In the early 1980s I invested in one of the earliest online retailers, Comp-U-Card. Comp-U-Card succeeded and went public by understanding that customers were only willing to buy hard goods, such as autos, TVs, air conditioners, etc, and would not buy fashion items and accessories. In the early 1990s shoppers grew comfortable with buying fashion online. Today we buy everything online, in part thanks to the success of Amazon.
Many have published stories recently about Amazon pulling its diaper product, including Venture Beat here. Venture Beat also lists other product or merchandising failures, such as a payment wallet and a phone. Everyone talks about these failures as if Amazon was a retailer. I think that is the wrong way to think about Amazon. Amazon is an exchange operator that facilitates the widest range of suppliers and customers entering into transactions. Amazon's expertise is in the infrastructure to support the exchange, which perhaps explains why they have been so successful providing a non-retail service like cloud services.
When Amazon starts to think like a retailer and introduce private label products, such as diapers, they move far away fom their expertise in IT infrastructure and fail. This logic would also explain why wallets and phones were not successful. Retailers succeed in part by selecting merchandise for their target customers. Exchanges succeed in part because their infrastructure supports the needs of the exchange users. While some expertise is needed at a product level, many exchanges tend not to be discriminating. This is the case with Amazon's strategy to sell everything, from consumer products to boat parts to building supplies. Think of Amazon as an exchange and not a retailer.
There was much discussion this weekend about Jerry Neumann's article, "Heat Death: Venture Capital in the 1980s", which chronicles the evolution of the venture capital industry from its start in the 1960s.
One interesting part of the article was how the industry learned about the difference between market risk and technology risk. Market risk is "will people buy it" and technology risk is "will it work". In the current period, VCs generally take market risk and avoid technology risk.
However, as I thought about this dichotomy, the logic of "do something better" kept coming back to me. This approach minimizes both risks or at least frequently does, by taking an existing technology and customer base and offering something better. Google and Apple computers would be examples where the state-of-the art was advanced a bit but there was little breakthrough in terms of technology or customer base. (Amazon might have been an example of market risk and Akamai might have been an example of technology risk when they launched.)
Perhaps one is well served to understand where the business concept is on the continuum of both market and technology risk and to realize that great opportunities may exist with small changes in the market or technology risk factor.
HBS Working Knowledge has an interesting new working paper by Gerald Carlino and William R. Kerr, "Agglomeration and Innovation". The paper discusses the academic literature and the authors' views on the factors that explain the geographic concentration of innovation. Not surprisingly, innovation concentrates in metropolitan areas. Innovation is defined in a classic way as "invention that is commercialized", which in the vernacular would be described as entrepreneurship. Other findings from the article are quoted below:
Setting aside the academic speak, innovation and entrepreneurship benefit from:
The article should be required reading for politicians. Most government support for entrepreneurship appears to be mis-directed or wasted.
Note: While Miami has made progress in developing the entrepreneurial community, certain theoretical requirements still need to be further addressed.
Beta Boston has a nice story, "I’m a physician, and I saw the future of medicine at CES", about a doctor's visit to this year's CES show in Las Vegas. The doctor enthusiastically describes several devices that will improve healthcare. Right after reading the article I received a phone call. Transcript follows.
(Names are changed to protect the ....)
In 2009 I wrote a post with a very good Geek & Poke cartoon (shown below), "Web 2.0 is not an epistemology". This story from Business Insider, "All-Girls High School Photoshops Students' Yearbook Photos To Make Them Look Thinner", might be about the female image, but I think it better serves as a reminder of the questionable quality of information found on the Internet (and everywhere). A story from The Creativity Post, Symbols and Facts, is another interesting take on this theme.
I bought my first cellphone in 1984, the year the "Motorola brick" was released (see photo above). I might still be using it, but there was no roaming in Asia back then. So I used a different, smaller phone in Asia and updated it every time my secretary told me the phone was too old. (She explained very slowly that my image was affected by my phone choice.) Over the years I have found several devices noteworthy:
The first two devices I bought before they were available. I really liked the Note at the CES show in 2011, but the OS and apps were clunky so I did not buy it. I bought an iPhone 4 instead (and retired a version of the Blackberry phone that I had carried since 2002).
In October this year I replaced the aging iPhone 4 with an iPhone 6+. I knew the size would not be a problem because I had spent time with the Note. The phone's best feature is the battery life. I get two days of usage before I need to re-charge. I also like the larger icons on the home page(s), which makes it easier to hit the one you want.
There is one other benefit to the 6+ phone. Since I bought the phone I have not used my iPad once. Not once. Reading on the 6+ is very nice and that was my primary use of the iPad (I don't watch movies on computers.) Using the 6+ means I can carry one less device and charger around. If I could attach a keyboard to my 6+, I would not need a laptop (except maybe when doing spreadsheets).
In summary, the 6+ is a great improvement in the iPhone product line.
I saw someone today who attended one of my workshops a few years ago. At the end of every workshop I show the link to this blog, some information about my consulting practice and a link to a public file. Three years ago I shared a public file from Evernote that includes all my clipped articles on entrepreneurship (789). That would be articles from the over 100 blogs I read every day. The link to the file is https://www.evernote.com/pub/rhhfla/aaclass.
In the last two weeks Evernote released a new feature called "related notes". If you include my shared file in your Evernote, then every time you add a note or search for one of your notes any of my notes on a similar subject will also appear. That's pretty cool.
Ars Technica had a fascinating article today, "Algorithm predicts US Supreme Court decisions 70% of time". Ars reports that "Josh Blackman, a South Texas College of Law scholar, wrote on his blog Tuesday":
"While other models have achieved comparable accuracy rates, they were only designed to work at a single point in time with a single set of nine justices. Our model has proven consistently accurate at predicting six decades of behavior of thirty Justices appointed by thirteen Presidents. It works for the Roberts Court as well as it does for the Rehnquist, Burger, and Warren Courts. It works for Scalia, Thomas, and Alito as well as it does for Douglas, Brennan, and Marshall. Plus, we can predict Harlan, Powell, O’Connor, and Kennedy."
What the model can do is to determine with 70% accuracy how former Chief Justice Earl Warren (1953-1969) would have voted on a recent Supremem Court Decision such as "AMERICAN BROADCASTING COS., INC., ET AL. v. AEREO, INC., FKA BAMBOOM LABS, INC. "
So here is what we could do. No longer does the President nominate and the Senate confirm Justices and Chief Justices of the Supreme Court. Instead we have an election where citizens can pick any of the 30 Justices in Blackman's study for the eight Justice positions and any former Chief Justice could be picked for Chief Justice. Then for a new Supreme Court case we run the algorithm against the Justices picked by the people. One benefit is quicker decisions by the Supreme Court. Not sure we would get opinions but at least the decisions would be made. (No further updating of the algorithm.)
The fun would be in the campaigning for mostly dead justices to serve on the new Supreme Court. I suppose that someone like the ACLU or Heritage Foundation would propose their slate of extremist liberal or right wing Justices and nobody would advocate for a collection of centrist Justices. And there in lies the problem with politics today. Most advocates support positions at the edges of the political spectrum and nobody represents most of us who are liberal on some issues, conservative on other things and "don't care" about a third group of issues.
Vivek Wadhwa's Washington Post op-ed piece, "We’re heading into a jobless future, no matter what the government does", has gotten a lot of pick up on the Internet. Wadhwa is a professor at Stanford with a distinguished academic career. The article basically discusses the dramatic decline in employment opportunities due to technologies such as AI, automation and robots. I particularly like the joke about a factory:
“The factory of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment.” Carl Bass, CEO Autodesk
Wadhwa makes a more serious point when he discusses the role of government in addressing the lack of future jobs. In the industrial age government could manage policy to create enough work for people to provide for their families and maintain self-respect. Wadhwa believes that government can no longer manage policy to create sufficient jobs. The current efficiency of production and the expected increase in productivity will result in government policy being ineffective to create new jobs faster than existing jobs are eliminated.
If Wadhwa is correct, which I think he is, then what is the role of government. If government cannot manage the economy to satisfy individual economic needs then what role is left for government. This is perhaps the bigger question raised by Wadhwa. Why do we need a government with 2.7 million government employees, excluding the military, if the government cannot satisfy the most fundamental economic well being of people. Maybe government should be re-thought.
Of course, many, including Hayek and Wadhwa, have said that government cannot manage complex problems. Doubtful government will redefine its role and equally unlikely government will develop economic policies that counterbalance the natural job loss from new technologies.
Image credit: http://markingourterritory.wordpress.com/2013/06/04/my-favorite-quotations-about-dogs/
I spend quite a bit of time considering the future. This practice started in Indonesia where I had to consider the future in order to mitigate risk. Since Indonesia I have tried to predict the future in order to better understand technology. This thinking has led me as well to take a serious interest in the nature of the customer experience and how it will evolve. All of this thinking about the future hopefully also has some positive impact on my teaching of entrepreneurship.
Steve Jobs once asked his former boss, Nolan Bushnell, “How in the world do you figure out what the next big thing is?" Bushnell answered:
"You’ve got to figure out how to put yourself into the future and ask what you want your computers to be able to do"
I rarely think about the future of technology this way but the technique looks imminently reasonable after Bushnell points it out. Excellent advice for an aspiring entrepreneur.
Lately I have been reading Our Mathematical Universe: My Quest for the Ultimate Nature of Reality by Max Tegmark. While the book largely deals with cosmology, the origin and development of the universe, the part I find more fascinating is the scientific methods used by the scientists. Given that the universe began around 14 billion years ago, many of the problems are very complex. One technique is the reverse of Bushnell's approach. The scientists know the status of the universe today from observations. Therefore, they assume what had to happen 14 billion years ago according to quantum mechanics to explain today's universe. Then they look for empirical eveidence to support their assumptions about the start of the universe. A lot of math later, if the empirical observation matches the assumption about the beginning of the universe, then the assumption is correct. If the assumption is proven wrong, it may actually mean that the question asked in making the assumption was wrong. Another example of the importance of asking the right question.
Bushnell says to assume the future you want. The cosmologists assume the past to prove their theories. No guessing about the future or the past. Assume what you need and then develop it.
Courtesy of the fine thinkers at Marginal Revolution, I came across this article--"Machines v. Lawyer". The article documents the decline in the number and earning power of lawyers over the last few years. Applications to law schools have declined 40% since 2004 and small law firms are particularly hard hit.
About two years ago I visited a friend in NYC who was part of a team doing a mobile shopping app. He gave me a link to download the beta app to my iPhone. To login to the app I had to use either my Facebook or Twitter account, both of which I had at that time. I asked him why I had to use either of those accounts to login and he told me that the company did not want users who did not have social media accounts. I said I thought that was a bit presumptuous, especially for a startup, but he assured me that the special login requirement would not affect customer adoption of the app. An historical note, the app never caught on and my friend moved to a different startup.
Yesterday I read a story, "Users Are Growling About Apps That Require Facebook", where they describe a dog app where you have to login with Facebook. Given that dogs are not allowed to have Facebook pages and friends (which I personally think is very unfair), the writer points out that requiring a Facebook login for a dog app is illogical. This story made me think of my friend in NYC.
If the login does not facilitate ease of use or increase the value of the app to the user, keep it as simple as possible.
Image credit: thebarkpost.com
This really interesting article on Brain Pickings referenced a quote from NPR:
"NPR recently shared a survey that found 40% of the American public doesn’t believe the world is more than 6,000 years old."
Of course, when was the last time you saw a reference to something older than about 2000 BC or about 4,000 years ago? Given the peculiar nature of Americans, we rarely reference anything that pre-dates the founding of the U.S. All of this just points out that we have a predjudice in the Kahneman sense with respect to time or perhaps more precisely history. The brain conserves energy by considering a very short timeline compared with the actual time that humans have walked the earth.
What this suggests is that we do not study and understand sufficiently the basic nature of humans, which may be constraining our abilityto really understand consumer problems and develop new business concepts.
If we go back about 40,000 years, two interesting things happened which enabled early humans to advance beyond their then current status as hunter gathers. First humans learned to trust beyond their immediate family and tribe and technology appeared for the first time. Technology allowed abundance and scarcity, fundamental economic concepts, to appear, which led to sharing (which required trust) and specialization. Specialization led to barter and the emergence of those efficient organizations called "firms", another economic term. However, as specialization and firms succeeded and made lives better, barter broke down and the more efficient money emerged. Congratulations, we have now reached approximately 12,000 BC.
Now we can argue about whether trust preceded sharing or not and whether firms came before specialization, but what is clear here is that the fundamentals of civilization include:
You might ask why this is important. The reason is that every time you change one of these four concepts a huge new market opportunity emerges. A huge new market opportunity emerges! For example, look at this abridged list of changes in money:
Every single change created a huge market opportunity and large companies that recognized the opportunity.
If you can insert trust or sharing into a new situation, one spawns a huge market opportunity. Ebay succeeded when it solved the issue of buyers trusting sellers, Airbnb allowed us to share our real estate. Amazon redefined the retail "firm".
Not a lot has been written about the techniques to identify the large market opportunities. Change one of the four fundamentals of civilization and you may have a large opportunity.
For a few years now I have been saying that the big market opportunity is in curating data to make it more usable and accessible. This quote from Stephen Wolfram, Founder of Wolfram Alpha, describes the opportunity well.
"One of the objectives is we’re dealing with curating the world. Curating the world involves knowing all the chemicals that exist and things like that. It also involves knowing all the programming languages that exist and being able to interface with those things, and knowing all the connected devices that exist and being able to interface with those kinds of things as well. It’s really using the same meta methodology but applied to all these different areas."
This quote comes from a very interesting article in Venture Beat, "How Stephen Wolfram plans to reinvent data science & make wearables useful (interview)". Well worth reading in its entirety.
If you have not been paying attention, more and more of what was considered random behavior is now being explained by math. To satisfy this standard of explanation, the math must be able to accurately forecast behaviors. Several good examples of this evolution in math, or perhaps more precisely in the understanding of social behavior, are seen in Sandy Pentland's new book, "Social Physics: How Good Ideas Spread-The Lessons from a New Science". Interesting discussion of social networks, information flows and how to modify behavior. Anyone who appreciates "big data" should read the book. Pentland's proposed policies on privacy and transparency make the book worthwhile even if you do not care about big data. Implications for the nature and role of government are the best partof the book in my opinion.
Another example of math being applied to social organizations is the work of Geoffrey B. West, “Why Cities Keep on Growing, Corporations Always Die, and Life Gets Faster”. West trained as a physicist and late in his career turned to studying the growth pattern of cities. Regardless of location around the world, culture, type of government, etc, cities behave according to certain mathematical rules. Cities also exhibit certain properties that insure they last forever, whereas companies and people have properties which explain a definite lifetime. Maybe we should encourage the return of city states. Maybe Shanghai has already reached that status.
One should not overlook the irony that computers are crunching the numbers to explain more and more of our lives by numbers. The pace at which we approach the world of Ray Kurweil is perhaps accelerating. "How to Create a Mind, the Secret of Human Thought Revealed" by Ray Kurzweil. Fascinating book.
Friday I attended Creative Mornings Miami to hear Dr. Bill Murphy speak. Dr. Murphy invented a snow blower in the 1930s while in high school and after medical school at Harvard and training at MIT went on to invent or collaborate on dialysis machines, pacemakers and medical stents. He was the founder of Cordis Corporation, which was acquired by J&J.
The single insight that enabled Murphy to become such a successful medical device inventor and entrepreneur was his realization that "the human body was really just a piece of engineering".
So many times the biggest companies are based on just one special insight. Dr. Murphy told the story of how the first dialysis machines used sausage casings as the critical membrane. Another one of those single insights that launched a company and an industry.
Dr. Murphy also made an interesting point about medical education. When you are in med school one is learning to cure disease but when you work in a hospital you are learning to help people. The story about focusing on people and not disease, combined with the human body as engineering perhaps explain the success of Dr. Murphy.
The other thing that was interesting was to see just how intelligent people can be. Listening to Dr. Murphy was a glimpse of genius. Not many in Miami...or anywhere else.
More on Dr. Murphy is in this story on the same event in Starting Gate
Everybody I met last week was talking about Google Glasses. Rare that my week is so heavily themed, but it must mean something. One person said that everyone will buy them when they go mass market at $400 sometime in 2014.
A few thoughts on Google Glasses:
Shouldn't be long before professors ban Google Glasses in class. Silly professors.
AND A HAPPY NEW YEAR TO ALL!
Image credit: http://www.stoneforge.com
Competition, like profitability, is one of those issues where every aspiring entrepreneur has already learned all the folk wisdom before they start their company. And, of course, because it is folk wisdom we do not lose any time stoppping to validate the correctness.
Lately I have been thinking about competition and how to properly understand it. Fortunately, whenever a subject starts to bother me along come 3-4 good articles to stimulate my thinking.
The first article I saw was "The Achilles Heel of Every Great Idea" which does a beautiful job of discussing the restaurant industry to describe competition, differentiation and target customer/market. There are 1 million restaurants in the U.S. with combined annual revenue of $650 billion. This would clearly be a competitive market with 300 million customers as restaurant patrons. Yet this large number of companies succeed by differentiating their offering to match their taregt market. So perhaps the conclusion is focus on the customer and not the competition.
In an article on ROBGO.ORG entitled "Competition", the author says:
"Sometimes you can be too paranoid and get way too focused on competitors, to the point that they cause you to take your eye off the ball."
The author recommends focus on the customer and do not obsess over competition
In another good article, "Why I Don’t Stress Over Competition Anymore", the author makes two good points:
My own thoughts on competition go back to this post on strategy. Effective battles are fought where you can set the stage and bring the most resources to bear. Focusing on competition allows them to determine the battlefield. Better to pick a market segment, differentiate a product to meet those target customer needs and let the competition react.
Second, competitors help to pay to educate customers about a new product. I actually know of a company that kept their competition in business for that reason after the competitor plant was rendered inoperable by the Fukushima nuclear power plant. Like everything, there are good things about competitors.
The last thought comes from Clayton Christensen's concept of disruptive innovation. Christensen says that there is an 80% chance of failure if you compete directly with the market incumbent. One should serve a set of customers who cannot afford the incumbent product. Christensen is advocating for a focus on new market segments.
More to follow.
Bitcoin is the peer-to-peer virtual, encrypted currency not issued by a government authority.
Albert Wenger at USV, the New York VC, had an interesting blog post, "Bitcoin As Protocol". In the post Wenger talks about the possibilities for innovation if one recognizes and preserves Bitcoin as a shared "public ledger". Bitcoin could become the world's bookkeeper or bookkeeping protocol not just for monetary transactions, but also for stock holdings, trusts, etc. This apparently excites Wenger. OK.
What excites me about Bitcoin is that it could possibly "redefine the protocol for trust". When man first started doing commerce around 7-10,000 years ago, the big issue was trusting people outside their immediate community. Trust is the fundamental concept that underlies money, promissory notes, eBay and many other parts and types of commerce. The oldest concepts like money use government backing or some suitable authority to establish the necessary trust. The newest concepts, like eBay, use peer ratings of vendors to establish trust. Somewhere in the middle of this timeline, legal systems became a part of the trust framework.
While some would argue that modern technology made possible the emergence of peer mechanisms to establish trust, I think such an approach misses an important point. 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.
What Bitcoin may be is an early step in the replacement of government as a mechanism of trust. That is pretty exciting! IT technology provides the basis to reduce or restrict government involvement in our lives. Bitcoin could replace the U.S. Dollar or at least the Argentine Peso. No partisan politics involved. Just a return to the original concepts of Locke and Hobbes initiated by individuals linked by technology.
Can Bitlections or Bitferendums be far behind. They will show up at the local level, where government is most effective and the resources are most limited. Urbanization may be a major contributor to such a change as the scale of social problems overwhelm the politicians to the dismay of "voters". Taxes payable in Bitcoins to Google, acting as a trustee??
Remember: disruptive innovations are frequently classified initially as "crazy".