Someone said that if you want to learn a subject, teach it. For seven years I have been learning about entrepreneurship through university teaching. The more I learn about entrepreneurship, the more I realize that classical economic theories provide tremendous insight into better entrepreneurship. A few examples to demonstrate my point might include:
Individual empowerment is the foundation of entrepreneurship--Friedrich Hayek
The asymetry of information leads to the entrepreneur's insight for a new business concept--Israel Kirzner
Economics also provides several methods to identify a new business concept:
Look for what is abundant and then look for that related item that is scare--economics of abundance
Look for ways to eliminate transaction costs--theory of the firm (Ronald Coase)
Economic value is related to the flow of information--information economics (Michael Spence)
Many more examples could be cited to demonstrate the two themes above (which is why we have comments on blogs).
I have finished my second book on social entrepreneurship and I am now thinking about a new book on techniques and processes to identify new business concepts to build large companies. Maybe I will call it "20 Techniques to Identify New Business Concepts". I have eight techniques already identified, but if I read more Nobel Prize winning economists (Hayek, Coase, Spence) I am sure I'll get to twenty.
As an alternative to a new book, I could always teach a new course (for me) on the economic fundamentals of entrepreneurship. Regrettably, that course would probably attract about one undergraduate student.
Read more economic theory, especially the Nobel Prize winners. It will help your entrepreneurship.
The Jobs Act legislation that permits equity crowd funding was approved by the SEC in July 2013 and went effective this week. This legislation allows companies to publicly solicit equity investment from accredited investors. The key legal change permits "public solicitation" of investors without the need to use registered securities brokers and their big brothers the investment banks.
Crowd funding was perhaps first popularized by Kickstarter, which prior to the SEC approval used the model to raise donations for projects. It has quickly been copied to raise money for charities, scholarships and other worthy causes. (I believe that Vittana was the first organization to use crowd funding, to provide student loans outside the U.S.)
Two noteworthy equity crowd funding platforms are AngelList and CircleUp. AngelList focuses on tech startups and investment opportunities are organized by syndicates, backers and accelerators. A sample backer at AngelList is Jason Calcanis and a sample accelerator is Techstars Austin 2013. In either example, an investor would participate in all the investments made by Jason or Techstars Austin. Such diversified investment is critical in early stage investing given the risk (and in any other investment portfolio).
CircleUp focuses on consumer products and investors select individual companies to invest in. One interesting feature of CircleUp is that it promises "access" to partners such as P&G and General Mills.
The evolution of equity crowd funding will be interesting to watch and I see several trends developing:
Celebrity platforms, where an investor can invest in Lady Gaga or Jay Z's angel investment deal flow
Special purpose platforms, such as social entrepreneurship, universities (to commercialize their research projects), broadway plays, etc.
New incubator funding, such as soliciting alumni to underwrite an incubator for equity investment in student startups (FIU immediately comes to mind)
There will also be many new spinoff opportunities such as rating agencies for crowd funded equity funds, "mutual funds" for equity crowd funding so investors can invest in 10-20 funds and, of course, the new consultants, marketing experts and newsletter offerings. (There is always an opportunity for more pundits and "experts" :)) An opportunity that I find interesting is to build the software infrastructure and website support for the equity crowd funding organizations. A Red Hat, open source, "best of class" model might have a real future if this funding model becomes as popular as I think it might.
The issue that equity crowd funding needs to handle well is the due diligence process for each investment. While a site like AngelList has very experienced investors behind it such as Jason Calcanis and Techstars, most sites should document a rigorous due diligence process to reduce the risk of fraud. Personally, I never thought that the SEC would see past this risk and approve the necessary regulation, but apparently the Obama White House gained meaningful securities law experience sorting out the financial crisis of 2008. (The other issue of some importance may be "conflict of interest". How does a celebrity or lead investor decide which investments they offer to the "crowd" and which ones they keep for just themselves.)
As I understand the new regulations I may no longer be required to post a warning, but....I do not provide investment advice and this post is not a solicitation for investment in any organization mentioned here.
Richard Branson has a post today on LinkedIn, "How I Hire: Focus on Personality". Yesterday Tim Brown, CEO of Ideo, had a similar post, "How I Hire: 5 Tips for Landing a Job at IDEO". Both accomplished CEOs recommend people that work well with others, which increases the collaborative potential of the group. The problem with this approach is that collaboration is not a panacea. The process of collaboration alone does not insure high quality results. In fact no process alone insures high quality results.
For any process, including collaboration, to produce high quality results requires high quality thinkers. That's why entrepreneurs are told to always hire A people. Over the years I have learned that one should always hire the smartest people available and they should be highly self-motivated to satisfy their own high standards. Standards can be taught but self-motivation by definition is not learned at age 25 or 30 when you take your first job or start your first company. A true story illustrates my point. At the end of an interview, I usually ask the candidate to tell me something about themselves I have not learned through the interview. A woman once answered that she had walked from Guatemala to the U.S. border to enter the country (perhaps illegally). I hired her because that level of self-motivation is exceptional. (She had already demonstrated a high level of intelligence and I knew she was now legally in the country.)
Now with all these highly intelligent, highly motivated people, how do you get them to play well with each other and collaborate?. First, I would point out that MIT, HBS, McKinsey, etc have all figured it out. The answer is leadership. It is the leader's responsibility to facilitate collaboration and a higher quality outcome. The key is to realize that A types are different. Some are creative, some enjoy analysis and some can improve any idea. Letting the A types play the roles they are best suited to increases the likelihood of collaboration. What does one do if two A types have the same characteristic, say creativity. There are two choices. Either start a second group to work on the same problem and put the redundant person in the second group or exercise leadership and do not include the redundant person in the group. Dynamic companies always have more than one important project, so the redundant person becomes a key player in another project team.
Another advantage of my approach is that highly intelligent, highly motivated people require less training and skill development. Such people teach themselves what they do not know. This logic leads one to realize that hiring based on skills is actually not usually that important. The right people will teach themselves what they do not already know.
Do not misunderstand. I do believe that collaboration is important, but it is the leader's responsibility to foster collaboration.
This post originally appeared in The Starting Gate, the Miami-Herald blog by Nancy Dahlberg on entrepreneurship and the SFL tech scene. Each post in the three-part series will appear first in theMiami Herald and then be reblogged here.
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This is the second post in a three part series on the natural conflicts in the objectives of every entrepreneurial company. The first post in the series discussed the conflict of revenue growth versus cash flow.
Customer versus Shareholders
Almost every businessperson is familiar with Milton Friedman’s dictum that the purpose of a company is to maximize shareholder return. To put such a strategy in effect a company would probably look to maximize the value they capture (cash) for the most possible sales. Many companies have such a philosophy. However, a sale will only take place if the customer believes that the value they receive is in their self-interest. The need to balance value such that a customer enters into a purchase and shareholders receive the desired return is the conflict between customers and shareholders for every company.
Value is an economic concept defined as “utility”. What utility theory tells us is that value for a customer is not only a function of the product features and cost but also a function of the customer’s perceptions. These perceptions are based in part on the emotional engagement of the customer with the product. In other words, the more emotional engagement between a customer and a product the more potential value to the customer available for the company to capture (and the higher the potential price that a company can charge). Therefore, if a company can increase emotional engagement through better branding, customer service and all the other parts of the customer experience there is a higher likelihood of a sale and a sale at a higher price.
At the many companies at all stages of development (from startup to mature) that I have worked with, when they achieve sales traction they tend to focus on small changes in product features that add little perceptible value for the customer or they focus on revenue growth in an effort to satisfy Friedman’s dictum. Microsoft might be an example of such behavior and their current problems are well known.
A better approach to management is to continuously focus on the customer value proposition. I define customer value proposition as: "The unique [competitive] combination of emotional and economic benefits for which a customer will enter into an exchange [sale]."
Such an approach expands the “product” to include the concepts of customer perception, emotional engagement and customer experience. Such an approach has several benefits:
1. Focus is continuously on the customer which reduces the risk of being blind sided by changes in technology or competitor business model
2. Understanding the customer at an emotional level tends to make it easier to identify meaningful changes in a product that the customer will find valuable
3. Constantly building value for the customer makes the customer “stickier” and less susceptible to competitor offerings in many forms including pricing
4. Prices may be able to be increased because the customer perceives more value in the product
TurboTax is a good example of a company that manages its product based on value proposition and has withstood the entry to the market of many competitors. Everybody who files a Form 1040 in the U.S. has varying degrees of concern about an IRS audit. When TurboTax first started they offered a step-by-step approach to filing returns. Then they offered a new feature where a tax return could be compared to the average return for the same income level and an assessment of the likelihood of an audit. Recently they have added a feature where you can retain one of Turbotax’s experts if your TurboTax return is audited. TurboTax has continuing additions of meaningful new features that speak to the user’s emotional needs.
Of course, all of this value proposition management comes at a cost that may reduce shareholder returns. However, what is the cost of a lost customer or the cost of a customer where there is no possibility to increase revenue with little selling expense through add-on sales. In my experience money spent to serve the customer better is money well spent.
Herbert Simon won a Nobel Prize for his work that showed that a company can never maximize and the best they can do is optimize. (He should have used Friedman’s public relations company.) Effectively he showed that there is no way to determine if a company is maximizing. The best a company can do is meet the expectations of shareholders. In setting those shareholder expectations few rational investors would object to “productive” expenditure to better understand the customer, thereby placing the customer ahead of the shareholder.
"@rhhfla What to do if the spending to acquire the new customers is the problem? And what mediums should be used to acquire these?"
If you missed the post, one key point for an early stage company is to work to accurately determine its customer acquisition cost in order to grow revenue. What I replied to the ad exec was:
"@xxxxx Compare monthly targets against analytics for each media in terms of both leads and closes. Change investment to most effective one"
Recognizing the limitations of 144 characters let me elaborate.
For every media one should set monthly targets for leads, closes and the conversion %. These targets are then compared against actual results. Several software programs allow a company to determine where the leads come from (Twitter, Pinterest, email, etc.) and how many leads closed. Leads and conversion ratio (closes/leads) are the key performance indicators to analyze. If leads are below target, it may be a messaging problem. If conversions are low it may be that the closing process is too complicated (change website, train staff better, etc.) or pricing needs to be evaluated. Where people drop out of the conversion process may tell you which problem it is.
If closes for a media reach the monthly target, adjust to new conversion ratio and put more investment in this media. The assumption here is that the number of closes is meaningful. Herein lies the art or common sense behind the science and numbers.
Today's post was inspired by an article I found on Google+. If you have a bit of the geek in you, you should use Google+. The Math Group is particularly good.
All the business/tech news recently is about Apple's new 5S phone. For a gazillion dollars you can have a better processor, a better screen, a better camera and a few other new features. If we look at the real benefits of the new phone, the new processor maybe cost $15, the new screen about $25 and the camera let's generously say $10. Adding a generous 40% gross margin, the total value of the three new features was around $80. However, a purchaser will actually pay a gazillion, which is a lot more $80.
Why can't we just buy the new components and plug them into an existing iPhone? Two reasons:
The iPhone (and every other mobile device) is not designed to be repaired by the owner
Nobody sells individual components for mobile devices
(If you are wondering why you never asked yourself this question, read this article on functional fixedness.)
Less you think I am crazy, a new project is being launched to addreess repairability and individual component sales in mobile devices--PhoneBloks. Think of lego blocks embedded with the major components of a mobile device. Want to buy a new screen, just buy that Lego block. Want the latest wi-fi antennae, just buy that block. See the picture below.
Now the phone may not be pretty enough for celebrities and those who go clubbing on South Beach, but for those of us who only upgrade our devices when the old one dies or a new version of the operating system has terrific new features (which in my case has never happened with a phone), a Lego block phone might actually get me to upgrade....a component. Follow PhoneBloks. It's a very cool idea.
Note: If Microsoft wanted to gain share in phones and tablets, this is a bold strategy that might work. Talk about disruptive!!
This post originally appeared in The Starting Gate, the Miami-Herald blog by Nancy Dahlberg on entrepreneurship and the SFL tech scene. This post has been reformatted. Each post in the three-part series will appear first in the Miami Herald and then be reblogged here.
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The development of an entrepreneurial company can be understood in terms of the natural conflict in the objectives of the company. I believe the three most important conflicts to understand and manage are:
Revenue growth versus cash flow;
Customer versus shareholders;
Market opportunity versus execution.
In this post I will discuss the conflict between revenue growth and cash flow. In subsequent posts I will discuss the other two conflicts.
Revenue Growth versus Cash Flow
A healthy business should be trying to achieve maximum growth in revenue without running out of cash and cash reserves for future operations. Essentially a company balances the risk of generating revenue growth against the risk of going out of business due to no cash. Many struggling companies sacrifice revenue growth to conserve cash, which generates a death spiral to oblivion.
There are many benefits to revenue growth:
Product Market Fit. Revenue growth confirms and documents that the product is being accepted by the target customer
Market Share. Revenue growth at a rate equal or greater than the competition insures that a company is maintaining market share, which is critical to maintaining cost competitiveness in terms of both fixed and variable costs
Avoid Complacency. Aggressive annual revenue growth targets, perhaps 100-200% annually at startup and gradually declining to 20% for a “mature” company, force a company to constantly re-work and improve the value proposition, product, sales strategy and business model; effectively the pressure for revenue growth becomes the impetus for continuous innovation.
Recognizing the importance of revenue growth, how do we manage the risk of not running out of cash? There are two techniques that I use:
1. Customer Acquisition Cost (CAC)
Customer acquisition cost is the marginal cost to acquire a new customer. As soon as a company starts to see traction in their market they should begin determining CAC. Over time CAC will stabilize and many industries have been shown to have fairly standard CAC. Once there is confidence in the CAC for a product, then it becomes highly predictable how much budget (cash) needs to be put at risk to achieve the desired revenue growth. (Note: using CAC a company is able to determine if a problem is the number of new customers, the spending to acquire the customers or simply a budgeting issue.)
2. Add-on Sales
The cheapest sale to achieve is typically the sale to an existing customer. These add-on sales are another, less cash intensive way to accelerate revenue growth. Most early stage companies overlook the opportunity for add-on sales as they struggle to grow revenue from their initial product. A good example of the add-on strategy is a premium priced software product where the customer pays additional money for an expanded feature set.
My last advice on how to manage the conflict between revenue growth and cash flow comes from Texas Hold’em poker. Professional poker players typically never go “all in” unless they know with a high degree of certainty that they have the winning hand. Unless you have a very high confidence that you understand the CAC, do not bet all your cash on forecasted revenue growth. Even then, I would hold a cash reserve in case of Murphy’s Law.
[The next post, on Wednesday, Sept. 18, will be on the conflict between customer and shareholders.Read more here: http://miamiherald.typepad.com/the-starting-gate/#storylink=cpy ]
Jeff Bezos, the CEO of Amazon, will soon be the owner of the Washington Post. Bezos is arguably the best tech CEO in the world today and probably does not need my help. However, my experience with the New York Times might prove useful.
I subscribed to the NYT for 37 years and then dropped my subscription in favor of other online news sources about three years ago. About two years ago I discovered the NYT Skimmer, a beautifully designed, ad free (in the copy) version of the NYT. The design was so well done that I did not think it was a NYT offering. I have been reading the Skimmer faithfully for two years and the design has even encouraged me to read sections I never read before (e.g. obituaries). First point for Jeff Bezos, please offer a skimmer version of the online WP with a clean, modern design.
Recently, the NYT Skimmer changed its policies. Now to view a second story in a section (e.g. business, technology), you are presented with an ad to subscribe to the NYT. If you do not subscribe you are limited to one free story per section. The idea for Jeff Bezos to consider is rather than selling subscriptions, just sell individual articles in the Skimmer. Five or ten cents per article charged to a credit card works for me. I would pay that if it was automatically charged to the card. To avoid having to log in every day or every article to use the credit card, he could offer the WP Skimmer in a Kindle version (which is available for almost every computing device).
Someone came to visit on Friday to discuss a problem with their company. The company had annual revenue of $30 million and was profitable but revenues had flattened and costs were continuing to rise (such as employee medical insurance and IT). They asked me what I thought of their plan to improve productivity by reducing employees and the related expenses. I answered that cutting employees was the easy answer. Anybody can cut expenses but a more thoughtful approach would be to:
Focus on growing revenues. With $30 million in revenue, the company knows who their customers are and they should be better targeting similar new customers by geographic area. I also encouraged them to look for add-on sales to existing customers. Turned out there were three good possibilities for cross selling. Lastly, I encouraged the company to launch a sales training program, which they had never done.
Increase spending on advertising and promotion. The company operates in a very competitive, price sensitive industry where customers have difficulty in recognizing the value of one provider compared to another. The good news was that many new customers each year needed the company's products and services. Therefore, the advertising and promotion should be directed at potential new customers and not toward companies already using a competitor. The theme of the communications should be on helping prospective customers see the value or the additional value (compared to competitors).
Switch fixed costs to variable costs. Switching fixed costs to variable should be a part of every company's annual review of their business model. While cloud computing is an obvious example of how to switch IT costs to a variable expense, using contractors rather than employees at peak times may be an equally attractive alternative. With so many people free lancing or retired, the pool of available contractors is both wide and deep. For the more emboldened perhaps Tesla, the electric car manufacturer, provides an example to stimulate thinking. They are distributing their cars without a dealer network. While Ford and GM incur all the fixed expenses of maintaining a dealer network, Tesla has much lower distribution costs that are a function of each car sold (variable).
While cash flow should always be a concern, cutting expenses when revenues flatten or the revenue forecast is missed is the easy answer. The more thoughtful company first thoroughly examines how to increase revenues, fine tunes its messaging to customers and looks at ways to switch fixed costs to variable. Also, there will be less management issues from disgruntled employees working with less resources.
It is well documented that creativity, innovation and identifying large market opportunities benefit from properly framing the issue or problem, a subject that I have discussed many times here at Sophisticated Finance.
An example of failing to frame the issue properly comes from this weekend's coverage of the Miami Florida football game. Despite a convincing win (21-16) in which Miami led throughout the game, the television commentators focused on Florida being upset by Miami. The local newspapers also followed this theme in their Sunday coverage.
Properly framing the issue might lead a commentator to better ask "why did Miami win?", which would have resulted in the following comments:
- UM caused and capitalized on five turnovers by the Gators - The Hurricane defense played well the entire game - Miami played hard the entire game, including causing a key Florida turnover late in the fourth quarter that led to a Hurricane touchdown
Two other thoughts:
- When the betting line is only three points in favor of Florida, "upset" looks like an exaggeration - UM fielded a competitive team despite a cloud hanging over the program from a never ending investigation by the NCAA
How to improve the UM offense might be a properly framed question or perhaps how to improve Miami play selection, but I still think the Miami Herald headline should have been:
"THE U IS BACK"
Never afraid to identify future trends (in technology), I hope I am right about the Hurricanes.
The HBR Blog Network had an interesting article yesterday by Nilofer Merchant, "Is Bias Fixable". She basically stated that bias in thinking is a function of how one frames the question or issue. This view is basically correct and a valuable insight. However, to understand bias in order to reduce its effect on our thinking (and behavior), a few observations may be helpful:
Language itself is baised. There are several examples of languages that do not have a concept of time and direction (left, right, etc.), many that use different numbering systems (for example Roman Numerals which attribute importance to 50 and 500) and many that have no calendar (365 day year). God, heaven and after life, if they are used, are expressed in a wide range of ways. Recognizing the bias in language, which establishes arbitrary constraints, is one method to relax assumptions and properly frame the question.
Many say that innovation is based on putting together existing ideas in new ways. This concept is easily understood in terms of the mathematical concept of set theory. Recognizing new common elements in different sets forms the basis of the innovative idea. Conversely, how one defines a set creates the bias. Racial predjudice, a classic case of bias, is nothing more than assuming that one person's characteristics represent the characteristics of a group or set of people. Google illustrates this point in a more positive way. Before Google everyone knew that to be in the set of "businesses" a company had to charge the customer to earn revenue. In a meaningful way Google just redefined the set of "businesses" by not charging the end user.
Our knowledge is a combination of our education and perceptions proceesed through a group of cognitive proceeses. Education is inherently biased, as shown, for example, by the very different histories of WW II written by the Chinese, Japanese and Americans. What people tend to forget is that their individual perceptions are predjudiced or biased by the mere fact that there is a sole interpreter--you.
Daniel Kahneman in Thinking Fast and Slow shows that the brain is wired to reduce its energy consumption, which tends to make us use what we already know rather than constantly be questioning existing information. Effectively, the brain is designed to be biased in order to conserve energy.
I do a case each semester with my students where I ask them to change one assumption about the original Model T Ford in order to create a new industry. Students quickly come up with car paint and accessories. Better students come up with taxis and auto insurance. The "genius" answer (provided by a student) is fast food restaurants. Don't change the assumption about the car. Change the assumption about how the owner will use the car. Our biases become our assumptions and by changing or relaxing the assumptions we have one way to overcome bias and better frame the question.
It is five years since the financial crisis of 2008. The economy has significantly improved and the after effects today are largely political consequences, including:
High unemployment
Concerns about income inequality
An over regulated U.S. financial industry
Unemployment is still high by historical standards and a frequent theme of President Obama. The reason for higher unemployment is in part due to the disruption to the economy from increased use of IT to replace low value added jobs. Over the next 5-10 years I think IT substitution for low value added jobs will only increase. Washington needs to recognize that unemployment is being caused by a systemic change in the economy, forget traditional solutions such as job training which tends to focus on low value added jobs, and recognize that a larger percentage of the population cannot sustain themselves economically and need support from the government. To pay for this support, taxes need to increase.
The current administration has popularized the issue of the increased inequality of income in the U.S. Overlooked is the fact that the U.S. capitalist system is naturally competitive and that our meritocracy favors those who have the education, talent and luck to advance themselves. Also overlooked is the fact that the economy is going through a momentous change comparable to the introduction of the automobile in the early 1900s. Whenever the economy has such a momentous change large new business opportunities are created and fortunes are made, which increases wealth inequality. The momentous change in the economy taking place is, of course, the introduction of new applications of IT.
The third political consequence that remains from the financial crisis is the financial regulation of U.S. financial institutions through the Obama legislation of the Dodd-Frank Act of 2011. As George Melloan points out in a recent editorial in the Wall Street Journal, "Bankers Haven't Gone Rogue--Regulators Have", this legislation was passed when the Democrats had control of both houses of Congree. Melloan points out that U.S. banks are now subject to regulation from eight federal agencies. Each of these agencies is now jockeying for increased power and federal resources and the results is fines for financial institutions that totalled an unheard of $29.3 billion in 2012, more than the total for the preceding ten years.
While the bankers do share responsibility for the financial crisis, it should be pointed out that the change in the mortgage market was made possible by President Clinton to enable more Americans to own their own home. As detailed in a 2008 post in Sophisticated Finance, in 1999 Fannie Mae eased credit standards on home mortgages. This decision resulted in a huge number of higher risk borrowers that were unable to pay their mortgages, which led to the financial crisis.
A bad decision by President Clinton set the stage for President Obama to make a bad legislative decision in 2011. Now we have a banking industry over regulated and impaired by constant investigations and legal proceedings. Access to capital is perhaps the most important competitive advantage of the U.S. The political rhetoric of unemployment and income inequality should naturally dissipate because it is just rhetoric, but the consequences of Dodd Frank will remain and that concerns me.
A better solution than Dodd Frank and the expansion of regulator power would have been to simply increase capital reserve requirements for different bank asset classes, such as derivatives, to better match the risk. Such an approach would not have been well understood by the voters so the politicians opted for the easier to explain increase in regulatory powers. Now we have a banking industry distracted by endless investigations and the competitive advantage of the U.S. at risk.
I ordered my first Kindle e-book reader the week it became available. I switched to Kindle on iPad only to reduce the number of devices I traveled with. However, I continue to follow developments in e-book readers as part of my interest in educational technology and there is much innovation in the space.
Yesterday Fast Company had an interesting story on a new e-book reader from Readmill. The Fast Company story highlights a feature of Readmill which allows you to share your comments and highlights of a book with other readers (and perhaps the author) to enrich the reader's understanding through dialogue, thereby creating a social community for the book and the readers.
That's a nice idea but what really caught my attention were three key points which exemplify excellent entrepreneurship:
Rather than taking the Amazon approach of using e-book readers to sell books, Readmill started with the more fundamental question of how can an e-book reader enhance the reading experience for the reader. Starting with the question framed correctly is a key to entrepreneurship that finds large market opportunities.
Readmill is a free app for iPad and iPhone and soon will be available on Android. The company plans to generate revenue by selling data on how the books are read to publishers using the commentary data captured in the social community. I have many times advocated for a business model where the product is free and revenue is derived from re-selling usage data to interested companies. Readmill is one of the first companies that I know of to use this model.
Readmill describes their product as creating a social community, which is the rage today and probably an easy way to explain the product to investors. However, I see Readmill at the forefront of a more important trend--curation of information. As I have posted many times, with the vast amounts of information produced on the web, the challenge is in curating that information for an individual user. Suppose we have a complex book like a book by Michael Porter, FA Hayek or Descartes. Where would you go today for help to better understand it. Wikipedia, Goodreads and other traditional sources do not provide in depth information for better understanding. In 2-3 years I think everybody might go to Readmill first, to search the "community" feed on the book to find curated information--specific to the need, expert commentary and easily found. Imagine the benefit of reading Michael Porter or the leading authority on Descartes interpretation of a highlighted passage in a book. In my opinion that is the real potential of Readmill. (Previous posts on curation of information are here and here.)
I do not know if Readmill will be a commercial success. For example, Inkling and Oxford University Press have really good e-book readers with a strong feature set. However, I think that if Readmill can continue to enhance the quality of the curation of the reader commentary to become the definite source on books, then I think that they have the potential for a sustainable differential advantage in the e-book reader space.