SOPHISTICATED FINANCE

Diaspora Management

I have spent the last two days in Jamaica, including some time at a convention devoted to the 4-5 million Jamaicans that live outside the country. Currently Jamaica has a local population of 2.3 million. The Jamaican Government call this overseas population the Diaspora. The Government went to Israel to study how that country manages their diaspora or overseas population of religious followers. There are even academics who have developed a set of five best practices for diaspora management. They are all so obvious that I will not repeat them.

As near as I can tell, diaspora management is designed to guilt the overseas population into investing in the homeland as a means to foster economic development. Economic development theory has baffled me for years, despite quite a bit of study of the subject. As this previous post on economic development makes clear, the subject is overly complicated and therefore much of the theory appears to have limited applicability.

Diaspora management appears to me to be another part of economic development theory that is overly complicated. If you want to attract foreign investment, regardless of the source, you need to satisfy four conditions:

1. Free movement of capital across borders
2. A legal system that protects investor rights at the level of developed countries
3. An economic performance that has sufficient stability and growth to attract investors 
4. Market rates of return for the perceived level of risk that are attractive compared to alternative investments (in other countries)

Jamaica is making progress on the necessary conditions outlined above. Personally I think diaspora management is a distraction that will have limited effect on economic development. Increased efforts to build an economy that attracts more foreign investors would be my strategy for Jamaica.

Areas that look particularly attractive to me for investment in Jamaica are agriculture and alternative energy, which are also key industries in the government twenty year plan (in addition to tourism and logistics). Interestingly, Jamaica is trying to build an enormous transhipping facility to take advantage of the expanded Panama Canal in 2014. Project is in the early stages but foreign investors are showing interest. Miami beware!!

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Around the Corner: Jamaica Diaspora Conference 2013

Thoughts on Starting an Entrepreneurial Revolution

Planning for the Unkown

Someone asked me to do a lecture titled "Planning for the unkown". Initially it sounds like an oxymoron. However, after a little thought I came up with an approach. The process is described below.

Planning is a process, which means that it involves discipline, focus and a step by step approach. However, any process is only as good as the thinker and thinking in the process. Therefore, to consider the unkown, we must first recognize that the unkown is outside of current human knowledge. Therefore, we need a technique that helps us to think outside of human knowledge.

A technique I like for this purpose is "relax the assumption". This technique is based on the bias we have all developed in our thinking and problem solving. The technique focuses on identifying and relaxing a key assumption in a problem in order to develop a solution, e.g. the laptop relaxed the desk assumption. However, this technique only helps in planning if we know what to think about.

The topics to think about for business planning are:   

1. economy
2. regulatory
3. competition
4. market
5. technology

Admittedly pretty obvious in hindsight. The hard part is to identify what assumptions to change for each of these five factors. Drumroll!! Focus on the key parts of the business model and relax assumptions about pricing, sales and distribution as they relate to each of the five factors. For example, the current discussions in Europe about no charge for roaming on cellular phones might have surfaced if one relaxed the pricing assumption during the consideration of regulatory. Amazon would have possibly shown up if one relaxed the store assumption (distribution) in a market or competition analysis for booksellers.

Now that we understand how to find the unkown, please keep an eye out for the next Google :) Also, remember that identifying the problem is the hard part. The solution is easy. If you forgot, read this post.

 

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Mission

Pattern Recognition

I am not much of a game player, except for an interest in Texas Hold'em. I believe that computer games offer a new way to improve children's learning, but it is not an area that interests me. A recent article in Wired, "How an Entirely New, Autistic Way of Thinking Powers Silicon Valley" got me thinking about Go and chess, two of the oldest and most popular games in the world. Go was developed in China in the 4th century BC and chess was invented in India in the 6th century. Why have these games been so popular for so long.

Both Go and chess are widely admired as complex strategy games, which in part explains their popularity. However, it may be that the popularity of both games is also because they develop a different way of thinking--paternicity or pattern recognition. Patern recognition may be a third way of thinking, in addition to visual and verbal. The Wired article states:

"For a century now, chess has been the petri dish of choice for cognitive scientists. What makes a chess master a chess master? Definitely not words. But not pictures, either (which is what you might think). When a chess master looks at the board, she doesn’t see every game she’s ever played and then find the move that matches the move from a game she played three or five or twenty years earlier or from a nineteenth-century chess match that she’s studied closely. The stereotype of a chess grand master is someone who can think many moves ahead. And certainly, many chess players do strategize that way. But the grand masters retrieve from their memories not more possibilities but better possibilities because they are better at recognizing and retaining patterns or what cognitive scientists call chunks."

While everybody uses visual, verbal and pattern recognition ways of thinking, certain disciplines generally require a particular way of thinking. For example, pattern recognition is widely used in mathematics, engineering and certain sciences. Pattern recognition is also an important skill in programming, as the Wired article explains.

John Von Neumann, the great 20th century mathematician, said that chess was "trivial" because at any point in a game one could identify all the remaining moves in a game (with enough computing power). Watson, the IBM computer that beat the world chess champion in 1997, perhaps proved Von Neumann correct. However, in this case the computer was programmed to utilize a Von Neumann type strategy and not pattern recognition. Never the less, Chess remains widely popular, and approached correctly, can develop pattern recognition skills. Go offers the same way to improve one's thinking.

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George Polya--Problem Solving and Heuristics

Precision

The Disruption of Professional Services

A theme which I have discussed many times is that the expansion of IT and the information it produces will have a profound effect on jobs in the future. The jobs to be affected are not just factory type jobs. 

A new study by the McKinsey Global Institute, “Disruptive technologies: Advances that will transform life, business and the global economy”, addresses this issue. For example, McKinsey believes that 8 technologies will disrupt jobs and industries. Cloud computing could disrupt the global IT enterprise industry with $3 trillion in annual spending and million of jobs. Another example cited by McKinsey is autonomous or driverless transportation, which could eliminate millions of jobs. Imagine that the driverless truck shows up at the receiving dock and robots unload the truck.

Kevin Kelly writing in Wired states:

"It may be hard to believe, but before the end of this century, 70 percent of today’s occupations will likewise be replaced by automation". 

One might ponder a future where one's ability to work well with robots is an important skill :)

The area that interests me is "information workers" such as lawyers and accountants. For such professions, I think the future presents in large part the same disrupted outlook. In an Economist article, "Schumpeter: The Age of Smart Machines", they state:

"Knowledge-intensive industries will also have to rethink cherished practices. For a start, in an age in which information and processing power are ubiquitous, they will have to become less like guilds, whose reflexes are to regulate supply and restrict competition, and more like mass-market businesses, whose instinct is to maximise the customer base. Innovation will disrupt many areas of skilled work that have so far had it easy." 

"Guilds whose reflexes are to regulate supply and restrict competition" sounds a lot like lawyers and accountants. In several ways the current value of accountants and lawyers is tied to their licenses and not to their output, which in many cases is widely available on the web or soon will be. The question I ponder is what the 50,000 new graduates from law school each year will do, particularly given the 1.24 million lawyers already in practice in the U.S. I think accountants (and doctors) are in the same situation.

Previous posts on the future of professional services include "AI May Replace Your Job", "New Business Idea--SEC Wikis" and "The Future of Professional Services" from August 2010.

LEGO School of the Future

Many experts are considering what a school should be in the 21st century in order to foster "21st century skills" in children. 21st century skills generally are described to include:

• Creativity
• Critical thinking
• Collaboration
• Communication

Some experts add problem solving skills to the list but I personally believe it is redundant if critical thinking is developed properly.

One company that has a long history in child learning is LEGO, the Danish company. They have a long history of innovation in toys and robots to foster participatory, hands on learning (as opposed to consumptive learning). LEGO has announced that the LEGO Foundation is opening a new school, which I believe is their first school. The Isbillund International School will serve children 3-16. LEGO describes the school as follows:

"Children are open-minded, curious  and innovative. They are not afraid to experiment. These abilities will be nurtured in our school to help our pupils reach their full potential. We believe that all children have the right to become the best they can be. The school is based on Danish learning traditions, the IB [international baccalaureate] programmes and the creative approach of the LEGO Group."

School activities begin at 7am with breakfast and include after school activities til 5pm.

What I like about the school:

• The LEGO philosophy of hands on learning applies to all courses and not just science and robotics
• The International Baccalaureate is a rigorous curriculum that is used beginning in the primary school
• The school starts for 3 year olds when children are in their most formative intellectual period

If LEGO were to ask for my suggestions, I would offer three ideas:

1. There should be no grades; students should be able to learn a subject or area of interest at their own pace.
2. The concept of a school building should be re-thought; instead of using classrooms as the core concept, the building should be designed to foster communication and collaboration between students. 
3. Use teachers as mentors or guides and rely on e-learning to provide basic instruction; of course every child would have their own connected laptop computer.

 

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New Business Idea--You Tube

I am not a visual learner. Just did not get that gene. Rarely do I use graphs to understand data and mind mapping causes my head to pain. Every day I read about 100 blogs and look at about 500 articles. On any given day about 10-20 articles have an embedded video or link to a video. Unless the video is by an acknowledged genius I cannot bear to watch them. Video for me is just an inefficient way to capture information. The more complex the material the less useful video is for me.

Would someone build an app that would transcribe the voice in any video to text. I would be eternally greatful.

Other new business ideas are here.

Image credit: www.identifont.com 

World Water Shortage--New Map

Back in January 2011 I wrote one of my New Business Ideas posts on the opportunities in food and water due to the impending shortages of both. Today in Co.Exist there is an article highlighting a map from the World Resources Institute that shows the severity of the water shortage. The map is called Aqueduct and it allows the user to change the factors considered such as ground water and pollution.

 

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SEP-7 Business Plan Workshop Miami

I will be leading a workshop on how to develop a business concept this Friday, September 7 for the Pino Entrepreneurship Center at FIU. The workshop closely follows my book on developing a business model but is organized with a series of group tasks to better understand the concepts. Several themes are illustrated by both social ventures and for-profit companies. All attendees receive a sample business plan that raised A round venture capital. 

Advanced registration details are here. Proceeds go to the Pino Center.

Smart Cities--Smart People?

The "smart city" project is designed to introduce better, more environmentally friendly technology into larger urban areas to improve the overall quality of life. Much of the early work was done in Europe but now the movement is spreading to lesser developed areas including Latin America. This story from Co.EXIST, "Filling South America With Smart Cities", highlights a project in Santiago, Chile.

I think the "smart city" project is a great idea particulalrly given the dramatic growth in urban population. Free ubiquitous Internet access, solar powered everything and better mass transportation all sound attractive. I have only one question? Where are the smart people who will inhabit the the smart city? Without equal emphasis on improving education for the poor and disenfranchised, smart cities will only further exacerbate the class discrimination so prevalent in Latin America and other parts of the world.

Previous thoughts on urbanization are here, here, here, and here.

Image credit: faculty.fairfield.edu

The Future of Streams

RWW has an interesting post on streams, as in information not fishing. Streams are defined as:

"A constant flow of information ordered chronologically and (ideally) topically too. In the near future, the theory goes, it won't matter where you enter content - a blog platform, Facebook, Twitter, Tumblr, etcetera - because all of it will be accessible to other people as a stream."

The Wall Street Journal is an early adopter in the use of streams. Formating and style of their streams suggests that streams will look particularly good on mobile devices.

I have been intrigued by the idea of streams since this SF post in 2010, which I quote below:

"I think that where the web will evolve is toward a model where all your content will be generated from a single web-based app and you will merely choose what distribution channels you want to use (public, private, group, company, etc.), similar to the Google Reader feature "share". As soon as you can choose easily where content is distributed, Facebook and Twitter become much less valuable."

As I correctly predicted, Twitter and Facebook are fighting streams according to RWW.

AI May Replace Your Job

For the last 50 years computer automation and other IT technologies have replaced many jobs. Most of the jobs were low value-added positions. In the next 50 years many jobs that required a college education will be replaced by the same computing technology applied in new areas.

This story from Wired, "Can an Algorithm Write a Better News Story Than a Human Reporter?", illustrates the point. Narrative Science, a company based on AI technology developed at Northwestern University, is developing high quality news stories without reporters. Can lawyers or accountants be far behind.

We can argue about the pace of this trend and what jobs will be replaced, but students should be considering fields that cannot be duplicated or replaced by AI. Should I mention entrepreneurship?

The last post on Narrative Science eleven months ago is here.

Americas Venture Capital Conference Call for Presenting Companies

The 3rd annual Americas Venture Capital Conference, hosted by FIU's Pino Entrepreneurship Center, is now requesting for presenting companies seeking funding to submit selection materials by September 4. Guidelines for prospective presenters are at http://avcc.fiu.edu/presenting_companies.htm.

Information for conference attendees is at http://www.avcc.fiu.edu/. This year's conference will be held in Miami on December 12-13.

App Log In Complaint

Recently I have seen a trend in iPhone apps that bugs me. To log into a new app I must use either my facebook or Twitter ID. When I asked the developer of one app why they did this, they said they only wanted people who had a FB or Twitter account to use the app. 

I have been on Twitter since the beginning and I joined FB about a year after it went public, but I delete apps that demand only these logins. I prefer to get to know an app before I link it to other accounts. Does any one else feel the same way? Post a comment.

Some Good Articles on Innovation and Strategy

Two themes that interest me are strategy and innovation and how they are applied to economic development, entrepreneurship and social ventures. Two articles this weekend on these themes were noteworthy.

In "The Hardest Question Any Leader Can Ask" there is a particularly good point on strategy as it relates to business model:

"Business model innovation must be a strategic objective or it won’t happen.

One of my biggest pet peeves is setting strategy one tactic at a time. It drives me crazy to be surrounded by people and organizations that think if they just work hard enough and do more things that a strategic direction and destination will emerge. It seems that most of the world works this way. It is terribly inefficient. How many people and organizations do you know that pedal the bicycle like crazy but never seem to arrive anywhere. They just keep pedaling harder hoping that something will eventually stick. It is exhausting watching them. Why not establish business model innovation as a strategic objective, a specific destination, and work hard on those things that help you get there. It seems so simple. Setting a strategic direction provides a way to know which tactics are aligned and contribute to reaching the destination. The destination may change along the way requiring different tactics, and that is OK, but not having a destination at all is a ticket to nowhere."

In "A 5-point checklist to create lucrative opportunities with disruptive technologies" the author list five ways to disrupt a market and gets it absolutely correct:

1. Destroy your product
2. Make your product solve meaningful problems
3. Make your product insanely simple
4. Make your product smart
5. Give your product away

Read the article to understand the logic of each method.

Competence and Comprehension

One of the debates that I have been following is framed as follows:

Do we need to teach aritmetic if computers can perform the same task?

Until today I thought we should teach arithmetic.

Another related question is why we cannot develop computer software that does more than traditional teaching methods.

This article from Atlantic, "A Perfect and Beautiful Machine': What Darwin's Theory of Evolution Reveals About Artificial Intelligence" provides insight on both questions. This quote provides a possible answer:

"What Darwin and Turing had both discovered, in their different ways, was the existence of competence without comprehension. This inverted the deeply plausible assumption that comprehension is in fact the source of all advanced competence. Why, after all, do we insist on sending our children to school, and why do we frown on the old-fashioned methods of rote learning? We expect our children's growing competence to flow from their growing comprehension. The motto of modern education might be: "Comprehend in order to be competent." For us members of H. sapiens, this is almost always the right way to look at, and strive for, competence. I suspect that this much-loved principle of education is one of the primary motivators of skepticism about both evolution and its cousin in Turing's world, artificial intelligence. The very idea that mindless mechanicity can generate human-level -- or divine level! -- competence strikes many as philistine, repugnant, an insult to our minds, and the mind of God."

The distinction between competence and comprehension provides a possible answer to both questions. Competence does not lead to comprehension. We do not need to teach to achieve competence in arithmetic because computers can do it for everybody (with a computer and electricity). Comprehension in math, the higher level objective, is a totally different objective which is not necessarily derived from competence.

This distinction also explains the weakness in current educational software and most online offerings. Rather than using software/content to teach competence, we should focus on developing software to facilitate reasoning and comprehension. Perhaps harder said than done, but if we stop focusing on competence we will be on the right path.

Question: How many numbers between 0 and 10 can be divided by 2

Competence answer: 2,4,6,8,10

Comprehension answer: all the numbers

I found the Atlantic article on Arts & Letters Daily.

 

Pricing Strategies

In my theory of business model, I propose three key concepts that need to be considered in each new business concept:

1. the growth driver
2. pricing model
3. distribution

Today's post is on pricing. There are sixteen pricing alternatives, as outlined in my book. Each alternative represents a different way to monetize a transaction or capture the value. The reason that there are so many alternatives for pricing is that there are so many ways to share value with a customer.

As Marco Bertini and John T. Gourville, professors at London Business School and HBS respectively, make clear in their excellent new article, "Pricing to Create Shared Value", pricing is not a zero sum game. "Companies have traditionally treated value in the marketplace as a fixed pie and have reasoned that they must compete with their customers to appropriate as much of it as those customers will relinquish." Thinking of the customer as merely a pocketbook robs the company of the opportunity to understand the customer need, build a better relationship and share the value created. 

The notion of "shared value" presented by Bertini and Gourville is attributed to Michael Porter and this article by Porter. Personally I think they have a different notion of shared value from Porter or perhaps they have explained the idea better than Porter did. Bertini and Gourville's notion of shared value is consistent with my view of social entrepreneurship, wherein the company shares as much value with the recipient as possible while still achieving cash flow breakeven.

 

First Winner in Harvard's President's Challenge

In February Harvard announced their President's Challenge, a university wide competition to develop innovative solutions to the largest social problems. The problems identified are in five categories--"clean water, personal health, empowered education, global health and clean air". Good list.

What I particularly like about the competition is that it encourages cooperation between the various schools at Harvard. Many universities have a silo structure that inhibits cooperation between schools and administrative procedures to insure it. 

Vaxess Technologies is this year's winner for their plan to commercialize unrefrigerated vaccines. A good article on disruptive technologies is here. Vaxess is clearly addressing a 'customer pain point' by eliminating the need for refrigeration.

More on the President's Challenge is here.

The Digital Age is Not a Solution

I have written frequently about the changing role of the individual in the Digital Age (here and here to cite two posts). In Einstein's Ideas and Opinions he describes how the Renaissance was a period where individuals made the significant contributions. As population became more dense, the need arose for organizations, as the means to address society's problems. These organizations developed the technology to make themselves more effective and efficient. In summary, as population density changes humans reorganize to address the new problems and develop supporting technology.

Basically, I think we are at another one of those inflection points based on population density. My reasoning is as follows:

• The population will increase by approximately 50% by 2100 to 10 billion
• Over 50% of the population now live in cities and the rate is increasing
• Wide spread discussion of public private partnerships to address social problems indicates a need for a new form of organization
• The easy gains in productivity improvement from computer technology are over because computing technology is now fully developed. (See article here.)

If the choices to address the population density problem are two-- individuals or organizations-- and organizations have reached their point of maximum efficiency and effectiveness with current technology: then we have three choices:

1. Find new technology that addresses the need for greater effectiveness and efficiency in the current forms of organization. Perhaps the use of outer space is the answer (Go Get an Asteroid Academic VC). Some experts say that we have waited too long and no technology can save us from population growth.
2. Redefine the individual through technology. Some might argue that crowd sourcing and (social) networking are proof that the role of the individual is again changing, but neither of these examples produce any meaningful gains in productivity or efficiency. To improve the effectiveness of the individual we have to harness a greater percentage of their intelligence or their physical productivity. Perhaps embedding computing devices inside the person is the answer. 
3. Redefine government, as a significant form of organization, perhaps returning to minimal government. Government originally emerged as a means to prevent unfair interference to people and markets. Over time that role expanded and government became  a substitute in many ways for individual empowerment. Perhaps we need to return to an environment where the individual is more responsible and the government is a referee and not a player.

In conclusion, this is not a post about the dangers of population growth. Human beings re-organize when population density changes (Einstein). I think we have exhausted the benefits from the current forms of organization. We have maxed out the benefits of current computing technology. My guess is we need to re-design the effectiveness of the individual or mankind will fail to address a new era of population density. While the Digital Age is getting all the press, I now think that it is not the technology to address a new era but rather the dramatic end to the last era. Opportunities still exist to better use computer technology, e.g. education, but the bigger opportunities may be in recognizing a new era in the history of mankind. Whether existing governments with their bureaucracies focused on the status quo will permit the necessary changes may be the biggest challenge.

Image credit: bangladesh.um.dk

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• The World's Population Density, Visualized [Visualizations] (gizmodo.com)

Thoughts from a Day at MIT

Schopenhauer, not Christensen from Wikipedia

Clayton Christensen, the well known HBS professor, once said that MIT has the highest density of creativity on the planet. Every time I spend a day at MIT I come to the same conclusion. Two observations inspired by things at MIT last week:

1. In the early days of artificial intelligence (AI) the focus was on the algorithms as the means to make AI productive. This approach proved only marginally effective and AI adoption grew slowly. Recently with the improvement in large database infrastructure and the exponential growth in digital data, researchers have realized that it was the lack of data rather than immature algorithms that was holding back the growth in AI. There are many implications to the accelerating use of AI. One that intrigues me is that computers will increasingly identify the "value" in the data and that this value will be commercialized and subsequently marginalized much faster. Therefore, the opportunity to create large value will increasingly come from outside the bounds of current knowledge, outside the data set. While this has always been true, the easier opportunities in the existing data may quickly be disappearing.
2. Arthur Schopenhauer, the well known 19th century German philosopher, said that music and art make physical the emotions. In most real time digital media one of the challenges is interpreting the emotions and changes in emotional state of the other party. Researchers at the MIT Media Lab are developing sensors to capture and communicate changes in emotion from all parts of the body. Their most well known demonstration is their opera, "Death and the Powers". A possible commercialization of the technology would be for Skype participants to wear sensors during a call. 

Wonder if Schopenhauer would have received a Ph.D from MIT?

 

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.