The key to creating a great product and company is to create value for the customer. Value is that unique combination of emotional and economic benefits that motivate the customer to purchase. In the best situation the product enables the customer to create their own additional value. In an even better situation, value for the customer is derived from the value/content that the customers create. An example may help.
Options 2 and 3 allow for multiple opportunities to create value beyond just the code base from the platform.
If we examine Twitter, it is not clear there are use cases developed by the users or by curating the user content. So it is not required to be successful, but I think the more value creation the more attractive.
On a related theme, the proprietary code should be for the principal value creation for the customer. The remaining code in the stack can come from the open source community. This idea is explained very well here.
This quote in a story in Fast Company caught my attention:
"...a system in which a program can be written to find an answer—or to execute a smart contract that can buy something, sell something, or do something. In aggregate, a group of smart contracts could run what is known in Ethereum-speak as a "decentralized autonomous organization" (DAO) or a "distributed autonomous corporation" (DAC)—in other words, a corporation distilled to its most basic tasks, and operated by little more than code and the logic of if this, then that." (emphasis added) Companies will have a single asset, a code base using AI, that will enter into transactions with independent service provides to create, deliver and capture value.
Perhaps this novel idea caught my attention because I had spent the weekend reading about datafication, which is explained in a study by Ericsson "The Impact of Datafication on Strategic Landscapes". Digitalisation is the evolution of IT starting in 1950 which brought us apps, mobile devices and a focus on IT for productivity improvement. Datafication is the new approach to IT which recognizes the changes coming in IT from the large number of physical objects capturing or generating data. The differences in digitisation and datafication (from the Ericsson study) are summarized below.
Now, as every aspiring entrepreneur knows, one must understand the customer and their problem to successfully start a new business concept. The question one should be considering is whether datafication provides sufficient information for the code based AI company to successfully identify a large need and develop a solution. Ericsson believes the answer is yes and the data source will probably be your cell phone, which captures and generates data on your entire life. When a company with no humans is analyzing data about you, it brings privacy issues to a whole new level.
Maybe the solution to the problem of the morality of capitalism is to replace the human managed companies with "no humans" companies. Might be more socially aware :)
Instead of robot challenges every weekend, maybe we should have challenges for best code to autonomously operate a company.
Hubspot had an interesting article on the importance of recirculating old blog content. Turns out most visitors to blogs are reading old posts such as these SF classics on Excel modeling. A post from August 2007 I think is still valid almost eight years later.
"Natural phenomena tend to be explained by a normal curve. People can be explained by the normal curve in many ways--for example height and weight distributions, number of children, etc. Therefore, businesses, run by people, should demonstrate certain behavior consistent with normal curves. Stated another way, the limitations of people should manifest themselves with a certain regularity in the way they run their businesses.
These limitations in people determine the various stages of development for a company. If the owner adapts and changes the way the business is managed, the company can move on to the next stage of development. For example, many companies get stuck at about $30 million in annual sales. This level happens to be where the limitations of one person management take hold (for an average owner). If the owner learns to delegate, the company can go to the next level ($100 million in sales). If the owner insists on making every decision, the company frequently plateaus.
If we look at early stage companies, there is a certain consensus on the stages of development, which are described below:
Many VCs use these revenue levels as one way to measure the progress of company performance. Part of the reason is that at each level management needs to be developing or demonstrating a new set of management skills. Failure to develop the necessary skills strongly suggests that a company may not reach its potential. Many a technologist has developed a product and achieved limited sales but lacked the necessary skills to demonstrate a real market for a product (failure at stage 2). Many entrepreneurs are born survivors and can hustle up enough business to reach $3 million in annual revenue, but they lack the skills to build a sales force or put together a distribution system to support a sales force (failure at stage 3).
At each stage in the development of a company different management skills are required. My experience is that many entrepreneurs fail or plateau their companies because they do not actively consider what skill sets and disciplines they need to succeed in the next stage. The larger your company the longer you have to prepare for the next stage, but in a startup failure to prepare can be fatal. I am not suggesting necessarily that you hire a sales manager when monthly revenues are $40,000, but one needs to actively manage a company to be ready for the next stage.
The good news is that the stages and the management skills are pretty well defined up to at least $1 billion. In a future post I'll talk about the stages after $30 million."
Some very detailed work in the last two years with small businesses confirms that $1 million and $3 million are still high hurdles for most startups.
I am teaching a new course, "Risk Analysis in Business Concept Development for Engineers and Entrepreneurs", which is a graduate level course in the Engineering School at FIU. Most people think about business risk in terms of:
There is another more meaningful way to think about risk:
Assumptions=Risk=Cash Flow Variance
Two key concepts in the course:
Some readings for the course:
Image credit: http://commons.wikimedia.org/wiki/File:Variance_various.svg
A few observations I found interesting today:
This quote from FA Hayek on the Cafe Hayek blog reminds me of a book that I recommend highly.
Hayek quote from 1954 essay “History and Politics”:
"The complexity of social events in particular is such that, without the tools of analysis which a systematic theory provides, one is almost bound to misinterpret them; and those who eschew the conscious use of an explicit and tested logical argument usually merely become the victims of the popular beliefs of their time."
The book I recommend is Complexity and the Economy by W. Brian Arthur. Insightful examination of economics in a way that I have not seen before. Amongst other interesting observations, he advocates that technology precedes the need(s) that it satisfies. The discussion of just the concept of "formation" within economics makes the book worthwhile.
Found the book through a friend's FB post about meeting Arthur at Santa Fe Institute.
I have become something of a collector of different models of social entrepreneurship. For the purposes of being accepted as an example of a different model of social entrepreneurship, the company must be for-profit and have a unique way of delivering measurable social impact. The examples I have collected are not necessarily the first such companies. The only distinction I make is I do not accept CSR projects.
Two examples recently caught my eye:
Wonder how much seafood, if any, Carnival buys from Norton Sound or any other native corporation in Alaska. The new division should consider such questions.
I have just returned from vacation in Alaska. Most majestic landscape I have seen anywhere in the world. As is my custom, I read some books about Alaska and the indigenous population. The indigenous people have been in Alaska for 16,000 years and have survived two ice ages. After 16,000 years in the same place a people develop a comparatively advanced culture very suited to the surroundings. All was bliss and comparative harmony until the Russian explorers arrived in the 1700s.
These early explorers were charged with determining whether a colony should be established. With the abundance of furs, Alaska was a natural location for a colony. In keeping with the "business model" of the time, to establish a successful colony one maximized financial return with complete disregard (exploitation) of the local population. The Russians improved on run of the mill exploitation by kidnapping the natives' wives and children until a ransom was paid in pelts. As the fur trade grew in monetary terms the Russians looked to change the business model from exploitive to sustainable. The Russians were never able to achieve sustainable colonies in Alaska, which prompted them to sell Alaska to the U.S. government for a mere $15 million. The Russians failed because they never engaged the self-interest of the locals and the local market forces to support the colony.
The errors by the Russians are the mistakes I see frequently in social entrepreneurship: