SOPHISTICATED FINANCE

I Need to Rent an Alligator

I had to wait until after April Fools Day to make this post. Otherwise everybody would have thought it was a joke, but I am serious about this. I need to rent an alligator. This is not a variation on "time sharing dogs"--I promise. Here is the story.

A young woman approached me for advice on starting a new business. She wants to be a mammal trainer--dogs, cats, etc. She tells me that she has experience training whales, dolphins, lizards and alligators. I politely ask her if she has a video showing her training alligators. She says no and now you know why I need to rent an alligator. What better way to promote a new business than a video of a ferocious alligator being trained by a young blond woman.

For those of you have read SF for a long time, you should be asking yourself "where's the large market opportunity" in mammal training. The idea I gave her is that she should work toward developing a reality TV series where she trains a different, preferably ferocious animal each week. With all the tie ins such a series could grow into a significant media company.

If anybody wants to see the trainer, her picture is below with a killer whale. If anybody has an alligator to rent, please contact me.

 

Related articles

• Alligator Round-Up Under Way In Southeastern Missouri (fox2now.com)

A Simple Rule for Entrepreneurs

My good friend @Yaquesita, also known as @OLPC_Mexico in another life we share, sent me this article "A Good Mentor Will Tell It Like It Is". The required features in a mentor really highlighted the typical weaknesses in entrepreneurs that need to be addressed:

• "Most entrepreneurs have lots of ideas. Some can be put into practice easily, but others will be off-the-wall and need refinement to implement"
• "Entrepreneurs tend to be driven by the crisis of the moment. As such, it is easy to neglect the real priorities of growing the business"
• Entrepreneurs have a constant stream of ideas, but the resources available set the agenda
• Entrepreneurs need to expand their networks in order to efficiently access the best resources to address an issue
• Entrepreneurs tend to become so immersed in their business that they tend not to take the time to reflect and plan

Constant crisis and no time to reflect on the customer, business and revenue growth are two sides of the same problem. Good entrepreneurs always find time to think and plan. If you are unable to tell the difference between a real crisis and the problem of the moment, you should consider this simple rule:

If it does not affect the customer or cash flow, ignore it. 

Leaders who focus on the correct issues and set proper priorities have many fewer employee issues, which is why I have omitted employees from the rule. However, employee morale and development should be the third priority.

Related articles

• 10 Things Entrepreneurs Can Learn from Children (grasshopper.com)

Strategic Events in Myanmar

Strait of Malacca (Photo credit: Wikipedia)

In Robert Kaplan's very well done book, Monsoon, the author discusses the strategic importance of the Indian Ocean in the next fifty years. The basic idea is that the entire flow of natural resources from Africa to satisfy demand in India and China must cross the Indian Ocean. For the goods to reach China they must pass through the Straits of Malacca near Singapore (shown to the right), which is a potential choke point of strategic importance. Kaplan speculates that China will make significant investment in Myanmar, Thailand or Malaysia to create an alternative to the sea route through the Straits of Malacca.

This story in Big Think suggests that Myanmar (formerly Burma) may be the site of such investment. The Chinese are investing in a port project in Dawei shown below and a new road north to the Chinese border. 

Image credit: Wikipedia

Related articles

• China wants sanctions lifted on Myanmar following election (ctv.ca)
• Rewarding Myanmar reform‚ US to relax sanctions (thehimalayantimes.com)

Classroom Etiquette

Today's post was inspired by this story from Inside Higher Ed, "U. of Ottawa Profs Want Right to Ban Laptops". 

Many university professors ban the use of laptops and cell phones in class. The apparent logic is to prevent the students from being distracted. Presumably the students will take notes on paper.

I use a completely different approach. I have no policies in my classroom, except that I stop conversations between students if it is disrupting the class or annoying me. Why do I have such a laissez faire attitude?

The answer is simple. It is my job to keep the students engaged with the material. If I do not engage the students I have failed as the teacher. To keep the students engaged or entertained I use videos, discuss blog posts, tell alot of stories and use humor as much as possible. I also always take a break of ten minutes in my 2 hour and 50 minute class. Most people cannot concentrate for more than 60-90 minutes without a break to refresh.

I do have certain advantages which make my "no policies" approach work:

1. I teach an interesting subject--entrepreneurship
2. My course is not required, so everybody elected to be in the course
3. I am a native English speaker, which makes it easier for the estimated 90% of students that are not native English speakers (two non-native speakers talking to each other can be a challenge)
4. I have personal stories to illustrate almost every point I teach

I use to feel guilty about how much fun I had teaching. Then a friend from MIT told me that teachers have to be showmen. Showmen don't worry about laptops or cell phones.

Slowdown

Tony Schwartz had a good post on HBR Blog Network, "Slow Down, You Move Too Fast". Two excerpts are worth noting:

"Speed is the enemy of depth, nuance, subtlety, attention to detail, reflection, learning, and rich relationships — the enemy of much, in short, that makes life worth living. "

"Speed is a source of stimulation and fleeting pleasure. Slowing down is a route to depth, more enduring satisfaction, and to excellence."

The complete article is here.

Creativity and Failure

Marvin Minsky at the KI 2006 artificial intelligence conference in Bremen (Photo credit: Wikipedia)

I have never thought of myself as creative. I am not a designer or developer, whether it be software, music, poetry or new devices. However, I am a student of the creative process and a big believer that techniques, such as heuristics, can be used to help creativity. Relax the Assumption is such a technique.

I have also found that many great thinkers were students of creativity, such as these comments from Marvin Minsky, a legendary MIT professor. Thoughts on the creative process from three other notable thinkers, Hamming, Austin and Munger, are here, here and here.

To substitute for creativity, I use an iterative process. In other words, I keep trying solutions until I find a satisfactory solution. The use of heuristics and other techniques makes the iterative process more efficient. The iterative process requires doggedness, a willingness to not give up, and it works for me most of the time. What I have learned over time is that when I cannot find a solution to a problem I usually have the problem framed incorrectly. Re-thinking the problem, rather than continuing to look for a solution, usually does the trick. 

So rather than trying to be "creative", find your own process for how to solve problems and believe in the process so you have the determination to see it through to the end.

Just saw this quote from Jonah Lerner on Mashable.com from a very good article on creativity:

"Because innovation is hard. If it were easy to invent an idea, that idea would already exist. Creative success is not about the avoidance of failure. It’s about failing as fast as possible, going through endless iterations until the idea is perfect."

Access to Ideas

It is well documented that new information is being created at the fastest pace in history. For much of history new information was developed at a pace where it was comparatively easy to disseminate the new ideas to students.

Today curating information is a challenge for which there are yet no really effective tools. Curators, such as text book writers, have a much greater challenge and responsibility. Abusing this responsibility has always been a problem (e.g. Japanese textbooks on WWII). As information proliferates the tendency toward abuse probably increases either purposefully or by accident. Given the power of lobbyists in Washington and at the state level, particularly in education matters, one becomes even more concerned about selective presentation of information.

The solution may be to give the students more autonomy in shaping their reading and experiences. Tools for students such as computers and Internet connectivity provide the access in real time to information. Learning to tell "truth from fiction" and critical thinking are important life skills and probably increasingly important in this age of Twitter, Google search and open access to government information. Teachers would become the guides to this student process of discovery.

This post was inspired by a quote from Seymour Papert in the Daily Papert:

“I do not suppose that all children were ever given full access to the ideas of any society. But at least in times of slower change, an equilibrium could be maintained between what society needed its members to know and the learning opportunities it offered (deliberately or mostly not) to its children. Since there is no reason to suppose that this is true today, and since, in any case, it is no longer acceptable that blind social forces be allowed to assign stations in life through differences in access to learning, deliberate effort is needed to bring to children knowledge that was not intended for them. School, even at its best, is too sluggish and timid to do this.”

Papert, S. (1993) The Children’s Machine: Rethinking School in the Age of the Computer. NY: Basic Books. Page 180.

This quote from Friedrich Hayek's the Fatal Conceit appears to support the same point:

"Life exists only so long as it provides for its own continuance.  Whatever men live for, today most live only because of the market order.  We have become civilized by the increase of our numbers just as civilization made that increase possible: we can be few and savage, or many and civilized.  If reduced to its population of ten thousand years ago, mankind could not preserve civilization.  Indeed, even if knowledge already gained were preserved in libraries, men could make little use of it without numbers sufficient to fill the jobs demanded for extensive specialization and division of labour." Source: cafehayek.com

Yet another thought on the same theme comes from Harvard Business Review in the article "Are You Learning as Fast as the World is Changing?".

Tablet Tip for Sales People

I give alot of presentations and about half of them are sales presentations. With the popularity of Powerpoint, everybody expects to sit in a room and watch the projected information. With the advent of the iPad I have abandoned projectors in sales presentations in favor of sitting next to the decisionmaker and showing them the iPad screen. Anybody else in the room can look over my shoulder.

The great advantage of using the iPad this way is that you establish a very personal connection with the audience when everybody huddles around the device. Establishing that personal connection increases trust and credibility and there is an inherent openness through close physical proximity. Also, there is much less tendency for confrontation because most people need distance to argue. 

Of course, in such a setting the content becomes even more important. Good presentations today use large images and very little text. This approach is particularly important when the audience is sitting next to you. Nobody expects a lecture from somebody sitting next to them showing them pictures. 

Also remember that in such a setting the presentation needs to be shorter. People get uncomfortable sitting close to strangers for too long. 

I do not know if this technique works for selling enterprise software, but it works for any product where the customer is emotionally engaged.

Image credit: Amillionlives.net

 

Problem Solving and Business Model Development

I learned early in my teaching career that students need dramatic images and sayings to help retain concepts. From this methodology came the idea that students should tattoo on their arm "don't run out of cash". Later I started using the question "why can't I timeshare a dog?" to reinforce the idea of relaxing an assumption to develop a new business concept. Recently in social venture workshops I have compared non-profit foundations to stockbrokers, which usually quiets the room and grabs everyone's attention.

The latest idea that I have introduced into my repetoire of teaching tricks is "functional fixedness". This concept basically shows that we have an inherent inability to deconstruct physical things in order to re-assemble them for new purposes. The famous example is you find a box with two rings, a candle and matches. How can you connect the two rings. Most people cannot come up with the solution because of functional fixedness.

Yesterday I heard about a great example of functional fixedness that has spawned a new business model. Most restaurants rent their space but have limited operating hours that match the meals they offer. The rest of the day the space is dormant. In a new business model for restaurants, restauranteurs are renting the unused time (and space) to launch totally different restaurants. For example, during the day the restaurant offers American cuisine for breakfast and lunch and closes at 4 pm. Now at 7 pm a new restaurant uses the space to offer nouvelle French cuisne dinner meals. Both restaurants have lower operating costs and the physical space (functional fixedness) is better utilized. Very clever.

Answer: melt the candle and use the candle wick to tie the two rings together.

Further Thoughts on Shared Value

Last week I spoke on a panel on shared value at HBS. I described Michael Porter's shared value in a previous post, "Social Entrepreneurship, Corporate Social Responsibility and Shared Value":

"Corporate strategies must be adapted to service social needs. By combining the creation of economic value and serving social needs "shared value" is created. "For profit" companies are well suited to solve social problems while at the same time serving their shareholder's interest to maximize investor returns."

I now believe that shared value is basically a trivial idea. To forego social responsibility in favor of maximizing shareholder return is really just an excuse to be socially insensitive. Maximizing shareholder return is not some sort of mathematical certainty but rather the more practical but vague notion that company earnings have to match stock analyst earnings estimates (as a surrogate for shareholder "expectations"). Spending could support social objectives or income generating activities as long as the shareholder expectations are met. For example, no one criticizes Wal-Mart for annual charitable contributions in excess of $600 million.

This post was inspired by this story on opensource.com, "Reimagining capitalism—as principled, patient, and truly social". I do not agree that "capitalism degenerates into narrow self-interest without a strong ethical foundation". Companies make many social contributions such as job creation and tax payments regardless of ethical foundations. The more constructive objective would be to make businesses more aware of the good "business" opportunities that exist in solving social problems or serving the underserved.

Knowmads

Education Futures advocates for an education system that trains students to be "knowmads". A Knowmads is a "creative, imaginative, and innovative person who can work with almost anybody, anytime, and anywhere".

Knowmads have nine characteristics:

1. Are not restricted to a specific age
2. Build their personal knowledge through explicit information gathering and tacit experiences, and leverage their personal knowledge to produce new ideas
3. Are able to apply their ideas and expertise contextually in various social and organizational configurations
4. Are highly motivated to collaborate, and are natural networkers, navigating new organizations, cultures, and societies
5. Purposively use new technologies to help them solve problems and transcend geographical limitations
6. Are open to sharing what they know, and invite the open access to information, knowledge and expertise from others
7. Develop habits of mind and practice to learn continuously, and can unlearn as quickly as they learn, adopting new ideas and practices as necessary
8. Thrive in non-hierarchical networks and organizations
9. Are not afraid of failure — and see their failures as learning opportunities

This concept of the skills or traits required of students and/or future workers is very consistent with my view, as described in this post "How to Survive the End of the Industrial Age".

More Big Data-Clear Story

My friend @John_Menezes sent me this link to Clear Story after yesterday's post on "Data-based New Business Ideas". Clear Story is working on tools to manipualte big data sets, analyze the data and draw meaningful insights. What is particularly noteworthy are the blue chip investors-Google Ventures, Andreessen Horowitz and Khosla Ventures. These three firms are all top tier VCs, which suggests that the opportunity in big data analytics is very large.

Killer Apps May be Confusing US

IP Carrier is an excellent blog that focuses on new business models in telecom and related areas such as data. A recent story, "Is there a Tablet Killer App?", raised an interesting point not just about tablets but all computing devices.

From the early days of computing, a new device succeeded if there was a "killer app". A killer app was a software application that had such high utility that people bought the device to get the app. The classic killer app was the spreadsheet running on the PC. The conventional wisdom is that VisiCalc, Lotus 1,2,3 and Quattro Pro, the early spreadsheet apps, made the PC market. However, we all know that Microsoft Office, which integrated several useful apps, is the most profitable Microsoft product. What Microsoft realized is that the suite of productivity apps, and not a single product (app) was the way to satisfy the customer need. Effectively, Microsoft looked beyond the product and looked at what was the customer need. (Perhaps Microsoft's last great insight until they became a game company.)

This issue of looking at product and not the real customer need may explain the decline of BlackBerry. The "killer app" for Blackberry is generally considered to be email. However, email was available on PCs and the real benefit to the customer was reliable, remote access... to email. Reliable, remote access explains the popularity of BB Messenger in many developing countries where network quality is not good. Many people in such countries buy their Blackberry just for BB Messenger as a chat device. If Blackberry had realized that the way the device was used and not the app was important they might have dominated chat worldwide and not have their current problems.

If we now turn to the tablet, we should not be considering killer apps but rather why do people use the device. Fortunately there is no "killer app" on the tablet to confuse the analysis. In talking to hundreds of people about their tablet, nobody singles out a particular app consistently to explain their tablet purchase. The manufacturers all highlight their app stores but nobody ever says they bought an iPad because they can easily add new apps. Maybe early adopters mention such "geek nonsense" but typical users never mention it. What people typically cite is the interface and how everybody in the family can use the device--even two year olds. Maybe tablets are "family" entertainment devices or maybe they will become "childrens' connectivity devices". 

When the tablet first emerged, Frog Design, the world renown design firm, said that the tablet was a new interface and not a new product (SF story, Frog Design article, both from March 2010). Frog focused on the customer and why they would use the device and not the device or its apps. This is the same point IP Carrier made in their story. It is a point that cannot be over emphasized. Understand the use case of the customer and not the product.

Data-based New Business Ideas

Last week I met with a young engineer to discuss his early stage company. The company has about $1.5 million in revenue and provides a sophisticated telecom service using proprietary software to manage real time data. The company has one large customer and the entrepreneur wanted to discuss how to find the next customer(s).

In the course of the discussion, I realized that the company, as a by-product of providing its service, was capturing information about company operations that the client did not have. Making the engineer realize this point was a challenge because he thought he was in the telecom services business. Any company that is capturing a large amount of real time data should step back and see if there is a more valuable use of the data.

 For example, a company that does processing of insurance claim collections for doctors has a huge data base on the different procedures and costs for a standard medical procedure--a broken leg. Every legitimate doctor bills the same services and procedures. Any doctor that consistently bills insurance companies differently is probably a crook. We could use this database to identify Medicare fraud by doctors. Yes, the company does medicall billing to insurance companies but using the data to prevent Medicare fraud may be a more valuable business for the company.

This story last week in the NYT about GT Nexus also illustrates my point. The company has a cloud-based service that integrates the supply chain logistics data of large international companies and their thousnds of suppliers. Effectively the status of a shipment can be traced from point of origin to the ultimate customer. Taking this data in its entirety and you have a detailed view into the world economy, a data base that few, if any, other organizations have. GT Nexus has the ability to forecast economic performance based on leading trade indicators, calculate the balance of payments for countries and identify new sources of products by country (e.g. formally China and shifting to Indonesia). The by-product data of supplying logistics tracking is perhaps more valuable than the underlying service.

I frequently write about the need to understand the customer and not get trapped in constantly focusing on product development (especially for engineers). In companies that capture large amounts of real time data, perhaps one should consider if there is a more valuable use of the data for a new customer.

 

My IT Experience(s) over 40 Years

Fred Wilson did a nice post on his personal history in computing, which inspired me to recall my own history.

I first used a computer in 1969. It was a time share service provided by NORAD to high school students. The free dial-in service prompted us to make long distance calls rather than program the computer. Missed the chance to invent VOIP.

In 1982 I invested in my first IT company, a provider of videotext. Learned the importance of not being ahead of the market when investing. The Internet came along about 10-12 years later. Went off to Japan for eight years instead of continuing to invest in IT companies.

In 1983 I had my first email account on Compuserve. Used the account to surf Compuserve content from hotels around the world on weekends. Licensed Compuserve in Japan, which lead to the first ISP there.

In 1995 I made my first Powerpoint presentation at a conference. Everybody else still used transparencies or slide dollies. 

In 1996 I established the first networked company in Indonesia for email. Also I built the first private voice network using satelite. Saw my first business card with just an email address for contact information.

I bought my first personal organizer in 1997, a Palm 1000. I bought my first BlackBerry in 1999 when it was an email only device. Wish they still made the email only version.

In 1999 I raised $35 million for an Internet-based company. The first Internet bubble burst shortly thereafter.

In 2000 I ran a telephone company and correctly called the growth in data services. Data service revenue grew to $18 million in one year. Experimented with private wireless networks for companies, which never caught on.

Started blogging in 2007. July will be five years. Great decision for me and hopefully the readers.

Started tweeting in 2008. Spanish language tweets give me great access to links and info I do not normally see. Have met some great people through Twitter (and blogging).

Joined OLPC in 2009 and began a serious education in operating systems and hardware components. 40 years after my first use of a computer I actually understand the engineering. 

 

 

The Importance of Distribution

One part of the business model that I stress more than most commentators is distribution strategy. This is probably because I came from the retail industry and partly because distribution and logistics are not taught much in business schools. Apple's iPhone experience in China illustrates the importance of distribution.

Apple is the worldwide leader in smartphones in every major market except China. There they are way behind the market leader--Samsung. Samsung has a 16.8 percentage point lead in market share and their lead is increasing, according to this story in Bloomberg. Part of Apple's problem is that they have not secured a distribution agreement with the largest Chinese cell carrier--China Mobile. The fact that the iPhone does not support the protocol for China Mobile's network is part of the reason, but one could ask who designs a product that does not work in the largest distribution network, 633 million subscribers, in the world. 

Image credit: Wikipedia

Related articles

• Distribution in the Business Model (sophisticatedfinance.typepad.com)

Chomsky on Creativity and Innovation

Noam Chomsky is one of the legendary thinkers of the 20th century. Now an emeritus professor at MIT, he established his reputation in the fields of linguistics and philosophy. He is also well known as an activist for social causes.

A recent speech (with video) on the "Purpose of Education" is in this article from Fast Company. What caught my attention was this quote on creativity and innovation:

"It’s the way cultural progress takes place generally. Classical artists, for example, came out of a tradition of craftsmanship that was developed over long periods, with master artisans and others, and sometimes, you can rise on their shoulders and create new marvelous things. But it doesn’t come from nowhere. If there isn’t a lively cultural and educational system, which is geared towards encouraging creative exploration, independence of thought, willingness to cross frontiers, to challenge accepted beliefs… if you don’t have that, you’re not going to get the technology that could lead to economic gains.”

Great thinkers always explain complex ideas simply. Culture and education foster creativity and innovation.

 

Fixing What's Wrong with U.S. Politics

A recent article by HBS professor David Moss correctly identifies the problem in current U.S. politics as the inability of both political parties to put the country first. The HBS Working Knowledge abstract is below.

Fixing What's Wrong with U.S. Politics

Author:	David A. Moss
Publication:	Harvard Business Review 90, no. 3 (March 2012)

Abstract

In America today there's a growing sense that the political system is broken and that its ineffectiveness is a major threat to U.S. competitiveness. Why do so many think the political system is not working? Research shows that in Congress, Republicans and Democrats are more polarized than ever. They seem pulled apart by two starkly different conceptions of government: one viewing the government as inefficient, invasive, and easily corrupted, and another seeing it as a vehicle for solving people's problems. Yet the ideological divide may not be the true source of the breakdown. A look at U.S. history shows it's not new. Moreover, sharp ideological battles have often proved highly productive in policy terms, delivering the best ideas from both sides. In the 1840s, for instance, state politicians who were deeply skeptical of government pushed hard for balanced budget amendments while politicians at the other end of the spectrum demanded free public schools for all. In the end many states adopted both policies-a combination that proved enormously powerful. The problem today is that too many have come to view politics as war, where victory is paramount and "compromise" is a dirty word. This take-no-prisoners approach, which came into sharp relief during the debt-ceiling debate, threatens to cripple the best-of-both dynamic. Revitalizing America's culture of democracy-where the health of the nation comes first, above economic interest, party, and ideology-is essential. Business leaders must play a large role in this effort, because the implications for the economy are so great.

Read the article: http://hbr.org/2012/03/fixing-whats-wrong-with-us-politics/ar/1

 

New Republic Acquired

NPR is reporting that Chris Hughes, a Facebook founder, is acquiring the magazine New Republic. Hughes believes that there is a need for in-depth analysis of issues. I share this opinion and welcome the continuation of the liberal views traditionally associated with the magazine.

I have written frequently on public intellectualism here, here and here. In the end the dialogue is more important than the political views of the writers. 

One Year After Fukushima

Peter Kim sent me this video about Japan one year after the Fukushima nuclear disaster.

I worked in Japan for ten years. Makes me sad every time I see the destruction from the nuclear accident.

Related articles

• One year after Fukushima our nuclear industry remains ever vigilant (thehill.com)
• Japan's nuclear power plants all going offline by summer (theglobeandmail.com)