I spent yesterday at the eMerge conference in Miami. While there was a nice list of speakers, I spent most of the day talking to the early stage companies exhibiting and catching up with people in the entrepreneurship community in Miami.
My takeaways from the conference:
About ten of the companies exhibiting are working in the HR (human resources) space with all kinds of software and platform offerings. Not a space that interests me but apparently very popular.
Despite the cluster emerging in early stage medical devices and healthcare in SFL, I saw very few such companies exhibiting.
The portfolio companies of Medina Capital were the best looking collection of companies, with all of these companies reminding us what "high tech" means. Talking to these folks reminded me of discussions I used to have with people at MIT Media Lab.
Several good looking companies were bootstrapping with no capital raising desired. They were characterized by a step by step caution in developing the business that is somewhat refreshing.
Today Nancy Dahlberg has a nice recap at Starting Gate of the Miami Herald Business Plan Challenge, which I judged. Noteworthy was this year's winner in the high school category, Teenography. I very much like the idea of teaching entrepreneurship to high school and junior high school students--not checkbook management or accounting, but real business concept development and go to market strategies.
Teenography operates an exchange/marketplace/platform (pick the word you like) that enables young (high school) photographers to offer their services to clients in need of photos for events, marketing materials, etc. Average charge rate is $40/hour compared to professionals who charge $100/ hour in South Florida. Why the difference of $60/hour. You might say professionals versus amateurs but the real reason is what economists call asymmetry of information. Information on photographers used to be difficult to find and incomplete, the asymmetry, because there was no easy way to find out about amateur photographers. When information on amateurs becomes available through Teenography and more complete information is the norm, the price per hour of photographic services drops by $60/hour. Reducing the premium created by the asymmetry represents the business opportunity.
In markets where there is an asymmetry of information, there are two new business development strategies:
Exploit the asymmetry and earn abnormal returns (hospitals), or
Eliminate the asymmetry, e.g. Teenography, Etsy, CarFax
As is obvious, the Internet and ubiquitous information make it possible to profitably eliminate the asymmetry. A trend I see emerging is for such exchanges to bridge service providers in developing countries with clients in developed countries. One example of this is Behance, which enables third world graphic artists, web developers and designers to showcase their work to the world. The site allows for the service provider to be contacted but not for a contract to be consummated...yet. Customer service from India is not so far from the exchange model nor is artesans in Africa posting their wares on a web-based exchange where socially motivated buyers can pick what they want to purchase.
This business model of the exchange that bridges the developed and developing world ('bridging marketplaces") I think will become very common. The timing is excellent because low skill jobs for immigrants in the U.S. are being taken over by robots. Fruit picking and nursery work is now done by robots, according to this post in Marginal Revolution. If there are no jobs in the U.S. to attract immigrants, then I hope these workers find bridging marketplaces that provide local employment.
If someone had good open source exchange software, one group of socially motivated people could focus to organize the local service providers and another socially motivated group could focus on marketing the exchange products or services. A little imagination and we crowd source to fund the marketing.
For more on the relationship between developed and developing markets, read this excellent article from the Washington Post, The Great Unraveling of Globalization.
A friend is promoting a boating safety course this weekend sponsored by the US Coast Guard Auxiliary and the Monica Bruguera Foundation. As part of the last push to boost attendance, my friend put up a post on Facebook. Facebook offered her three alternatives to share the post:
Friends
Family
Anyone on Facebook who lives in our community (which has a unique zip code)
Maybe everybody knows about this third option, but I just learned about it and thought it was a great way to promote community events.
Send me a Tweet (@rhhfla) and I will provide more details about the free class.
"To be merely useless, indeed, is perhaps the highest eulogy that can ever justly be bestowed on a regulated company" Adam Smith
Whenever people discuss Uber, the sharing economy comes up. Whenever the method or object of sharing changes, a big business opportunity is created. That's been true for at least 40,000 years. What intrigues me is that Uber is taking over the government controlled taxi market. The government's immediate response in several cases has been to enforce the existing law. However, it may be that what the government is doing is trying to maintain its usefulness. If more companies "disrupt" government regulated industries, eventually we start to question the usefulness or need for government. Lest you think I am completely crazy, there may be some data (on government and not my mental state).
An important function of government is what and how it communicates to the citizenry and what is prohibited communication. So if the role of government is to be challenged or changed it may well take place in the communications arena (guns being expensive, dangerous and to some extent outdated). Now for some possible data.
Y Combinator is funding a non-profit company in Argentina, DemocracyOS, that offers software for politicians to poll their constituents and has been used there to start a new political party. One of the first users is a serving government official in San Francisco. He is polling constituents on what they think about possible new legislation.
When did government ever put the populous view ahead of re-electing standing politicos and serving private interests. However, perhaps San Francisco is the first case where government is trying to demonstrate usefulness by setting the populous agenda through the Internet, before the people get organized, set the agenda on the Internet and start passing laws without involving the government. The people passing laws without government involvement, that would be truly disruptive. If there were ever politicians who could see such a trend coming it would be politicians in San Francisco and Silicon Valley. (An historical note--when the feudal manor system broke down in medieval Europe, the kings created "relationships" directly with the peasant citizenry. Such an approach eventually failed to preserve the monarchies. Similarities to government polling the citizens are perhaps obvious.)
Of course, if the government would just be efficient and commit to serving the needs of 21st and not 19th century citizens, I would hold off on applying to Y Combinator for funding for the Hacker Militia Corporation.
Great name but I am going to forego being the first militia applicant to Y Combinator 😎. For an old post making fun of my name, checkout "The Hacker Universal Theory of Management"--HUTM.
Perhaps because Google won a big contract to provide Office apps to PwC (the large international accounting firm), they have recently launched a PR campaign all over the web for "Google Apps for Work". An example of the PR is this Silicon Alley Insider story, "Google shares its plan to nab 80% of Microsoft's Office business". A sentence in the article caught my attention:
"Google is constantly looking at how people are using Apps and trying to entice them to use it more."
Google is renown for using data in its product analysis, which perhaps makes the above quote mundane. However, I think it points out the problem with Google's approach to software. Data only describes current usage. If we examine saving a file in Google Docs, Google sees it saved online, perhaps Google sees it downloaded to the computing device...but Google never sees it then saved in Dropbox. You might ask why someone would prepare a document in Google Docs and save it in Dropbox. There are probably ten good reasons, none of which show up in Google's user data.
Microsoft recently launched a new Outlook app for iOS 8, which I tweeted :
Nine days later, I think that Outlook is probably the best mail iPhone app ever...and it includes a good calendar app. If the Outlook calendar app had appointment multiple alerts I would stop using a calendar app. What I particularly like about the app is the seamless integration with Dropbox and Google Drive, both of which I use daily. (Dropbox holds the docs I produce and Google Drive holds third party documents.) It also seamlessly integrates Gmail and other mail providers.
I am not a Microsoft fan boy. For many years I competed with them and I intentionally avoided their products. The only nice thing I could say about Microsoft was to my entrepreneurship students--"Microsoft is an excellent example of monopoly, which economists tout as an attractive business model". With the passing of time I have mellowed on Microsoft. (A tweet rather than a full blog post shows that I am still conflicted.) I tried the new iOS Outlook partly because in 25 years of using email, I have never found an email app on any device that I really liked until the new Outlook. However, let's get back to Google.
How was Microsoft able to develop such a great new mail app, while Google is still constrained by its data. The answer is quite simple. Most of the design and code for the new Outlook came through an acquisition, where the previous company was not constrained by the corporate mindset of a Google or Microsoft or F500.
I imagine when the Microsoft execs saw the other company's mail app, they just thought OMG and quickly bought the company. I commend Microsoft for admitting somebody understood the customer better and did a beautiful design. I wish Google would make some app acquisitions, get a better understanding of the user and perhaps learn more about UI design. BTW I use a lot more apps from Google than Microsoft, but I hope that Microsoft's new acquisition has some new ideas for other apps. Today I am less hopeful about Google.
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 Beathere. 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.
To paraphrase William Faulkner, I do not know what I think until I read what I wrote. Reading yesterday's post got me thinking about Google. In yesterday's post I wrote:
"I have been using Feedly as my RSS feed reader since Google shutdown Reader (which prompted me to use single product companies for all my important apps, e.g. Dropbox, Evernote, etc.)."
There are two exceptions to my use of apps from single product companies:
Microsoft Office
GMail from Google
However, maybe these companies are single product companies or should be.
As the market has evolved Microsoft has become a two product company--Microsoft Office and gaming. Office is reportedly the largest profit generator and gaming is in many ways the product new users see. I do not believe there are any real synergies between the two product lines except that both products require excellent programmers. Therefore, logically they could be separated into two separate companies and some say more value would be created for investors.
The Google case is a bit more complicated. Google has two major products in my opinion:
Search
GMail
I think the jury is still out on Google Drive. If I did not use GMail on my phone, I would see no benefit to Google Drive over Dropbox or Evernote or 20 other products. (Opening a doc attached to a GMail and storing it for retrieval from the iPhone is easiest with Google Drive.)
I would love to ditch GMail in favor of a standalone mail app, but the ten new mail apps I try each year always have problems that bring me back to GMail. Would I give up Google search? Yes, in a minute. Google works and it is a little bit better than Bing and all the others, but I am nervous about how much Google knows about me, the search still lacks a lot of features I would like to see (e.g. academic articles showing up as preferred results based on my profile), and the ability to restrict sites from showing up in the results (e.g. Entrepreneur magazine).
Search and GMail probably have more compelling common characteristics than Office and gaming. The common characteristic is the use of artificial intelligence (AI) where GMail offers comparatively better search because of Google's expertise. However, I suspect that search is not a sustainable advantage in mail apps. I suspect that Amazon could duplicate high quality mail search in a year or less given their own work on search. Also, I suspect the mail search would improve faster if that was the sole objective in improving the AI. What this logic argues for is that Google should spin out GMail as a separate company, leaving Google as an AI/search company. (The spinoff agreement could still give Google certain exclusivity for a pre-determined amount of time.) Given the increasing popularity of notifications and messaging apps, GMail may be at its highest possible valuation today. Driverless cars and 100 other products based on AI could all be spun out. A more narrow focus to the continued development of the specific AI would probably produce better results (which Google could license back in the spinoff agreements).
If Google and Microsoft were to follow my advice and each spinoff one of their two major businesses, then almost every major software applications company would be a single product company. Hmmm, interesting.
Note: One could argue that both search and GMail rely on expertise in distributed processing, cloud computing. Therefore, they should not be separated. Were this to be the strategic insight to explain Google's development of both products, then Google has a much bigger issue because abnormal returns, even with scale, are quickly disappearing from the cloud space.
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.
"Perhaps Fukuyama’s most interesting section is his discussion of the United States, which is used to illustrate the interaction of democracy and state building. Up through the 19th century, he notes, the United States had a weak, corrupt and patrimonial state. From the end of the 19th to the middle of the 20th century, however, the American state was transformed into a strong and effective independent actor, first by the Progressives and then by the New Deal. This change was driven by “a social revolution brought about by industrialization, which mobilized a host of new political actors with no interest in the old clientelist system. The American example shows that democracies can indeed build strong states, but that doing so, Fukuyama argues, requires a lot of effort over a long time by powerful players not tied to the older order.” [My emphasis in bold.]
Industrialization and the corporate actors pursuing their self-interest through the political process changed the concept of government in the U.S. for the better for about 50 years. This contribution appears to be overlooked recently when some criticize capitalism. However, the industrial complex is now accused of overdoing its involvement in the political process much the same as the system it helped to change at the end of the 19th century. The question then becomes who is the group or organization that can again rebalance the U.S. political system if corporate America is now the culprit. This kind of change would be particularly difficult because of the massive amounts of capital controlled by corporate America. Do not despair.
Many of history's most important social/political changes, such as the Protestant Reformation and the French Revolution, were facilitated by significant new changes in social media. Maybe it is just a coincidence, but perhaps all of this new Internet-based networking, community building and content generation is the type of change in social media that can facilitate a significant change in the U.S. political system. Perhaps we are preparing to re-balance political power and move to a healthier balance between corporations and other interested parties. This robust infrastructure of social media may be the vehicle. Ever the optimist.
If you teach entrepreneurship, Dropbox is a great case because it illustrates the startup concept that some ideas are features, some ideas are products and some ideas can be companies. The Brooks Review re-opens this question with a recent article, "Dropbox is a Feature".
The article mentions Steve Jobs' comment during his attempt for Apple to acquire Dropbox:
"Jobs smiled warmly as he told them he was going after their market. “He said we were a feature, not a product,” says Houston."
Jobs post-acquisition integration of Dropbox clearly saw it as a feature, similar to iCloud on steroids. If Microsoft had bought Dropbox they would have seen it as a product, similar to SharePoint. However, products or features do not make companies and Dropbox, to date, has become a successful company with a multi-billion dollar valuation.
Dropbox now faces much intense competition from Google, Amazon and Microsoft. This competition has encouraged Dropbox to offer new lower prices for certain services. Always concerning when a company is forced to lower prices due to competitive pricing. Such reaction suggests that the product has become an undifferentiated commodity.
If I was at Dropbox I would be thinking about how they built a company and did not get trapped as a feature or a product. The vision that overcame feature or product should be restored. Just competing on price is insufficient to keep building a company.
Also, I think I signed up for Dropbox the very day it launched and have now used it for all my file storage for years. Effectively my digital life is on Dropbox. I sure hope Dropbox can figure out its path to continue as a company and not get caught up in "feature" or "product" or competitive pricing.
Previous stories on Dropbox are in the Related Articles below.
This list is fairly representative of the major themes here at SF. I am thinking a lot about market opportunity and considering a book on the subject, so we might see more on the subject in the future.
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.
I have used Evernote for years, first as a web app and now as an application on all three of my Apple devices. I also use the web clipper on every browser. About a year ago I increased my use of Evernote when I started to use it to organize my teaching and book writing. A very good decision. I am a very happy user....but here is my problem.
I get advertising type pitches from Evernote on Google+, Feedly and the Evernote apps. More impressions than I probably want, but I could tolerate it if the pitches had some value. For the last 12-18 months Evernote has been using a headline similar to "10 tips to get more out of Evernote". For the last 18 months they have not added a new tip that was not obvious to a 3-year old. Evernote..provide some value or stop boring me. Hint: think about the emotional value of the product rather than the feature set. At least the ads would be interesting.
Another peeve. On Google+ the comments in response to the postings all sound like PR department comments. 1 PR comment out of 100 is OK but not 99. Again no value in the comments and it is boring.
Evernote, you have learned how to use social media to increase sales. Now you have to learn how to provide valuable information to existing users. Remember marketing is customer acquisition and customer retention.
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.
The article makes two important points:
Increasing computerization and artificial intelligence are replacing legal services previously provided by lawyers (humans)
The cost of legal services may decline because the IT-based products are cheaper than humans
I tell my students interested in law to go into environmental and intellectual property (IP) law. I think the proliferation of open source hardware and software, 3-D printers, the Maker movement, etc. are all going to challenge current IP law to evolve and change.
I do not see litigators being replaced by computers, but the cost of litigation may go down. Regrettably, that might trigger more lawsuits. I think most real estate attorneys are toast (replaceable by automation), except for the few that do large land acquisitions, financings or construction loans. Corporate/ transaction attorneys are very likely to decline in numbers. Many very good legal documents for investment and transactions are available online prepared by first class attorneys. Maybe you still need a lawyer but they can start with these drafts and save countless hours and fees.
I think accelerating the decline in lawyering is a big business opportunity. Applying AI, big data and application development to the process of law to reduce headcount, billable hours and complexity (using standardized forms) is a big market opportunity.
To all my friends who are corporate/transaction attorneys, develop industry expertise, become expert in specialized transactions, learn to speak more foreign languages and have your children learn to code.
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.
Everything else in hotel management is not a core competency or outsourced.
What does Airbnb do well?
Operate a reservation system to sell under utilized assets as accomodations
What would happen if Airbnb bought a hotel?
They should sell the rooms to individual investors
They should outsource all of the required services
They should cancel the franchise/brand agreement with the hotel chain
They would be the exclusive provider of the reservation system for the "hotel"
Following this strategy, Airbnb would strip out much of the "overhead" in hotel operations. This additional cash flow could flow to the investor and/or to the guest in reduced room rates. Such a strategy would also give Airbnb better control over its available room inventory and the ability to predictably grow that "asset".
Selling services to consumers using under utilized assets (rooms, cars, etc.) may just be in its early stages. But selling off all those hotel rooms to investors suggests that investment bankers may become the driving force in this trend.
Also, the investment bankers need a new class of real estate asset--hotel rooms--to play with.
I just found a link to Alan Kay's reading list. He is one of those legendary people at MIT and is credited with inventing the graphical user interface for computers (while at Xerox).
The subjects covered in his reading list include:
Technology and media
Learning and creativity
Anthropology and psychology
Philosophy
Art and perception
Design
Science
Political
Computers
What is interesting to me is that so many genius level people start in either mathematics (Kay, Minsky) or economics (Simon, Hayek), move into computer science or AI and end up in cognitive learning or psychology. Note that Kay reads in all those subjects except economics but I suspect that the reading in "political" involves some economics.
I believe the evolutionary path is mathematics--computer science--artificial intelligence--cognitive learning. If you have not progressed to reading and thinking about cognitive learning or psychology, perhaps you still have a ways to go in your study of economics or computer science. Both Herbert Simon and Marvin Minsky, generally credited as the founders of artificial intellligence, spent the end of their careers in psychology/cognitive learning. Simon, who won a Nobel Prize in economics ended his career at Carnegie Mellon as a professor in the psychology department.
Obviously there are other paths. For example, Hayek started in economics, probably founded behavioral economics and finished his career in psychology.
My sample data is small but everyone mentioned is at least a Nobel Prize winner, a genius or both.
