I am off this week to Taipei for business and Shanghai to judge the Hult Global Case Challenge. Students from around the world develop strategies to scale each of three social ventures. OLPC is one of the social ventures. The other two are Habitat for Humanity and Solar Aid. $1 million in seed capital goes to the winners.
Traveling with only an iPad, blogging will be more challenging than it should be. Therefore, below are some popular posts from SF to read until I return.
Yesterday I spoke at the Miami Philanthropy Forum. Very nice event with about 100 attendees. Thanks to Colleen Post for inviting me.
I spoke about what I call the "social venture checklist". Many socially oriented founders default to non-profit status, but I cautioned them to understand the tradeoffs before accepting this choice. When I asked the audience of non-profit managers why they chose non-profit nobody had an answer except to reference tax free contributions. See the Powerpoint below for better reasons. When I explained that non-profits are like stock brokers I had everyone's attention. Both organizations provide trustee services for low margin income.
Then I took them through a discussion of the for-profit choices:
Social entrepreneurship
"Capitalist Dog" entrepreneurship
The difference between the two types of entrepreneurship is that in social entrepreneurship one maximizes value creation and in traditional entrepreneurship one maximizes value capture (just the way Milton Friedman taught us). I also stressed that many social ventures assume that they have some higher normative status compared with for-profits. The lines that define "social" are actually quite unclear and any organization is better off to focus on economic consequences.
Recently I have been hearing much criticism of Android. Some people are suggesting that Android will survive on smart phones but not on tablets. The problem is that the user interface on Android is not satisfactory for many apps.
"The hardest part of building advanced mobile phones...was writing the lower-level software that the operating system uses to communicate with the hardware, including the radio baseband and audio/video controllers"
This strategy left the higher level issues in the software stack to manufacturers, app developers and carriers. They would be responsible for the user experience and interface. However, the Android toolkit to assist developers was not very sophisticated and resulted in slow run times. The developers were consequently very challenged and the user experience suffered. Some of these issues still continue and may undermine the long term viability of Android on the more sophisticated tablets.
While Android provided a great service in addressing the "hard problems" they left the all important user interface to others and consequently the user experience.
A friend (@john_menezes) wrote and asked me to talk about the important takeaway from last night's lecture to my entrepreneurship class. The lecture was on Clayton Christensen and his theory of disruptive innovation. Christensen is a professor at HBS and his most recent book on disruptive innovation is "The Innovator's Solution: Creating and Sustaining Successful Growth". This video is a presentation by Christensen on his work and an excellent summary for those who like videos.
Christensen's theory of disruptive innovation states that the size of a market is measured not by those who use a product but rather by those who are unserved. One disrupts the existing market leader by lowering the performance standards through a more limited feature set at a lower price. These changes make the product available to new customers who could not previously afford the technology. The computer industry demonstrates this logic, as shown below.
Mainframe computers
Mini-computers
Desktop computers
Laptop computers
Smart phones
In each case above the next technology disrupted the dominant technology by offering more limited features, lower performance and a lower price. This change in price-performance enabled a new group of users to adopt the product and this new group is usually larger than the previous user group.
When we observe the five cases above there is an interesting observation, which was the important takeaway from the class. In each case the new technology changed the physical location of the technology. Mainframes were rare, one to an organization. Mini-computers were available in many closer locations in an organization and smart phones are in our pocket. If you do not understand this point and its power as a new business idea, think about hard discs, USB flash sticks and cloud computing. Physical location of memory storage changed in each case and large markets were established. Convenience improved as a result of changing the performance standards and the location.
In my classes and workshops on entrepreneurship one of the goals is to provide a set of tools to build a large business. I am not very interested in self-employment or small businesses. Changing the physical location of a technology is one of those tools that creates the possibility to create a large business.
One of the students made the connection between Christensen's unserved market and Prahalad's concept of serving the "bottom of the pyramid". Very pleased that a student could make the connection between Prahalad and Christensen based on my lectures. This concept is discussed in my upcoming book on social entrepreneurship.
In a recent post, "Complexity and Speed in Decisionmaking", I talked about the need to delegate responsibility to greater levels to respond to rapidly developing situations. One group that understands rapidly developing situations is the U.S. military's Special Operations Command, the group responsible to manage the Navy Seals. This article from the NYT, "Admiral Seeks Freer Hand in Deployment of Elite Forces", discusses the efforts of the commanding officer of Special Operations Command to get authority to pre-positions his assets based on intelligence and other data. The biggest issue in such a change is that regional military commanders resist having forces not under their command in their geograpghic area of responsibility.
The lesson to be derived is that when one delegates authority downward, one needs to explain it to the whole organization to prevent interference from other authorities. Focus on mission and not authority is the important theme.
Knowledge@Wharton is reporting that this year Coca Cola will test the distribution of medicine through its normal channels as a means to help the poor in Zambia. Lack of available medicine is a major contributor to high fatality rates from diseases that no longer affect people in more developed countries.
In many developing countries physical distribution of goods is a real challenge. For example, in Peru it takes nine days for goods to reach remote areas. Coca Cola has solved this problem in many countries in order to make Coke available even in the most remote markets. In the Zambia test ColaLife, an unaffiliated UK non-profit, will pick up the medicine at the last Coke distribution point and use paid bicycle riders to carry the medicine to nearby clinics and hospitals. ColaLife initiated the program with Coca Cola.
Other organizations that distribute goods to the most remote parts of developing countries are the World Food Program (a UN agency), the local military and large local retailers. World Food Program distributes food to school children in many countries on a daily basis. In many developing countries the military is the only part of the government with physical distribution capabilities and they provide their own security. Security of high value products is an issue not to be overlooked. Large local retailers in Indonesia distributed foreign food aid during the Asian Financial Crisis in 1997.
One benefit of working in retail is an appreciation of the complexity of physical delivery of goods. This model in Zambia deserves to be duplicated.
I will be speaking at the Philanthropy Miami Forum on February 16. The event is from 12-6pm at the offices of Akerman Senterfitt, One SE Third Ave. Miami, FL 33131. More details are here and registration is here.
The event focuses on developing new, more effective strategies in social entrepreneurship and my presentation is in part based on the course in social entrepreneurship I taught at the MIT Sloan School in January. First slide is below:
“Altruism has a credibility problem in an industry that thrives on intense commercial competition”
I have been thinking about collaboration more and more. There is no doubt that all the different new IT technologies are changing the way we collaborate. However, I was trained in the traditional command and control hierarchy which drove the economic growth of the U.S. after WWII and I do not give up proven systems easily. Also, I was raised in the Lone Ranger mode and did not even accept teamwork until I was about 40. Teamwork and collaboration are different concepts, but the point is that I was slow to see the value of groups and the value of combined output.
This story from Business Insider about Red Hat, one of the great companies built on open source Linux, illustrates some interesting points about collaboration:
Companies with open source-based products live in a world of constant collaboration, as volunteers work to constantly improve the product
Open source companies naturally adopt collaboration as a part of their culture
Collaborative cultures change the role of senior management from decisionmakers to "guides"
Despite the reduced "power" of the senior management team, customer focused, technology driven strategies can still be achieved.
From talking to people in open source cultures, there is also a higher requirement to hire A and A+ employees. Lesser types have trouble keeping up in a more free form management structure based on collaboration.
One of the more popular posts at SF was this presentation on Brazil, ABDI Presentation on the Future of Brazil. Now the Israelis (maybe the government) have contacted me about their Ministry of Finance website here. The link came via Twitter @AssafLuxembourg @FinanceIsrael.
Most of my writing on Israel has showcased entrepreneurship (here and here). Maybe my new Twitter contacts can provide some links to good websites in Israel for entrepreneurship.
I would welcome information and website links that deal with government policy, economic development and entrepreneurship from other official country websites..or you could leave them in the comments.
I have been invited to give a lecture on the Austrian school of economics, public good and social justice. I have been thinking about public good and social justice for the last two years as I struggle with the issue of whether social entrepreneurship can scale. Much of the challenge comes from reconciling the role of the individual, government and free markets or capitalism.
Fortunately, I have gained much insight from the writings of Friedrich Hayek, the Nobel laureate economist and political philosopher. Hayek and Ludwig von Mises are the two intellectual giants of the Austrian school of economics. Their thoughts on the individual, government and free markets are very well explained in this article by Professor Linda C. Raeder, "The Liberalism/Conservatism Of Edmund Burke and F. A. Hayek: A Critical Comparison". Burke is an 18th century philosopher and political theorist.
If you are interested to better understand the philosophy of Joseph Schumpeter and Milton Friedman, the article will be very helpful. If you are looking for a way to understand "social" ventures in a way that is less normative or moral and more economics the article provides some insights.
Chris Zook, a Partner at Bain, had an interesting post on the HBR Blog Network. In part he discussed themes from the recent Davos Forum. One of the themes was:
"that while events are unfolding in the world at an accelerating pace, increasingly complex institutions are less and less able to deal with them."
This is a theme that I have written about frequently, including here and here. Events are unfolding at an accelerated pace because information about the events is being disseminated at a much faster pace over the Internet. Secondly, information about an event is being covered by more and more sources, both offical and recognized and informal. For example, Twitter probably breaks more top news stories than any news agency or television network. Large complex organizations such as governments and Fortune 500 companies are not currently designed for immediate reaction and response but rather prefer a deliberate, consensus oriented approach.
The question, of course, is why large organizations cannot respond more quickly. Zook proposes that companies need simpler strategies and more transparency. Simpler strategies presumably reduce the number of variables to consider in making a decision and transparency provides more people with the necessary and correct information. This is good advice but I would add one more concept.
If the strategy is clear (through simplicity) and people have good information, then authority can be delegated down to a much lower level. Lower level staff may not execute their authority but they have the option to do so. I always remember the story of the sniper in Afghanistan who had Bin Laden in his sights during the Clinton administration, but by the time Washington approved the shot Bin Laden had left the scene. Delegation of authority permits faster reaction times by the people on scene dealing directly with the problem.
Everyone knows that Wednesday Facebook filed an S-1 with the SEC for an IPO, initial public offering. Tech Crunch covered the story and included a public letter from Mark Zuckerberg, the CEO of Facebook. In the letter Zuckerberg states:
"Facebook aspires to build the services that give people the power to share and help them once again transform many of our core institutions and industries.”
Tech Crunch interprets this quote to mean:
"Zuckerberg compares Facebook to transformative technologies like the printing press and the television".
First we should recognize that every big IPO has a fair share of hyperbole. Hyperbole often helps people to understand the larger but more complex part of the investment thesis. However, hyperbole works best when solidly grounded in fact. I do not agree that Facebook is a "transformative technology" comparable to the printing press, the telephone, the automobile or even Google.
All of these technologies or business concepts launched a new phase of the industrial revolution. Each of these concepts lead to multiple, large valuable derivative industries. For example, printing presses made possible magazines and newspapers, the telephone launched remote customer service and Google made possible You Tube and Wolfram Alpha. While Google may prove to be a catalyst comparable to the automobile, it is too early to tell. The automobile launched innumerable major industries, such as taxis, car leasing, parking lots, gas stations, car repair and even fast food restaurants.
My concern in comparing Facebook to these major innovations is that I do not think it will produce derivative industries. Facebook is a closed garden that companies pay to access. I think that Facebook is more like the phonebook was to the telephone. The phonebook was a great idea but few businesses were derived from the phonebook. The phonebook did not take the industrial revolution to a new more productive level.
While I do question the hyperbole in the Facebook IPO, I think Facebook will be a successful transaction. Hopefully it will launch a strong IPO market for tech companies over the following twelve months.
The Pino Entrepreneurship Center at FIU has released its schedule of workshops for March through May. These workshops are open to the south Florida business community as well as students. I will be giving two workshops:
"Developing a Killer Business Plan" which focuses on how to develop a business concept and a business model and also provides a checklist for how to write a business plan. March 2.
"Financial Modeling" which deals with the logic, design and construction of an Excel model for a business or business plan. More on my philosophy of business models is here. This is the first time in about two years that I have offered this workshop so you may want to save the date May 11.
John Fleming (LinkedIn profile) will present a workshop, "Marketing Strategy and Social Media for Entrepreneurs" on April 13. John does a great job on some complex but important subjects for every entrepreneur.
Registration, location and pricing for my workshop March 2 is here. Proceeds go to the Pino Center.
I have written many times about design as a model for entrepreneurship. The last post on a designer (architect) was on Frank Gehry and the last post on design was here.
Much of the discussion of design revolves around the notion that great ideas do not come from understanding the customer. Steve Jobs and Henry Ford are frequently quoted to support this view. I prefer this quote about Charles Eames, the famous furniture designer:
“He never worried much (as many designers do) about ‘what the public wants,’ or ‘what the public will accept,’ because he had a profound belief in the public, and the conviction that if they didn’t want or wouldn’t accept the furniture which he was designing for their use, the fault lay in his designs, not in the public."
I think this more humble statement strikes the right balance between design and the customer.
Jeff Bussgang, a well known VC in Boston, has some thoughts from his blog "Seeing Both Sides" on the same theme here.
Back in December I posted a new business idea about electronic portfolios for students. Turns out this idea has been around since at least 2008. Boston University started their project that year and about 10,000 students have created portfolios to date. Perhaps these numbers do not suggest a viral adoption rate but 10,000 is a significant percentage of the BU student population.
Perhaps some commercial support for the idea of e-portfolios could make it viral. There are many articles recently about how the interviewing process is going digital, with companies asking for videos, digital content libraries, etc. What could be more informative than a history of student work and intellectual development.
More on the BU project is here. The project is under the direction of Evangeline Harris Stefanakis, an associate professor.
Image via CrunchBase
