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How Steve Case Is Preparing for the Web's Third Wave Case looks for a time when entrepreneurs will transform business sectors as diverse as health, education, transportation, energy and food.

By Matthew Toren

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Steve Case is a man of many accomplishments, but you likely know him best as the co-founder of America Online, or AOL. By building up an Internet community, investing in startups through Revolution LLC, and traveling the world for "Rise of the Rest," Case has established himself as a Web pioneer. Now, he's helping the future of the Web prepare for the "third wave" with his book, The Third Wave: An Entrepreneur's Vision of the Future.

Case defines the third wave as one in which "entrepreneurs will vastly transform major real world sectors like health, education, transportation, energy and food -- and in the process change the way we live our daily lives." Through this digital revolution, businesses big and small will have to stay on their toes and build partnerships to continue to meet consumers' needs.

Related: Steve Case: 'The Team You Build Will Define the Company You Build'

I was fortunate to catch up with Steve Case just after his book release. We talked how to break into unexplored industries, the Internet's near and far-off future and advice for new entrepreneurs just getting off the ground.

What gave you the strength and inspiration to start AOL when the Internet was so new and unexplored?

"In 1980, while I was a senior at Williams College, I read a book called The Third Wave by futurist Alvin Toffler. I was captivated and mesmerized. His third wave predicted a technology revolution where people would use computers to participate in an interactive world. Toffler's electronic village would be centered around community and shared interested, not place. In other words, I was reading a futuristic view of what would become the Internet.

I knew Toffler was right, and I knew I wanted to be part of building out the interactive world. But there was no such thing as an Internet company to join for a kid graduating from college in 1980. After a few stints at large corporations, I joined an interactive video game startup in Virginia. It failed, as many startups do, but in the process I met Marc Seriff and Jim Kimsey. We co-founded what would become AOL in 1985. Ultimately we helped create the electronic village Toffler had imagined."

When did you realize there was such a stark contrast between the three waves of the Internet?

"Over the last few years I've traveled 4,000 miles by bus on Revolution's "Rise of the Rest" road trips, where we meet with talented entrepreneurs, innovators, and public leaders nationwide. During one of the trips I had an "ah-ha" moment of inspiration, and it hit me that some big trends were gathering momentum. It became obvious that people didn't realize how dramatically and consequentially the tectonic plates of our economy were about to shift.

When we started AOL in 1985, only 3 percent of Americans were online. So we -- and many others, including Yahoo, Microsoft, Cisco -- set out to get America online. Then the second wave kicked in, and the last fifteen years have been about building apps and services on top of the Internet. Core capabilities such as search and social became prevalent, as have smartphones, which ushered in a mobile revolution and the app economy.

Related: SXSW: Steve Case Asks Entrepreneurs -- Are You Ready For the Third Wave?

In this coming Third Wave, as entrepreneurs can leverage the ubiquity of the Internet, they'll be able to finally transform the largest sectors of our economy: health, food, education, transportation. All of this will require a new mindset and a new playbook for executives, employees, and policymakers. So I've written a book that explains the new playbook while taking readers back to my journey building AOL, merging with Time Warner, investing through Revolution, and working on public policy issues."

How will the third wave affect startups?

"Innovation in the third wave will generally be more challenging. Getting started may be easier, because of things like cloud computing and crowdfunding, but achieving scale and success will be harder, because it will generally necessitate partnerships. In the second wave it was often about the app, and you could go it alone; in the third wave, it is about connecting technology to systems, and entrepreneurs will often need partnerships to achieve scale and differentiation. If you want to revolutionize learning, for example, it's not enough to create an app; you also have to engage with teachers and schools to drive adoption. If you want to innovate in health care, you need to work with doctors and hospitals.

In terms of funding, I am a big believer in crowdfunding. While today 75 percent of venture capital goes to just three states (California, New York, and Massachusetts), and 90 percent goes to men, we're beginning to see the benefits of crowdfunding as a means of leveling the playing field, so anybody with any idea, irrespective of where they are, have more of a shot. The seed capital to get started will increasingly come from these crowdfunding platforms, and then as entrepreneurs achieve some momentum, they can more readily connect with institutional investors to get expansion capital."

Will the third wave affect startups and big businesses equally?

"As I think about the third wave, I'm reminded of Kodak. They knew one day digital photography would threaten their core business -- indeed, they knew this because engineers at Kodak invented digital photography. But corporate executives were reticent when it came to planning for the digital future. Eventually they went bankrupt.

Related: Steve Case: Great Companies Will Thrive, Despite Where They're Based

In the third wave corporate leaders and their employees will have no choice but to develop a perpetual sense of paranoia and curiosity in order to survive and remain competitive. Indeed the largest publisher today produces no content (Facebook), the largest hospitality company owns no hotel rooms (Airbnb), and the largest taxi service owns no cars (Uber) -- and yet this is only the tip of the iceberg. Disruption has broadened in the third wave: competition will not just emerge from the low end of your specific sector. Rather, competition will also come out of other industries. Large corporations must embrace self-disruption and constantly think about reinvesting their business."

How will the third wave affect American education and policymaking?

"Third wave industries are among the most regulated in the economy, from energy, to financial services, to education, to health. And government is not just a regulator in these sectors; it is often also a very large customer. New lending platforms will be regulated by the SEC, drone delivery services will be regulated by the FAA, genetic tests will need FDA approval. Simply put, government and policymaking will be a key component of the third wave.

That means [entrepreneurs will] need to learn policy and engage with government. Many startups won't be able to raise financing without showing a go-to-market strategy that includes a policy plan. In the first wave, investors were concerned about technology risk; can you build it. In the second wave, it was generally about market risk; can you drive adoption. In the third wave, policy risk and partner risk, will be front and center; can you navigate the regulatory process and establish partnerships with critical organizations.

Policymakers have an obligation to encourage innovation and entrepreneurship in the third wave -- they can be helpful enabling successful startup activity in cities across the country. They can help by passing immigration reform so we win the talent battle, reducing regulatory burdens on entrepreneurs, supporting rising startup ecosystems at the local level, build on the JOBS Act and improve access to capital. Finally we really need to modernize government so that it's more responsive in the third wave."

You're clearly involved in a variety of entrepreneurial support foundations. Do you think successful business owners are responsible for ensuring or supporting the success of newer entrepreneurs?

"Absolutely. Successful startup activity is a virtuous cycle: as companies have exits and wealth is created, investors and early employees often put capital into new companies. We saw this with the success of AOL in the DC area, which has led to the creation of dozens of new startups creating new jobs and innovations. I do think there is an obligation to give back in some way -- whether through investing in the next wave of startups or philanthropy."

What advice do you have for entrepreneurs seeking to further develop other unexplored fields?

"I recommend they follow the three P's: passion, people, and perseverance. In terms of passion, you need to care deeply about the mission and what you are exploring. When you get up in the morning you need to be fired up to work on your startup. The biggest companies in the third wave will disrupt health, food, energy, transportation -- whatever it is you're doing, you need to feel passion. Passion will help you stick with it when times are tough.

Second, you need to be surrounded by the right people. Entrepreneurship is a team sport and you need the right players in the right seats, working together on the right priorities, in the right way. Whenever I talk to an entrepreneur pitching for an investment, one of the first questions I ask is about the team.

And third wave entrepreneurs will need to have perseverance. In the second wave there were some true overnight sensations, companies that came out of nowhere and achieved almost instant success. But the big winners in the third wave are going to need to persevere, as sometimes revolutions happen in evolutionary ways. And they will need strategic partners, and those often take time to build."

Steve Case now spends a majority of his time investing in unique ideas and people through Revolution LLC and The Case Foundation.

Matthew Toren

Serial Entrepreneur, Mentor and co-founder of YoungEntrepreneur.com

Matthew Toren is a serial entrepreneur, mentor, investor and co-founder of YoungEntrepreneur.com. He is co-author, with his brother Adam, of Kidpreneurs and Small Business, BIG Vision: Lessons on How to Dominate Your Market from Self-Made Entrepreneurs Who Did it Right (Wiley). He's based in Vancouver, B.C.

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