Author: elias (Page 5 of 27)

The impact of competition on entrepreneurism

July 31, 2012 / elias

Last May, a new Australian incubator said they were different from StartupBus, the “people accelerator” (which I call a foundry — more on that another time) that we’ve been building for over two years now.

…the Startup Bus concept – which is essentially a start-up competition – is flawed when it comes to women….”The whole approach seems to be based on a kind of testosterone, pump”

It was an interesting point because I’ve often thought about not just how to encourage more female entrepreneurs, but more successful startups. Is a competition a way to do that?

When we ran the StartupBus Americas competition this year (840 applicants, ~270 accepted), we had a lot of upset participants. Several in particular spoke to me personally about how they didn’t understand why their team and product didn’t make the finals. One of the teams who I actually personally believed should have won the competition (but never made it past the semi finals) wrote an email thanking us (I’ve appended it at the end of this blog post, to not distract the point I’m trying to make) which I forwarded to all the participants, to which I added

With emails like this from Raymond (below), the real winner of StartupBus makes me think is Wastebits.

As Greg (Florida conductor) says: StartupBus is harder than a real startup. If you can survive this, you’ll find a real business a walk in the park.

Well done everyone, I was so proud to hear last night how many of you are continuing on with your projects. There’s something to be said true entrepreneurs are ones that break the rules (I actually smiled to hear people ignored some milestones to focus on product) and don’t let stupid things like validation (ie, the competition) get in their way.

Three months on, what’s the verdict? Still too early to tell but this week, a talented designer Scott (who actually designed the new StartupBus logo) sent me an email saying that he was working with the Wastebits team, which has become a real business. Another team that stood out for their quality (and actually was a business idea I looked into years ago) but didn’t make the semi final — Get Wished — I’ve been hearing how they are still working on their product with serious commitment. And today, Sohail (who I convinced to turn down a job at Google so he would work at a startup) paired up with James (who was on the first StartupBus) had a post on TechCrunch announcing Hiptype who have been part of the current Y-Combinator batch — which other than credibility and exposure, also means a guranteed $150k in funding. The product the post talks about was actually launched on StartupBus this year (original video seems to be down), but they didn’t make the semi finals.

That last sentence being key. James in particular was upset in how he didn’t make it the semi finals, and caused quite a dilema for me personally because I liked their product, I knew the team members well, and I wanted them to succeed. A dilemma because we had to create a process to bring down the 50+ products to ultimately one winner and it made me question our approach which was entirely my responsibility. But the dynamics of the competition forced outcomes that even I didn’t necessarily agree with.

Is a competition the best way to select winners? Nope. But is a competition process, whereby people miss out and they want to prove something, the best way to create winners?

Time will tell, but something tells me yes. True entrepreneurs break rules, want to prove people wrong, and don’t give up. As it was explained to me by my previous boss: ruthless ambition is what creates entrepreneurial success. And the resentment of not being selected, may ironically be the best way to feed that ambition.

On a related note consider this: I’ve been observing how some of the best entrepreneurs I respect (admittedly, only men but then again there’s only a few people I truly respect) all seem to have what I call ‘daddy issues’ that they acknowledge as what drives them. Not big family problems, but just didn’t see eye to eye and a sense of having to prove themselves.

Addendum: As promised, the email from the Wastebits team this March that I forwarded to all participants. There’s a lesson in there for what incubators really should be doing.

Elias
Thank you and the StartupBus team for an incredible experience. In my humble opinion, StartupBus has innovated THE new model for entrepreneurs.
StartupBus is the epitomy of iterative adaptation and flexibility…adaptation–>the single most important factor in determining the survival of a species (adapted from Darwin).
StartupBus IS the MBA for entrepreneurs!
StartupBus creates a unique immersive experience for entrepreneurs to LEARN THROUGH DOING. There are no bystanders!
Plain and simple, graduates of StartupBus (*hint* *hint*) are well prepared to be successful bootstrappers. And even more importantly, these graduates are well informed to spread the StartupBus aspirational philosphy AND continue building that sense of community.
Wastebits came into being BECAUSE of StartupBus … it was nothing more than an un-named idea two weeks ago. StartupBus provided the environment and super-charge for a team of aspirational entrepreneurs to breath life into that idea. And now today, a meer 7 days since last Tuesday’s kickoff…Wastebits is an incorporated company, with an awesome brand, a team of senior developers, a team of industry veterans committed to forming the management structure, scaling and supply chain partners (Blackberry expressed high interest just yesterday to support Wastebits premiering via a mobile rollout), AND, most importantly, a bonefied base of PAYING CUSTOMERS (we received our 3rd Letter of Intent this morning!).
StartupBus is what enabled this to happen…happen in less than a week!
THAT is a story.
And yet, I find myself highly curious how we as the StartupBus community will achieve EVEN MORE for 2013?!?
The future is ours to envision and create. Everything is possible when the right people are connected! That is what StartupBus re-affirmed for me.
Thank you for the experience and the opportunity to join such an incredible community.
I look forward to being a part of creating the vision for StartupBus 2013!
Humbly appreciative,
ray

How to become a “full time” foreign entrepreneur in the US

July 29, 2012 / elias

Today I hit my third anniversary in the United States. I moved over here for a startup and learnt a valuable amount of things in my two years there (which was always intended as a job to bring me to America and give me a start); and this last year I’ve had the privilege to be mentored by one of the most successful venture capitalists in the world (George Zachary) has invested $150m over 17 years and returned $1b, mostly recently Yammer selling to Microsoft and Millennial Media listing publicly) working for one of the oldest venture firms in America (CRV or Charles River Ventures).

This month however marks a new beginning: I’m now a full time entrepreneur in the US. And I take great pride in that, because I’ve spent many countless months — years even — trying to work out how to play by the immigration system to enable that. I’ve worked with lawyers, Googled the hell out of the Internet, and collected dozens of anecdotes from other entrepreneurs who have all experienced the same misery that only another expat can appreciate.

Visa’s generally favour a limited supply of talent that tends to bias the multinational company. There is no such thing as an ‘entrepreneur visa’. Silicon Valley screams out about the need of a “startup visa“, which to be honest, I have serious reservations about as it limits the potential of an entrepreneur (ie, you are required to raise funding from a major investor like a VC firm — that’s like saying you are required to get a bank loan to be able to start your business).

But after spending years pulling out my hair out trying to work out how to get around the rules legally, I’ve developed the following solution with my intent in sharing it so as to prevent the wasted opportunity that entrepreneurs after me may experience. Even some small sentences in this post I’ve spent many hours trying to validate. I hope you waste that time on marketing for your product or enjoying life, as time wasted on visas for entrepreneurs is the least productive thing society has ever invented.

As a disclaimer, I am not a lawyer. I’ve just leveraged my background in the English language to understand the rules myself, which has successfully resulted in three separate visa’s for myself and 1.75 for employees of mine.

Step one: read Geoff’s post

My friend Geoff wrote in detail the process from his own experience. This is the best summary I’ve seen to date and highly recommend you read it. My advice below is a bit bigger picture (as opposed to procedural) and tackles some of the conceptual issues (and ones that I actually disagree with Geoff on).

Step two: Get to the US.

It’s simple, but the more time you spend in the US, the easier it becomes — even if it’s for three months at a time on a visa waiver as a “visitor”. For example, you build a network of people who can support and advise you; you can build up your credit history which takes on year minimum (tip: get a secured credit card); you can setup a bank account which is near impossible to do remotely. If you move over with a job, you get a social security number issued immediately (well, that’s a separate story — it takes over a month on arrival and your life is on hold until you get one), a huge benefit given how key it is to all things regarding your identity. Ultimately, you learn how things work.

Step three: Setup a company

The US operates in a very decentralised manner, as seen by how its company law operates. As a consequence you get a lot of innovative forms of entities being invented by states like “B Corps” and “L3C’s”. Ignore them — most companies are either C-corps or LLC’s.

An LLC will do, as it’s the lightest-weight incorporation you can get, and in some cases, might be the only option. (Certain corporations like S-Corps require you to be a tax resident of the United States…something hard to do if you’re not present in the country for less than 183 days). It doesn’t matter where you register it: “Deleware” simply markets the brand of their state, due to the legal system having experience and other factors. Truth be told, a company is a company. Have some fun and register your company in Nevada so you can do your annual shareholder meetings in Vegas — heck it’s not a crazy idea as Nevada not only has zero income tax (a thing levied by some states and the Federal government) but it also is one of the most difficult states in which to “pierce the corporate veil.”

Step four: elect a board

Don’t forget, that your E3 or H1B visa is an employee visa — so you need to make sure you an employee. Advice I heard from the top tier lawyers suggested you needed at least three board members (assuming you are one of them), so that you could be “over-ruled” and theoretically fired by a majority vote of the other board members. This was recently clarified by the US government:

USCIS indicates that while a corporation may be a separate legal entity from its stockholders or sole owner, it may be difficult for that corporation to establish the requisite employer-employee relationship for purposes of an H-1B petition. However, if the facts show that the petitioner has the right to control the beneficiary’s employment, then a valid employer-employee relationship may be established. For example, if the petitioner provides evidence that there is a separate Board of Directors which has the ability to hire, fire, pay, supervise or otherwise control the beneficiary’s employment, the petitioner may be able to establish an employer-employee relationship with the beneficiary.

Step five: In your job offer to yourself, pay yourself above the prevailing wage. For real.

US Immigration is partly designed so that American’s are protected from foreigners stealing their job. Hence the need to satisfy the ‘prevailing wage’ case which requires you be paid above average from what an American would be paid, as defined by official statistics done by occupation and region. You can use this online tool to determine which job you need to match yourself to: http://www.flcdatacenter.com/

You can be creative here, but don’t be too creative: hiring yourself as a “secretary” at $29k a year (2012-2013 period) when you are clearly the CEO is not something I’d risk. A General Manager though is much more like a founder CEO, which is $73k — much better than the CEO pay rate of $212k.

But just because you get your visa application approved and a visa, doesn’t mean you can fake this rule. I know of an entrepreneur that “deferred” payment of his salary — which is completely legal but were he to apply for his next visa (or reenter to the US) and have no evidence of pay checks, there would be complication. (Athough if it took you more than two years to raise funding — the length of the visa — maybe you have bigger problems.)

I’ve actually been asked at US borders to show proof that I have been paid a wage in past — as in, actual pay stubs or bank statements. Eventually, you are going to need to prove you were paid not just above the prevailing wage…but actually paid.

Other comments

You should appreciate how the visa system works: the visa itself is simply a travel document; whenever you re-enter the United States, you are reissued form I-94 which is the actual work permit. Technically, you could enter the US a month before your visa expires and the I-94 that you are issued allows you to legally work in the US for a full two years (only one nerdy customs official ever did this to me, most border officials don’t even realise this rule themselves). The only catch with this of course, is that it’s a one way ticket when leaving the US and you don’t have a valid visa for re-entry: out of practicality, labour movements at check points are how governments seem to be able to enforce their immigration policies.
Australian’s have a God-send in the form of the E3 visa which is plentiful in allocation, has less hoops to jump through, and even allows a spouse to get a visa as well. The default option for all other foreigns in the H1B which has its own complications. Other options include the B visa (business travel) but that’s a temporary solution — the O visa (for extraordinary achievers) is an option for people who have a public profile, but expect to spend a lot of time with the lawyers preparing this submission.
If you don’t have a degree, things are a lot harder for you. Your only option would be the O Visa (which means you need a lot of press) or the ability to prove you have ‘equivalency’ in work experience. One university year of study is equivalent to three years work experience ie, you need 12 years based on a four year standard US degree).
At least for the E3 visa, the first time you ever apply for it you need to do it from your home country. Subsequent visas you can do it in other jurisdictions.
ADDED April 11 2014: Something I forgot to mention here is the L1 visa which not only is a great visa but the best solution if you don’t have a degree and if you want ‘dual intent’ which means you want to eventually apply for a greencard. The only catch with the L1: you need to have been ’employed’ by the company for one year before initiating the ‘transfer’

All in all, all expats in the US have war stories to share about how they managed to secure their living in the country. The above solution, as simple as it sounds, is also not that simple as it requires real capital or revenues to be able to pay yourself — but with that said knowing three years later this is a legitimate solution is something I would have paid good money for. It’s still not easy, but then again maybe it shouldn’t: little did I appreciate, getting to this point has me now appreciate what a true entrepreneur is. Seeing this as an obstacle that can be overcome will be what Phil Libin, the CEO of Evernote, is looking to hear from real entrepreneurs.

Good luck. Now, you can focus on what really matters: finding your market.

Defining success and its pursuit

March 21, 2012 / elias

People often think I’m joking when I say I’m not successful. They perceive the jobs I’ve had, the education I’ve gone through, the media exposure I’ve generated, and other fake indicators of success as somehow meaning I’ve made it. Not quite, status symbols are not what I consider success.

If you’re not quite sure what I mean, let’s say you measure success on money — then how much is enough? Or for those that consider fame to be success — how many media mentions is enough?

A few months ago, I did my first ever meditation and came up with an amazing insight on some thoughts that had been stewing in my head. It was what I realised was *my* meaning to life — what I needed to be happy in life. Today, I Tweeted a summary version of that insight and have had several people retweet and favourite it, flagging to me that maybe my meaning to life is actually something that a lot of other people can relate to.

Success is when I can experience life fully (existence), can do whatever I want whenever (freedom), improving the world for others (impact).

— Elias Bizannes (@EliasBiz) March 21, 2012

So here it is my thought process; who knows maybe it can help you define your own success.

Existence
What’s the point of life if you can’t be alive to enjoy it? That one question should pretty much explain what I mean by this — and you can broaden this to mean more than that. For example, our mental health is just as important as our physical health — family is something we consider a chore, but I personally consider an emotional need. Good nutrition, regular excercise, a close connection with your family, good friends around you, being in control of the demons in your head: each of us can interpret our existence in different ways, but they all fundamentally point to the same fact that without your full and able self, there is no life.

Freedom
When I went backpacking in 2005 for nine months, I would often start the day not knowing what country I would end up in. I was in between finishing my university degree and a guaranteed job at PricewaterhouseCoopers; I was living off my savings and had no need to work that year; and had complete freedom to do whatever I wanted whenever. I had never been happier.

Freedom to me is a relative term: personally, if I lost the functional use of all of my limbs or was convicted for a life in prison, I would die on the inside because my personality perceives those aspects for my life as essential to my freedom. That’s not to say I correctly perceive it, but that’s my own personal interpretation to freedom. And without drilling down into this any more with the many anecdotes to guide this insight for me, having creative control can be one of the most liberating experiences you will ever experience and can bestow on someone. I call that freedom.

Impact
If you drill into the psychology of great entrepreneurs, it’s not money or fame that drives them even though they may say it is. It’s the fact they are building something of value. We’re all like that — our self esteem benefits from knowing we’ve done something that improves our surrounding. That’s why charity is deep down such a selfish act: it makes us feel good.

Again, impact is different for different people that no one person has the right answer. For me, I’ve come to realise the impact I want to have on the world is something that improves the quality of life for us all in society. What that means, is something I’d rather save for when I do it and can look back but in essence I get extreme satisfaction that I’ve played a role that improves life on this planet by enabling the entrepreneurs and scientists who have the potential to do that.

What’s success?

The American forefathers may have not only already come up with this before me but put it much more eloquently. Life, Liberty and the pursuit of Happiness. Whatever you want to call it, it begs the big question: what does existence (life), freedom (liberty), and impact (pursuit of happiness) have to do with success? Money is not success. But income is: because that enables freedom. Fame is not success. But influence is: it enables you do perform the actions you believe ought to occur.

Success, like religion, should be a personal thing. There isn’t a right answer — but above, I believe is the framework that we can all apply to our own lives to think about what we want to do with our lives. Instead of thinking of what should you do, instead ask yourself — how can I exist more fully, have more freedom, and have a bigger impact with my being? This framework might not be the right one, but it’s a start to asking ourselves all the right questions that lead to the answer.

How to fundraise in the next six months

January 26, 2012 / elias

Is funding for startups now starting to tamper out? The answer is yes but not really.

Long term trends in the industry have fueled the creation of a seed bubble that is now starting to face the consequences of the tranche of new investors that increased activity in the market. The macro economic environment will create issues that impact the players that have driven the seed bubble which will create a sense of crisis in the industry, compounded with a permanent trend where it is simply now more competitive to raise money as a startup.

Ultimately, what is happening is a readjustment in the industry, rather than a cash crunch and a bubble bursting — and that there will still be money for smart founders and their teams. This is so long as they understand that one of the most important lessons to raising money is on the vision of the founder CEO and not just the traction of the product or calibre of the team.

I’ll be unpacking these statements below.

What made things bubbly
In mid 2010, we saw a dramatic turnaround in Silicon Valley: the boom was back. As some educated commentators noticed, a bubble formed in the early stage of the market. Seed stage startups were now raising money at inflated values. Rather than blaming this on any individual player, the long-term trends in the industry created this transformation in the industry,which in short are the lower costs to build an Internet business.

Consequently, the three major investor groups (incubators, angels and venture funds) boosted this trend to become a new boom. So how did it become bubbly?

With the incubators driven by the seed accelerators, it led to a dramatic increase in the volume of startups. The same money, but spread across more startups meant an increase in volume. This in itself is not what helped cause the early stage bubble, in the same way that a forest is not responsible for a bush fire. However, a less obvious explanation on the impact of this is that investors were now being over-whelmed by deal flow, that they now couldn’t spend the adequate amount of due diligence time required to make an investment. Quicker decisions made to not miss out, lead to fatigue due to the volume and consequently poor judgement, which may lead investors making deals that potentially may not have done if things were at a slower pace. When people are making investment decisions not grounded in fundamental valuations, that’s when we have a bubble.

And the angel investors have been no angels themselves. More startups were now getting funded, more often — shifting the perception of (perceived power) between investors and entrepreneurs that anyone could raise money now. Their biggest crime is in funding seed companies with small ideas hoping for quick returns (like talent acquisitions) or for status to build their personal brands, contributing to the amount of companies that survive post incubation by which will never make it past the gates of a VC.

The impact of venture capital in seed has also fueled the boom but on the valuation side. For a VC, putting money into a startup at a seed stage means less to them than an angel (ie, they are not as price sensitive). Several VC’s don’t set the terms of the money they put in, leaving the entrepreneur to, who price their round as high as they can (if someone was to give you a blank check, would you put a lower or higher number?!). So while some people claim it’s the VC’s that fueled the bubble, it’s more correct to say VC’s facilitated entrepreneurs to over-price themselves for short-term benefit — but long term at a disadvantage as they now have a higher bar to meet in follow on funding.

How the economy will impact the tech fundraising environment
You have $10m sitting around — what are you going to do with that cash? Well, invest it of course. You can have it sit in a term deposit, and make less than 1% interest; or you could put it into a startup and make a 900% return: that’s the allure of angel investing in the early stage. But what if you don’t want to do either? What’s going to generate a return in this economy that’s not idle cash in the bank but also relatively safe at generating a good return? The stock market.

When the stock market crashes due to a confidence issue after news is announced about the economy, so does the wealth of these wealthy individuals. For this reason, the correlation between the economy and the appetite of angels to invest will directly be proportional; whereas it will have practically no impact on newly raised venture funds (typically a 10 year fund, will be actively invested for its first three years).

This is especially true of funds that have been performing in the market as they will be able to continue raising money from limited partners desperate to get returns on their capital. (That said, the amount of successful VC’s is a separate issue — I’ve been told only 30 out of 600 firms in the last decade have shown positive returns.)

In other words, don’t let the economic news affect your thinking on fundraising unless you’re trying to raise from an angel: VC’s actually love it in a downturn as they can now regain their inboxes.

The impact of the seed boom and the road from here
It’s now been 18 months since the seed “bubble” really started. It’s also now when we are seeing the results of these investments.

Startups eventually are going to need to tap into larger investment dollars available only by VC’s as angels bow out of the larger rounds. The impact for the entrepreneur is that it’s now a more competitive landscape to raise funding: a VC who previously picked 2 companies out of 20 to do a series A round, now has 100 to choose from…but can still only pick 2.

Why does this matter? If less startups are being funded, it means they will fizzle out. Investors lose their money. And the truth sets in that angel investing is a risky game. This won’t lead to a significant decrease in angel investing, but it does mean a sobering reality for those investors who just lost some of their wealth.

For existing startups that have already raised a seed round (from angels or VC’s), we’re going to see the impact of the seed bubble in three ways:

(a) You need to sell more than a dream now. For startups trying to raise follow on funding, they now have more data points of their traction and so venture investors are more acute of their cost of capital needs being met. Seed rounds are considered the new Series A, meaning the funding is significant enough that a startup can exist for 18 months — a lot can happen during that time period, so when they go to raise their Series A, the VC’s are no longer investing in an idea and team (a “dream”), but an idea, team, and quantified traction of how realistic the business will be (still a dream, but instead that dream is being explained the next day when people are awake…).

(b) You may be great but overpriced. For startups with existing high valuations from the seed round, we’re going to see higher priced Series A rounds. The consequence is that the smart money will simply step away from this. Others may participate. But what was previously thought a good thing — entrepreneurs being able to over-price their seed round just because they could — is now going to impact them as they now will be raising (or expected to) at a much higher valuation without the necessary traction to justify it.

(c) The bar is now higher. VC’s are being flooded with deal flow now, thanks to the broader trend of lower costs to start a company and looser capital at the early stage (and no, that’s not a good thing as it’s leading to burnout in VC’s trying to keep up which will lead to poorly-researched deals being done, making a real bubble). As a consequence and to the point I raised earlier, there is now just more competition for the same finite spots of investment opportunity by a venture fund. You may have a great product, a great team, and some great traction — but you’re now being compared to many more startups who also have great products, great teams, and great traction.

Never forget in fundraising the cost of capital investors need to meet
At the TechCrunch Disrupt conference in San Francisco last year, I noticed an interesting thing: what the angels and micro-VC’s were saying about what you need to raise capital, was very different from what the experienced VC’s were saying. The VC’s talked about vision, the angels talked about customers, revenues and traction.

If you’re fundraising, don’t underestimate vision and quantifying your market opportunity. Cost of capital is the reason.

In finance, the cost of capital is a term to describe a return needed on equity — think of it like the interest rate on debt. Venture funds who raised money from limited partners, have a cost of capital which is to be able to return the fund and then some. I feel like people see professional investors as rich guys that can give money simply if they like you — not quite. VC’s need to make money, and they are going to do that by investing in startups that they think have a chance of generating a return.

So how do that do that? Well, they look at the team and the product because after all that’s the execution part of the equation. But just as important and if not more important, is the market opportunity. If a VC has a $200m fund, that means they need to have a 20% stake in a billion dollar startup for them to return their fund. If they invest in anything that’s worth less than a billion dollars, then it’s not worth the investment. Of course, VC’s have differing strategies in their investment thesis and may invest in something for other reasons, but for the most part, the reason why VC’s are so interested in the vision is because the CEO founder is painting the picture of a best case scenario of what the opportunity is.

The fundraising equation a professional investor needs satisfied in their head could be explained as the market opportunity (potential valuation) multiplied by the probability of achieving that opportunity (the risk factors in execution reducing the probability) multiplied by the percentage stake in the business. If you’re a billion dollar idea which a good chance at success, why wouldn’t a VC want to invest in you? Founders overlook the importance of the vision because they ignore the fact VC’s are professional investors in the business of generating returns, and instead focus on the product, relationship, and confusing a good product from a product that has the potential to meet an investors cost of capital.

As an aside, this is also why long term we will be seeing more and more micr0-VC funds existing, funding smaller ideas. Why? Because if you think of the equation above, the return needed by Micro VC’s (with say a $50m fund) is much smaller now — an acquisition signed off by a Google/Microsoft/Yahoo VP for $50m rather than a billion dollar IPO is all they need.

The moral to this story?
The industry is in an adjustment phase but we’re not going to see the ugly side of the seed boom as the bubble will be absorbed and far away from the public markets.

You need traction to raise money as that proves your execution and reduces the risk for an investor, but traction without vision is just as bad as a vision without traction. In the next few months, people are going to start panicking, but don’t — the best entrepreneurs will still be able to raise money. You just need to be aware of the cost of capital for the investors you pitch.

Just remember to nail that vision bit.

Misinterpreting Kuznets

November 24, 2011 / elias

For years I’ve been thinking that something just doesn’t feel right with the world. It started with when I joined PricewaterhouseCoopers in 2005 and would observe how we’d always be ‘growing’ by 15% a year. Little things didn’t feel right like despite growing, people felt strained; and who cares if we grew that much? Growth in business is justified on the basis of economies of scale whereby the bigger we got the more efficient business was, but fresh out of university, I couldn’t help think about the other side of that theory: diseconomies of scale, where the bigger we got the more *inefficient* we were. And if we grew, what would that mean? A pay rise? Well, it better because if my salary grew below the inflation rate, I’d be effectively getting paid less. Our society was set up like this never-ending tread mill. Make more money, get to spend more money; spend more money, need to make more money.

Two years I go, I admitted I didn’t know the answer but I knew the end goal was “happiness”. And instead of measuring success based on wealth, I’ve come to appreciate success comes from wellness. We don’t just want an increased standard of living, which related to the definition of wealth, is about the accumulation of capital and generation of income. No, what we human’s want is quality of life, which like the concept of wellness, is about allowing us human’s to be at our optimum.

And I’m not the first to realise that.

The US Congress commissioned Simon Kuznets to create a system that would measure the nation’s productivity in order to better understand how to tackle the Great Depression. Despite this, he immediately said not to use it as a measure for welfare. He invented the concept of GDP to do this, and had this to say in his very first report to the U.S. Congress in 1934: “…the welfare of a nation [can] scarcely be inferred from a measure of national income…”. In 1962, Kuznets stated: “Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what.”

Everyone knows GDP has weaknesses. First of all, it doesn’t count the things that can’t be measured. Externalities like pollution, which during my university days a decade ago were justified as not being included in the economy because they couldn’t be measured, simply were ignored in economics as if they didn’t exist. (And thank God Australia is leading the way with the carbon tax, to help correct this fundamental flaw in economics.) But also just as problematic, is the fact unpaid labour isn’t counted.

Why does this matter? Because policy decisions are being made, and it biases activity that can be measured. Spending money on pollution cleanup, is seen as a much better way to operate than preserving the environment which doesn’t lead to income. This simplistic way of measuring not only will divert wealth creation (as true costs are not measured, distorting appropriate decisions), but it also doesn’t discriminiate on the inputs to production so that true quality of life value is created rather than just standard of life which chases income generation.

As this great piece six years ago by The Atlantic states:

Politicians generally see this decay through a well-worn ideological lens: conservatives root for the market, liberals for the government. But in fact these two ‘sectors’ are, in this respect at least, merely different sides of the same coin: both government and the private market grow by cannibalizing the family and community realms that ultimately nurture and sustain us.

I think what we need to do is realise, that wealth creation and its associated metric GDP, is simply one dimension to us being happy as humans. A second is our health, because without being alive and able to enjoy life, then what’s the point? What value is there in society if you’re dead before you get to contribute to it? And so with that, why isn’t life expectancy considered a core part of the measurement of our society’s progress, equal or even above what GDP is?

A third however, is something I know but still can’t place my finger on yet. I don’t know what to call it, other than perhaps the pursuit of happiness. When we manage to feed ourselves and keep a roof on top of our heads, then what? We need to be engaged in the mind, always looking to grow internally. We want to learn and experience the world, and always feel like we are progressing. Life’s a journey to Ithaca, where we “pray that the road is long”. And the science backs this up: our dopamine levels are at its highest at the signal of a reward (as opposed to simply the pursuit and then the actual achievement of it).

This is not me trying to push a solution to a problem that doesn’t exist. The problem does exist and it matters: we’re using growth as a proxy for our progress, and yet damaging the environment that keeps us alive which is one side affect of this approach. Our whole system of measure is GDP growth which is fundamentally predicated on the basis of a rising population, but in the next 50 years we’re going to see the western world’s population stagnate which will de-accelerate GDP growth. What are we going to do when we stop growing? We’re operating on a house of cards.

Most pressingly, we are now experiencing one of the biggest financial crises of our collective conciseness with our political leaders unable to decide or able to execute a solution to get out of the mess. Which is ironic, because the concept of GDP was invented the last time we experienced global economic turmoil.

It makes you wonder that maybe the solution isn’t just action, but an entirely different way to how we see ourselves.

The changing dynamics of news

September 7, 2011 / elias

In the recent controversy that has erupted due to the firing of Michael Arrington from TechCrunch, I believe it represents an era in innovation led by TechCrunch that we’re only starting to appreciate.

To start on this thought experiment, consider how four years ago (meaning, things haven’t changed) I wrote about the two kinds of content that exist: data like breaking news or archived news; and culture which includes analysis like editorials and entertainment such as satire.

I argue that each content form has unique characteristics that needs to be exploited in different ways. Think about that before digesting this blog post, because understanding the product (such as news) impacts the way the market will operate.

Some trends of the past
Over the last two decades, we’ve seen the form (and costs) of news be disrupted dramatically.

It started with hypertext systems that helped humans share knowledge (with the most successful hyperterxt implementation, the world wide web 20 years ago forever changing the world); search engines helping us find information easier (with Google transforming the world 10 years ago), and content management systems helping people reduce the costs of publishing to practically zero (with Moveable Type and especially WordPress driving this).

While the sourcing of news still requires unique relationships that journalists can extract to the world, even that’s changed due to social media that’s created a distributed ‘citizen journalism’ world. Related to this is a movement Julian Assange calls “scientific journalism” where the sourcing of news is now democratised and exposed in its raw form.

Some observations of the present
With that, I’ve noticed two interesting things about the tech news ecosystem, who are are helping shape the trends in news more broadly: tech bloggers kill themselves to break stories, to the point where blogs like TechCrunch have become cults for those that work there; separately, the rise of the news aggregators like TechMeme and HackerNews (or Slashdot and Digg before them) have built the audiences who have been overwhelmed by information overload and crave a filter from a quality editorial voice (the latter being why news personalisation technologies cannot work on their own).

The big secret (that’s not particularly secret due to the abundance of ‘share this’ buttons on webpages) about the news ecosystem is that it’s the aggregators who drive traffic to news outlets that report the news. When you understand that point, a lot of other things become clearer.

On the other hand, tech entrepreneurs break their backs for the hope of getting written about on the Tech blogs. The reasons vary from getting credibility so they can recruit talent; exposure so they raise money; and a belief that they can acquire customers (the whole point of building a startup).

Which leads me to think despite all these random observations I’ve listed above, there is a fundamental efficiency evolving in news reporting that may give an insight into the future.

Let’s keep thinking. Other things to consider include:

The audience starts with the aggregators for news and the articles whereby the better headlines tend to perform better
News in its barest form is making awareness of an event (data); anything additional is analysis (cultural) which is to shape understanding around the event
The rise of ‘scientific journalism’ and social media allows society to discover and share information without a third party (due to technology tools).
Press releases are an invention to communicate a message so reporters can base their writing on, who often just copy and paste the words.

Some thinking about the future
News should be stripped to its barest form: a description of the event. It should be what we consider currently a “headline”, with preferably a link to the source material. Therefore professional journalists, bloggers, and the rest of the world should be competing to break news not on who can write the best prose but who can share a one line summary based on their ability to extract that information (either by being accidentally at the event or having exclusive relationships with the event maker). The cost of breaking the news should be simply a matter of who can share a link the quickest.

Editorial, which is effectively analysis (or entertainment in some cases) and what blogging has become, should be left to what we now consider as “comments”. Readers get to have the “news” coloured, based on a managed curation of the top commentators.

Tying this together: Imagine a world where anyone could submit “news” and anyone could provide “editorial”? A rolling river of news of submitted headlines and links, and discussions roaring underneath the item reflecting the interpretation of the masses.

You could argue Twitter has become the first true example of that where most content is in full public view but with a restricted output (140 characters); people can share links with their comments; and the top stories tend to get retweeted which further gains exposure. Things could be similarly said about Digg, Reddit and Hacker News. But these services, along with Twitter (and Facebook) are simply an insight into a future that’s already begun. I think they are just early pioneers before the real solution comes, similar to how Tim Berners-Lee created a hypertext system in a saturated market that then became the standard; Google created a search engine in a saturated market that then became the standard; and WordPress created a blogging platform in a saturated market that then become the standard. Lots of people have tried to innovate in the news ecosystem, but I still don’t think the nut’s been cracked.

News has a lot of value, but there is different value based on who breaks it and who interprets it. For example, when I fire up some of my favourite aggregators, I tend to not click on the original headline but on brands I like so as to read their take on the event (though when I’m deeply looking into something, I dig for the source material). But the problem with news now, is there is a fundamental disruption on the cost structures supporting it: the economics favour those who break the news, with those that interpret news suffering as traditionally both these roles were considered the one function. Something’s going on and the answer is cheaper production, faster distribution and more of a decentralised effort across society and not the self-appointed curators.

While the newspaper industry is collapsing, something more fundamental is happening with news and we’re simply in the eye of the storm. Stay tuned.

What is StartupHouse? It’s a rocket

September 2, 2011 / elias

I’ve been getting a lot of inquiries on what is StartupHouse, a new business I will be unveiling to the world with the help of some of my friends. All will be revealed in due course, but in the interim, you might appreciate a video my good friend Al Faulkner produced on “StartupRocket”. Too many inside jokes to explain, but this parody done for our own private entertainment actually does a pretty good job explaining what’s to come 🙂

Why ICANN’s changes to TLD matter

August 27, 2011 / elias

ICANN two months ago made an announcement that domain names can now be extended beyond the generic TLD’s set (they also are allowing the use of non-Latin characters such as Cyrillic, Arabic, Chinese, etc). Meaning, instead of everyone competing to get a “.com”, people can buy “.yourbrand” and create websites off that. I think it’s brilliant — Ester Dyson, the founding chairperson of ICANN, doesn’t agree.

As someone that’s developed multiple online properties, organisations (both for-profit and not-for-profit) and had people try to rip-off several brands I’ve created, I’ve experienced enough to welcome this as a huge step forward — and here’s why.

ICANN’s strategy originally wanted to disrupt a market place player, which is why they assigned these generic TLD’s like .org and .net (.com was controlled by a corporation). But what matters now is not the historical reasons but what will benefit the world based on historical experience (and failed strategy). That benefit is better consumer protection and reduced costs of business.

Let’s rethink this
Consider the following:
(1) The purpose of a trademark is to allow customers the ability to distinguish what they are buying. It’s for the customer’s protection first.
(2) A domain name is simply a human-intelligent way to to access ip address. Whether it’s apple.com or apple.eats.microsoft — the point isn’t one of branding, but for humans to be able to identify a resource they seek.
(3) While there are plenty of domain names available, good ones no longer exist. There is a bias to having a “.com” and it’s why many companies from the web2.0 era had to resort to creative domains like del.icio.us and missing vowels like flickr.com

What the historical DNS system has done is create an unnecessary scarcity where domain name registrars and brokers of ‘premium’ domain names benefit. Having a company own the name space like “.IBM” makes perfect sense because “.com”, “.org”, and “.net” have lost their original meaning of distinguishing “commercial” businesses over “non-profits” and the like.

What matters more is that when a consumer wants the comfort of the company they seek, they can do it with the assurance it’s correct. “.paypal” for example could have huge implications for fraud detection for consumers (some fraud is done due to misspelled domains similar to the target or switching .com with another TLD). Better still, it actually decreases the cost of businesses for companies because they no longer need to chase the unlimited TLD variations of their name to protect their brand — which they only did so, so they wouldn’t lose customers confused by confusing branding.

ICANN’s changes are a radical change, but they are perfectly in line with the original intent of trademark law. Sorry Ester, but you’re wrong on this one.

Snake oil role models and silicon valley’s ponzi scheme

August 21, 2011 / elias

Several years ago, I considered someone “successful” because he had sold a business to a brand name technology company. Recently, I discovered he practically made no money from it. He’s still successful in my eyes, but when it comes to giving people advice on building a successful business I hold his opinion just as high as any other reasonably intelligent person — but no more.

This is a common issue for people living in Silicon Valley that they can relate to: Smart people that “sell” their company and become celebrated entrepreneurs. As a case in point Facebook has quite openly said they only acquire companies for the talent and not for the business itself. What this means is that the products the startup built isn’t the reason they exited; instead the value of the people in the business are what was acquired. If I was to start a solar company and buy expensive furniture — only to be “acquired” for the value of that furniture and nothing more, that’s not success; that’s just money being shuffled around.

I’ve been observing a trend where smart engineers think they are founders. They start a company, but they lack essential skills that makes the startup gradate to a sustainable business: which is what the entire point is for a startup (the search of a business model, which it can then execute on). These smart engineers are smart engineers — but they are not founders. And because there is a talent crunch, these companies will get “acquired” and be considered a success, distorting the story that will inspire and help future entrepreneurs.

A ponzi scheme built on snake oil
If a company is acquired before it generates positive cash flow or even revenue, it means what they build wasn’t a success in the context of “let’s copy that model”. As to why they were acquired, there could be multiple reasons: talent acquisitions are just one example, but there could be strategic value in acquiring a company as it complements the acquiring company’s existing product line. A product is a solution to a problem, and often people build great technology that is better classed as a feature. An acquisition gives these feature driven technologies a fake sense of validation. It’s a ponzi scheme.

Economically, this ponzi scheme doesn’t hurt so there is no need to regulate it: these founders cash out something and the company that acquires them can likely absorb the losses. In fact, the maturity of the information technology industry now has allowed for outsourced innovation which I think is a great thing. (Innovating in a big company is practically impossible if you ever meet someone who has lived to tell the tale, and now Silicon Valley giants can acquire disruptive innovation rather than solely relying on it to be generated internally.) But it also creates a fake understanding of what success is. An externality of this are small ideas and nothing game changing, the higher calling for those that can change our world.

A true measure of success
I’ve come to realise that the only metric that matters in business is cash. Not revenues, not number of employees — but cash that sits in the bank and the inflow of it that will grow it. I get nervous when I see companies hire ahead of their revenue growth and skeptical of companies that boast about revenue but sugar coat their margins. Cash is king, and any evaluation of a business is useless without understanding its cash position.

Which leads to why the ultimate goal of a startup is to be able to generate enough cash from customers so that it can fund its operations. You may want to change the world and that’s an honourable goal for a startup — but if you are not sustainable, you’re not going to last long enough to have that impact.

When we hear about smart people selling their companies, stop to ask are they really successful? Technology allows us to automate processes, but this simply allows us to scale operations due to reduced cost. But scalability is irrelevant in the same way revenue is irrelevant for a professional services firm that relies on the hourly input of its staff. If you’ve built something that improves society, while at the same time return increasing profits despite a constant investment — you’re a success and you should be ranked according to the fundamental value of the asset you build. And if you sell your company for whatever reason, you’re still a success: just don’t go around rubbing that snake oil in people eyes, because that’s not the medicine we need to foster the next generation of great businesses.

Everest syndrome is the biggest crime in our society

August 8, 2011 / elias

US President Barack Obama made an observation last April:

One of the things every time I come to Silicon Valley that I’m inspired by but I’m also frustrated by is how many smart people are here, but also frustrated that I always hear stories about how we can’t find enough engineers, we can’t find enough computer programmers. You know what, that means our education system is not working the way it should, and that’s got to start early.

A country facing recession and high unemployment, and yet Silicon Valley is in a talent crunch where companies like Google and Facebook have resorted to constantly acquiring companies now just for the talent. How so?

My friend Mike Casey (more on him below) and I have come to call this “Everest Syndrome”. It’s where our smartest men and women are wasting their potential in middle management of a large corporation. Where they climb the corporate peaks for the elusive goal of getting to the top, many killing themselves along the way and only to find out how lonely it is at the top.

I believe it is the biggest crime of our time, as these people should be at the forefront of our economy, driving its progress and ultimately increasing our standard of living.

Sketching the picture with some stats from Australia
I’m good friends with the guys that run Grad connection, the largest graduate recruitment website in Australia and the fifth biggest jobs portal in the country. I asked one of the founders Mike Casey to pull out some numbers to illustrate how graduates enter the workforce. Although their total database is much higher, we were able to get 17,887 students who specified a specific course they had studied — which represents about 12% of the 150,000 students that graduate each year.

While I’m sure we could get more scientific on this sampling approach as there’s a bias on their employers and hence graduates, it still paints a fairly representative picture on the broad base ‘commercial’ disciplines. Gradconnection has just five categories which account for 88% of the total sample population, which are as follows:

Commerce: 31%
Accounting: 20%
Banking: 18%
Information Technology: 11%
Law: 8%

Accounting and banking means 38% of graduates end up in financial services, and the lawyers grow that professional services group up 8% to 46%. (For context, services make 71% of the Australian economy — with the topic of this post referring to the now distinguishable quaternary sector emerging.) That’s not a good thing and here’s why.

A story by the storyteller
I went to a school that made me think doing a business degree was the right thing; and when at university, thought working at a big bank or professional services firm was the ultimate goal and what would make me successful in life. Those things in themselves are not a bad thing, but the attitudes they created were: at high school, I thought the people studying art were wasting time; and at university, I convinced a former school mate to make our newspaper venture a non-profit university society rather than an actual business that his father was willing to bank roll. The reason? I didn’t want to threaten my studies by a project, that would prevent me from “something important” like getting a job at a big firm.

That attitude I had — fostered by my environment — is pathetic. (Although ironically, this “non-profit” which challenged us to find a useful product/market fit exposed me to the Internet and led me to develop my first business idea of electronic newspapers…which fortunately never went passed the business plan.) Everyone can similarly liken it to how every good family has children that become lawyers or doctors, because that’s considered a good direction in life. My father — a lawyer of nearly 50 years now –often complains about the over-supply of lawyers in the industry: there just isn’t enough work to go around to sustain all these graduates.

We need graduates that originate value
I’m a chartered accountant and I’m proud to have survived the grueling process to become one. But like all professions, my training has me biased towards being a service provider. Service providers add a lot of value and we need them, but the thing is that they are optimisers of value, not originators of value.

If you had a nasty court case to handle due to a marriage breakdown, business conflict or car accident — then my father is a God-send because he can help you solve those issues with his expertise. But what happens where you don’t have any marriage, business or car issues that require his help? Well, you’re happy and he has no work. Service providers are inherently dependent on the rest of society, which is why there can only be a fixed supply of them.

This is very different to what I regard the originators of value. The art students I shunned at high school, can now do something in technology that has them one of the most sought after talent: design interfaces. Apple, a company that has brought interface design into the core of the company’s approach to building technology, will probably become the most valuable company in the world ever to have existed.

Similarly, scientists and engineers: they are builders. They can build value, for any industry and a solution to any problem limited only by their creativity. We will never have an excess supply of computer science students, because if they can’t get employed they can simply leverage their skills to entrepreneurship and employ themselves!

Accounting is the language of the business world and it’s why I decided on that path; but I’ve now come to appreciate computer science as the language of the information society. Those who smartly go in that direction, will be the leaders of our future.

We need more people in startups. But startups are not for everyone
If our smart people need to get out of the big corporations as a postulate, where should they go? They should be working in startups. And instead of being service providers at big banks, they should be product builders at disruptive companies.

But not everyone. I’ve observed multiple times personalities that are more detail-orientated and prefer structure tend to get more easily frustrated in the organised chaos that is a startup. They focus on execution, whereas a startup is more experimental and adaptive — and so clash with people who are the latter. While differences in personalities is a given thing in any work environment, the issue with these clashes is that you need people who can hold their head and not blow up. Conflict is fine, as long as it’s managed — and I’ve found more structure-orientated people tend to freak out more and then affect the work of their colleagues (which is the real issue, not the fact they need a more structured work environment).

But with that, is the only disclaimer I’m willing to give to Everest Syndrome. If there was one thing I could change in the world, it would be that. Because ahead of poverty, hunger, and war — it is smart people working on challenging problems that can help change the world. The Internet’s development and people understanding computer science creates the opportunity for not just new startups, but every day innovations that can automate processes (like research), connect people (like disaster relief) and maximise the opportunity for economic and political freedom for humanity.

Not everyone has the intelligence, passion and will to be a science researcher uncovering new medicines, one of the nobler career choices in my eyes. However, computer science is fast becoming the new literacy in business. Put more simply, if you don’t know how to put a website up on your own, then stop feeling pity for the third word’s first order impoverishment and reflect on the rich world’s higher-order impoverishment reflected in your inability. A symptom of a bigger impoverishment of the mind, that is a disillusion of what truly is valuable to drive our society forward.

About