Invention vs. Innovation

January 11, 2010 in Essays

Everyone loves The Inventor. It’s pretty easy to see why: She is the person who got the ball rolling, he was the bright spark who came up with the idea, they are the people who created new products, services, systems and thoughts that provide great improvements in our everyday lives.

EmmetBrown

Accordingly, we’ve structured many parts of our economy and our legal systems to protect and encourage them. Concepts such as patents, copyrights and intellectual property were established to give inventors and creators and extra degree of protection.

A few hundred years ago, when these protections were first being conceived, it was understood that they were short term taxes on society to reward creators and inventors, with the hope that it would have a net positive societal benefit in the long run. Giving inventors a short-lived monopoly over their new idea was a ‘necessary evil’ to give them the incentive to create, without which (it was assumed) much less invention and creation would be done, which is a bad thing indeed. Short term pain, long term gain.

Copyright Symbol

Here is an excerpt from a speech given by Lord Macaulay in 1841 to the British House of Commons as they discussed a new copyright bill:

The principle of copyright is this. It is a tax on readers for the purpose of giving a bounty to writers. The tax is an exceedingly bad one; it is a tax on one of the most innocent and most salutary of human pleasures; and never let us forget, that a tax on innocent pleasures is a premium on vicious pleasures. I admit, however, the necessity of giving a bounty to genius and learning. In order to give such a bounty, I willingly submit even to this severe and burdensome tax. Nay, I am ready to increase the tax, if it can be shown that by so doing I should proportionally increase the bounty.

Macaulay’s argument is very well reasoned one – If giving the creator a legal monopoly over the ownership of their thoughts and inventions can be proven to increase the benefit to society (more/better books, music, products, services etc.) then it is a good thing.

Now here’s the problem – The bounty isn’t worth the tax. Don’t get me wrong, I do think that the total benefit to society of new inventions, works of art and creative thoughts are hugely invaluable, I just don’t think that the original creator should be credited with providing most of the benefit.

Patent

The Innovator

This is where I draw the distinction between the Inventor and the Innovator. The Inventor creates the new idea, but it’s often The Innovator that brings it to market. Without The Inventor we would have no new ideas, but without The Innovator those new thoughts might never reach people to provide a benefit.

Wired magazine’s recent article “Time Your Attack: Oracle’s Lost Revolution” provides a perfect illustration of this. The article discusses Larry Ellison’s failed attempts at building a cheap Net PC:

They imagined a simple machine that would eschew software installed on a hard drive in favor of accessing applications online. Data — videos, documents, pictures — would be stored in Oracle databases instead of on the computer itself. In place of a robust operating system, this machine would work with programs and files through browsers like Netscape Navigator.

In essence they were coming up with the idea of net books and cloud computing – as I’m sure many people at the time were. The article continues:

It was a powerful idea, one that would enchant companies and analysts throughout the IT industry. But it would ultimately fail.

This is an example of how an idea that we know is great (because net books are selling like hotcakes) can still end up failing. If we had applied our inventor-centric view of the world to this idea back in 1999, we would have been happy if Ellison had acquired full intellectual property rights for his idea. After all, he was the idea man and we needed to reward him and others for coming up with great ideas.

But Ellison didn’t get the monopoly on this idea and right now we can all agree that that is undoubtedly a good thing. In the decade since then there has been a slow and steady growth in the area of cloud computing and an explosive growth in the sales of net books. This has come about through slow but steady improvements, incremental upgrades, iterations and developments by thousands of people, none of whom necessarily “invented” the original concept. This is the value of The Innovators. They take an invention and bring it to market, make it more efficient, make it affordable, create smarter distribution channels to get it into peoples hands and improve it again and again over time.

The Wright Brothers' First FlightWhen considering the total benefit for society that comes from a new technology like this, it is obvious that the lions share is created by The Innovators and not The Inventor. Consider all the benefits we get from the modern aviation industry. A small (but significant) portion of that is from the Wright Brothers, but the majority is from all The Innovators in the industry over the last number of years.

A Note of Caution

Recognising the importance of The Innovator can help us view the modern legal system from a different perspective. Intellectual property concepts were always intended as a means to an end. They granted creative businesses and individuals a certain amount of protection so that in turn they could provide a benefit to society.

But how do they affect The Innovator? As you might have realised by now, their affects can be quite detrimental. If Larry Ellison and Oracle had spent the last decade suing and intimidating any small company that tried to progress the development of net books and cloud computing we certainly would have been worse off than we are today.

Great new internet services that provide us innovative ways to discover content (like YouTube, google, spotify etc.) seem to be getting sued for copyright infringement almost every other day. Any time an innovative technology is released it seems inevitable that it will be sued for patent infringement, most likely by a competitor jealous of the success they couldn’t achieve – most often because they didn’t give customers the same level of value.

Is The Inventor’s bounty worth this tax? I don’t think so.

We need to realise that ideas by themselves do not provide huge benefit to societies, the value lies in making them a viable reality. A new technology will often remain an unwanted product until someone makes it simple and easy to use. An invention is no use to me unless I can afford to get my hands on it. I can’t enjoy a new song if I can’t first discover it then listen to it. A great book is no use to me unless I get to read it.

The benefit of The Inventor is rarely felt without the work of The Innovator and we can’t afford to keep punishing one to protect the other.

iTunes Beats Paypal for Registered Users

January 7, 2010 in Essays, Technology & Science

A few months back I was watching Apple’s Rock N’ Roll event (this post has been in my drafts half written since then!), and one thing mentioned that really struck me was the number of registered iTunes users who have registered credit cards – a whopping 100m.

I’ve seen the comparisons done between social networks (“omg, Facebook is bigger than Brazil!”), but hearing the iTunes figure made me realise that I have no clue how that stacks up against the other big hitters in the online world, so I did some research…

Registered Users

Ebay – 88.4 million

Paypal – 75.4 million

Skype – 480.5

Facebook – 300m

iTunes – 100m

Gmail – 146m

Yahoo Mail – 285

Windows Live Mail (msn/hotmail) – 343m

Wikipedia – 10.5m registered (only 148k ‘active’)

I’m still shocked that iTunes has more credit cards registered than Paypal, that’s a very impressive asset. I’m going to try dig up the equivalent for Amazon, but it’s tricky to find. The skype numbers should be taken with a pinch (or a truckload) of salt, as their definition of “Registered User” is basically any skype account ever created, including ones that were never used, have been inactive for years or multiple accounts for the one person.

Graphs

I thought some graphs might be nice so I did that too:

Registered Users

reg users pie

Definitions

Ebay – All users, excluding users of Half.com, StubHub, and our Korean subsidiaries (Gmarket and Internet Auction Co.), who bid on, bought, listed or sold an item within the previous 12-month period. Users may register more than once, and as a result, may have more than one account.

Paypal – All registered accounts that successfully sent or received at least one payment or payment reversal through the PayPal system or Bill Me Later accounts that are currently able to transact and that received a statement within the last 12 months.

Skype – Cumulative number of unique user accounts, which includes, among other things, users who may have registered via non-Skype based websites and users that have more than one account.

Wikipedia – Active: Users who have performed an action in the last 30 days.

Sources

Yahoo Mail, Gmail, Bing Mail, Ebay, Paypal, Skype, Facebook, Wikipedia,

Let me know if there’s any other companies you want me to add to the stats.

Murdoch’s Paywall

November 23, 2009 in Business, Economics, Essays

There has been a lot debate online recently surrounding Rupert Murdoch’s change of mind about paywalls for his online newspapers. I’ve been reading a huge number of arguments on both sides (including a 40min video interview with Rupert himself) and am sad to say that most of them seem to be missing the point.

Earlier today I read Adrian Weckler’s article ‘The case for a paywall for Irish newspapers’, and decided to write my response in a post here, and to summarize my thoughts on the debate in general.

Paywall or Die?

Ardian makes many of the points that are being made by journalists and newsfolk around the world, that the business model is collapsing and they can’t afford to keep giving it all away for free. He finishes his article with the question:

But if the choice is a continuous decline in circulation figures or a paywall, it’s not really that tough a choice. I mean, ask yourself: what would you do?

The fundamental problem in the paywall debate, but the one too often overlooked, is one of supply and demand. The question the article asks is “Should we decide to command a price, yes or no?”, but economics tells us that the only question one can really ask is “Can we command a price“.

As a simple analogy, imagine one major Irish newspaper put up a paywall, but none of it’s competitors decided to follow suit. This paper obviously wouldn’t do so well, most of the news stories would be available in the other major publications or elsewhere online, it’s own articles wouldn’t be shared, tweeted or linked to as much as other papers and it would also lose the water-cooler effect if much fewer people are reading it.

This is the best analogy I can think of to describe the problems I see with an industry wide paywall – but the problems that afflict that single newspaper would hurt the whole industry, and the competition would be from other online news sources, international papers, bloggers and independent journalists.

The Economics

If you view news as a commodity, it can be fairly undifferentiated. If you take my analogy above, there are some people who would stay and pay for the subscription, but most would not. This is because the news is largely the same to them regardless of the source.

It is also served up at a near zero marginal cost. Think about it, how much does it cost the Sunday Business Post for each additional article read by a new visitor (or even – how much does it cost yourtechstuff.com?). In economics, when the market is competitive, price will always fall to the marginal cost. If you’re in an industry with a marginal cost of close to zero, it will be very, very, very difficult to command a price.

The Business Model

So back to the closing question, paywall or death? As always, (and without wanting to sound like a Carlsberg commercial) there’s a better third option here. This is a business model problem that newspapers have. In print, they have little competition for audience attention, and therefore can sell that attention for a high price to advertisers. Online, this is not the case, and so the price the can command for advertising is much lower. They therefore need a new revenue model, and here’s my suggestion for how they should get started:

Always remember that standard news articles cost nothing to distribute, attract an audience and command no price, so if you’re going to publish them, keep them free. Then figure out how to convert a proportion of the readers of those articles into paying customers.

If you want to charge your readers (or a subset of your readers), start by asking what value you can add to your service to make it worth the price. This is the biggest flaw in Murdoch’s plan – he’s wants to introduce a new price, but without introducing a new clear reason for his customers to buy. Some publications, like the WSJ, already add value by offering in depth insight into content for a specific market. This is one option, but it does leave you open to new competition that could easily offer the same content for free.

Preferably this new revenue model would involve selling new scarcities, such as personalisation, physical products, access to ‘behind the scenes’, or an editors time (e.g. letters to the editor can be read by everyone, but only written by subscribers – or better yet a discussion forum with the editors, accessible only by subscribers).

Here are some quick examples of news organisations leveraging free news articles to sell scarcities (there’s obviously not too many examples though, otherwise the industry wouldn’t be in such a pickle!):

  • Tecdirt’s “crystal ball” membership option – for only $15 per year “with the Techdirt Crystal ball, we give you a chance to see the headlines of some of the posts we’re working on, and some indication of when they might get published. And, once a story is published, you’ll be able to see it up to 60 minutes before anyone else can.”
  • The New York Times’ Gold & Silver online membership plans – The packages carry an annual cost of $150 and $50, respectively, and emphasize behind-the-scenes benefits like newsroom tours, exclusive videos of reporters telling “the story behind the story” and ancient back issues.
  • The Insight Community – a clever way to charge a brand to work with your readers to build or design a new product.

So that’s my input and advice for this debate, and can be summarized in these two lessons that I learned on my first day of Leaving Cert Economics:

  1. In order for a good to command a price, it must be scarce in relation to demand
  2. In a competitive market, price will always fall towards the Marginal Cost of production

Sounds Like Advertising

July 27, 2009 in Essays, Uncategorized

In a similar vein to my last post about “Content as advertising“, I’ve been thinking about how this concept could be picked up on and used by the music industry. Think “music video as advertising“, but hopefully without the corporate-sellout overtones!

The Pirate Bay

These days, a lot of artists are realising that the free distribution of digital music, which the internet provides, is more advantageous than it is damaging (think “Youtube viral” rather than “Napster file sharing”) and that obscurity is a much bigger threat than piracy.

Given that this is the case, and many artists are using free music to create and grow a fanbase, they should try keep their costs as low as possible to start off. But they also want a good music video, something that compliments the track and that people can watch on Youtube. So why not let a company create your music video? This way the company can get some genuine content to help them advertise (not just some old jingle) and the band get money, exposure and a free video.

YouTube

Have a look at the YouTube stats, a huge proportion of the top videos are music videos – with the top spot going to Avril Lavigne’s Girlfriend with 122,399,477 views. On the other hand, the advertisements with the best songs are generally the top viewed, e.g. O2’s most popular Irish youtube video is the one with the new Florence + The Machine song Cosmic Love. The ad was released a month before the single, making the ad the only place people could go to hear it, and quick skim through the comments (e.g. “i love this song :)”) shows that people are watching it to hear the song. It’s a win-win: Great exposure for both O2 and for the song (now in the Top 10 in the Irish iTunes chart).

I Want My AdTV

The next step up from “great song meets great ad” is an advertisement as a music video. I know that to some this will sound like a very ugly combination, but I’m sure it can be done in a way that is tasteful and doesn’t compromise the integrity of either the artist or the song. In fact, that’s the beauty of this approach, if it was too corporate or all about the advertisement then no one would want to watch it! It is in the company’s best interest to leave the art as uncompromised as possible.

As before, I can’t find any good example of this having being done yet, but I think this video below (found via a fluffy link) could have been a perfect example, if it was slightly more music video and slightly less advertisement.

Content is the Advertisement

July 15, 2009 in Essays, Marketing

This is an idea I touched on in a previous post called signs. The post was about a nice short film, which centred around a guy and a girl falling for each other through a series of short messages (it’s well worth the watch).

I suggested that this kind of short film could have been a great advertisement for Twitter (a TV ad in the YouTube age). It was very enjoyable to watch, it showed the importance, benefit and joy of communication and how it can be incredibly rich even if constrained to short bursts. This kind advertisement, which creates a branded, emotional connection, is one that companies have been trying to perfect for decades, but unlike most of their previous 30 second efforts, this YouTube short movie was very enjoyable to watch!

Had this work been commissioned by Twitter and uploaded to their YouTube channel (not even necessarily branded as a Twitter short movie), this is what I could call Content as Advertising.

This is different to content as marketing. An example of content as marketing would be a company blog, which offers advice to small business on it’s field of expertise, which generates word of mouth about this company and gives it a great reputation, which in turn generates more sales leads. Content as marketing is something most people reading this blog will be familiar with. Advertising as content is something different. It’s not quite as blunt as product placement, and it’s deeper than just having your own jingle.

Last week I saw (on Christian Hughes’ Digitology blog) one of the best examples of content as advertising that I’ve come across so far. It’s a series of short web episodes, and is incredibly brave for the company behind it (Proctor & Gamble), both in it’s concept and it’s content. It’s the story of a boy who wakes up with “Girl parts…. down there ” and it follows his journey, almost as if he’s a young girl discovering puberty/her body/herself. Now, because the product is Tampax, and I’m a 24 year old lad, I’m not really in a place to comment on the advertisement’s effectiveness, or how relevant it is to their target audience, but I do admire what they’re doing – or at least trying to do.

The first video has close to 40,000 views at the time of posting. Hopefully the story line is compelling enough for them to draw a good audience and connect with a lot of new customers. I also hope to see more companies exploring and trying out this genre as I think it could be beneficial to both advertising and the arts.

Three Wise Men

July 5, 2009 in Essays, Uncategorized

I’ve taken three interesting posts, from three wise men, and combined them to ask one very challenging question. Each are well worth a read, but I’ll do my best to provide a quick summary if you don’t have time.

1. David McWilliamsExposing the lie of the land

The real fair value means that, in a world where house price speculation is over, Irish house prices will have to fall on average by 50 per cent from where they are today to be worth buying. Madly, even after a year of house price contraction, the P/E for the average Irish house stands at over 29 times – twice the historical average for property.

2. Seth GodinIgnore sunk costs

You have tickets to the Springsteen concert. They were really hard to get…… On your way into the event, a guy offers you $500 cash for each ticket….. If you wouldn’t be willing to PAY $500 for these tickets then you should be willing to sell them for $500. Spend $250 on dinner and go buy better tickets for tomorrow night’s show.

3. Ronan LyonsIs it cheaper to buy or rent?

Taking the three posts together we are presented with these observations:

  • Property prices are most likely going to continue to fall
  • If you sell your house now and rent for the next few years, you won’t be significantly out of pocket cost wise.
  • If you chose not to sell your house now, and agree with David McWilliams, then you should treat the drop in house prices as a real cost. As in Seth’s example, if house prices are to drop by 50%, the question you need to ask is “would I be willing to pay 50% more for this house than I did?”

Which leaves us with an almost uncomfortable conclusion – If my house could sell for €400,000 today, and I assume that the drop will be only half as bad as David’s estimate (25%), am I willing to PAY €100,000 for the luxury of home ownership over the next 3 – 5 years?

Social Media

May 9, 2009 in Essays, Uncategorized

Facebook, Bebo, Youtube, Twitter… you know what I’m talking about when I use the term “Social Media”, but how accurately does it describe this collection of online spaces, sites and applications?

I Hate It

Part of me hates the term, because I know what it implies and how so many marketers use the term. When we think of “Media” we think of newspapers, TV and Radio. Media have always been broadcasters of information with large captive audiences, and because of this they’ve always been a brilliant medium for businesses to communicate their message to consumers (via advertising).

There have always been other channels of communication, such as word of mouth or customer service, but they’ve never proven as powerful as traditional media. In a disconnected world, word of mouth was rarely as powerful, and never had the reach of traditional advertisement.

This created some unfortunate economics – once a product reached an adequate level of quality, it was usually more efficient to invest in a good advertising campaign than in improving the product further. Leaving morals aside, it was often a smarter move to plaster “David Beckham uses this product” all over the TV and papers, than it was to invest the time and money into making your product truly remarkable.

Because of this, when many marketers hear the word Media, they think one way communication and mass market advertisements, rather than conversations with people. As we’ve all seen, when this thinking is applied to “Social Media”, the results are hideous – boring ads on youtube, using twitter to spam followers and using social networks to fling marketing materials at users.

I Love It

Word of mouth“, recommendations from a friend and plain old conversations with customers have always been a medium of communication for companies, but for the reasons laid out above they were never considered to be part of The Media.

Nobody (on either side of the company/customer relationship) has ever loved advertising, but with communication channels being what they were, it was the most efficient way to get messages to large amounts of people.

With the advent of the internet, other mediums of communication, such as talking directly to customers, or customers talking to one another, have become much more efficient, more economical and more wide spread. These channels have always been media of communication, (even if nobody called them The Media), and that’s why I think the term Social Media describes them so well.

So…

I’m going to keep using the term Social Media. Mostly because I can’t think of another term that describes it better.

In an ideal world business people would see Facebook, Twitter, Youtube etc. and realise their power and potential, and then, upon hearing the term Social Media, would fundamentally re-evaluate their concept of “Media”, realising that it’s no longer as limiting as it once was, and that communications are becoming immensely richer.

In practice, however, I assume the opposite will continue to happen for the next while. Marketers will hear the term Social Media and will use all the same practices they’ve used with traditional media – by communicating at people, by assuming one directional, mass advertisements are still the most efficient way to convey a message, by presuming that listening to customers is still too costly and cumbersome –  and will taint our lovely Social Media term in the process.

But not to worry, it just means a bigger advantage for the people who understand what Social Media really means!

note: obviously with all media any message can be communicated. Social Media could be about bands talking to fans, or politicians to their constituents, or even just friends and family talking together, but this is a blog about business and marketing, so that’s what I talked about.

Using Downtime to Upskill

March 18, 2009 in Essays, Fuck The Recession

learnFor reasons that I don’t need to explain, many people are finding they have a lot of free time on their hands these days.

If you’re out of work there are many people giving great advice on using social media and the internet to upskill yourself and get back in the game. I think this is great advice, and there are already lots of people doing it well.

If you do decide to upskill, what skills should try learn? For some people the answer could simply be improving a skill you have or persuing something you have always wanted to do but never had the time. If, however, you want to invest your time in a skill that will directly increase your employability (if that’s a word!) then you should check out the Elance blog.

If you don’t know it, elance.com is an online marketplace for professionals. You can use it to hire people for a project or to offer your services online. Each month they publish a list of the most in-demand skills. Here’s the top 10 skills that people were looking for in February. Hopefully it can help you decide what to focus on.

February Rank Skill Name Trend from January
1 Graphic Design 0
2 PHP 0
3 MySQL 0
4 Logo Design 0
5 Article Writing 1
6 HTML -1
7 Web Content 2
8 CSS 0
9 Illustrator -2
10 WordPress 0

 Click here for the top 100.

Growth, Reproduction, Generations and The Recession

February 12, 2009 in Economics, Essays, Evolution, Fuck The Recession

I was going to call this post “How Darwin could help us out of this recession” in honour of his 200th Birthday today. Apologies in advance for the length, but I hope it’s worth it.


The last book I finished reading was Richard DawkinsThe Extended Phenotype. It was fantastic. Although it has given my mind enough fodder for several blog posts, I’ll start with the very end of the very last chapter, which I finished the week that the big three car companies in the US went to congress looking for a bailout.

Reproduction vs Growth

What is the difference between reproduction and growth? It may seem obvious at first, but apparently it caused biologists a spot of bother back in the 70s.

When an organism grows, it mostly does this by replicating cells over and over. My hand, for example, grew in size from when I was a child. It did so when cells in my hand multiplied to form more skin, muscle etc. for a bigger hand. All of these cells contain the same DNA (my DNA) because they’re all me! In an evolutionary sense, all of the cells with my DNA – which are all the cells in my body – are working together to make hands and eyes and organs and tissues to get me through life and to reproduction, to pass my genes on.

Reproduction is obviously different. It involves two organisms coming together, to produce a third organism which is an exact copy of neither. Right? Wrong! But then what about a-sexual reproduction? When a bacteria cell divides in two, both are copies of the parent, is this really reproduction or is it just growth like the cells in my hand? And that was the stickler.

So What?

The discussion is fascinating and well worth a read, but not overly important for this post. The crux of the difference is that growth involves dead end replication – if there’s a strange mutation in the cells in my hand and the DNA suddenly begins to code for a new finger to grow, this will affect my hand only. If my hand gets chopped off, my future sons or daughters will not be born hand-less; If I get a tan they’re still be born a pasty Irish white! Reproduction is replication of DNA that will live on, forming a new organism which will potentially reproduce again.

A long time ago in a primordial soup far far away….

The importance lies not in understanding “what” is the difference, but “why?” If you cast your imagination back a few billion years to a primitive earth, where the first single celled organisms were appearing in the primordial sea. It’s obvious why some of them ganged together and found a competitive advantage as a multi-cellular organism. But what’s not obvious is why did reproduction evolve? Here are two examples from the book that best illustrate this point:

Imagine a primitive plant consisting of a flat, pad-like thallus, floating on the surface of the sea, absorbing nutrients through its lower surface and sunlight through its upper surface. Instead of “reproducing” (i.e. sending off single-celled propagules to grow elsewhere), it simply grows at its margins, spreading into an ever larger circular green carpet, like a monstrous lily pad several miles across and still growing. Maybe older parts of the thallus eventually die, so that it consists of an expanding ring rather than a filled circle like a true lily pad. Perhaps also, from time to time, chunks of the thallus split off, like icefloes shearing away from the pack ice, and separate chunks drift to different parts of the ocean.

Now consider a similar kind of plant which differs in one crucial respect. It stops growing when it attains a diameter of 1 foot, and reproduces instead. It manufactures single-celled propagules, either sexually or asexually, and sheds them into the air where they may be carried a long way on the wind. When one of these propagules lands on the water surface it becomes a new thallus, which grows until it is 1 foot wide, then reproduces again. I shall call the two species G (for growth) and R (for reproduction) respectively.

These two outcomes were possible, but the second one (R) is what we recognise as the modern plant. For this to evolve by natural selection it has to have had some advantage over pure growth (G). In what way is reproduction a more successful competitive strategy than pure growth? I’ll let Prof. Dawkins explain it better than I ever could:

…the significance of the difference between growth and reproduction is that reproduction permits a new beginning, a new developmental cycle and a new organism which may be an improvement, in terms of the fundamental organization of complex structure, over its predecessor. Of course it may not be an improvement, in which case its genetic basis will be eliminated by natural selection. But growth without reproduction does not even allow the possibility of radical change at the organ level, either in the direction of improvement or the reverse. It allows only superficial tinkering. You may divert a developing Bentley into a fully grown Rolls Royce, simply by tinkering with the assembly process at the late point where the radiator is added. But if you want to change a Ford into a Rolls Royce you must start at the drawing board, before the car starts “growing” on the assembly line at all. The point about recurrent reproduction life cycles, and hence, by implication, the point about organisms, is that they allow repeated returns to the drawing board during evolutionary time.

On Detroit

I read that for the first time last month, and I think I enjoy it even more every time I read it. Biology is such a powerful teacher. Evolution by natural selection is by far the most powerful scientific theory that I’ve had the fortune to learn. Natural selection has no intelligence behind it – the most successful organism (or gene or evolutionary strategy) will reproduce and live on, lesser alternatives will not. When nature has a way of doing something we should take note, as it’s more than likely the best possible way that it can be done.

So on the occasions that free market economics fails us (as it’s been accustomed to doing of late!) we should look to Biology for guidance. How can we apply the learnings that reproduction is better than growth, that the continuous life cycle beats never ending expansion, that rebirth trumps a resistance to ending?


Once more I’ll quote someone who can say it much better than me. This is an excerpt from a Seth Godin post titled What to do About Detroit:

Not only should Congress encourage/facilitate the organized bankruptcy of the Big Three [car manufacturers], but it should also make it easy for them to be replaced by 500 new car companies.

Or perhaps a thousand.

That’s how many car companies there were 90 years ago.

That’s right, when all the innovation hit the car industry, there were thousands of car companies, with hundreds running at any one time. From Wikipedia:

Throughout this era, development of automotive technology was rapid, due in part to a huge number (hundreds) of small manufacturers all competing to gain the world’s attention. Key developments included electric ignition (by Robert Bosch, 1903), independent suspension, and four-wheel brakes (by the Arrol-Johnston Company of Scotland in 1909).[16] Leaf springs were widely used for suspension, though many other systems were still in use, with angle steel taking over from armored wood as the frame material of choice. Transmissions and throttle controls were widely adopted, allowing a variety of cruising speeds, though vehicles generally still had discrete speed settings rather than the infinitely variable system familiar in cars of later eras.

Between 1907 and 1912, the high-wheel motor buggy (resembling the horse buggy of before 1900) was in its heyday, with over seventy-five makers including Holsman (Chicago), IHC (Chicago), and Sears (which sold via catalog); the high-wheeler would be killed by the Model T.

What we don’t need are giant companies with limited choice, confused priorities, private jets and a bully’s attitude.

I’d spend a billion dollars to make the creation of a car company turnkey. Make it easy to get all the safety and regulatory approvals… as easy to start a car company as it is to start a web company. Use the bankruptcy to wipe out the hated, legacy marketing portion of the industry: the dealers.

We’d end up with a rational number of “car stores” in every city that sold lots of brands. We’d have super cheap cars and super efficient cars and super weird cars. There’d be an orgy of innovation, and from that, a whole new energy and approach would evolve. Betcha.

I know this post has been mostly me patching together the thoughts of two men much smarter than me, but I think there’s value to be gained from linking the two.

I don’t think this is just a lesson to be applied to certain industries, but in fact could be applied to modern economics as a whole. Capitalism is still quite young and questions like “for how long should a company live?” need to be be considered. The demise of a company like Waterford Wedgewood is obviously not good for the company itself, but the existence of a company life cycle is beneficial for the economy as a whole. This life cycle, with the expectation that companies will some day reach the end of the line, is not something that should be fought by our governments with bailouts or protectionism. It should be expected, managed, normalised and encouraged so that a sector, an industry, an economy and a country can be reborn stronger than before.

Recruit When There’s Blood in the Streets

January 4, 2009 in Essays, Fuck The Recession, Investing

Be fearful when others are greedy and greedy when others are fearful.

That’s one of my favourite Warren Buffett quotes. I’ve learned a lot from him (indirectly, of course), not just about investing but about business and life in general. For those of you who don’t know him, he’s the richest man in the world, and has made his money from finding and investing in great companies.
I subscribe to the Motley Fool and read many of their great articles. They’re champions of the Buffett style of investing. It’s not all “buy buy buy, sell sell sell!” Charlie Sheen style trading. It’s about owning great companies, with great business models, that care about their customers. It’s about being in it for the long run and the big win, not the quick buck. As Mr. Buffet himself remarked about his company Berkshire Hathaway “Our favourite holding period is forever. “
One recent Motley Fool article that I liked was called Learn From Buffet’s Patience – in reference to his billion dollar investments in Goldman Sachs and General Electric and his Op-ed piece in the NY Times saying that he was personally buying American stocks & shares last October (read: as the world Economy headed into a depression). An excerpt from the Fool article:
On the other hand, this is Warren Buffett, and he’s made these sorts of predictions before. The years 1973 and 1974 were two very bad ones for the market. Over those two years, the S&P 500 plunged by 42%. It was then, on Nov. 1, 1974, at the height of the pessimism, that Buffett made his first well-publicized bullish market call : “Now is the time to invest and get rich.” 
Buffett himself was buying shares of The Washington Post. He paid just $11 million for an investment worth nearly $1.4 billion at the end of 2007 — a 127-bagger! Of all the stocks listed, Washington Post is the biggest gainer — by a factor of 12. While relatively small in dollar terms, it’ll certainly go down as one of Buffett’s greatest investments. 
But do you know what happened to the stock right after Buffett began buying shares in 1973? Shares plunged 20% and stayed there, not for a few months, but for three years. It was 1976 before Buffett was in the black, and it was 1981 before WaPo traded at Buffett’s estimate of its 1973 intrinsic value.

Think about that: What ultimately became one of Buffett’s greatest investments began with three years of double-digit losses and mind-numbing stagnation. Patience pays, Fools.

It encapsulates the two of my favourite meme’s I’ve learned from him: Bucking the trend, and ‘being in it for the long run’ are two vital ingredients for success.
And this doesn’t just hold true for investing. When I look, I see it in all the great advice I get about business, about how marketing is about building relationships with customers, how successful business appreciate the life time value of a customer, how the best executives think past the next bonus check or year-end KPI.
Where I see this as very applicable right now is in recruitment. In an environment when every day there’s a new headline about head-count reductions and redundancies left, right and centre, who has the courage to zig when everyone else zags? If you’re in HR, or in the position to hire staff, are you brave enough?

Uncertainty is the friend of the buyer of long-term values.
I’m 24. I was out for drinks with friends over christmas and we got to talking about job hunting. 1 has a PHD, 2 have masters in marketing, 2 have degrees, none can get jobs. Think about it, there is a pool of young, enthusiastic, well educated people yearning for a job in your company. The labour market is saturated with talent. Uncertainty has crippled the jobs market, and “long-term values” (people) abound, are you a buyer?
The company that seizes on this opportunity will be the one that emerges from this recession stronger (in leaps and bounds) than when it entered. People are the core of your business, that’s true of every business. So are you bucking the trend, are you willing to take advantage of opportunity to lay the foundations for you success over the next 10, 20 years? Are you ready to forsake the quick win of saving small costs and go for the big win? 
Are you ready to be greedy when others are fearful?
If not, why not?