A recipe for success

The most successful entrepreneurs have some combination of insightfulness, optimism, and luck. Luck can trump the other two and can be enhanced by building a potent legion of friends, admirers, supporters and people who owe you a favor.

Tax Rates are The Wrong Question:

As typically happens during campaigns, the arguments about tax rates in the United States focus on all the wrong questions.The real questions should be “what lifestyle do you want to live?” and, then, “what is the best route to get there?”

IncomeTaxRatesMitt Romney’s gaffe, describing the 47% of Americans who don’t pay income taxes as free-loaders is forgivable when you consider that the part of America that listens to Fox News regularly hears about it all the time.  The truth is there are people in all income brackets that pay no taxes, but most of them are poor – really poor.  NPR did a great job of framing up this part of the issue here.

I love this graphic from that report:

The Free-loader breakdown

It is an odd myth that has lead the American consumer to believe that controlling all their own money and spending would result in something “better.” Most people are not in a position to make well-informed decisions on all their purchases and most of the things they purchase are not necessarily best purchased by individual or effected by market forces.

You can search the internet and find dozens of people slicing the tax numbers dozens of ways and coming up with justifications for their own personal agendas.  You can say that you would like to pay lower taxes. Of course we would all like to pay less and get more on some level but the getting and giving are more complicated than that.

Personally, having experienced a few other countries with other approaches to this, I prefer to have good civil resources that keep everyone from being so desperate that they lose hope instead of having ultra low taxes and have to live behind barbed wire and armed guards.

Tax Rates in Industrialized Nations
Wikipedia

New Study: community-owned broadband is cheaper and faster

Regardless of what size you think government should be (I prefer a government powerful enough to protect the community’s shared interests), the one area where government has consistently played a positive and often powerful role is in the development of infrastructure. Sometimes – nay usually – the costs associated with developing large systems of roads or power transmission or, more recently, information transmission defy the time lines that businesses can operate on.  A community (another word for the government) can establish shared resources for a shared gain on a much more patient time line.

This study just released and reported on in TechJournal South supports what many of us have been saying for a long time.

Check out OneCommunity for a very positive example.

Pirates, Thieves and Terrorists: Who’s in charge of the economy?

For the last thirty years, the economy has been slowly taken over by [wikipop]pirates[/wikipop], thieves, and terrorists.

The economy – even before we called it that – always had a diverse set of participants. There have always been those who gathered raw materials, those who manufactured things from raw materials, those who traded in things of value and those who financed parts of the process. There have also always been those who made their living by disrupting this otherwise harmonious flow of value, namely: pirates, thieves and terrorists.

Value and Wealth must stay connected

If we go back a few generations – three for me – all these roles were what we would now call vertically integrated. The [wikipop]Quaker[/wikipop] farmers of my ancestry were soloists in the world  of commerce, as most people were back then. They gathered, built, and traded and maintained a keen sense of the market value of things because they lived and died by it. When things are on this simple level you can depend on “market forces” to keep the market players in line. Another way of describing those market forces is to say that wealth (things that represent economic possibilities like having 1 dollar in your pocket or owning something you can sell or use) must move somewhat proportionally to value. If you make something more valuable you see more return.  Defining value can be squishy and fluid – you know this if you are underwater on your mortgage. Lots of factors effect value. During a drought a gallon of water can fetch a better price than during a flood.  The newest iPod that retails for $249 is worth lots more than a new, still in the original packaging iPod that retailed at $249 two years ago. Under the right circumstances you might say “My kingdom for a horse.”The point is that a healthy capitalist economy requires that value and currency flow roughly together.  When they don’t, bad things happen.

If you are a farmer who has just sold your crop at a market, but get robbed on the way home, you no longer have the capital to grow the next crop.  That farmer suffers most, but everyone else does too. Suddenly there is less of that crop in the market place next year.  Costs rise for those who use the crop so funds must be diverted from other things or they buy less of it. If these buyers were making something to sell with that crop they are either making less of that thing, need to charge more for their product, or take less of a profit – the profit that they would use to invest in replacing tools or buying supplies. The ripples flow endlessly.

This is why human societies established law enforcement. Someone needs to stand in the way of these troublemakers or the whole thing falls apart because no one can predict what anything will really be worth.

For me, the economic troublemakers come in three basic flavors: pirates, thieves, and terrorists

Pirates

Pirates, by my definition, are those who absorb value from the flow of value. They position themselves in the path of delivery, real or virtual, and take whatever crosses their path. They obtain wealth from value transitioning from one entity to another. They tend to be indiscriminate of what types of wealth they take. This is a crime of structural opportunity. The ocean is vast, hard to patrol, and there are lots of places to run after the crime.

Thieves

Thieves target specific things that they want to have and take them by whatever means.Thieves obtain wealth from things that are supposed to be someplace in particular. Thieves take things out of cars, houses, and, increasingly often, the public coffers.  If you were to, say, contract with government, caretakers of the public coffers, to provide a service and that service fails to provide any value, then it is thievery.

Terrorists

Terrorists destroy value. Usually they are a proxy for someone else who sees some tangential gain from the destruction. Destroying someone’s business so yours will have less competition – that is an act of terrorism.

How they took over

If capitalism were a religion, piracy, thievery, and acts of terrorism would be sins. Unfortunately, we have confused capitalism and sinful capitalism. We have come to accept immoral activity that generates profit as acceptable, if not laudable, behavior. The truth is, however, that our willingness to accept these behaviors and not make them illegal or regulate against them, have created a randomness to the economy – rewarding all the wrong people far too often.

Pirates, Thieves and Terrorists have always existed in the economy but today they take new forms. In a large, complex, and mostly electronic economy there are lots of places to hide.  If there is no law enforcement in place, pirating or thievery start to look pretty enticing. Particularly pirating, is much easier than trying to create value on your own.

Unfortunately, these forces of economic destruction have grown so large that we have forgotten that they are dark forces instead of the norm.  Market forces cannot impact complex transactions.  The feedback loop that keeps markets efficient doesn’t exist when the buyers and sellers don’t have any access to understanding their choices or feeling the impact of their decisions. We need other players in the market – regulators of some form – to be the arbiters of safe value.

You don’t have enough Mentors

One way to keep from making the basic mistakes that kill most start-ups is to remain engaged with mentors. Notice the s on the end.  A proper mentor can offer a couple of things:

  • Expertise in things you are less knowledgeable in (see the Golden Boy sin)
  • Perspective on short-term problems: It’s nice to have someone who is not embroiled in whatever you are facing to help you
  • Long term dedication to your strategy
  • Grown-up logic

Useless Businesses and the Damage Done

Umair Haque, Director of Havas Media Lab, and one of my favorite troublemakers.  His recent article, titled Is Your Business Useless?, provides a great framework for thinking about the value of organizations and enterprises of all sizes. Good reading for people considering new ventures. As Guy Kawasaki says, “Tell me how you make meaning in the world?” It takes about as much effort, capital, life force, and other resources to start a business that has no social value as it does to start one that has piles of it. The ones that are imbued with real social benefit can operate on much less capital and return far more “value” to all concerned – investors, workers, and customers.  Too often, when we make economic calculations, we fail to recognize forms of value other than cash, but these other value measures tend to have a far greater impact on decisions than purely economic decisions.

Capitalism is a completely sustainable and efficient system if certain orders and rules are maintained. Specifically:

  1. The information to make informed economic decisions must be available to all decision makers. That means you and I can easily determine whether some transaction makes sense for us.
  2. Treasure must follow value. That means that the more value you create, the more resources you have.

Regulations have tried to safeguard these principles, but, as the banking crisis has illustrated, a global, complex economy makes policing much more difficult. But regulation shouldn’t be about puritanical right and wrong, but about applying the constraints that keep the economic engine growing at a sustainable rate – maintaining the bonds between value and money.

My family comes from Quakers, so I tend to seek out the simple truths. In the long run, nothing that anyone can do creates value at the rate that we saw the economy rise over the last decade.  If you look at the economic cycle from this perspective, all of the crashes were predictable. Regulation policy should really constantly be looking at the top ten places where money is being made and slow it down – not to punish success but to maintain an environment where success is sustainable and where there is some economic justice – where value and treasure move together. Ultimately, windfall profits always suggest an inefficiency in the economic feedback system and pure arbitrage should be minimized as it puts real value creation at risk.

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Redesigning Product

If things are still slow for you, it’s probably a good time to rethink how you define product.

I spend a lot of time with clients outlining the space between how they define their products and how their customers define their products.  Sometimes this has to do with real or perceived benefits. Sometimes this has to do with where the edges of the product are – the arc of the product experience. Sometimes this has to do with the transaction.

I recently gave away some advice to a potential client that is an excellent case study in this.

This client sells to a particularly downtrodden market (lots of those right now). They have a product offering that is very successful at driving efficiency – real, realizable savings – 150% ROI within the first 18 month. The problem is in initial purchase. There is a significant up-front cost.

No matter how good the ROI is on something right now, it is very difficult to find extra funds, either from funders or from cash flow.  I suggested  to this would-be client, let’s call them StartUpCo,  that, faced with no sales, they try to close some deals with a pseudo-lease deal that spreads out the risk. Real capital items might be able to be financed by a leasing company, the service costs and profits probably have to be financed by StartUpCo.

I’d probably start by trying to partner with a leasing company and setting up a payment schedule that gets your hard costs off your balance sheet within a quarter or two. I’ve done deals like this myself and included a reward for meeting certain performance criteria. If you can structure it as a percentage of realized savings, clients are usually happy to share the wealth.

For StartUpCo, the product was their software, hardware, and integration service. For the customer, the product was the improved work-flow and cost efficiencies. By including financing in the product, they bridge the gap between the two views, aligning value and cost for the customer.

Manage your energy for a 20% benefit

As a long-time reader of Harvard Business Review, I have come to appreciate the wide range of material and approaches the editors present.  This recent article outlining a controlled experiment at Wachovia Bank provides great insight into the ways that traditional business practices can be combined with physical and mental health practices to achieve real, measurable improvements to organizational output.  Manage Your Energy Not Your Time will become a classic article sited for years to come. At BizDevGuy we stress a holistic approach to all things, not slowing progress to ponder endlessly, but constantly expanding the areas that are considered as inputs to decision making and discipline. This article provides the most holistic approach I have witnessed to personal and organizational optimization.

A must read.

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Let’s learn again the Laggards Lose Out

Municipal WiFi was a good idea in 2000 and should have been approached as infrastructure to enable business as opposed to a business itself. This is an example of how capitalism impedes progress and development. If government had stepped in at the right time we would have been fully wired already with lots of opportunity for small players to play.

Back in 2000 I spent considerable time trapsing about Cleveland trying to get people excited about a Muni WiFi project that Peter May had suggested to me, using the light rail system in Cleveland as a right-of-way for distributing wireless connectivity to major points on the transit system. Using line-of-sight technology of the time as the backbone and 802.11B (all we had) for the end points. We figured out that for less than $1M we could have most of the city core blanketed in Wi-Fi in 3 months. That would have been 1) great PR for Cleveland, 2) a great scenario for that time in determining the types of apps that could be enabled by such an infrastructure and 3) an opportunity to sprint ahead to a business model not unlike what exists for many electrical utilities where government supsidizes certain build-outs that are then operated and supported (including billing and customer support) to individual concerns.
None of that happened, of course. What happended instead is that a brilliant technologist named Lev Gonick put together a deal to reuse dark fiber already under the city and create OneCommunity [http://www.onecommunity.org/]. If you’re looking for model for Muni-connectivity that works, try this one.

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