Friday, September 24, 2010
What You Can Learn From Silicon Valley's Mistakes
So, by now you've heard of Angelgate. Yawn. The real problems in the ventureconomy are bigger, wired into the DNA, hidden in plain sight.
Consider deal "syndication". Yes, venture investors need to manage risk. By parcelling slices of deals out to their pals? Sounds a little 18th century to me. Why not a futures market for venture finance - a real risk transfer mechanism? What's stopping that kind of real, institutional innovation?
The problem's this. The ventureconomy is just about the least efficient mechanism for igniting innovation imaginable: it's an old boys' club. In econ 101, we'd probably call it "crony capitalism" (and that usually tends to stop meaningful investment dead in its tracks, fuelling misallocation and disinvestment instead).
From an economic perspective, it's little different from most industries. An oligopoly that's run by a handful of dudes with preferential access to capital and relationships. Replace "big evil companies" with "sluggish, imaginationless funds", and you get the picture.
A 21st century ventureconomy, just like other 21s century industries, will be built markets, networks, and communities. Ask yourself: why aren't there transparent markets for venture finance? Liquid networks to let resources be shared, pooled, and remixed amongst aspiring entrepreneurs and seasoned investors? Transparent, self-organizing communities to pool, aggregate, and filter knowledge, access, and even investment ideas?
If Angelgate says anything, it's this. The "superangels" are replicating the 20th century ventureconomy, at a slightly smaller scale. The institutions are the same - and hence, a new old boys' club is taking shape. Yawn.
The real question for Silicon Valley 3.0 is: who can think beyond "funds", "product", "revenues", and "scale"? Who can move beyond merely making another old boys' club - and structurally reshape the ventureconomy, with liquid, open, transparent, accessible markets, networks, and communities?
Without it, the Valley's long, steady decline (hi, IPO window that never opens) is sure to continue. Because yesterday's approach to financing, seeding, and managing stuff is too inefficient, unproductive, self-destructive, rife with conflicts of interest, myopic, and simple ineffective to last.
And because that lesson applies to, well, everything, that's what you can learn from Silicon Valley's mistakes.
Wednesday, September 22, 2010
The Power of Threes
Here's a hypothesis. Decent companies (and economies) do one or two things really well. In today's economy, that's about enough to eke out just enough scraps to make a meagre, modest living to survive on - for a while, at least. But to build a awesome, killer, great company (or economy) - one that outperforms, endures, earns a lasting advantage, relegates it's competitors to a distant, vanishing second place - you've got to do three things really well.
Call it the Power of Threes. To illustrate it, consider Apple. Through the 80s and 90s, as a master of aesthetics, it was a decent company: it made a nice amount of cash, earned a reasonable number of loyal fans, and grew a small but significant amount of market share. But it wasn't until it also mastered retailing and service - through the unlikely, dramatic power of the Apple Store and the Genius Bar - that it became a great company. Today, the Power of Threes has let Apple gracefully, masterfully, sometimes nearly effortlessly disrupt, literally turn upside down not just one industry - but five and counting.
Google's a classic example of the Power of Threes. When you think about it's historic rivals, all were good at just one thing - if that. Some were nicely designed; some technologically interesting; and some had clever business models. But Google didn't just build a technologically better search engine. It did that plus designed it in a radically more usable way. And it did that plus wrapping both in a radically more efficient marketplace, that sucked the friction out of marketing. Media incumbents, on the other hand, were a classic example of relying on the Power of Ones: they usually did (barely) one thing well. Newspapers and radio stations sold ads well - and that's about it. Hollywood mega-marketed celebrity blockbusters well - and that's about it. Record labels manipulated the charts and controlled distribution well - and that's about it. The result of pitting the Power of Threes against the Power of Ones, of course, is history: a startup that, in less than a decade, atomized a set of lazy, cushy industries to (no pun intended) bits.
Like Dunbar's Number suggests the optimal size of a productive social network, so the Power of Threes suggests an optimal number of interdependent capabilities for a marginally advantaged economic actor, whether country or company (more on that later). For now, think about it this way: one's not enough, but after three, diminishing - or perhaps negative - returns rapidly set in. You can certainly try (and perhaps even succeed) at mastering more than three capabilities, but it's risky, tough, and leaves you straining, probably prone to collapse.
America used to be, like Google, a killer example of the power of threes. Today, not so much. Once upon a time, it was a hotbed of entrepreneurship and innovation. Today, Silicon Valley's busy pumping out...minigames. It used to have a pool of labor dedicated to skilled craft. Today - well, as much as I love Detroit: would you buy an American car? And it used to have the world's most efficient, liquid capital markets. Needless to say, today it has the world's most toxic, rotten, inefficient capital markets. My hunch is that America's Great Stagnation is down to letting the Power of Threes go - and the long-hoped for recovery won't really kick in until it gets the Power of Threes back.
So you might ask: "well, what about China?". Does it have the Power of Threes? Well, it's got a massive pool of low-cost labor. But it's hard to think of other stuff that China, right now, does really, really well - neither innovation, nor branding, nor marketing, nor fair, ethical trade are it's forte. So my guess is that until China gains the Power of Threes, betting on its ascendance is a tiny bit premature.
All of which brings me to my point.
There's a massive relative scarcity of companies and countries with the Power of Threes today. Most companies - and most countries - only do one thing really, really well (if that). Why? Because we've been taught that hyperspecializing is enough. Maybe it was - yesterday. In an industrializing world, full of oligopolies, rich with entry barriers, rife with easily exploited resources, full of with easily sated "consumers", maybe it really was enough to just do one thing really, really well. But in a hypercompetitive world, where entry barriers are falling like dominoes, and anyone can make, sell, and market pretty much anything, anywhere, anytime, where switching costs that yesterday used to keep hapless, witless "consumers" locked in as tight as if they were in prison are eroding faster than the Maldives, where product and service lifecycles are rapidly shrinking to the vanishing point, customers, clients, buyers, suppliers, and investors demand not mere competence - but awesomeness. They demand more than just merely being a little bit good at a single capability. They demand being spectacularly great at a complex, interdependent, coordinated sets of capabilities - that, when harmonized and unified, can unlock nonlinear, explosive returns that endure and multiply.
So unfortunate as it is, you're more than likely still obeying the now-dilapidated, deflated Power of Ones. So the question is: how will you gain the Power of Threes? What are the three interdependent capabilities that you could be really, really good at?
Tuesday, September 21, 2010
Interestingness (And Why You Should Get Some)
Here's a suggestion. Stop being boring. Try being interesting.
Let me explain.
In the 20th century, the unmentioned secret of building a great business - one known to every tycoon, beloved of every beancounter, but almost never talked about, always kept hush-hush - was this: "keep it boring. As boring as possible - and then, make it even more boring". The best businesses of the 20th century were all mostly boring businesses. Paper? Check. Plastics? Check. Fast-food? Check. "Apparel"? Check? Banking? Mega-check. And the great entrepreneurs behind them knew: in an industrial age, the more boring it was, the less risky, costly, difficult, and uncertain "scaling" it up to vast heights would be.
Boringness was an inevitable outcome, when you think about it. Because building a great business in the 20th century - maximizing profitability - was about standardization, homogenization, control, predictability. Hence, boringness: the ability to churn out a billion widgets slightly faster, cheaper, and dumber than the guys at the other end of the industrial park.
And so, the endgame: it was boringifying a business that made a good business great. You know the score: keep it middle of the road, passionless, bloodless, compromise, horse-trade, find the lowest common denominator, make sure it doesn't offend anyone, please everyone just a little sliver of a little bit (and never mind about not really delighting anyone not one bit. Cars used to be really, really interesting - until Detroit realized that a simpler, easier path to profit was boringifying the living daylights out of them, with the well-worn toolkit of control, standardization, and homogenization. And ever since then, we've been driving around in dull, drab cars that not only guzzle our gas and munch on our atmosphere - they suck at our souls.
Until now. The industrial age ended a decade ago - but most of us still haven't noticed. The truth is, boringness is a lethal error today, a recipe for incompetence, irrelevance, and indifference. Apple didn't turn 5 industries (and counting) upside down by being boring. The Steve gets the power of the opposite of boringness: interestingness. You can fault Apple in many ways, but you can't say that it's not a consistently interesting company. The same is true of Google, Nike, Threadless, Tata, Timberland and nearly every other market leader under the sun today.
These aren't predictable companies chasing the humdrum, middle-of-the-road, low-brow success of yesteryear. They're not busy being boring - and then boringifying what's already stultifyingly dreary. Instead, they're doing and making stuff that challenges our hearts, minds, bodies, and souls, that inspires, provokes, and challenges. They're learning to be sometimes a tiny bit, and sometimes a huge amount, more interesting.
Hence, I'd be willing to bet: discover an outperformer, and you'll discover a company that's the opposite of boring: one that's actually interesting. So what happened to destroy the link between boringness and success? Well, at least three tectonic shifts. "Consumers" stopped having to be just that, thanks to a panoply of tools and gadgets that empower us. At the same time, boringness exploded: where once half a dozen companies offered boring cars, now, dozens do. Put both together, and you get risk that can't be tamed merely by being boring: risk that exists at a deeper substratum of the economic fabric, beyond the iron grip of even the toughest, most ruthless manager. Couple an oversupply of risky, uncertain boringness with shrinking demand for it - and the result is hypercommoditization.
So here's my tiny hypothesis. Today's great business aren't built by being boring - but by being interesting. By engaging the mind, body, heart, and soul at 10 billion percent capacity. By elevating, enlivening, inspiring, and, above all, by mattering.
Want to get radical? Try being interesting. Interesting on a human, social, emotional, spiritual, meaningful level. Make stuff, do stuff, talk stuff, live stuff, breathe stuff that challenges, provokes, infuriates, amazes, inspires, and elevates. Make stuff that feeds, nourishes, seeds, and cultivates the heart, body, mind, and soul way, way, way beyond the limits of what your rivals think is even remotely, barely possible. Do it with a passion that borders on the maniacal. Grab the help of people that are considered untouchable. Enlist the support of customers in ways that are, to your rivals, just plain unthinkable. Have a vision so awesomely world-changing, so impertinently big, so intransigently idealistic, it verges on the politically, socially, and culturally radical.
There's my challenge to you. Can you take any of the steps above? That's when you're learning to transcend the iron grip of boringness; that's when you're learning to be interesting. If you can't, well - I suppose you'd better prepare yourself for a dreary future of boringness. At least it'll probably be a short one.
The Betterness Manifesto (2.0)
Here's a suggestion. If you're in the industrial age practice of mass-producing and push-marketing stuff know as, well, business, odds are - you're already living on borrowed time. Because in no uncertain, wavering terms, here's what tomorrow looks like: the people formerly known as "consumers" couldn't care less if your big, fat company died a horrible, agonizing death tomorrow, the thousands of low-cost competitors scrambling into action around the globe no longer just want to contract with you, they've got a contract out on you: they want your well-coiffed head on a plate at their next boardroom meeting, and everywhere you look, the once lush shores of every single one of yesterday's formerly fertile, untapped markets are, today, about as crowded as, noisy as, and frenzied as Bourbon Street at the height of Mardi Gras.
Hence, maybe, just maybe - "business" as you and I know it is obsolete. For all the reasons above - and many, many, more - yesterday's approach to commerce and trade just isn't good enough. In fact, viewed through a lens you might call constructive, rational, humanistic, or just plain enlightened, business as we know it, and, more importantly as we do it, is just a little, tiny bit lame, evil, brain-dead, and self-destructive.
Business is lame. Business isn't the panacea that yesterday's pundits thought it might be. Here we stand in the crumbling ruins of industrial age capitalism - and from the rubble, it's as plain as day that "business" as usual isn't enough for societies to sustainably prosper. Though it might be necessary for industrial age "growth", it's visibly, risibly not enough to reach the next level of prosperity.
Business is evil. Why isn't business as usual good enough for 21st century prosperity? Well, when you think about it, the answer's pretty simple: most businesses, and especially big ones, are value transfer machines, not value creation machines. Instead of creating value for people, communities, customers, or tomorrow's generations, business too often takes, grabs, and snatches it from them, and then simply doles it out to shareholders. And it has been doing so for decades. Just think about how Detroit blocked public transport investment in the states, and clogged up the skies.
Business is brain-dead. You know how you go to the store and there's 500 flavors of toothpaste...but they're all exactly the same? As a method of organizing human potential, business has to be a contender for the most brain-dead. It asks us to build hundred thousand person organizations in which we spend our days plotting how to churn out tomorrow's toothpaste - or imitate the next guy's. Something tells me that humans were built for - and are consistently, persistently capable of - bigger, better things.
Business is self-destructive. Business has only goal: sell, sell, sell stuff for you to buy, buy, buy. To, in other words, increase and accelerate the volume of trade. But when everything's privatized, private - well, then, society and culture have just ceased to exist. And when they do, of course, all commerce must as well. Business is self-destructive not just to itself - but to those that rely on it as a tool for growth.
Business is built on Big, Fat Lies. "See this jacket? It's going to help you land the supermodel of your dreams!!". "See this car? It's going to turn you into the equivalent of a celebrity!!". The "marketing" so beloved of business uses every trick in the well-worn book: pretty plastic people, subtle nudges at my human insecurities, slight provocations to challenge me to prove I'm worthy. In other words, business assumes I'm a simpleton, a rube, an easy mark, a credulous, gullible fool - because it's stock in trade is telling (let's just be honest about it for once) Big, Fat Lies.
Business is a house of cards. Business asks us to believe that more than a spoonful of evil from the very top is the price of a little bit of good. Let me put that in the dry, arcane language of econ. Business asks us to believe that the price of prosperity is that those who are in business must enjoy special privilege. Too big to fail? Try too dumb to last. Business asks us to build not economies that can enjoy lasting, enduring prosperity - but their opposite: houses of cards, which, when they ultimately crumble, lead squarely to austerity.
Yet it's not that commerce and trade are over - and that it's time for a utopia where there's no money, no asset, no trade, no companies, no commerce, no awesome stuff to buy, sell, and enjoy. Quite the opposite.
I'm suggesting (and I will be arguing, over the next few months) that the real lesson of the great recession is this: "business" - the industrial age approach to organizing commerce, companies, and trade, is obsolete. And that it's time for a fundamentally new approach to commerce - that doesn't have the self-limitations and inherent downsides above.
If all you want to do is, well, business - then you already know what to do. More of the same, the same as yesterday, choose another not-so-clever, not-so-worthy gambit from yesterday's tired, well-worn bag of tricks. Yawn. Want fries with that Frankenfuture, want onion rings with that Great Stagnation, want to super-size that Zombieconomy?
If, on the other hand, you want to join a global movement dedicated to toppling the old order by doing meaningful stuff that matters the most - well, then, it's time, in short, to go out of business - and into betterness*.
*We'll be spending plenty of time discussing it's assumptions, beliefs, economics, and strategies. For now, consider this a little introduction to the future of the global economy.
Sunday, September 19, 2010
What a Stolen Future Looks Like
Monday, September 13, 2010
The Values Innovation Imperative
I have a hunch. If we're going to escape the teeth of this Great Stagnation, we've got to innovate not just products, services, technologies, or "business models" - but something bigger, deeper, and more enduring: our values.
Why? Think about it this way. Without transforming, literally, what we value - and what we disvalue - the incentives for 21st century products, services, business, companies, markets, jobs, and industries will never (ever) surface. Instead, it's the same old stuff that we'll demand, supply, invest in, and hyperconsume - at the same pace, velocity, intensity, and fury.
So here are four things we have to start valuing discontinuously more.
- The natural world
- The future
- Each other
I don't mean that in a fuzzy-wuzzy way. I mean it with razor-sharp precision. We have to literally value those things, make those choices, and emergently turn the entire structure of the economy upside down, so interest rates, rates of return, wages, salaries, employment, consumption rates, savings rates, investment rates - all titanically shift and rebalance in a new dynamic equilibrium.
So here's the conclusion my hunch leads me to.
If our values stay stuck in the rusting, creaking industrial age, we're likely to simply keep on trying to revive the ghost of prosperity past. We'll do, in short, exactly what we've been doing for the last three years: stimulating, bailout out - and crashing and burning.
Because the truth is there's not enough money in the world to pay off industrial age capitalism's debt. It's only with different values that we can spark authentic prosperity.
There's another way of saying that. Want a revolution? Be the revolution. If rebooting capitalism and reigniting prosperity is a function first of different values, then it also means that it begins every second of every day - with every decision you (and I) make.
Sunday, September 12, 2010
The Listening Up Manifesto
Turn on the TV, surf the web, or open a magazine. Soon enough, the onslaught begins - endless reams of ads, all trying to persuade me to cram yet more useless stuff down my already overstuffed gullet.
What do all these ads have in common? They talk down to me. They make, for example promises so overblown that only a zombie hamster or an investment banker would actually believe them. "See this beer? It's going to help you land the girl of your dreams!!". "See this car? It's going to turn you into the equivalent of a celebrity!!". They use every trick in the well-worn book: pretty plastic people, subtle nudges at my human insecurities, slight provocations to challenge me to prove I'm worthy. In other words, they assume I'm a simpleton, a rube, an easy mark, a credulous, gullible fool.
If I wanted to put it a little less nicely, I'd say this. Marketing as we know it - and as we practice it - is based on the premise that a handful of imperious companies could, from the misty heights, talk down. That they could - if they invested enough cash in the black arts of persuasion - order, control, subjugate, command, and dominate. Companies spent the last century talking down because the fundamental assumption of the industrial age paradigm of marketing was Skinnerian: given enough messages, you'd be conditioned to buy, buy, buy on eternal autorepeat - like a mouse eternally chasing a sugarcube perched just off the edge of a wheel. See? There's that assumption that I'm a rube again.
Except, of course, I'm not. Today, I've got more than enough information, knowledge, and relationships at my fingertips to figure out that most of these messages are - let me put this bluntly - Big Fat Lies. Conversely, what I don't have, in the teeth of a Great Stagnation, is money to spend on useless, toxic junk, or time, in my harried life, for overweening, self-indulgent bullsh*t artistry,
Hence, marketing as we know it is obsolete, kaput. All the above is why most campaigns are brand-destroyers, money-losers; it's why "brands" are a devalued asset, whose returns are dwindling; it's why the half-life of companies is shrinking; it's why people and communities exact steeper and steeper discounts, price-cuts, and margin-crushing concessions from the companies once known as the masters of the universe.
So here's what you can do about it. Instead of talking down, start listening up.
Here's what I don't mean by that. Listening up doesn't mean surveilling your customers, and then discovering slightly cleverer ways to trick them (yet again). Listening up doesn't mean holding five thousand focus groups a year. Listening up doesn't mean paging through billions of pages of reports about "consumers". Listening up doesn't mean techno-stalking people creepily.
Here's what I do mean by that.
- Listening "up": the "up" is the really important part. Here's what it means: dialogues about what elevates and betters people, what raises them up to higher levels of living, doing, having, and being, what really makes them better of in meaningful ways that matter the most - and then igniting a movement to make it happen.
- Listening up means spending time actually talking to your customers, about not just their "wants" and "needs", but about their hopes and fears, their opportunities and threats, their greatest achievements and biggest regrets. Listening up means empowering as many people inside your organization as possible to spend time talking to your customers to have those conversations.
- Listening up means letting your fiercest critics rip away at you - and hearing them. Listening up means speaking honestly, instead of dissimulating and misdirecting.
- Listening up means asking questions that matter - and then being tough enough to hear that, just maybe, yes, you really, honestly do suck at having real, tangible, lasting benefits.
- Listening up is emergent, nonlinear, complex, and unpredictable. Listening up means open forums, arenas for multi-threaded discussions, tough negotiations, hard truths, a commitment to transparency, a dedication to dialogue.
If, as I unashamedly suspect, the principles above are just a tiny, crude, inelegant subset of the full-blown list of the competencies 21st century companies (and economies) are going to have to master, to interface radically more productively with people and communities - well, then getting from here to there is going to be more like a climb, and less like a stroll.
But here's what you might get in return. Instead of merely discovering the next "feature-set" for your latest, greatest snoozer of a product (Yawn. It got copied in Fujian even before I finished this blog post) - you might discover how to change the world. You might gain a little bit of empathy. You might smoke out your own weaknesses and limitations. You might even learn how to topple the status quo. And if you keep at it, you might even be able to ascertain how to, in your own tiny way, sow the seeds of prosperity.
I have a hunch. If you can do that, the people formerly known as "consumers", the hard-working folks who've gotten a raw deal in this Age of Austerity, the ones who are sick, tired, and more than a little bit annoyed of being thought of as rubes, the ones who are inured to being conditioned to buy, buy, buy, the folks who - rightfully, finally, and thankfully - tune you out, turn you off, and roll their eyes when you talk down to them, well - they probably won't just be grateful. If you can, instead of trying to cram more "product" down their gullets, help them flourish and prosper in meaningful ways that matter the most - well then, maybe, just maybe, they'll start to respect, admire and even love you a little bit for it.*
*And if you can't and don't - well, they probably won't.
Saturday, September 11, 2010
Why We Don't Have an Economy (And Why You Should Make One)
So here's a proposition to chew on.
We can't discover prosperity because we don't have an economy. We have the opposite of one. Consider: under the rules of industrial age capitalism, we don't economize. We don't save, invest, accumulate, seed and nurture. Instead, mostly we do the opposite: we squander, deplete, misuse, and abuse, all the stuff that counts: nature, the future, passion, purpose, trust, dignity, meaning, and, ultimately, our customers - and ourselves.
Here's what I mean by that. Here's how Princeton's Wordnet begins to define an economy: "the system of production and distribution and consumption".
Then, it goes to outline three characteristics of one. Now, it's not a precise economists' definition. But perhaps for exactly that reason, it just might have more insight. Here are those three characteristics - and why our so-called economy doesn't meet them, so it isn't one.
1. "the efficient use of resources"
Efficient? Surely you jest. Instead of efficiently utilizing resources, we consistently misallocate them to unproductive uses that don't yield enduring gains. In case you've been on Mars for the last decade or so, on Planet Earth, we just had the biggest housing bubble of all time. We spent the world's hard-earned savings on...McMansions. That are now being torn down. Sound efficient to you? It's not - and it's just one example of the bubble-driven dumb growth we've come to rely on.
2. "frugality in the expenditure of money or resources"; "avoiding waste"
Avoiding waste? You must be kidding. Our so-called economy's the biggest waste machine in human existence. It generates tons of waste - instead of minimizing waste, it maximizes it.
So merely misallocating capital to unproductive uses that minimize enduring benefits for people and society (not to mention shareholders - equity markets instead of creating value during the noughties destroyed it mercilessly) is just the tip of the iceberg. Worse is misallocating tons of capital, or overpaying for those unproductive assets. It's one thing to build tons of unnecessary McMansions that then get razed. It's another to pay millions for the privilege of doing so. That's one kind of waste.
And waste is exactly the state of play in the economy today. And not only do we misallocate resources, we fail miserably at achieving frugality in expenditure; we consistently squander resource like there was no tomorrow. Instead of minimizing, for example, petroleum usage, we've maximized it; instead of minimized capital intensity, we've maximized it; instead of minimizing how hard we work, we've maximized it; instead of minimizing our impact on the natural world, we've maximized it. So not only do misallocate - we waste. Squandering instead of frugality is the name of game.
3. "an act of economizing; reduction in cost".
So why does all of the above happen, in the first place? Because we haven't reduced costs. We've just shifted them. Wall St didn't actually reduce the costs of a meltdown, with securitization squared, for example - it just shifted them (onto society). That dictum holds true generally. We haven't minimized carbon costs, we've just shifted them; we haven't minimized the costs of monopoly and deadweight loss, we've just shifted them; we haven't minimized the costs of lethally dull, dangerously insipid work, we've just shifted them into the zero-innovation future; we haven't minimized the costs of losses in trust and community, we've just shifted them into overleverage and macroeconomic risk.
So if you want to be a radical innovator, begin here. Ask yourself: how can I begin to take each of the three steps above? That doesn't just mean the false economies of layoffs and selloffs. It means real, enduring efficiency gains: learning to do radically more beneficial stuff with what you've got. It means real gains in frugality, eliminating the many kinds of waste - don't just think packaging, think pointless meetings, red tape, and passionless work. And reducing real costs. You know - the ones you ignore, but know that you're having on people, communities, and the future.
Want to topple the status quo, and reset the tired, creaking set of credulous assumptions known as industrial age capitalism? Stop squandering, dissipating, exhausting, misusing, depleting, diminishing. We don't have an economy. Make one.
21st Century Capitalism vs FoxMartWorld
"In 20 years, there will be only two companies. Everything will be made by Foxconn and sold by Wal-Mart".
What a telling quote. Let's do a little thought experiment. Let's imagine that world (call it FoxMartWorld, if you like) for a moment - because it lays bare the contradictions of industrial age capitalism.
In it, corporate profits would balloon, because two megacorporations would enjoy the bulk of bargaining power.
Within them, a handful of managers would capture the lion's share of rents. There would be no pressure, for example, to issue dividends, buy back shares, or the like.
Productivity would probably skyrocket upwards, as people were told to either work longer, harder, and faster - or not work at all.
But because workers' earnings wouldn't keep pace with productivity, demand itself would be constrained. People probably wouldn't be able to afford all the stuff, eventually, they were producing. The result would be overcapacity: empty Wal-Marts and shuttered Foxconn dorms.
And because working at either Foxconn or Wal-Mart isn't the most fulfilling thing on Planet Earth, happiness would dwindle.
So in FoxMartWorld, we'd have an economy that went something like this: boom, bubble, pop, crash, stagnate.
That's in financial terms.
We'd have an economy that went something likes: fizzle, stagnate, dwindle. That's in terms of happiness and real wealth creation.
Here's what there wouldn't be in FoxMartWorld, then:
- Working incentives
- Real value
- Asset gains
- Marginal happiness
- Enduring growth
Here's the point of my little fable about FoxMartWorld, in case you haven't guessed it already. That's more than a little bit like the economy we already have.
Why? Because it doesn't matter if there are only Foxconn and Wal-Mart left. We already have the effective equivalent: a global economy that's composed of many Foxconns and Wal-Marts, though they might have different names.
In other words, it's not the companies themselves that matter. It's the institutions: how we manage, measure, motivate, and monitor. These are what are common to Foxconn, Wal-Mart - and nearly every other company under the sun. Rebooting, rethinking, reconceiving capitalism begins there.
And it's until we update those obsolete, rusting institutions - until we master the art and practice of institutional innovation - that the contradictions of industrial age capitalism will, like an iron cage, keep us from discovering a more enduring prosperity.
Like I sometimes say: want fries with that Ponzi zombieconomy?
Let's take a sec to clear up a few misconceptions about my perspective.
1. I'm suggesting you only invest in "ethical" companies.
That's exactly backwards. I'm not interested in overblown statements of ethics, standards, or audits. All those are mechanisms that are easily gamed - and mostly obsolete.
I'm suggesting, in fact, that companies who don't have to do the stuff above - because they're already taking a quantum leap past the industrial age - are 21st century businesses. They're tomorrow's real value creators. And for that reason, they're already today's revolutionary outperformers.
So far from arguing you should invest in "ethical" companies, I'm suggesting that having to trumpet your "ethics", and invest heavily in offsetting your negative impacts, is the surest sign of an industrial age business.
I'm suggesting, in stark contrast, that you invest in companies who aren't confined and trapped by industrial age economics.
2. I'm a communist.
In fact, I've argued repeatedly that making markets is one of three strategies for disruption today. So I'm a diehard fan of free markets, and a big believer in their potential to unlock prosperity.
But another strategy for disruption is making communities - letting resources be shared. Think Wikipedia, or Wikileaks, if you like. So yes, I think there's a role for common property. But I don't think all property should be shared.
These are different strategies, for different contexts. The mistake is assuming that one size fits all, and that either markets or communities are "the" solution to every economic challenge we face.
3. I'm just talking social entrepreneurship
I do talk a lot about social entrepreneurship, because it's awesome. But I do so as a vehicle to discuss the future of economics. What's clear already is we need to rethink how we create, measure, and manage value. It's a slippery term - and the industrial age's conceptualization of it (think GDP) - is neither accurate, valid, nor internally consistent.
So what I'm suggesting is that over the next decade, you're going to have find ways to demonstrate you created bigger, better, more authentic value than merely "shareholder value" - which is just a scoreboard for the benefits you created for society.
Or, more simply: yesterday, business was antisocial. Tomorrow, every kind of business will to have think in social terms.
4. I'm offering a moral critique of biz
Nope. I'm pointing out that economics is, underneath all the jargon, overquantification, and hype, is, at root, about "goods" and "bads". They're stuff that is literally good and bad.
So if a company can't separate good from bad - if all it can do is maximize profit, regardless - then it can't figure out how to create real value. Conversely, the role of a company and economy is to figure out how to minimize the bad in bads, maximize the good in goods: that's how real, enduring, meaningful economic value is created.
When we don't - and can't - do it, we end up in crisis. That means producing stuff like toxic subprime CDOs, that masquerade as "goods" - but that are really "bads"; that creates losses, not gains.
That's the real heart of today's zombieconomy: a failure to remember that good and bad aren't just moral terms. They are - whether you like it or not - economic ones. And an economy can only be said to be "working" when goods outweigh and outnumber bads.
Any I've left out? Leave a note in the comments.
Five Reasons I Wouldn't Have Invested in Zynga
It’s Silicon Valley’s latest darling, full of promise and potential, the new enfant terrible on the block. Or is it just terrible? Here’s a quick take on why I wouldn’t have invested in Zynga.
NB - You can see Fred's response - he was one of the original investors - in the comments below, disagreeing and criticizing. I think all his points are probably much more interesting than mine.
1. Product and Platform Risk
Zynga’s dependent on the latest, greatest blockbuster game. Just as venture investors rarely invest in movie studios, because they’re rife with the mega risk of a single failed project, so Zynga’s got to keep on churning out the hits. Or imitating them, rapidly, consistently, frequently, and frictionlessly, from others. If it can’t, then it’s in a bind: it’s got to go right back to the grindstone, and try, try, try again. That’s vastly different from a business where’s there’s a steady supply of products and services for which there’s ongoing demand. Then, of course, there's monopsony: the fact that Zynga's in a poor strategic position, heavily dependent on a single buyer, or platform, Facebook, to reach it's market. That means, of course, that should Zynga fail to deliver even a single hit, it's monopsonist can extract maximum concessions from it. No one wants to be dependent on a single platform, after all - but Zynga is.
2. Market risk
Zynga’s market isn’t just gamers. It’s the least profitable, least loyal, least sophisticated segment of gamers – casual gamers. Now, I don’t say that to disparage people. But when we fund a great business, what we want is sophisticated customers, who’ll pay significantly more for innovative products and services – not just people who are highly sensitive to price, willing to bid the lowest for the lowest common denominator, and willing to defect to a rival for a penny less. Unfortunately, Zynga’s economics resemble the second more than the first. Consider, for example, Zynga's ongoing problem with customer complaints - hard-to-please, easy-to-anger customers more interested in instant gratification than with shared experiences are how many businesses end up with decent revenues, but poor margins - because service and marketing costs quickly spiral out of control.
3. Business model risk
Zynga’s got a great set of revenue streams, right? Wrong. Half or more of its ad revenues flow from “offers”, which are in turn dependent on a tangled web of middlemen, all of whom are angling for their own cut. Selling virtual goods is interesting, right? Wrong. It’s just about as interesting as selling physical “product” – an industrial age revenue stream in disguise, rife with rapid commoditization, marketing expenditure, price wars, and with none of the upsides of services. And traditional banner advertising – well, that’s a low-margin, high risk, commoditized revenue stream to begin with. Zynga’s business model is more like the combination of mystery meat that goes into a fast food burger than fine cuisine.
4. Deep risk
Zynga’s games benefit little, if at all, from truly 21st century economics. There’s little higher purpose, that commands higher margins. There’s little, if any network effects, to drive network economies and increasing marginal utility, and softly lock people in. And there are few viral meaningful effects at work. The deep economics of Zynga are more like a risk-dominated, low-margin, high-volume, high-velocity, capital hungry subprime lender than like, say, a search engine.
5. Macro risk
Would you invest in a business that extracts value, rather than creates it – that fails to make people better off in tangible, enduring ways? In that case, here’s the countercyclical bet you’d be making, in reality: that you could prosper while everyone else faltered. That’s essentially the bet at the heart of Zynga. Is it a bet worth taking? Well, that depends just how dire the economic situation is. Today, it looks like we’re in the midst of a Great Stagnation – and it’s questionable just how long value-extractive business can extract value from people who don’t have much left to give in the first place.
Here’s how I’d summarize it. There’s a lot to like about Zynga. It’s original vision of an open platform for mini-games was interesting and compelling. But Zynga, is a little bit like the venture equivalent of subprime debt. You might get a steep return – but only at a steeper than usual risk. The art of investing, of course, isn’t just about assuming risk willy nilly – but evading, neutralizing, and vaporizing the downside, and doing exactly the reverse to the upside.
So I wouldn’t have invested in Zynga for a simple reason. No matter how much cash a business it generates today, the first measure of a great business is how much real economic value it has the potential to create over it’s lifetime. The second is how much of value is net new marginal value - value that's created for, not just extracted from. And I can think of quite a few companies that fit that bill just a little better.
MyGengo and the Power of Markets, Networks, and Communities
Maybe, just maybe - the future of business isn't about selling the same old stuff using the tried, tested - and tired - industrial age toolkit: saturation-bombing ads to cram more "product" down the gullets of "consumers". People aren't "consumers", after all - nor can the developed world go on with it's frenzy of overleveraged hyperconsumption that makes us materially full, but leaves us empty.
So maybe, then, 21st century companies don't just market stuff. Maybe they make markets - as well as networks, and communities - where better stuff can emerge in virtuous, interdependent circles. So check out a tiny but resonant example: MyGengo, the brainchild of Matt Romaine and Robert Laing (obligatory disclosure: I’ve know Matt for many years. In fact, he used to blog with me here). The most interesting webby startup I’ve seen for quite a while: MyGengo’s making an open, real-time market for translators. Translation: anyone can apply to be a translator; anyone can submit documents tiny or huge to be translated; MyGengo plays the role of market-maker, setting prices, and matching buyers and sellers.
Ta-da! It’s a textbook example of institutional innovation: as I’ve argued for the last several years, if you want to be disruptive, here’s the single strategy that will take you the furthest. Pick a zombified, moribund industry, and use a market, network, or community to disrupt it, by altering the structure and intensity of search, monitoring, and transaction costs. MyGengo is doing exactly that, with precision and grace.
There’s a lot to like about MyGengo. It promises to unlock significant gains in efficiency, by making translation more liquid, less costly, and more timely. It parcels up “jobs” into microchunks of work, unbundling the job as we know it, unlocking greater effectiveness. It promises to unlock productivity gains, by letting people do a job that Google Translate often imperfectly does. And, of course, it has a simple, proven revenue model: the market-maker’s model so beloved of Steve Jobs, where a cut of each transaction is taken. That’s probably why MyGengo’s already seen a raft of angel investment.
Now, there are many ways MyGengo could improve. Why are prices fixed, not dynamic, in flux with supply and demand? Why are exchanges anonymous, instead of mediated by reputations? How can MyGengo spark demand for translation, instead of just grabbing market share? Why can’t I buy translation derivatives, and hedge tomorrow’s risk?
What’s common to both MyGengo and Hyperakt? I’ll let Matt and Robert clue you in: “we’re planning a revolution”. By now, you might be inclined to agree: it’s not a humdrum recession: You might even be willing to grumblingly concede: it’s looking a lot more like a Great Stagnation. Sometimes, you’ve got to be a follower. But when the rules are broken – you’ve got to break the rules. So my question is – where’s your revolution?
Friday, September 10, 2010
Hyperakt, Purpose, and 21st Century Design
Do meaningful stuff that matters the most: it’s my mantra for a movement dedicated to toppling the old order, and seeding the green shoots of a better economy instead. So here's a textbook candidate. Check out Hyperakt: a design studio based in Brooklyn, whose motto is “meaningful design for the common good”.
What’s so awesome about that? One way to see that mission is as the basis for a simple market positioning strategy: Hyperakt’s trying to grab a share of the underserved market for nonprofits, and the nascent market for social entrepeneurship. All very well.
But I think there might be more to the story than that. What’s the purpose of a bigger purpose? Well, my hunch is that when we find the work we do meaningful, inspiring, elevating, fulfilling – it’s then that we transcend the boundaries of everyday ideas, effort, and performance. We go, in other words, the extra mile, that no bonus, salary, or stock option plan can really compel us to – because we feel impelled to. So by having a bigger purpose, it just might be that Hyperakt’s building a 21st century design studio: the crucible of big, world-changing ideas.
And that sense of enduring worth, of bigger purpose might just be the shot in the arm design needs. Consider: yesterday, in an industrial age, the economy demanded designers of mass-made “product”, and the mega-marketing that crammed them into your gullet. But If tomorrow’s economy isn’t powered by yesterday’s self-destructive industrial age stuff, then the job of tomorrow’s designers probably isn’t just prettifying it; disguising toxic gunk with superficial gloss, and then helping seduce “consumers” into leveraging themselves through the nose to buy more, more, more of it. So today’s Great Transition is also a looming challenge for designers – to think bigger, harder, better.
Designing not just products, logos, and brandmarks – but stuff that's emergent, dynamic, irreducible, complex, nonlinear. Stuff like institutions, communities, societies, organizations, maybe even economies: that’s where I see the future of the industrial age discipline known as “design” heading. It’s neatly expressed up in a recent tweet by John Maeda: “Great design is the right combination of aesthetics, ergonomics, and economics”. Hyperakt, then, might just be one the seeds of an awakening, of eyes opening up to the novel competencies and capabilites the 21st century demands of – and the new possibilities it offers to – designers.
Herewith, a set of responses to burning questions from you via Twitter. If you like, you can leave your own responses - or answers to these questions - in the comments.
visiondesigner: @umairh I followed your tweets so far over 3 months. And just interested what is the book that inspired you the most?
There are tons of books that inspired me. The one that really provoked me to start writing, and to think that management was more than just buzzwords was Gary Hamel’s staggeringly awesome Leading the Revolution.
monsieurquinn: @umairh re: #ask What place will greed have in a new valued-led economic model?
Interesting question. I suggest that greed will be a negative value, because the dictum that naked, narrow, ego-driven, soulless, blind, avaricious, self-interest, that munches away the future, destroys the natural world, eats community, shatters trust, evaporates the good - well, that that could have ever been the motive force of prosperity is a belief that's circling down the intellectual drain.
And it's important to note that it's a belief that doesn't have a basis in real economics. Adam Smith, for example, contrary to what you might have heard from pundits and talking heads, never (ever) saw unbridled greed as good.
theorocha: @umairh What do you think about bloggers posting for ad campaigns? #ask
I think it’s lame, inefficient, toxic, and that advertisers should realize there are radically more productive ways to utilize communication than merely pushing product. Like actually communicating.
harscoat: @umairh a question then: who (firms, associations, government) apart from you is promoting "betterness"? Where is the betterness community?
Betterness isn’t a slogan – it’s not about promotion (and I’m certainly not “selling “ it).
It’s a paradigm, a set of new organizing principles, that transcends the limitations of industrial age business. Who’s pursuing it? Social entrepreneurs; a handful of blue chip companies like Starbucks, Wal-Mart, Google, and Timberland, that are redefining assumptions, values, standards, jobs, accounts, bottom lines, resources; social investment funds; communities of practice and interest; next generation markets and exchanges, to name just a tiny few.
But it’s not today’s examples that matter. Business as we know it is obsolete. Where’s the evidence? Well, do you want fries with that zombieconomy? That’s the real point.
andregalhardo: @umairh Left x Right + New Capitalism. Would you consider yourself a "left" thinker?
I think “left” and “right” is a spectrum built for yesterday's world. Today, neither side’s assumptions and beliefs are a good fit with the principles of authentic prosperity, institutional innovation, the concept of wisdom, or the constructivist perspective that emphasizes emergence and interconnection.
If you want to think about next-generation capitalism, ask yourself: “what’s the capital” – and then, “what’s the “ism” (ie, how do we allocate, utilize, seed it).
TheEricHeath: @umairh With the vast majority of people on Twitter trying to blog for a quick buck, how do you establish yourself differently and to stay?
Do meaningful stuff that matters the most. The quick buck makers tend to fade away as quickly as the bucks they tend (not) to make. Aim for a longer half-life; shoot for significance. Help people solve real problems, issues, and challenges.
Bighutch24: @umairh one more, what question have you spent the most time on in the past month?
Finishing up my forthcoming book, “Constructive Capitalism”, and starting my next one, “Awesomeness”.
Bighutch24: @umairh if you had five human attributes to give a company what would they be?
I’d gently suggest that more than a few companies fit the various criteria we assign to mental pathologies. They’re paranoid, delusional, schizophrenic, depressive (and depressing) – and at the limit, they’re sociopathic, with a blind disregard for anything beyond what the ego wants, now, at any cost.
The challenge is building companies that mirror the traits of mentally healthy people. What do you think those might be?
Niels_Bremen: @umairh I´m graduating this month. From your view: What is the biggest challenge i have to meet, and how can i positively use it?
Apart from the fact that we’re facing the biggest youth unemployment crisis since – well, ever – the fact that today’s youth have to bail out yesterday’s party-all-the-time smorgasbord of squandering the future, and the fact that today’s youth, in many countries, will have to support their aging forebears, I’d suggest this.
The real opportunity is once-in-a-century: to reinvent the whole shebang of yesterday’s broken institutions. So first, foremost, and most fundamentally: think big. Really, really, outrageously big. For example, if you want to be an educator, don’t just think about what kind of teaching job you’ll get. Think about how you’d build a radically more productive, efficient, elevating educational system, from the ground up, from the grass roots. Then focus on taking small but sure steps to making it happen.
thinkglobal16: @umairh What are your thoughts on the recent outsourcing craze at firms? Is it sustainable long-term without client service suffering?
Outsourcing isn’t just shifting jobs. It’s evaporating jobs, since the jobs that are shipped overseas end up (what a surprise) devoid of benefits, security, tenure, training, or much of the stuff that makes a job more than just piecemeal work.
Service is just one in which a company’s – and an economy’s – long run health suffers. Other ways include, but aren’t limited to: innovation, passion, execution, transformation, information, and mission and vision.
mtvhotbend: @umairh what will be smart money doing this year?
Investing in meaningful stuff that matters the most. The dumb money will be investing in the opposite: stuff that props up the Ponzi zombieconomy.
As I’ll discuss in my book, if you’d done that, you would have tripled your money instead of, during the worst decade in recent financial history, watching it get vaporized.
avinashmeetoo: @umairh "What can a small country like Mauritius, where I live, do to develop further?"
Here’s the score: the future’s up for grabs to anyone. Whomever can build tomorrow’s institutions first. Mauritius (or anywhere else) can pioneer them. It could build fair-trade zones, new measures of GDP, more complete accounts, new kinds of corporations. If you can do any or all those, over the next decade, the world will beat a path to your door
Stephen_shi: @umairh sorry about the last reply. I meant to say radical change. Thanx umair.
Stephen_shi: @umairh Ask: what can we as individuals do to bring about racial change?
lol. If 10% of people were to stop eating at your local toxic fast food chain – guess what? The whole company would instantly be unprofitable, bankrupt, kaput. The thing you can do most to bring about radical change is to be the change.
You can read my Betterness Manifesto for how to get started.
robtyrie: @umairh what is the hypothesis of the "ask" experiment?
That there are might be more interesting ways for us to hang out than me writing a long, boring article once a week.
steve_e: @umairh Sure. What do u think of people calling instruments such as bonds and securitizations (cat, envrionmental etc) 'green investments'?
It depends on the institutional arrangements behind the products. Right now, most “green” institutions are just industrial age ones in disguise – hence, the products are, too.
Jeremydms: @umairh does china's economic success lend credence to the benefits of opening-up\liberalising or refutes it do to heavy hand of the state.
I think what China’s success does in tear the Washington Consensus to shreds. In no meaningful sense is China “liberalized” or “open” as an economy. Yet, what it doesn’t do – yet – is prove the Beijing Consensus is a path to lasting prosperity.
persianista: @umairh I asked you if my hair and beauty salons are part of the problem or part of the solution?
That depends on if you guys do mullets or not.
OK, seriously. Do you pay for your carbon emissions? Do you realize the bulk of your revenues from services (haircuts) or toxic products (the mass-made gunk that goes in our hair). Do your customers love you? Have you changed the structure of the industry so that cutting hair isn’t one where the bulk of returns flow to the top, where chairs are rented to hair-cutters, and all the risk is assumed by them, stifling innovation, and crushing creativity? Have you built an organization where cutting hair isn’t just a McJob – but a career, a calling, a passion, that fulfills the people that do it?
Those are just a tiny handful of the questions you’ll probably have to grapple with if you want to be a Constructive Capitalist.
Mad_Panda: @umairh #ask : five tips for leading creative teams
Generally, you should only need three.
1. Zero in on what really, totally, absolutely sucks.
2. Ask yourself why, why, why, why it sucks until you reach the root cause.
3. Now come up with at least ten ridiculously, hopelessly utopian, childish ways to make it totally, unstoppably awesome. The dumber in yesterday’s terms, the better.
vibrantpickle: @umairh what is the first book an aspiring entrepreneur should buy?
Alfred Chandler's ridiculously epic Inventing the Electronic Century. To understand how the first and perhaps still pre-eminent ventureconomy in the world, Silicon Valley, emerged.
boetter: @umairh Try this: How to manage IP rights in a world thats becoming too fast, too complex and too networked?
Have less of them. Have ones of smaller duration. Have a higher bar for granting them. Have contingent ones, that expire when a firm does something evil. Have remixable ones. Have IP derivatives. Result? More liquid, efficient markets, less gridlock. Why is China such a dynamic economy? Because entrepreneurs aren’t as strangled by privileging incumbents with gigantic “property” grants as ours are.
mdl4: @umairh What's your take on the Austrian School? I am _dying_ to know! #ask
I’m a believer in free markets. But what many “Austrians” who aren’t economists forget is that free markets are also fair markets. The definition of Hayekian catallaxy depends critically not just on freedom, but on fairness first – if I can force you to trade with me, then the price mechanism is an illusion.
We’re confused about the real source of the plenitude markets unlock, in other words.
That said, I think Hayekian catallaxy depends first on what I’ve called efficient communities: a dense social matrix through which meta-information about market participants and exchanges flows. For markets to be giant, super-efficient computers means that the plug has to be turned on first.
jakeluer: @umairh What is the worst mistake an entrepreneur can make? #askumairh
Not trying their damnedest to make lots of mistakes, embracing those mistakes with courage and ferocity, and remembering that “success” isn’t just selling out – it’s buying in. These are all really the same thing. The worst mistake is failing to understand the awesome power of failure.
suiteforsix: @umairh What inspires you that there will be hope for a better tomorrow?
Every time I’m in the third world, I make a point to hang out with underprivileged orphans. These are kids who've suffered in ways that leave you reeling. In all the years I’ve done it, I’ve seen them daunted by the turmoil that surrounds them, the challenges that confront them, afraid of tomorrow. Why, then, are we?
What inspires me to think that there’s hope for a better tomorrow? The tiny hidden miracle of every day is that we can create one.