Friday, May 22, 2009

Drapers Prublic - Is it Enough?

News today of Tim Draper is funding a private market exchange that will allow startups and investors to sell shares in pre-public companies. There are caveats to what companies can list (e.g. they have to have yearly revenue of $20m) but this is a welcome addition to the morbid exit side.

This and other similar secondary markets are a welcome addition to business world. These markets don't address a more fundamental problem that many startups need funding but the exit reliant VC model doesn't work for them.

There are many (if not most startups) which are never going to be able to exit at a multiple that is effective for VCs. However, they are otherwise very viable companies that will generate healthy revenues and have fat margins. Providing startup capital to these companies is a problem that needs to be solved. This will then allow VCs to focus on funding companies that can exit and benefit from the VC model.

In a Let a 1000 Flowers Bloom, I've proposed income-contingent loans but that is only the start. To effectively fund these companies what is needed is a model where the investor(s) provide the capital and receive warrants or preferred equity that after 3 years requires a dividend to be paid for 5 years before converting to ordinary equity.

Later on in the life of the business the prublic model may become worthwhile in allowing the initial investor to sell off their share and allow others (founders and employees) to cash in some of their shares as well.

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Thursday, May 21, 2009

Making the Economy Robust To Black Swans

Cygnus atratusImage via Wikipedia

In a recent twitter conversation about managing chaotic systems by pushing the system to linear instead of non-linear responses to shocks.

Which does lead to the question can you have linear response to shocks in a non-linear system? Short answer is yes. Even in non-linear system there is a portion of response that is linear, with the response becoming non-linear with further driving.

In effect you structure the system (with dampeners etc) based on the potential response of the system to the shock. This method doesn’t plan based on a probability of an event occurring rather based on what would happen to the system should the shock occur. The aim isn’t to prevent shocks rather control how the system (in this case the economy) reacts to shocks.

Economic systems respond to shocks in 2 ways by destroying demand and freezing of money (or credit). Unfortunately, the responses are coupled and one will cause the other which in turns feeds back in. The key is to keep either from precipitating the other.

The money freeze occurs as the system tries to workout where the risk is. An event has occurred (such as a failing institution) that has demonstrated that the risk in the system is not understood. Money stops flowing as everyone aims to identify where and who has the risk.

To dampen this response:
  • Ensure all financial transactions are transparent. This involves using marketplaces and exchanges and avoiding all trading in financial instruments over the counter.
  • Reduce the amount of risk that is in question by structuring the economy so financial institutions can never large.
The demand destruction is as it’s name suggest the removal of demand from the system. An event has occurred such as the explosion in price of a key input over a very short time (such as the oil shock of the 1970s) that creates a situation of mass layoffs reducing the demand within the economy.
To dampen this response:
  • Provide a system that allows private demand to be replaced quickly by public demand (i.e. infrastructure building)
  • Reduce the loss of demand by income smoothing that avoids people suddenly reducing spending drastically as they are laid off
It is reasonable to point out these dampeners are already in place. Yes to extent they are but it is ad hoc and not very effective as currently done. Take for example the demand replacement. Many countries have proposed infrastructure programs. However, these don’t get underway (the building aspect) for a period of years. The demand needs to be replaced immediately not in 2 years time when private demand will be increasing. Instead, projects that create public demand need to be maintained at a point that allows them to be instigated within 3 months.

While unemployment benefits go towards smoothing income, it still results in a massive reduction in demand as unemployment benefits a pegged at subsistence level. To smooth income properly, a program of income-contingent loans for redundancies and training are needed that avoid the drastic reduction in for a period of 6 to 18 months.

Focusing on system response to shocks instead of trying to model the probability of shocks moves us away from the realm of make-believe that is probability forecasting to focusing on making the economy more robust and able to handle Nassim Taleb's Black Swan events.

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Monday, May 11, 2009

Digital Small Business and the Web

A digital economy is far more than simply having lots of internet start-ups. A digital economy is as much about the use of technology as creating technology. The problem with a lot of the conversation around knowledge and digital economy is this requirement is lost as people focus on creating the next Google.
Just as much needs to be done to have small business taking advantage of technology to improve their business as trying to fund new technology companies. It is important to understand the issue here. To have a truly digital economy, small business has to use technology and particular web technology to their greatest potential.

This covers how a business interacts with their customers, with their suppliers/partners and how they manage information internally. You could split these up but to really make a difference small business needs to integrate via workflows (I elaborate on workflows here) not through insiders and outsiders paradigm.

For example, instead of plumbing company having one booking system used by employees to book appointments and another for website bookings rather use a service like BookingBug that both customers and employees can use to make bookings.

But that is only one step. Let’s look at the whole workflow. Basic plumbing workflow is:

  1. appointment is made
  2. plumbing task is done
  3. payment is made.
A customer comes to the site and books an appointment for a plumber. The BookingBug widget shows appointments that have already been booked either by other users on the site or by staff. They pick an appointment and fill in the details. A plumber is sent the information to their iPhone with the details (with the iPhone representing smartphones). The plumber does the job and fills in an invoice via Freshbooks App on the iPhone. This is sent immediately to the customer who can then choose to pay via the payment application on the plumber’s iPhone.

The invoice details are logged to Xero, the accountancy software, which is then followed up with the payment details when payment is made. Any supplies consumed during the plumbing task are sent to the supply management software which logs the usage and re-orders as required. The details of the job and correspondence with the customer are all logged in 37Signals' Highrise.

By bringing in effective web technology (be it SaaS, mobile applications or whatever) into the workflow the administrative burden is reduced (no one had to copy numbers from one system to another) while improving customer service. It allows the plumber (small business) to focus on the plumbing and not on coordinating moving parts.

All of what I described in the example can be done now. It isn’t something for the future but something for now. The glue that binds them together are APIs. It is APIs that allow the requisite data to move between the various applications and create the seemless workflow.

The key to a digital economy is effective use of technology in small business; something that is sadly lacking in the various grand plans for digital economy from Governments and interest groups.
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Wednesday, May 06, 2009

RSS, Readers and Information Management

Clay ShirkyImage via Wikipedia

Several posts have looked at RSS Readers and even RSS itself questioning the need for these technologies especially with the growth in the use of Twitter and Facebook to discover news. These posts sing a premature song for the death of RSS and Readers.

RSS is a syndication protocol and is very suitable for syndicating content between applications. RSS readers are not the only use of RSS feeds. I fully expect that RSS will continue to be consumed primarily by applications rather than humans. RSS isn’t going away. It works and it is good enough for what it does.

RSS Readers are a different question. RSS Readers are primarily a way to make RSS feeds human consumable. As Dare pointed out most are based on the existing Email client paradigm. As Dare also points out this isn’t the best information paradigm for consuming large amounts of news. But this doesn’t necessitate the death of RSS Readers.

Twitter et al. are good for discovery, but not consumption. What is being seen here is a failure of filters based on time and space which no longer exist. It harks back to Clay Shirky’s comment about information overload actually being the failure of filters. What twitter et al. provide is a filter. Instead of seeing it as an either/or proposition, these filters need to be integrated into RSS Readers.

What we have is a need to evolve RSS Readers to have effective filters. RSS Readers are actually a misnomer as people focus on RSS rather than on the underlying concept of organising and presenting information. Let’s refer to the “ideal” as Information Management Application (IMA – got to love acronyms!).

IMA does the following:
  1. Gathers information (whether from RSS, Twitter, Newswires etc.)
  2. Filters and Organises information
  3. Presents the resulting information
The problem with existing methods (i.e. RSS Readers) is that they have little to no filtering and organisation. IMAs provide a rich arrangement of filters and organisation methodologies to help manage the information ocean. Like panning for gold, the IMA sieves the information ocean to find the nuggets.

It is step 2 that makes the difference. A majority of the organisation and filtering can actually be done with by grouping related sources together (e.g. rather than have 100 articles about Apple buying Twitter, group all these articles together as one), organising the stack of articles by source (e.g. the act of adding a source to the IMA makes it more important than a source not actively added to the IMA) and then layering over than filtering based on what your social network has read or is pushing.

Add in metrics about how many articles are in a group, how fast the group is growing and how much attention others are paying to the group and suddenly the ocean of news is far more manageable. Add in a touch of human curation and you have the 21st version of the personalised newspaper.

IMAs will come in multiple variants be they desktop based or online. Google has the embryonic version in Google News and Google Reader. Yahoo can also create an IMA as the next evolution of Yahoo News. The field is wide open and like many things no IMA is going to suit everyone.
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Tuesday, May 05, 2009

The Web & Sainsburys

Supermarket in São PauloImage via Wikipedia

This post is part of a series on how web technologies and concepts can benefit various organisations, the particular focus being APIs and open data. In this post I will look at supermarkets via Sainsburys.

Sainsburys is the UK’s second largest supermarket chain. Sainsburys wasn’t chosen for any particular reason merely it is representative of supermarkets in general. Before proceeding it is worthwhile considering what a supermarket really is. A supermarket is an organisation that aggregates shoppers by providing the convenience of purchasing a majority of consumables from one place. Larger supermarket companies can also be considered a logistics company specialising in moving groceries from producers to shoppers.
Sainsburys provides a fairly stock standard website and online shopping portal. It is rather difficult to use in my opinion and one of the key reasons that I haven’t bothered to try and shop for groceries online.

The game changes by providing APIs.

The APIs would provide access to data such as purchasing habits, aggregated demand data (e.g. 2000 tomatoes where purchased today), current stock, current prices, how much carbon/energy used in getting an item to the store. But the APIs shouldn’t merely provide data but also provide access to functionality such as making a payment, placing an order, ordering stock and communicating with the consumer.

The APIs would form the basis of Sainsburys online offerings allowing them to be easily updated and changed to allow new services and applications to arise and fall. The APIs also provide a means by which internal teams can create internal applications without the need to extensive resources. The APIs become a means to allow innovation at the edge of the organisation.

The real power of the APIs comes from allowing 3rd parties to use the APIs. Suddenly startups and entrepreneurs can create new applications that mash Sainsbury data and functionality with other data and functionality creating new value. Sainsburys creates an ecosystem of functionality based around it. The APIs allow Sainsburys to move from being simply a supermarket chain to a shopping platform that blends bricks and mortar with the web.

Many will say that the information is valuable or would provide Sainsburys competitors with an edge. They would be wrong. Information is only valuable when it is useful. Lots of the information contained in Sainsbury only becomes useful when it is unlocked. Take for example my weekly grocery list, while that is locked in Sainsburys it isn’t useful. It has no value, but provide that information to me along with items I can substitute to reduce my grocery bill then there is value, which leads to the second requirement to be useful, which is context. Information is only useful in context with other information.

The competitive edge one is very traditional thinking and it ignores the reality that the competitive advantage accrues to the company that is more open rather than less. The ecosystem allows new resources to be devoted to creating new applications, far more than Sainsburys could muster on their own. The ecosystem creates a positive feedback loop that is hard to disrupt creating advantage. Rather than Sainsburys having to devote resources to picking winners for new applications, the ecosystem does that for them. Those that create value for the ecosystem survives while those that don’t wither away.

Here is a short list of potential applications that become possible with the APIs and open data:
  • Review my shopping list
  • Subscribe to regular grocery delivery
  • Import my shopping list & prices into another app
  • Local supplier Dashboard
  • Tracking energy and carbon of purchases
  • Mobile application for navigating stores
  • Mobile application for store management
Let’s consider a few of these in more detail.

Review My Shopping List
The user gets access to all their purchases and the prices they paid. This is then reviewed looking at what could be substituted to bring the price of the weekly shop down. This could be something done by Sainsburys or could be done by 3rd parties. Probably both.

The review My Shopping would more than likely be part of a broader finance and shopping management application, but even on its own would be valuable to many people. Extensions of this basic application is to allow users to see suggested recipes based on what they purchase, start with a set of recipes and build a grocery list and set a budget and build a grocery list based on the budget and standard needs.

Local Supplier Dashboard
The dashboard would in effect allow local suppliers to provide Sainsbury with produce to particular stores using a JIT framework. The dashboard would allow the supplier to enter what they have in stock and then they can bid on meeting the stores needs for the next day.

Suppliers would also get access to information on patterns in demand allowing them to change their own production to match demand better.

Mobile Application for Navigating Stores
Each store is different and their stock availability, to say nothing of location changes all the time. The application would use the APIs to provide accurate and up-to-date location and availability for items within a store and provide directions to the location.

The application can also serve to provide a feedback loop for the store, as it would allow the user to enter information about the quality and similar information for the items.

In The End
The APIs open up a lot of opportunities and create an ecosystem based around Sainsburys. This ecosystem becomes an advantage that is very hard to disrupt. By creating value for their customers and suppliers Sainsburys will be creating value for themselves. Value that is sustainable.

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