use their own land to grow food and create more sustainability, which will hedge against potential future kind of climate risks that they face. And again, as we've seen in different parts of the country, there's this entrepreneurial spirit that's been flickering and it's starting to accelerate.

19:25And that's something that bodes well for this next decade. Yeah, it's amazing stuff. I got to ask you about the recent regional banking situation, because when I read your book and think about what you're saying about small businesses and the growth, You and I both know that the regional banks are a great part of the capital arterial structure for these sorts of businesses. You know, the money center banks, it may be too small to go to these money center banks or, you know, sometimes you need a local banker to help you get your financing. What do you think is going on in the regional banking sector of our economy?

19:59And how do you think it will inhibit or hurt innovation? Or am I over exaggerating the issue there? No, I think it's a concern. I wrote an op-ed in the Washington Post a couple of weeks ago about the Silicon Valley bank situation. And part of it was expressing the concern you're raising that we need to make sure we're funding the innovation economy. The biggest, most successful banks, JP Morgan and so forth, aren't really kind of set up to deal with these emerging entrepreneurs. That's one of the things that SVB did well. So they obviously had some challenges. It wasn't about loaning to entrepreneurs.

20:30The loan portfolio was actually in pretty good shape. It was, as you know, a mistake on the balance sheet where they locked in, I think it was$80 billion at 1.7 % interest rates as interest rates were rising. So things kind of became upside down. And that's why you had the need for this rescue, the backstopping of the deposits. And so now that they've been acquired, you will see what happens there. I know a number of regional banks and even some new companies are trying to fill that void and make sure that they're providing the banking services that young emerging companies need. And it is critically important.

21:03It doesn't get a lot of attention. More of the attention is on the venture capital, the equity risk capital that is invested in these companies. But as they scale, a number of them also do rely on banks in terms of venture debt and other kinds of products and need to make sure that's still available to them. Otherwise, we will see fewer companies starting, fewer companies scaling, fewer jobs being created, less economic growth, et cetera, et cetera. So it's very important that we learn from what happened there and try to make sure we don't have a situation like that again, but we don't lurch and overcorrect in a way that stifles some of the ability for these banks to support these young companies.

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22:16Plus, for 12 hours only, Score can't miss flash deals just when you thought summer couldn't get any better. Don't miss Wayfair's Black Friday in July, only from July 26th through 29th. What are you waiting for? Head over to Wayfair.com to start shopping our lowest prices of the summer. Wayfair, every style, every home. Well, it's prescient what you're saying. I also think that you identified something I'd like you to share with everybody, which is about the American dream. So I want to take you back. Steve Case, 1980, coming out of school, defined for me the American dream. And then I want you to then say, Steve Case, 2023, has the American dream been redefined?