The Washington Post has a review of the new book by Niall Ferguson, "Civilization: The West and the Rest". Ferguson is a noted historian and professor at Harvard. In explaining the success of England and most of Europe post 1500, the reviewer cites Fergueson's six "institutional arrangements":
"Competition, meaning a decentralization of power among nations and within them, necessary to create the right environment for capitalism
Science, whose discoveries laid the basis not only for the Industrial Revolution but also for overwhelming military advantage
Property rights, which provided a framework for the rule of law and laid the foundation for shared political and economic power
Medicine, which led to a dramatic rise in life expectancy
A consumer focus to economic life that fueled demand for modern industrial products
A work ethic that provided a moral framework for savings, investment and hard toil"
These six themes also explain the success of the U.S.
It would be nice if U.S. politicians from both parties addressed these issues in the upcoming elections. Then the discussion would be on the role of states rights (1), smaller government (1) the environment (2), how to share economic and political power (3), the future of medicine (4) and individual responsibility (5,6). For example, "how to share economic and political power" might be a better discussion than budget deficits, wealth inequality and superpacs. "The future of medicine" might lead to a better discussion of healthcare. A discussion of states rights might allow us to address certain issues at the local level where consensus might more easily be found, such as abortion, same sex marriage and education .
Many have recently written on the end of the industrial age of mass production and the new economy that is emerging. Seth Godin's article is particularly good and another post from Business Insider is equally thoughtful. My first post on the subject, "A Future of Individuals", is here.
Most commentators agree that jobs in big business (and perhaps government) will be greatly reduced and that individuals will need to manage their economic survival much more aggressively. Few have offered plans for how to do this, so I share a few thoughts:
Ideas will be the product of the 21st century. Executable ideas will be the most valuable because they produce economic and social benefits. Pure theory in general will be less valuable because there is so much data and information available to quickly test theories.
Successful people will demonstrate great skill in using digital media to disseminate there ideas, whether it be e-books, blogs, webinars or old fashion conferences. Success may be more dependent on digital media skills than on the quality of ideas. Remember several people typically have a new idea at the same time. As the world becomes more connected greater access to information will spawn more ideas....and more entrepreneurship.
Qualifications will no longer be the exclusive domain of universities. The various approaches of online learning and app stores will create a much more "informal" system of recognition and certification that may become the norm. The lower cost of these offerings may accelerate the trend.
Entrepreneurship and self-employment are the strategies most likely to succeed if you are not inclined to do manual labor (which will always be required). Such approaches put the responsibility for your economic and social well being squarely in your own hands. Israel Kirzner explained entrepreneurship as "the asymetry of information" or in the vernacular as "a unique insight". As information proliferates and is more widely available the opportunities for an "asymetry" should increase greatly. This is perhaps the good news, but remember there will be a lot more people looking for these asymetries.
Solutions to social problems will increasingly be the "big market opportunity". The social problems are scaling much faster than the resources governments can bring to bear. While "do good" is popular today, in the future the slogan may be "it's a market, not a mission". C.K. Prahalad introduced this idea perhaps as early as 2002 in his book "The Fortune at the Bottom of the Pyramid". Prahalad argued that market driven solutions could alleviate poverty and its related problems.
Capital organization has traditionally been viewed as silos: government, non-profits, Wall Street type capital markets. For many of the opportunities of the 21st century, I think this silo system will breakdown and different sources of capital will come together. Social entrepreneurship and certain investment theses at Deutsche Bank may be examples of this trend. Organizing capital in this multi-dimensional environment is a new and valuable skill which should spawn a new branch of the finacial industry. Doing this capital organizing at different requirement levels will generate a lot of new jobs in much the same way that investment banks of all sizes have proliferated in the last ten years.
"However, what has vexed Mr. Obama as well as economists and policy makers is that Apple — and many of its high-technology peers — are not nearly as avid in creating American jobs as other famous companies were in their heydays." New York TimesNot just the manufacturing jobs but all the design, engineering and logistics jobs.
"In any democratic nation with the freedom of speech, information can never be as strongly regulated by the public as our food, water, and air. Yet information is just as vital to our survival as the other three things we consume. That’s why personal responsibility in an age of mostly free information is vital to individual and social health." Clay Johnson The Information Diet: A Case for Conscious ConsumptionfromBrain Pickings
“One of my central mathetic tenets is that the construction that takes place “in the head” often happens especially felicitously when it is supported by construction of a more public son “in the world” – a sand castle or a cake, a LEGO house or a corporation, a computer program, a poem, or a theory of the universe. Part of what I mean by “in the world” is that the product can be shown, discussed, examined, probed, and admired. It is out there.” Seymour Papert The Daily Papert
An article on Brooks Review, "If I Were CEO", got me thinking about what the new CEO of Rim should propose as a go forward strategy. The task is daunting in part because the simple choice to sell the company is probably not viable. I seriously doubt anybody would buy an broken underperforming company in the most competitive tech markets--handsets and tablets. This chart from Google Finance of the RIM stock price may support my view.
In considering a new strategy the CEO needs to recognize three facts:
A large, attractive app store is a requirement to be a viable smart phone and/or tablet provider
The same or a very similar operating system must work across all devices including preferably laptops
RIM's strength in enterprise is a legacy and that more and more enterprise decisions are being driven by the need to integrate devices that executives pick as consumers
Setting out the market situation is the easy part. Finding a new strategy is the hard part. My thoughts on the new strategy:
Alternative A: Do a Nokia+ strategy
In addition to exchanging cash for exclusivity with Microsoft for their phone operating system, I would do the same deal with Intel. Intel is looking for a big splash for their new low energy chips and I think they would part with significant upfront cash in return for a RIM deal. I would use the cash to heavily promote the new Windows smartphones and tablets, put some money into building out the Windows app store and..drum roll...focus on the developing world where consumers like the free BB messenger and fewer consumers have chosen smart phones and tablets.
I do not particularly like this strategy because essentially all intellectual property is under the control of Microsoft and Intel, neither of whom play well with others. Also, the cost of this IP would be comparatively high, which would put pressure on margins. The advantage of the strategy would be a cash horde that provides time to try a new strategy.
Alternative B: Bet the Company
I think the Samsung Note demonstrates a new product category--the merging of the smartphone and the tablet. Except for Samsung nobody has a quality product in the space and most competitors are more focused on a 7" tablet similar to the Kindle Fire. With RIM's historic strength in enterprise, they could market the Blackberry Note (need to work on the name) to companies as a lower cost alternative to buying employees both smart phones and tablets. The device would run Android to solve the app store problem. All of RIM's encryption and interface know-how for corporate apps would also be attractive to enterprise buyers. Samsung tends to over price their products so RIM could probably establish a lower price point and still maintain good margins.
The advantage of this strategy is that corporate IT executives would like the opportunity to roll back the push for consumer devices to dictate corporate devices. Supporting only one device would also be attractive to these executives. If we opted for the Windows OS instead of Android, it might be a love fest with millions of redundant corporate IT execs pushing the product. (This situation might also happen in Alternative A.) The disadvantage to the strategy is that no one really knows whether the Note will be a successful product, but it is a new category where RIM could establish itself as a market leader. It also plays to RIM's strength in enterprise where they have internal supporters.
The Wall Street Journal is following a strategy to provide value added from data analysis of difficult to obtain sources. The Econotracker provides graphical information on China's economy from Chinese government data sources. Sample below.
I will be doing a workshop for the Coral Gables Chamber of Commerce on February 8 from 10 am -12 noon. I expect that more established business owners will attend so the focus will be on how to grow a business. The topics will include understanding the customer, the growth drivers in the business and what prevents scaling a business. Many of the themes are discussed in my book, "Billion Dollar Company: An entrepreneur's guide to business models for high growth companies", which is available on Amazon. Video review of my book by Jeff Stamp is here.
As discussed in my first book on business models, I believe that a business model can be defined in 3 concepts:
The revenue driver (subscribers, accounts, new locations, distribution and sales people)
Pricing (15 alternatives)
Sales and distribution strategy
Yesterday I heard a great example to illustrate point 3, distribution. Before Blockbuster a lady operated a large retail store that sold used videos. In a small corner of the store she sold used games. She noticed that on many days the sales of used games exceeded the sales of videos. Ever the alert entrepreneur, she approached K-Mart and offered to merchandise and supply games to the chain. Eventually this wholesale business went public.
A simple change from retail to wholesale distribution. Others would call this a "revenue pivot". I think it is easier to understand as a change in distribution.
This joke came from a tweet by @mbrechner. Miguel Brechner is the head of Project Ceibal, the world renown OLPC project in Uruguay. Translated version below.
"To go to an open source conference with an iPhone is like going to a Greenpeace conference in a 4x4."
A theme that interests me is how governments are using the vast amounts of digital information to better provide services. (I think this is the first post on the theme.) One of the agencies at the cutting edge is the UN. This story from co.exist describes the UN's efforts to use data in a program called Global Pulse (GP). GP is an "innovation incubator" with three objectives:
"Developing useful indicators for real-time feedback about conditions on the ground and how policies are preforming"
"Building a free open-source technology toolkit to make sense of data for decision makers"
"Establishing the Pulse Lab Network, where new data applications will be pioneered and tested"
UN Secretary General Ban Ki-moon explains the need for GP in this quote from the co.exist post.
"Our inability to understand the impacts of a crisis while there is still time to adjust our policies and programs threatens to reverse years of hard-won development gains,”
New York City made a large step forward with the announcement of the new Cornell Engineering School campus on City Island. This project is intended to serve as a stimulus for high tech startups and related jobs in NYC. Honolulu takes a different but equally innovative way to improving their city and creating jobs. CityCampHNL is described in OpenSource.org as:
"The CityCampHNL Hackathon is a free event that is open to anyone with an idea or an interest in contributing to tools that can better connect citizens with government information and services. Whether focused on traffic, trash pickup, community events, or neighborhood statistics, the possibilities are endless. Cash prizes are provided by event sponsors and will be awarded to the teams that develop the most innovative and useful application."
Better access to information is a fundamental driver in entrepreneurship.
Now we come to the plans in Miami. Miami is debating an initiative to allow casino gambling. Casino gambling creates minimum wage jobs and related jobs tend to be low paying or unsavory. In contrast to the modern ideas of NYC and Honolulu, Miami is considering an idea that dates back over 4000 years. Given the vitality of Miami and its role as the "capital" of Latin America, one would think we could do better than the pedestrian idea of casino gambling to create jobs and drive economic growth.
The leadership of Miami in government, education, business, non-profit and religious sectors need to come together and create a plan for economic development and job creation. The plan should recognize the importance of the digital era, environmental sustainability, the modern logistics infrastructure in the city and the uniqueness of Miami rather than being reactive to a 4000 year old idea. Quality of jobs should be an important consideration.
We might digress into the common debate of liberals and conservatives, but we have countless recent examples of the futility of such efforts. Therefore, I merely post below a quote from a recent article in The Daily Beast that I found through 3quarksdaily. The quote is from Andrew Sullivan, who writes for The New Republic. I find the quote noteworthy for the quality of the writing.
"...I did so not as a liberal, but as a conservative-minded independent appalled by the Bush administration’s record of war, debt, spending, and torture. I did not expect, or want, a messiah. I have one already, thank you very much. And there have been many times when I have disagreed with decisions Obama has made—to drop the Bowles-Simpson debt commission, to ignore the war crimes of the recent past, and to launch a war in Libya without Congress’s sanction, to cite three. But given the enormity of what he inherited, and given what he explicitly promised, it remains simply a fact that Obama has delivered in a way that the unhinged right and purist left have yet to understand or absorb."
I would take exception to some of the views expressed in the quote, but the writing is exemplary.
As promised in this first post, I am going to discuss urbanization more in 2012. To refresh your memory, over 50 percent of the world's population now lives in cities. However, many cities lack the resources to provide modern infrastructure on the required scale. Such inadequate infrastructure impedes job creation, which is already imperiled by the shift from the industrial production model to a digital model. This article from Business Insider discusses the difficulty in new job creation.
Tech Crunch takes up the urbanization theme in this article, "A City is a Startup". Not surprising perhaps, they argue for entrepreneurship as a means to transform cities into viable, modern locations. They cite the recent announcement by New York City of its new Cornell Engineering campus on City Island as evidence.
Universities and particularly engineering schools are critical to the future viability of cities. (Did I mention I teach at two engineering schools?) However, it should also be pointed out that there are other requirements:
Modern transportation and logistics infrastructure
Access to equity capital and particulalrly seed money for new ventures
An environment of non-exclusion regardless of race, religious affiliation or national origin
A robust digital infrastructure (interesting report here)
Adequate public school system
Financially stable municipal government largely free of corruption
Concurring Opinions is a blog that focuses on legal issues. Everyone who believes in democracy and wants to understand the intellectual underpinnings should read the blog. Today's CO post commemorates Martin Luther King with a quote from a speech by John Bingham. Amongst his many accomplishments, Bingham was the principal drafter of the 14th amendment to the U.S. Constitution. This Amendment recognized blacks as citizens and gave them equal rights under law.
The quote from Bingham speaking to abolish slavery in the District of Columbia:
"We are deliberating here today upon a bill which illustrates the great principle that this day shakes the throne of every despot upon the globe, and that is, whether man was made for government or government made for man. Those who oppose this bill, whether they intend it or not, by recording their votes against this enactment, reiterate the old dogma of tyrants, that the people are made to be governed and not to govern. I deny that proposition. I deny it because all my convictions are opposed to it. I deny it because I am sure that the Constitution of my country is against it."
For individual empowerment to freely operate, men must govern and not be governed.
Ironically, my hotel in Las Vegas did not have wi-fi Internet access and ethernet cable access is of no use with an iPad. So I am a bit late in posting on CES, the annual Consumer Electronics Show. My observations:
Linking the Internet and the television was the big theme at CES. Every important company has a product to make this possible.
OLED technology was the featured screen technology. It permits incredibly thin but large screens.
The featured product at the Microsoft booth was their gaming devices, prominently displayed at the entrance. Maybe they finally realize that gaming is the only area where they have competitive products.
The Intel booth was all about their new ultra-light laptops that compete with the Mac Air (at least in Intel's collective wisdom). No educational laptop booth display this year. Maybe Intel does not see the education market as a priority compared with last year. I did like the Wi-Di technology which allows a computer to display wirelessly on a separate screen with a special receiver (built-in).
Samsung had the most spectacular booth unless you preferred LG. Samsung's development in home appliances focuses on reduced electricity consumption and Internet connectivity. (I think I am a frustrated kitchen designer.) I usually find the appliances the most interesting exhibit, but this year the phones and tablets were particularly noteworthy. Samsung exhibited the Nexus phone, the Note, a 7" Galaxy tablet and the traditional Galaxy 9-10 inch tablet. I particularly liked the Note, which combines phone and tablet functionality (Android) in a 5.3 inch screen. Small enough to fit in a suit coat breast pocket but large enough for comfortable reading or typing for long periods. If the pricing is right, I could see giving up my phone and my iPad in favor of using only the Note. People have been talking about the convergence of the computer and the phone since the 1980s. The Note may be that device.
Motorola showed little influence from Google and the RIM booth was just boring. Very sad on both counts given the history of each company.
A lot of technology devoted to bringing social networking to your car. So if you don't crash while texting, you get a second chance when you update your status on FB. This car stuff makes no sense to me but I don't watch videos or listen to music on the iPad.
Very few mainland Chinese visitors or exhibitors. I guess they are focused on the home market.
All in all CES was relatively boring in terms of the exhibits. Not a lot that interested me.
The assertTrue blog has an interesting post on market share leaders in the physical and Internet worlds. The writer points out that in the physical world there are usually two to three companies that control the market as measured by market share. McKinsey made the same point in the 1980s. In the Internet world, to date, there is usually one dominant company and then a bunch of also rans. Examples include Google (search), Facebook (social networking) Amazon and Netflix.
If this change in market share dominance is correct, the question to ask is why does a sole Internet company in a market dominate? I think there is one principal reasons:
Comparatively low capital requirements to enter the market and to scale rapidly
Internet businesses are not as capital intensive as physical world companies and therefore can achieve dominant market positions faster. With the notable exception of Apple, Internet companies do not have to invest in stores. Few have warehouses or any significant sales forces. Little investment is required for logistics after the server farm is established. With Amazon Web Services such investment is turned into a marginal cost. In summary, low startup capital and limited capital requirements to scale characterize Internet companies and explain why a single company can dominate a market segment. First to find product/market fit combined with a limited capital constraint allow Internet companies to achieve dominant market positions faster that can not be displaced.
In a recent paper, "A conceptual overview of What We Know About Social Entrepreneurship", the authors (Brigitte Hoogendoorn, Enrico Pennings, Roy Thurik) describe four schools of thought on social entrepreneurship. These four schools demonstrate, in part, that there is no apparent academic consensus on the definition of social entrepreneurship. Given the lack of consensus, I will not bother to define each school of thought (read the paper), particularly given that I find all the definitions lacking.
Where I agree with the authors is in the following statement:
"The [four] approaches ... share one main commonality: their emphasis on the creation of social value. While it is a long-held belief that entrepreneurs contribute positively to society, it is motivation and the relative importance of social value creation (as opposed to economic value creation) that distinguishes social entrepreneurs from commercial entrepreneurs (Hoogendoorn, 2011)."
The social entrepreneur looks to maximize value creation (relative importance). In the value creation-value capture framework, if one maximizes value creation then one foregoes maximizing value capture. Effectively, in social entrepreneurship value is transferred from the shareholders (in the for-profit model) by foregoing maximum profit in favor of creating more social value. In the non-profit model of social entrepreneurship, the cash position is reduced in favor of creating more social value.
Much of my thinking on social entrepreneurship is based on a paper by Felipe Santos, "A Positive Theory of Social Entrepreneurship". Santos is a Professor at INSEAD. One might argue that Santos represents a fifth school of thought on social entrepreneurship. Santos basically says that social entrepreneurship is the maximizing of value creation and satisficing for value capture. One foregoes value capture up to the point where cash flow or profit is self-sustaining in favor of creating more social value.
I prefer Santos definition because I think it forms the basis for a management approach to social entrepreneurship. More on this idea in my upcoming book.
