SOPHISTICATED FINANCE

Four Major Trends in the Current Fourth Industrial Revolution

 

This is my recent article on Medium about trends in the Fourth Industrial Revolution.

 

Fall 2018 Courses

 

This Fall I am teaching two courses at FIU in the Honors College:

1. The Fourth Industrial Revolution    This course is for two semesters. The course starts with an introduction to industrial revolutions and the writings of Carlota Perez. I used to start with Thomas Kuhn, but that was heavy going for undergraduates. Then we read Complexity: A Guided Tour by Melanie Mitchell, a researcher at Santa Fe Institute. Stephen Hawking said that complexity will be the science of the 21st century. We finish the semester reading The Nature of Technology by W. Brian Arthur. One of my students, an engineering major, said that every engineer should read this book the first week of engineering school. The book reading is supplemented by several current articles, which are included in this first-semester reading list,  Download 4IR Reading List F2018.  After setting the stage with Perez' writings, the course moves into an exploration of the technologies of the 4IR--artificial intelligence (AI), Blockchain, gaming,  bio-sensors--to name a few. Much to my surprise, last year the students admitted that they did not know much about the technologies. This year we go deeper into the technologies. 2nd semester we explore the social, economic, political and environmental issues of the 4IR, which the students need to understand to fully function as citizens. Income inequality and the environment are two recurring themes, as I see these topics as the two critical issues of the 21st century. Course project will be to propose what the government will be in 2050. Students work in teams to perfect their collaboration skills.
2. Thinking, Design and Impossible Problems   This course is for two semesters. For several years I have been teaching a course on thinking disguised as an entrepreneurship course. What I realized is that better thinkers produce better entrepreneurs. This year I am just unabashedly teaching a course on thinking and the real objective is to help the students think like a genius. The readings, the authors, everything except the professor, is about the mental frameworks of genius level people. In part, the course was inspired by the first reading in the course, The Evangelist of Molecular Biology. This article is about James Watson, who won a Noble Prize for his work on DNA, and how he almost became an ornithologist. One day he realized that he would make no real contribution to humanity in ornithology, looked for a new field of study, and found molecular biology and genetics. From this article, I realized that high potential students need to be immersed in the thinking and writings of geniuses in order to better understand their alternatives. First book in the class is Melanie Mitchell's book on complexity (described above). One of the best frameworks for thinking about problems is to model them as a complex system. The second book is Ray Dalio's Principles: Life and Work. Dalio is a legendary hedge fund manager and a well-known advocate for the use of mental frameworks to address problems. Similar thinking and approach to another legend--Charlie Munger. The first-semester reading list  Download TDIP READING LIST F2018 also includes several articles. Many of the articles focus on inter-disciplinary approaches to problems and new fields where modeling is being used for the first time, such as mathematics, computer science and neuroscience. Each weekly class the students present their analysis of a different impossible problem and the course project will probably be to explain why art and science will converge in the 21st century. Students can work on all the problems in teams or individually. 

 

Image credit: Tomorrow Today Global

The Trilogy of the Fourth Industrial Revolution--Nature-Design-Technology

My professional life revolves around entrepreneurship in its many forms, the Fourth Industrial Revolution--4IR (that the World Economic Forum correctly started heralding a few years ago) and how these two themes intersect around opportunity, wealth creation and social innovation. One of the devices to understand the 4IR is what I call the Trilogy, which was written about by Daniel C. Wahl in the very good article, "Facing Complexity: Wicked Design Problems". The Trilogy, which is a device to simplify the 4IR, is that this revolution can be understood as the convergence of nature-design-technology. Until today I would have said go away and study complexity science, artificial intelligence, bio-mimicry, slime mold, design thinking and 10-20 other concepts and then the Trilogy is obvious. Today I had a realization. 

Fashion represents the Trilogy. Please remember my twenty years in retail and retail consulting. Now one might argue that fashion has existed from before we left the caves (all of intellectual history beginning from the first drawing on a cave wall) and you would be correct. Remember, it could be that all of human history can be understood through the lens of the Trilogy-nature-design-technology (see this article on the Krebs Cycle of Creativity). Now back to explaining the Trilogy in terms of fashion.

 

Now almost everyone can understand fashion in terms of design, at least it is superficially obvious. Technology is much the same, with different fabrics and colors being the result of technology. Where it becomes interesting is when we consider the role of nature in fashion. Of course, nature is where we introduce the human-centric focus and that leads us to the drape of the clothing on the body, the equally important emotional engagement of the wearer and most importantly to the question of customer self-esteem. What the fashion example makes clear is that every consumer opportunity, product or solution should be considered in the terms of the trilogy, whether you were sitting outside a cave or a modern design studio. As you venture forth in the 4IR remember one does not understand fully until one can explain the issue or opportunity in terms of nature-design and technology.

 

Note: The Krebs Creativity Cycle is not obvious and takes awhile for people to appreciate its utility. I will do a followup post to explain its utility in more detail.

 

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SOPHISTICATED FINANCE - Why I use Medium Now

Why I use Medium Now

Most of my recent writing is on Medium. Really no particular reason, but longer articles look to be easier to create there.

Topics are still traditional and social entrepreneurship, creativity and learning and design thinking and complexity science. Increasingly I touch on the convergence of nature-design-technology, the trilogy of the Fourth Industrial Revolution.

Also, increasingly I am thinking about:

• the role of cities and the re-definition of that term,
• how the government is poised to be downsized at the federal level because it cannot respond to real-time information
• the role of Blockchain or another DLT in helping us to remember our roots as self-organizing networks of agents (CAS)

"Distributed ledger technology (DLT) is a digital system for recording the transaction of assets in which the transactions and their details are recorded in multiple places at the same time. Unlike traditional databases, distributed ledgers have no central data store or administration functionality." Google

“A complex adaptive system (CAS) is made up of independent self-organizing agents, stochastically interacting through networks, under the influence of infrastructure, technology and the environment, that gives rise to emergent properties and co-evolutionary dynamics.” RHH

The Power of Assumption in Entrepreneurship

 

My newest writing, The Power of Assumption in Entrepreneurship, is on Medium. The introduction to the article follows.

Introduction

Most of my books and major writings are prompted by a single comment or sentence that typically leads to two or three years of thinking about the related topic. This article is no exception and was prompted by a writer’s observation that every startup is based on a key assumption about the problem, the solution and scaling. These three assumptions can be simply illustrated by a proposed new medical device. The key assumption about the problem is whether the device correctly diagnoses the disease. Key assumption about the solution is whether doctors will use the device (and stop using their current approach). Key assumption about scaling might be getting FDA approval or Medicare reimbursement for a procedure using the device. It should be noted that once a key assumption is identified, it often leads to identifying other key assumptions about problem, solution or scaling. Such clear identification of assumptions also frequently focuses the entrepreneur on the viability of the business concept. The usefulness of this three-part technique and its easy adoption by entrepreneurs lead me to further study the concept of assumption.

Studying about assumptions, I realized that assumptions are one of those concepts that are critically important but with only limited writings on the subject. I see information theory, networks and incentives, as examples, to be similar subjects — critically important in multiple disciplines but almost ignored in popular and academic writing. While some would argue that these topics are widely written about by academics, I would point out that the themes in the academic articles have no practical application. For example, in information theory the positive asymmetry of information was presented by Kirzner to explain entrepreneurship and the negative asymmetry of information Spence used to explain poverty. However, I rarely see any discussion of asymmetry of information in the writing on poverty. The absence of writings on assumptions prompted me to write this article in an effort to facilitate practical applications about assumptions in entrepreneurship and related fields such as innovation and engineering.

While many terms have domain specific definitions or usage, especially in social, economic and political fields of study, “assumptions” is a term that remains unchanged as it crosses disciplines. Another concept that crosses domains unchanged is symbolic logic. Symbolic logic is a system of inference rules that dates back to Aristotle. What does the system of inference rules manipulate? Answer, the propositions, premises or assumptions in the argument. The entire nature of symbolic logic is domain agnostic and therein lies the “proof” for the first characteristic of assumptions — assumptions are domain agnostic, not changed in their behavior or definition by the domain. A simple example might clarify this point. A “set” in math is a “collection of individual objects which is itself an object” whereas in tennis a “set” is “the first player to win six or more games by two more games than the opponent, where a majority of sets alone determines the winner”. Obviously “set” is a domain specific term and “assumptions” is not.

The discussion of symbolic logic above reminds me of an important point. We cannot discuss assumptions without some references to philosophy, math and physics. George Polya, credited with coining the phrase “random walk” and a famous Stanford math professor, was once asked, “why did you study math?”. He responded, “I was too good for philosophy but not good enough for physics”. Any discussion of assumptions needs to include some philosophy, math and even physics, although the math and physics are very elementary and the philosophy may not even be identified as such. What is the significance of thinking about assumptions in terms of philosophy, math and physics? Philosophy, math and physics are the three ways to describe reality and the role of assumptions it turns out is a useful concept to better understand reality. This concept is fully developed in Section 2.

While philosophy, math and  physics are widely disliked by many students, entrepreneurship and the related concept — social entrepreneurship — are increasingly popular with students at the five universities where I have taught entrepreneurship in various capacities over the last thirteen years. I have also designed, developed and executed two startup incubators and one accelerator in Miami, FL at Florida International University. Before that I built a billion-dollar publicly-traded company in Indonesia in seven years and served as the CFO of One Laptop per Child (OLPC). OLPC was a project that started at the Media Lab at MIT and gave me the chance to teach an IAP course in social entrepreneurship for seven years at MIT Sloan.

My practical experience combined with my academic pursuits have made me a serious student of entrepreneurship. One thing that I have realized is that entrepreneurship is best thought of as a process, whether one uses Eric Ries Lean Startup methodology or another approach. At every step in the process I have learned to identify the key assumption(s), to manage the validation of those assumptions as milestones and deliverables and to be extremely vigilant to not overlook a key assumption (as discussed in Section 4). Leading venture capitalist Mark Andreesseen put it well:

“So you come in and pitch to someone like us. And you say you are raising a B round. And the best way to do that with us is to say I raised a seed round, I achieved these milestones. I eliminated these risks. I raised the A round. I achieved these milestones. I eliminated these risks. Now I am raising a B round. Here are my milestones, here are my risks, and by the time I raise go to raise a C round here is the state I will be in.”

Note that milestones can also be intangible, like assumptions, and that such milestones and assumptions are linked to risk reduction. We will come back to this important point about the linkage between assumptions and risk in Section 3. I first explored the linkage between risk and assumption in my first book, Billion Dollar Company. Companies go out of business typically because they run out of cash. They run out of cash because they misjudge a known risk or miss an unknown risk. Systematically studying key assumptions in a business concept reduces the likelihood of unknown risks and may give new perspective on known risks, which in part explains why I keep writing about assumptions.

This article is organized in two parts, the first dealing with a definition of assumptions and some of their characteristics and the second part presenting some practical applications of assumptions in entrepreneurship…and many other fields. The Sections are shown below.

Part 1

Section I- Ignorance, Determinism and Complexity

Section II- Assumptions and Determinism

Section III- Pattern Recognition and Risk

Part 2

Section IV- Reframing the Problem

Section V- Additive vs Multiplicative

Section VI- What Physics Teaches Us

Section VII- Financial Modeling

Conclusions

 

The remainder of the article is here.

My Latest Writing on Entrepreneurship and Complexity

For the last five years most of my thinking and teaching has revolved around three major areas:

1. Entrepreneurship
2. Creativity and learning
3. Complexity science

Today on Medium I published an essay on these subjects and how they explain many of the large market opportunities that consistently have repeated throughout history:

The Foundation of Entrepreneurship: Large Market Opportunities that have Repeated for 40,000 Years

If anyone thinks the essay is suitable to develop as a book, let me know by email.

Some Good Books I Read in 2017

A few of the better books I read this year are shown below:

• Idea Makers, Stephen Wolfram (Wolfram's thoughts on some great thinkers)
• The Nature of Technology, W. Brian Arthur (every engineering student should read this book before starting their degree)
• An Introduction to Agent-based Modeling, Uri Wilensky and William Rand
• Chaos, James Cleick
• NEXUS: Small Worlds and the Groundbreaking Science of Networks, Mark Buchanan
• From Material to Life, Sara Imari Walker et al (quantum mechanics, evolution and information theory)
• Your Next Government, Tom W. Bell 
• Elinor Ostrom: An Intellectual Biography, Vlad Tarko (only woman Nobel Laureate in economics)

Best book was definitely From Material to Life, which I am going to teach in my Entrepreneurship, Design and Thinking course this spring.. Fantastic demonstration of how to approach an impossible problem--how did life emerge. 

Elinor Ostrom is a manual for how to live in a Blockchain directed government less world, although she researched for much less aggressive purposes.

Everyone interested in social problems should read about agent-based modeling. I believe we are on the verge of modeling social problems to derive real insight.

Not a year for much light reading, but a great year for learning.

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An observation on the role of information

The quote below is from Paul Heyne‘s 1982 speech “What Is the Responsibility of Business Under Democratic Capitalism?” 

"The primary problem that modern, industrialized economic systems must solve is the problem posed by the scarcity of information.  We are inclined to overlook these difficulties and to take their resolution for granted, because we take for granted the remarkable mechanism of social coordination through which we gather and disseminate the knowledge that is essential to the system’s functioning.  In overlooking the knowledge or information problem, we focus undue attention on a different scarcity, the scarcity of goodwill.  We erroneously suppose that goodwill can resolve problems that can in fact be resolved only through the accumulation of additional information.  Moreover, many of our proposals for increasing the amount of goodwill in the economy fail completely to attain their objectives, but do manage to subvert the crucial information system."

Increasingly I come to the conclusion that social problems are caused by the asymmetry of information. Rarely do I see approaches that take this idea into consideration. 

Talks, Seminars and Workshops I Do

This morning somebody asked me for a list of talks and workshops that I do. A current list is below.

1. The Secret to Successful Entrepreneurship. 4 hours, 8 hours, or 3 days. Entrepreneurship is a popular topic in the media, schools and the workplace. It is also critically important to individuals looking to manage their economic well-being in this new century. However, there are three key concepts in entrepreneurship that get little attention: fear, assumptions and opportunity. Fear holds one back but where does this fear come from. Assumptions are the land mInes that blow up most companies. Picking the opportunity is where one lays the foundation for the scalable business. These topics can be presented individually in half-day or full-day seminars or all together in a comprehensive 3-day workshop. Everyone will need to be an entrepreneur to successfully function in the new era of the 21st Century. This talk is where one can learn the fundamentals.
2.  The Five Step Process to Convert Passions into Innovation. 4 hours, 8 hours, or 3 days. Innovation is perhaps the most popular word that no one defines correctly and consistently creating innovative solutions is always more challenging than it should be. Using the five step approach taught in this program, anyone can create innovations. This approach is not based on design thinking or the other traditional approaches to creativity, but rather draws its inspiration from early childhood development—1-Passion, 2-Discovery, 3-Creativity, 4-Invention, 5-Innovation. Depending on the depth of understanding desired, this topic can be presented in half-day or full-day seminars or in a comprehensive 3-day workshop. If you are interested to learn the lessons every genius throughout history has taught us, this is the event for you.
3. The Five Themes of the Fourth Industrial Revolution. 4 hours, 8 hours, or 3 days. Klaus Schwab, Chairman of the World Economic Forum, coined the phrase the “Fourth Industrial Revolution” to describe the current period of technological innovation and the resultant massive social, economical and political changes we can expect. While it is important to understand the underlying technologies, the social consequences are more dramatic than any period in history. Whether in half-day or full-day seminar or a 3-day workshop format, this presentation explores the technologies and five major themes that explain the Fourth Industrial Revolution. Anyone trying to prepare and educate people for the 21st Century should attend this event.
4. Social Entrepreneurship: Capitalism Redefined. 4 hours, 8 hours, or 3 days. Capitalism came under attack on many fronts as a result of the Financial Crisis of 2007-2008. In simple terms it might be said that the corporates forgot their responsibility to society. On the other hand capitalism is the most efficient way to address social issues at scale, as evidenced by the over 1.5 billion people who have escaped poverty in recent times. To blend this efficiency of capitalism with an integrated approach to solve the most pressing social problems, that challenge is what gave rise to social entrepreneurship. Whether in half-day or full-day seminar or a 3-day workshop format, this presentation defines social entrepreneurship, outlines the special features of its business model and showcases how existing companies can use social entrepreneurship and how non-profit organizations can convert to social entrepreneurship. How to start a social entrepreneurship venture is covered in the 3-day format.

Much of the content for these talks has been put together over the last 12-18 months from lectures I have given at various universities. Many people have heard me teach or speak on these topics at StartUP FIU. Many of my colleagues at StartUP FIU can also speak on these topics, if you wish.

My History on Twitter

I have liked Twitter since the first time I heard about it, probably on Fred Wilson's blog AVC. Twitter was like Dropbox and the Palm Pilot. Love at first sight. Twitter instinctively filled a need for me and the interface was so simple there was no learning curve. 

I joined Twitter February 29, 2008, about 18 months after the launch. My statistics on Twitter come from my Twitter Archive, which is under Your Twitter Data in Personal Settings. A few stats:

• 5695 Tweets
• 1316 tweets on "finance", mostly about this blog
• 584 tweets on entrepreneurship and an additional 116 on social entrepreneurship
• 261 tweets on StartUP FIU
• 208 on One Laptop per Child
• 166 on MIT
• 143 on Google
• 117 Tweets on Facebook
• 91 on government
• 83 on economics
• 79 on the environment

Most popular blog I tweet on--Marginal Revolution--is devoted to economics with an Austrian School point of view.

All of the above looks fairly representative of what I do and think about. Economics is probably underrepresented. 

My Twitter handle "rhhfla". 

 

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Why Assumptions are so Important

I have just finished my third book, tentatively titled "The Foundation of Entrepreneurship: Large Market Opportunities that have Repeated for 40,000 Years". Book deals with large market opportunities that have repeated throughout history. For example, every time money changes form, there is a new large market opportunity. Title suggestions welcome. If you would like to read the latest draft, email me.

I have started thinking about my fourth book, which will be on assumptions or maybe assumptions and boundaries and how they affect the way we think about problems. Thinking about assumptions reminded me of this post I wrote in 2010, "Why can I not Timeshare a Dog". Sometimes it takes awhile to figure things out and some times I get distracted by other issues. The delay in getting back to assumptions I will blame on a multi-year study of complexity, which resulted in four chapters in book three.

Patterns that Repeat in CS and Biology

In the latest book that I am writing, on how to find the business opportunities that have repeated multiple times over the last 40,000 years, I draw on insights from complexity science. Think of complexity science as an alternative to chemistry to explain the relationship between physics and biology. Two different languages and ways of thinking to explain the same events.

A fundamental part of complexity science is the concept of a network. Examples of networks are the Internet, Facebook and every "community". In a chapter on organizations in the book I make the point that great organizations are a stack of networks. For example, if we look at a great university like Harvard or MIT, we can understand them by their networks: students, faculty, alumni, institutes of learning, research partners, etc. These networks process information separately but compliment the whole of information. Fail to create a strong network in any one of these categories, and the university probably fails to achieve greatness. 

This morning I was reading an article by Ray Kurweil, futurist and authoity on AI who trained at MIT with the late Marvin Minsky. Kurweil tells the story that multi-layer neural nets were proposed in the 1960s but were rejected by Minsky and his associates. Such networks are commonly used in AI today. The point of the story--multi-layer neural nets look an awful lot like stacked networks in great organizations.

Patterns that repeat in nature and in computer science are the basis for powerful thinking frameworks. Keep your eyes open for stacked networks.

Examples of Good Thinking

 

Yesterday's reading discovered some excellent articles:

1. Esko Klipi on Medium, "It is only a few network connections away". He points out that networking is growing increasingly important as the Internet shrinks the world. Makes one realize that networks created by people could be more powerful than 20th century forms of organization.
2. Evonomics.com on inequality, "The Science of Flow Says Extreme Inequality Causes Economic Collapse". What caught my attention was a quote from Robert Reich, "But in The Work of Nations (2010), Robert Reich also points out that the companies that are flourishing through globalization and technology are ones pursuing what he calls high-value capitalism, the high-quality customization of goods and services that can’t be duplicated by mass-produced uniformity at cheap places around the world." I rarely agree with Robert Reich, but I think he is correct this time. I think that corporate governance has enforced too narrow a set of objectives and the executives have opted for the easiest path. BTW, Evonomics is doing an excellent job of trying to redefine how we look at government economic policy with a particular emphasis on complexity economics.
3. Stanford Social Innovation Review on corporate social responsibility, "Corporate Social Responsibility for a Data Age". In managing disasters much valuable data is behind corporate firewalls and not normally available to the government. The article suggests that the data be made available after the disaster, but it appears more logical to me to pre-position the data.
4. At 25iq two great articles on entrepreneurship, "A Dozen Lessons on Growth" and "A Dozen Lessons About Product/Market Fit". Just simply one of the best blogs around on entrepreneurship. Step-by-step type detail on understanding subjects that most people misunderstand.
5. An interesting article about neuroscience, "Measures of Entropy and Complexity in altered states of consciousness". What could be more geeky than entropy, complexity and neuroscience. What caught my eye was the notion of plotting complexity vs entropy. 
6. In another of my favorite blogs on economics, Marginal Revolution, "Online Education and Personalized Learning". The article makes the point that in any class there are students performing at many different grade levels. Online learning provides one way for students to follow their own pace of learning. Pace of learning is a big issue that I see rarely addressed. (See image above.)
7. Aswath Damodaran on ValueWalk, "My Snap Story: Valuing Snap Ahead Of It’s IPO!". Damodaran is a leading academic authority on valuation and Snap will be one of the biggest IPOs of 2017, if it gets away. Sorry, got confused and included a finance article
    

Image credit: Marginal Revolution

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Notes on Proof of Concept

I do not think I have ever posted my work-in-progress notes on a subject. These are unedited excerpts that I put together from my archive as the first step in a new project. The document attached is on "proof of concept" and how one might think about delivering such a concept. Notes are not complete but there are definitely some nuggets included that go back to 2009. Document is here  Download POCC Notes 2017.

Further thoughts on social entrepreneurship

For the last seven years I have taught an IAP course at MIT on social entrepreneurship. The early years focused on my experience at One Laptop per Child (OLPC). OLPC started at MIT and was one of the largest social entrepreneurship ventures (SEV) at the time. In recent years I have focused the course more on scaling an SEV and use three different models to develop an understanding of the key concepts for scaling. This week I am at MIT.

Coincident with this year's course I have been reading the writings of Ludwig von Mises. Von Mises is considered by some to be the leading thinker in the Austrian School of economics. I prefer Hayek for the wide range of his writings, which arguably included complexity, information theory, behavioral economics, psychology, political theory and economics. Von Mises is however the better writer with a lucidity and logic that is both compelling and original.

One of the points von Mises makes clear is the importance of capitalism and markets in allocating capital. He wrote at a time in the 20th century when socialism and communism were being actively advocated for as better alternatives than capitalism. In class one of the students was advocating for government subsidies to support certain social initiatives. I asked why he thought the government was better at allocating this capital than the individual taxpayers. Silence followed, and then he said that a small group in Washington was better able than the public to make decisions about the future. I replied that small group decision making was the same model used by dictatorships. Deafening silence. In fairness to the student, everyone has problems with decision making about the future, but let's continue to explore von Mises point.

Suppose the government announces that they are raising taxes to subsidize a lunch program for students. Sounds good, research shows that children learn better when not hungry. However, this tax revenue will now prevent the next Google from raising its first round of venture capital because certain people will not have the capital to invest. Setting aside the question of financial return, what if the next Google cures cancer! Now it may not be so obvious that we should let the government use our money to subsidize school lunches.

The point of this post is that when you look at government investment and social projects one should always consider the allocation of capital. Such an approach probably reduces the role of government and raises the bar for social projects, which I assume here will nearly all be social entrepreneurship. The bar is raised because now the social project needs to focus equally on impact and capital efficiency. One could argue that such an approach prevents certain worthwhile projects from being funded. Perhaps, but there are so many good social projects now, why not pick one that is capital efficient. It is not for me to decide whether clean drinking water or childhood education is more important, so I have no concern picking the capital efficient one amongst the two. When both projects are capital efficient I am willing to consider other factors. This paper from SSIR, Across the returns continum, offers a logic for such trade offs from Omidyar Network. If the project were a platform to facilitate additional social projects, that would probably be a deciding factor for me.

Personally I find nothing inconsistent with combining the thinking of the Austrian School of economics with social entrepreneurship. I think it brings an added discipline to the practice of social entrepreneurship. In the end the Austrians always come back to the concept of individual empowerment, whether it be in economic development or capital allocation. I am always very comfortable looking at social entrepreneurship through the lenses of individual empowerment. 

 Further von Mises reading. 

20+ previous articles on social entrepreneurship are here.

 

 

Nature, Technology and Combinatorial Creativity

This is a chapter from a new book that is almost finished. Comments are most welcome.

The book explores ten large market opportunities that have repeated throughout the last 40,000 years of human history. Every methodology for entrepreneurship that I have studied or taught always assumes an opportunity. I thought it was time to address how to find the opportunity beyond the usual advice to follow your passion.

Most Popular Posts in Finance and Economics

It has been awhile since I posted a list of the most popular posts here at SF.

• Calculating International Cost of Capital
• Game Theory and Economic Development
• The Purpose of Financial Models
• StartUP Excel Models

Happy holidays.

Video: Self-organizing Networks to Solve Social and Environmental Problems

Here is a recent talk I gave on the use of networks to solve social and environmental problems.

 

 

 

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Some observations on entrepreneurship in the U.S.

I have just returned from teaching a program at Babson College to a group of entrepreneurs from across the U.S. A few observations:

- More and more women entrepreneurs, who tend to be better educated than the men (in my opinion)

- The trend toward older startup entrepreneurs is confirmed in my experience

- Many people innovating in medical care, focused on improving the customer experience through personal approaches (as opposed to digital)

- Much interest in applying technology to improve services for mental health

- Starting to see companies that have developed information management products for the government thinking about how to commercialize these products in the private sector; suggests to me that the government may be ahead of the private sector in information capture and collaboration

- People that offer professional services such as attorneys,  accountants, architects are very concerned about their future viability; they lack any method to understand where in the customer service process the value is created

- Everybody thinks they understand the need for cybersecurity, but few people really understand the depth of the issue; affordability is an issue for most SMB (Small and Medium Businesses)

- Most SMB still do not have effective web presence for e-commerce

- Marketplaces are an area of great interest for new businesses; few companies understand the complexity of starting such a venture despite the quality of writing on the business model

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My Upcoming Talk on Complexity and Social Movements for WiseTribe

"Increasingly I believe that we can form a new social contract using the technology available to transfer increased decision making authority to the individual. Rather than "fan the fire" or fight the status quo we should use the technology to avoid the current nodes of power and explore alternative approaches at the individual level. Everyone acknowledges that the current paradigm shift in technology will have profound economic and social changes, but we should not overlook the chance to change the political system."

On Saturday September 24 I am speaking at an event for WiseTribe. I am interested in what they are doing because I think they are exploring a new form of "organization" that could be common in the future. Some of my remarks are below.

I have three interests:
1. Entrepreneurship
2. Creativity and early childhood learning
3. Complexity science

• Entrepreneurship is a result of individual empowerment and leads to economic well being. I spend most of my time teaching people to use social entrepreneurship to solve social and environmental problems. My hope is that eventually we can drop “social” because entrepreneurship becomes so responsive to society’s problems.
• Creativity interests me because it is the basis for invention and innovation. I study it from the perspective of the young child because so many geniuses say their secret was to maintain a childlike attitude.
• Complexity is important because it brings so much insight to understanding people, organizations and networks. There are three types of problems—simple, complicated and complex. Tying your shoes is a simple problem. Building a bridge is complicated, but follow engineering, apply math and bingo a bridge is built. Complicated problems are linear and deterministic. These are the kinds of problems that AI will solve, leaving only the complex problems. Complex problems have independent variables that produce emergent features that are not caused by the variables. Stock markets and social problems are examples of complex problems. Black Swans are a subset of complex problems.
• Now if we take complexity in a simple form to understand people, organizations and networks, we see that the roles of each component changes throughout history. When we lived in caves 40,000 years ago the individual was paramount and there were no organizations or networks. Why—no trust and no sharing
• Roll forward to the Dark Ages—individuals are enslaved, kingdoms and the Catholic Church are dominant organizations and there are no meaningful networks.
• Next 1800s in the U.S.--individuals are becoming empowered after the French Revolution, many small networks such as railroads emerge and the government is emerging as a powerful force. The government increases its dominance throughout the 19th and 20th century because small disorganized networks lend themselves to dominant nodes or organizations.
• However, what we have today thanks to computing and the Internet is large, well organized and connected networks. In this environment what network science tells us is that we no longer need large nodes like government. When networks are organized, information exchange is easy and we no longer need large organizations like universities or governments to store and organize information.
• Now we could talk about how to redefine government or the modern university, but the more interesting question to me is how do we bring about change through the power of the networked individual. Stanford Social Innovation Review has a very interesting article in which they discuss the new concept of emergent strategy. Emergent strategy, as opposed to the traditional strategy concepts of Michael Porter, focuses on an iterative approach using networked partners to solve problems. Trial and error, decentralized exploration, solid evaluation at every step, transparent reporting—these are the features of emergent strategy, 21st century organizations and movements. In fact this has always been the approach of movements like Gandhi and Mandela. This approach based on emergent strategy has also been embraced by the Rockefeller Foundation, one of the most accomplished social organizations in the U.S.
• Now how does all of this apply to WiseTribe? WiseTribe is not an organization. It is a movement, of networked individuals, focused on social and environmental change. WiseTribe is an alternative to government for the management of society—for economic, social and political well being. The government is no longer the default solution. We need to iteratively explore this new power, figure out how to communicate it to more and more people and use WiseTribe(s) to solve the impossible problems that are the ones really worth solving.

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