In all my entrepreneurship classes I try to have an early stage entrepreneur serve as the course project. Effectively, the students develop the go to market strategy for an early stage company (or an idea) within the resource constraints of real entrepreneurs. This semester I have three projects running with three different entrepreneurs. One entrepreneur is ecstatic with the results, one entrepreneur is very pleased to have access to the resources of the university and the third project is struggling because we cannot find a customer/market for the product. This is the big unstated secret in Project 3, we do not know who to sell the product to--until yesterday.
Yesterday we were going over the fourth round of research on different possible customers. We were looking at interviews with the disabled that the students conducted and also learning about whether the product would be approved by Medicare. A discussion of pivoting to robotic wheelchairs prompted a student to relate a story from her home country of Sweden about the launch of a specialized elevator. As soon as she told the story six people all knew what the market for the product was. I have never seen six people all have the same insight at the same time, but it was very obvious that this was a high quality idea and the answer to the unstated problem. Of course more study and thinking is required, but the whole class felt better that we now had a good working hypothesis. Very pleased that collaboration produced the idea. Very pleased that so many students were relieved we finally had found a good hypothesis. Didn't think they took these projects so seriously and personally.
Takeaway: It is true that you know a good idea when you see it. You just have to keep working on the problem until you have a breakthrough. This article is a nice compilation of techniques for more creative thought, "The Myths We All Believe About Breakthrough Thinking". Particularly valuable article for engineers.
In September I will need two entrepreneurs/startups for my new classes. Would prefer one consumer products company and one tech company (any field). If you or someone you know is interested to go through 12 weeks of analysis, consulting and development for an idea or early stage company...to go to market or develop a growth plan, please contact me.
The last article on a related theme, "Three Types of Innovation".
Sometimes defining words drives me crazy for years. As yesterday's post might indicate "risk" is one of those words. I really like the concept of equating risk with "variance in cash flow" in business usage.
"Social" is another such word that perplexes and annoys me. I cannot understand why this word should have implied normative value, as in social benefits. Social is derived from "society". Social is a characteristic of a group of people. A group of people is a "society". So, society is the sum of the individuals.
Ostensibly capitalism allocates the resources to satisfy individuals and their needs. What capitalism cannot allocate resources to, probably because such a thing cannot attract investment capital, might just be a social benefit. For example, no performing arts center can attract investment capital so maybe such a project is a social benefit.
Social benefit looks a lot like a public good. My rather detailed thinking on the subject is in this post, "Public Good". Until further notice, this capitalist is defining "social benefit" as public good.
Big Think reported on Mark Zuckerberg's hiring rule. The Founder of Facebook said to "hire people you would work for". Good rule.
"Hire people you would leave your children with for a weekend"
I like self-directed people who take full responsibility.
I do not think Zuckerberg has children.
I also like personality tests.
Every year I write a few posts on leadership. Much of my thinking on leadership is influenced by the writings of the U.S. military. This morning I am lecturing to the ROTC student body at FIU. This is a summary of what I plan to say.
I plan to illustrate each point by an example from military history. Napoleon, Wedemeyer and Cortez respectively illustrate the three points. The common theme in each of their approaches is that they "redefined the problem" in order to properly perform one of the three functions of leadership.
My opinion of the best book on leadership is in this post from 2009, Team.
I get to see people speak in public quite alot--my university students, participants in Goldman Sachs 10KSB, presenters in business plan competitions, people pitching their ideas to me. Always surprises me how ineffectively people of all ages can present their ideas. If asked for advice before a presentation, this is what I say:
I just completed my fifth year teaching an IAP course at MIT Sloan on social entrepreneurship. The first two years the course focused on telling the One Laptop per Child story, the third year focused on better defining social entrepreneurship and year four and this year (5) focused on "scaling" social entrepreneurship. To some degree these courses have documented the evolution of my thinking on social entrepreneurship.
The approach to social entrepreneurship that I prefer is to ignore all of the normative hype and merely focus on solving the "social" problems. My cocktail party definition of social entrepreneurship is now:
"A commercially sustainable, scalable solution to a social problem"
In this definition, the selection of the problem the entrepreneur addresses will define them as a social entrepreneur or a traditional entrepreneur. I define sustainability simply in terms of cashflow and not in the alternative usage that includes social, economic and environmental benefits. I am not against a wider range of benefits, but I believe many social ventures fail because they define their mission too broadly to achieve all three types of benefits. Such a broader mission is more difficult to manage, more expensive to execute and more expensive to the disadvantaged person one is trying to help.
In one economist's definition, social entrepreneurship can be defined using the value creation-value capture model of resource-based theory. In this model social entrepreneurship "maximizes value creation and satisfices for value capture" (sufficient to stay in business). Value is defined as "utility". Originally I thought of this transfer of value as exclusively between the provider of product/service and the customer or user of a product or service. This limited definition of "value creation" has bothered me for awhile now because I think it ruled out organizations that are social entrepreneurs. The issue came up in class at MIT and a vigorous debate ensued.
I now believe that the social entrepreneur could transfer value to other stakeholders in addition to the customer. For example, selecting to work with new indigenous people to become suppliers would be a value transfer to the indigenous farmers. Paying above market wages would be value creation for local workers. Providing stock ownership to employees might be creating value for employees. Effectively, value creation can benefit any stakeholder of an organization provided enough value is transferred to the customer or end user to have an exchange (purchase). The exchange is required to meet the requirement for entrepreneurship.
Two additional themes were stressed for the last two years:
My lecture slides from MIT 2015 are available through this link. Download SCALING SE MIT 2015. I very much like the Scaler Model for scaling social entrepreneurship, which is explained in the slides.
Note: The original definition of social entrepreneurship using value creation and value capture was developed by Felipe Santos in an INSEAD Working Paper. He did not consider value transfer to all possible stakeholders in the article, "A Positive Theory of Social Entrepreneurship".
The Logic + Emotion blog had an excellent article, "Five Things I Learned in Five Years", where the writer talked about:
Well worth reading in detail, especially if you are approaching forty. Of course the article got me thinking about the big takeaways for me from the last five years. My findings:
In the next five years I would like to learn:
Ever the optimist.
The ever alert Russell Otway posted this article on FB, "7 Life-changing Lessons I've learned living on a Caribbean Island". The article is Huffington Post's most recent take on life lessons.
I have been working with a marketing professional to do a new website for my consulting services. Kind of fun but easier to do for a third party rather than yourself. This morning a friend said they had no real idea of what I do. They said they needed specific examples to be able to really understand. These are the examples of some of the questions I answer and the projects I gave him:
Now I need to check whether the new website makes the services this clear
A website in Mexico specializing in entrepreneurship, Emprendedor Universal, did an interview with me (in Spanish). Link is here. One of the more thoughtful set of interview questions I have had.
A friend texted me today to ask if I do consulting. Apparently he thought I just taught and mentored startup entrepreneurs. I do consulting on a:
I will consider clients anywhere in North or South America, Central America and the Caribbean. I love Asia but that phase of my life is probably over.
I help clients with complex business development problems, such as:
I also develop strategies to raise the capital to support client strategies and will arrange the capital.
By choice I read about 200 blogs every day. My reading has grown from about 100 blogs three years ago probably because my interests have increased. After Google reader died I have been very happy with Feedly to manage my blog reading. I also use Google+ to get a more international perspective on my interests and I use Facebook to get a local perspective on entrepreneurship and social entreprenership. I only use Twitter to distribute my content and rarely read it, although the Spanish language content on entrepreneurship is excellent.
There are two content providers that I read on their blog, Google+ and FB:
My experience is that I find different articles on different sites for each of these sources. In other words to get all the content from either one I have to go to three places on the web (or maybe more). No one "channel" offers all the content for either publication. In fact I stay on FB because I like the SSIR articles and one person who posts interesting stuff on local Miami entrepreneurship.
My question is "why can I not find all the SSIR or HBS content in one place with an RSS feed"? Why do I have to go to three sites? The answer is that HBS and SSIR are tailoring their content to the distribution channel--FB, Twitter, LinkedIn, etc. in the mistaken belief that the users are different on the channels. This is a mistake. I am the same person with the same interests whether I am on FB, Google + or LinkedIn. World class publications such as SSIR and those from HBS need to put all their content in one place to make it easy for the user. They can still duplicate all their content on FB, Google+ or LinkedIn, but I will follow them in only one place.
As content increases and the hosting sites multiply, world class publications will be better off to concentrate all their content to make it easier for the user. A better user experience will be appreciated.
It has been awhile since I did a summary post of the most popular recent articles here at Sophisticated Finance. Please see below.
This list is fairly representative of the major themes here at SF. I am thinking a lot about market opportunity and considering a book on the subject, so we might see more on the subject in the future.
The all time most popular posts at SF are the series, "Excel models and tips".
If you lost count, this is the 1127 post since SF began in 2007.
Reuters reported today that a group of tech leaders have banned together to attempt campaign finance reform. The group call themselves "Mayday", as in "the ship is sinking". The ship sinking is the American democratic process, subborned by large campaign financiers. Given this news it seemed appropriate to share a post I wrote several months ago but never published til today.
I have been concerned by the popularity of social media such as Facebook, Pinterest and Reddit for several years. I see it as serving no real purpose. I do not think it is a product or a service in the traditional economic sense. I understand that social media is responsive to our fundamental needs for community and collaboration and research even shows that it increases self-esteem in men (and probably dogs). I think of social media like financial derivatives, of limited value and a huge diversion of capital away from productive investment in products and services. But both activities are widespread and I cannot understand social media except in a historical context.
Social media dates back to the Roman times of Cicero (106 BC), according to Tom Standage’s new book, Writing on the Wall: Social Media-The First 2000 Years. Standage makes two important points in the course of tracing the history of social media through to today.
What Standage helps us to realize is that all the social media we see today is perhaps the smoke and not the fire. The popularity and increase in social media, facilitated by new technology, are most likely the indicators of another momentous social change comparable to the German Reformation or the French Revolution. We know from many sources including Standage’s examples that a momentous social change is either religious or political. There could be a religious movement emerging but I think not. For many people religion is irrelevant today and another significant group are religious extremists unlikely to lead mainstream social movements.
I think that the social change must be political, perhaps 10-20 years in the making or perhaps 50 years will be required. The change that is coming is:
I do not come to this conclusion because I am a Republican or a Democrat, which is irrelevant.
Thomas Hobbes and John Locke defined modern democratic government in the 1600s. The purpose of government was to prevent untoward interference in the lives of the citizenry. As people increasingly benefit from existing and future IT tools they will become more and more sole practitioners and independent contractors rather than paid employees. As this trend accelerates people will become comfortable with less and less federal government and a return to a state of "self-reliance" similar to the way the U.S. was pre-1930. People will increasingly wish to reduce their payment of taxes for a government that provides what will be considered unnecessary, overpriced or outdated services. The fact is that today most working people need very limited services from the federal or state government, perhaps only the armed forces, law enforcement, courts, FDA, CDC, research funding, financial instrument regulation and a collection system (taxes) to pay for such services. Other services, including social services for the disadvantaged, could be privatized if desired. National parks might be an example.
Government is slower than slow [to recognize] and particularly at times when the status quo is dramatically changing. Therein lies the risk in government and the reason, in part, that environmental, urban and educational issues have received inadequate attention. Fortunately there are many examples where individuals and private sector companies have taken over the “traditional” role of government, which provides the early evidence for the change in the scope of government I foresee:
The last point of evidence for my prediction both troubles me and gives me hope. The Snowden disclosures of secret NSA information made public the scope of U.S. government surveillance worldwide. I do not condone in any way the Snowden disclosures, but I understand the widespread anger at the scale of the surveillance. Nassim Taleb, author of The Black Swan, was one of the first writers to point out that we are outraged by the federal government’s behavior but no one complains about Google’s collection of so much private data related to our Internet behavior. Effectively, we have more trust and confidence in a Google or a Facebook than in the U.S. government. Whether Google or Facebook warrant the trust may still need to be determined, but they portend a new future of more limited government and greater reliance on individuals and the private sector.
Note: I think the U.S. is probably headed for a prolonged period of slow or modest growth in the economy. Such an event will slow the growth in tax revenues available to the federal government and exacerbate the over borrowed state of federal finances. Such a situation will reduce the government’s ability to pass on benefits to the citizenry and most likely lead to a reluctant reduction in benefits. Such a reduction in government benefits will contribute to the reduced scope of federal government I foresee.
Now this analysis might be entirely wrong. Perhaps there is another momentous social change afoot. Since the time of Franklin Roosevelt, the federal government has been expanding its power as it increasingly provided non-traditional services. What Roosevelt did was re-interpret the constitution such that what was not prohibited was permitted rather than the earlier interpretation that found that only what was stated was permitted. Many Presidents after Roosevelt followed his interpretation of the constitution and federal powers expanded.
At the same time the power of businesses and especially financial institutions was expanding. For example, the repeal of Glass-Steagall in 1999 greatly expanded the scope of businesses that were permitted for various financial institutions. We can argue about whether this legislative change directly led to the Financial Crisis of 2008, but the near collapse of the world financial system would suggest that financial institutions probably had too much discretion about products and/or risk.
Of course, the increased power of the financial institutions was permitted by the federal government, which brings me to a point. The federal government and business have both increased their power over the last eighty years to the point where we now probably have an unhealthy oligarchy of government and business. Both Karl Marx and Friedrich Hayek, perhaps the two writers who define the limits of the political spectrum, both predicted that businesses would eventually suborn democratic government. I do not know if I am ready yet to state that business has suborned government, but an oligarchy composed of financial institutions and federal government may be correct.
How does one go about challenging an oligarchy? Who is available to work toward re-balancing power, to restoring a more even-handed society consistent with the original tenets of Locke or Hobbes? There are three choices:
As stated earlier, religious organizations have lost much of their effectiveness as agents of social change as people increasingly see religion as less important to their lives. Academia may also have little power to bring about social change given the decline in public intellectualism, the de-emphasis of social science curriculum and the job preparation orientation of many universities. Which brings us to the media.
For most of human history, individuals created the information and arranged for its distribution to their community. With the advent of newspapers and then radio and television, the model changed. Information was centrally prepared and then disseminated to the individual. What the IT-based social media of today has done is allow us to return to the historical approach where individuals prepare and disseminate much of the information they wish to consider.
However, the social media remains the smoke and not the fire. The increased social media today still only signals a momentous social change. The momentous social change might be a re-balancing of power in society and the start of a breakup of a government-finance oligarchy. Facebook, Pinterest and Reddit might be just practice for the real battle to breakup an oligarchy.
On various fronts efforts are being made to reduce the scope of federal government. We must be wary that we do not leave businesses or financial institutions as the sole power brokers in society. From totally different perspectives, the considerable intellects of both Marx and Hayek predicted that business would eventually control a democratic society. Restoring the power of the individual in society should be the ultimate objective and the social media of today may be the only remaining way to reach that end. Reading more Hobbes and Locke might also be beneficial.
I commend the people looking to scale back campaign contributions. Please feel free to share this post as a sign of support for Mayday.
Karen R. Lawrence, the President of Sarah Lawrence College, recently wrote an article for Forbes, "The Six Critical Abilities Students Need for Success After College". The six abilities are:
These abilities look very similar to the way I was educated at Hamilton College and to the educational objectives there since its founding in 1814. I can think of another twenty excellent, small liberal arts colleges where the objectives are the same as Sarah Lawrence and Hamilton and have been for 200 years (plus or minus). One can conclude that the objectives for the well educated graduate have not changed in the last 200 years.
If we look at how Ms. Lawrence framed the question, we see she had three questions:
If I were asked to frame the question in order to guide the education of future college students, I would ask these questions
I am reasonably certain that we need for our children to have a different set of skills than in 1800, 1900 or Ms Lawrence's analysis. Computer automation, AI and IOT combined is a technology tipping point probably more dramatic than the automobile.
One skill I am certain that is required, but absent from Ms. lawrence's list, is collaboration. Globalization, networking, understanding not knowledge, design thinking, customer experience, all of these require collaboration much more so than individual efforts.
I am also reasonably certain we need a concept of "economic self-sustainability" wherein the individual rather than the employer is expected to provide for a "family's" well being. Probably everybody needs a course(s) in 21st century "marketing", which includes, story telling, branding, video communications, etc. Perhaps we teach writing in the branding seminar and oral communications in story telling. We could analyze Aristotle and then brand him and develop his business model. I vote for "father of artificial intelligence".
I think every university and college should undertake an analysis similar to Sarah Lawrence. If the answer looks the same as 200 years ago, I respectfully suggest the paper be redone.
Thanks to @John_Menenzes for the link to Forbes.
On Friday I taught in the program I cannot talk about. After almost every event within a day, whether it be a panel, lecture, case, etc., we have a period of reflection and sharing. First students consider alone the theme and content of the event and then they share their thoughts with each other in a moderated discussion. A few observations on reflection and sharing:
If you would like to try this in a learning setting, this article by two professors at HBS provides some research and findings to support the use of reflection and sharing. An abstract of the paper referenced is below.
"Research on learning has primarily focused on the role of doing (experience) in fostering progress over time. In this paper, we propose that one of the critical components of learning is reflection, or the intentional attempt to synthesize, abstract, and articulate the key lessons taught by experience. Drawing on dual-process theory, we focus on the reflective dimension of the learning process and propose that learning can be augmented by deliberately focusing on thinking about what one has been doing. We test the resulting dual-process learning model experimentally, using a mixed-method design that combines two laboratory experiments with a field experiment conducted in a large business process outsourcing company in India. We find a performance differential when comparing learning-by-doing alone to learning-by-doing coupled with reflection. Further, we hypothesize and find that the effect of reflection on learning is mediated by greater perceived self-efficacy. Together, our results shed light on the role of reflection as a powerful mechanism behind learning."
I plan to continue to use reflection and sharing in my traditional classrooms starting in the fall.
Recently there have been some significant changes in the way people think about social entrepreneurship (SE):
All of this talk would make one think that the do gooders have become entrepreneurs. However, these folks still miss one important concept--focus. If you read an article say about solving world hunger, somebody always mentions:
None of these issues actually put any food in anyone's stomach, but the do gooders seem to think they are equally important...at least to them. To avoid this recurring lack of focus in social organizations, I have found a solution. No, it is not robots. The solution is rocks. Yes rocks.
After researching over 120 countries I cannot find one NGO, non-profit foundation or government agency that cares about or advocates for rocks. Therefore, I am starting a worldwide movement "Rock the Rock". Here's how the movement works. Whenever you have a problem in your social project, consider rocks.
Rocks are extremely flexible in their application to social problems and they will allow you to focus on the real problems-- hunger, healthcare and education.
So to understand where social entrepreneurship has evolved to, we just need to remember "Rock Entrepreneurship" or "focus" in other words.