Four For Friday (9)

This occasional series of good readings from around the web covers the themes of strategy, technology, investment and regulation. This week’s picks focus on innovation and investment.

How do Innovators think? – from a  conversation between Professors Jeff Dyer of Brigham Young University and Hal Gregersen of Insead, and Harvard Business Review.

Paul Kedrosky writes about better alignment of limited partner and general partner interests in private equity. This is a two-fer for this article follows on from another article by Daphne Zohar here.

Fred Destin wonders if Europe is going to emasculate venture capital with misguided regulation. It is a great read but as many start-ups and early stage companies are finding, few VCs in Europe are actually paying much attention to the “venture” aspect of their business.

And a visual link on raising venture capital, from the incomparable OnStartups blog. Click through and see what occupies much of my time these days.

Four For Friday (7)

This occasional series of good readings from around the web appears when the week’s readings have been thought-provoking. The themes are strategy, technology, investment and regulation, but sometimes they just cannot be separated.

Adrian Chan (@gravity7) shared this article from 2006: differentiating risk aversion from betrayal aversion using game theory.

Sustainable Innovation is tricky. Always provocative, Alan mentions MIT-Sloan’s research and discusses why just reducing the cost of technology does not help innovation.

Chris Yeh explains why founders reap (seemingly) disproportionate rewards.

In policy-making, the intent matters but the outcomes, including unseen outcomes matter more. Ruth Levine asks if the US will have better global health policies but get worse results.

Four For Friday (6)

This occasional series of good readings from around the web appears when the week’s readings have been exceptionally good. The themes are strategy, technology, investment and regulation, but sometimes they just cannot be separated.

The World in 2030, by way of four scenarios for strategic planning, conceived by Ross Dawson.

This is a relatively old, in internet-speak, article but worth a read in case you missed it.Google is really in the auctions business. Read on.

Fred Destin calls a spade a shovel in The Funding Drought. A reality check for some, the final straw for others.

Curious about how memes spread? Infectious people spread memes around the web. (via @freecloud)

How Kevin Bacon can help your business

Or “how to use Network Science to advance strategic goals”. Sorry, but that wouldn’t make as catchy a title as the mention of Kevin Bacon, would it? But read on and you will see how Kevin Bacon could have smart lessons for business.

Let’s deal with Network Science first. Network Science is the study of networks – social, physical, biological and other kinds – to identify patterns, principles and possible algorithms in their interaction. It can help answer questions about how information is shared, how diseases may spread, how immigrants choose where to live, who knows whom and so on. Such understanding can help build predictive models of network behaviour. For instance, scientists have developed successful models to predict the spread of a disease. Such a predictive model can help focus preventive and curative resources to contain the spread of disease. The applications are numerous and varied.

Understanding the patterns, dynamics, principles and algorithms in social, biological and information networks can help businesses become smarter.

If businesses understand the whole context in which they operate, identify the links between seemingly unconnected factors and utilise the information about their networks sensibly, they could do things more efficiently and effectively. Here are some ways how.

Define problems better

Here is a real investment decision situation I saw many years ago. An investor received a business plan seeking funding to roll out high speed web access on high speed trains. Much time was spent discussing their customer contracts etc. When my opinion was sought, belatedly, I asked about the design and installation of antennae, the stage of manufacturing when the locos were being wired, and the relationship between the antennae design and supply company and the investment proposal in front of us.  Needless to say, involving me – who is an electronics engineer and spent a summer working in an Indian electric locomotive manufacturing facility supplying a European mega-brand – helped the investors redefine the investment proposition and change the conversation to their advantage.

Evaluate and allocate resources smartly

Close observation makes it clear that some start-ups are more likely to last than others. Amongst others, their ability to allocate their limited resources smartly makes a difference. If you are a software product or biomedical device company, with 4-5 employees, would you rather spend your time sitting indoors tinkering with your product to make it perfect or would you rather get it out in front of a sympathetic yet knowledgeable group of people who can help you get to the next stage – whether prototyping or mass manufacturing or something else? Knowing who in their network can help maximise the return on your scarcest resource – executive time and time to market – would give a start-up a considerable advantage.

Find and hire better employees, cheaper

Several consulting firms actively encourage their staff, with cash or non-cash incentives, to recommend potential employees for open positions. It helps them target a latent market of individuals who are not actively seeking a change, whose being employed is a signal of their employability; they can save costs by bypassing the need to advertise the open jobs. After all, an alleged 70-80% of jobs are never advertised. A new employee comes with an implicit recommendation of an existing one. The risk, that you end up hiring too many similar people, can be mitigated by being selective about the sort of linkages that are valuable to you.

Work your network. A network is as good as its connections, their dynamics and how they can help define and solve problems better.

Solve problems cleverly

Awareness of network dynamics can help generate innovative solutions to sticky problems. One such problem was the non-availability of credit to the unbanked people, the financially excluded and those whose poor creditworthiness meant large lenders are not interested in them. Nearly 41% of India’s population is unbanked, while estimates in the USA stand between 9-13% (pdf link).

Peer-to-peer lending emerged when willing lenders could connect with such borrowers via the web, utilising its global nature.There are now several P2P lending companies that make cash available to micro-entrepreneurs, students and other borrowers. Some others provide verification services to both parties involved. Creative solution to a real problem.

So, what does this have to do with Kevin Bacon?

Kevin Bacn (as if one needs a photo)_

 

Well he lends his name, to a social experiment called Six Degrees of Kevin Bacon. The premise is that nearly everyone is connected to Kevin Bacon, the entertainer, with 6 or fewer links in between.  For the record, I am two persons removed from Kevin Bacon on LinkedIn. If I were keen to learn to dance like him in Footloose, I would work my network.

The question is: are you working your network to get closer to your goals?

Related reading:

Beyond Privilege: Managing Information Asymmetries

Trust as social currency

Learning to love and solve multivariate problems

Interesting Links:

A short repository of links on Network Science on MIT’s website

Chris Brogan asks Will Companies Value Your Personal Network? The smart ones already do.

"I'm just a dumb pipe": Two strategy lessons from the PirateBay saga

Years ago, when I was a Research Fellow in MIT, the Recording Industry Association of America (RIAA) sued MIT asking to identify the student who used MIT’s network to upload copies of copyrighted music. Of course, while this was going on outside our freezing office – for some reason, MIT’s air-conditioning was regulated centrally from a building on the other side, the west campus – inside our freezing office, one of my fellow, er, Fellows was quite busy downloading episodes of Friends and Cold Feet. Obviously on the MIT network. He is a supersmart guy but the knowledge of the subpoena made no difference to him.

Now we have the PirateBay case where several content owners including Hollywood studios and record companies won the case against the Swedish file-sharing site, sending the young founders to jail and hopefully receiving $3.6 Million in fines.  What is PirateBay’s defence? That they are just a directory; they do not host content or otherwise enable swapping of files, like the original Napster did. They say they are “like Google” in that respect.

Businesses can learn from the PirateBay case and related emerging technology trends.

This is an interesting line of argument. Ever since YouTube was bought, it has been sued several times for copyright violations. The lawsuits began the minute YouTube had a wealthy parent i.e. Google. In contrast, it is highly unlikely that the young founders of PirateBay have the wherewithal to trump up $3.6 Million to the complainants. So, will Google be next in the firing line of the studios and record companies? After all, it enables people seeking illegal or free downloads. Can Google use the “I’m just a dumb pipe/ algorithm” excuse to defend itself?

The dumb pipe excuse is slowly losing ground. ISPs, the purveyors of dumb pipes to your and my offices and homes, are required by law to block certain categories of content. And it is not as if Google has not done some content filtering, whether it is for fear of offending some people or for fear of offending certain governments.

Businesses and content owners would do well to pay attention to the two emergent themes in this discussion.

What’s the strategic intent?

MIT’s network is used for several purposes including research, computing, email and web access. But it was not created with the intent of enabling students to do illegal things including upload content in violation of copyright and other applicable laws.

Google’s intent, in their own words with no added value judgements – is ‘to organise the world’s information and make it universally accessible and useful’. Its efforts at universal indexing however is famously stymied by the ‘walled garden’ nature of social networking sites such as Facebook. Randall Stross’s book Planet Google has an interesting chapter on the dilemma and you can read about some interesting new developments here.

Strategic intent is important for corporate mission statements as well as to ensure the business model is robust.

PirateBay differs from MIT’s Network and from Google in intent. PirateBay was created to track and index BitTorrent files around the world. I don’t know about you but I find it hard to believe that despite BitTorrent’s superior technology, highly valuable or confidential business documents are flying around on the web and are indexed on PirateBay. The PirateBay founders are smart and cannot have missed this point. Does that enable us to file PirateBay’s strategic intent under ‘reasonable doubt’? I think so.

It is worth reiterating that many lawsuits turn on ‘motive’, another word for ‘intent’. Those seeking to create legitimate businesses need to be clear – and not just in the corporate mission statements put out for public consumption – that the strategic intent is not to enable illegal activity. So thinking through business models is crucial including asking questions such as ‘if I were a swindler, how would I go about using the business model to my own ends?’.

Sounds obvious? Well, then we are good to go.

What’s the societal contract?

It is easy to see why child abuse and porn needs to be blocked. Our societal contract is to protect children who can’t always protect themselves. The logic is that if we can starve the supply and cull the demand simultaneously, as recent crackdowns around many countries show, we can deal with the scourge.

But what about films and music? Do copyright laws need overhaul? Or is it that the music/ film industry is out of sync and needs to reconsider their raison d’etre?

I have written about the issue before. My point was that: as consumers of music, our relationship is with the musician, his story, the mystery of his song-writing, his musical abilities, not with his record company. Record companies and musicians are not on the same side in this debate and recently a coalition of recording artists was formed to redress the balance.

So what is the societal contract here – for rewarding talent and for paying for what we consume, whether music or films? I think, at best, it is evolving. 

Businesses are not just dumb, legal entities. They function within a living, breathing society and must understand their societal contracts.

Musicians are trying to cultivate fans through album giveaways, pay-what-you-want downloads and ‘intimate gigs‘; some are even doing ‘fan-financing‘. But at the same time, musicians are trying to get copyright extended. Record companies are suing with enthusiasm. And consumers? As I mentioned early on, the subpoenas being served made no difference to my friend’s enthusiasm for downloading stuff from the web. Likewise with PirateBay’s user base.

But let’s apply the societal contract question to any other business. Your business. Does the business model serve the implicit societal contracts in its context? e.g. If you make a life-saving drug, will you only sell it in rich countries? Or will you at least try and negotiate with governments of poor nations to make the drug available? The questions you ask will be tough and specific to your context but they do need to be asked.

Alas, as growing evidence shows, the “I’m just a dumb pipe” excuse doesn’t fly anymore. Businesses operate within living, breathing, organic societies. Businesses aren’t just dumb, legal entities either. Understanding the societal contracts – and their evolution – is essential to creating business models that deliver the strategic goals as well as deliver on the societal contract.

This is an evolving discussion so do contribute your views.

Related reading:

JP Rangaswamy’s A Simple Desultory Philippic about Copyright is one of my favourite posts. I may not wholly agree with him. But he makes the point eloquently.