“From my cold, dead hands…” It’s something that came to mind as I was thinking about writing this post. The part that doesn’t make sense about the Internet, today and perhaps since ever, is that American concept of “Freedom,” of independence and lack of governance.

In my post on piracy, my point was not complete. YES, historically, there has been a trend in every industry towards eliminating inefficiencies and yes, in some ways making things digital is just another step down that line, but NO, as @ksilvennoinen pointed out in the comments, digital goods do have a value greater than zero, the question is how to find a way to recuperate that value from customers.

To me value equals investment, but that is not the way pricing works. Unfortunately, I managed to misplace my pricing bible some months ago and can’t seem to recall most of the rules of pricing, but there is a strong psychological component to it. And the psychological part is what I am confused about. To get another book in here, it’s just like “Positioning: the battle for the mind,” if online goods are ‘positioned’ against a never-ending slew of free content, how do you position yourself to be priced at a value greater than zero?

On the one hand, it’s not so hard. You position yourself in such a way that a comparison does not make sense. Let’s take digital books, an area I actually don’t consider as threatened as publishers and media-outlets would like you to believe. The reason is that as soon as you download a digital book and view it on a PC, it immediately becomes an inferior product. Unlike a TV-show or movie, which I can frankly watch on a post-stamp (no matter what David Lynch says), reading and eyes work best together on either paper or e-paper (haven’t tried reading on the iPad, though I really like doing it on the iPhone). Of course the real threat to e-books in a PC environment is websites, but that’s a story for another day.

To get back to it, e-books work best in a dedicated reading environment, which immediately creates opportunities for platforms and putting walls around those. Platforms ensure that there is a network effect of content, walls ensure that there is no inter-leakage between the quality-controlled inside and the dark-waters-of-piracy outside. And that mechanism allows digital goods to be priced to recuperate investment and more. But…

Where it gets confusing again is how very open the Internet is. This openness allows you to create an app in a day, it also allows you to jailbreak an iPhone (now with US-gov. support), and it allows for me to get a movie that Chinese kid 107-xg46-*** released 5 minutes ago on the torrentZ. Amazon was built on this openness, as was OS X, as was pretty much anything that was stolen out of the Xerox labs 35 years ago. While there is a trend of eliminating barriers in general, it is even more prevalent on the Internet.

So, what I am asking myself here is the following questions:

• Is this 1969 again, where hippies roamed free, sex was consequence-less, and there is an Aids-epidemic on the horizon, which will make us go back to the 50s in terms of promiscuity?
• Are platforms doomed? I’m just talking platforms, not walls around them. Twitter is an example of an open platform.
• Are the walls around platforms doomed? So: iTunes & iOS-devices, Amazon & Kindles, Facebook & human relationships, every online retailer in the world…
• Is pricing digital goods a logical thing when taking into consideration how it is positioned against other digital goods?
• Should digital goods be free and prices be set for things that cannot be spread digitally: iOS devices, Kindles, Disk-media, other consumption-devices…
• And many more questions…

Getting back to value equals investment in my third paragraph. In any chain that leads from idea to the user, there are value points, which come from some kind of investment. In the embroidery example, a strong value point appears to be the creator. Without that person, there would be no creation. And, of course, there are plenty of examples on that. In the case of iPhone, strong value points are both the conceptualisation (R&D expenditure) and the production costs. In the case of Amazon, the website (presentation, distribution, etc.) is a strong value point. The end-product can still be digital, as it is in the case of the embroiderer’s designs, the iPhone apps, and the Kinde-ebooks, but the investment in certain parts of the chain is very much real.

And the value to consumers, which the crux of the matter, is equally real. If I compare 2010 to 1995, we live in the era of digital convenience. From e-banking, to restaurant-reviews, to TV-shows, to software, we undeniably live in a better world, but one where, ironically, we are less willing to spend as much on it. But there is another side to this as well. Let’s say, everything that exists is walled off. You’d have to pay to get access to every blog-post, to every youtube-video, to everything else that is already being charged for. I would sincerely start to question whether it was all worth it.

The Internet continues to be confusing to me, part shopping bonanza, part free-for-all utopia. Writing this has brought a little clarity, but if you have stuff to add that clears it up even more, please feel free to share it in a comment.

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I have a general philosophy on the evolution of the B2C and B2B relationship, one that is inspired by history. Let’s look at some examples. Money first took the form of barter, then gold, then coins, then paper, and now bits and bytes. Transport: on foot (great shoe-sales), animals (great stable-sales), cars (great garage sales), planes (great duty free sales), and finally tele-conferencing (great device sales). Books: handwritten, handprinted, printing-press, mass-media, internet, iPad / Kindle. At every turn, something was replaced, an industry was destroyed, yet it was for the purpose of evolution. Don’t get me started on evolution itself, as that is all about destructive replacement.

The point about all of these is not about destructive replacement. It’s about improving a product in the eyes of the consumer. And what enabled this improvement? Common standards, collaboration, user-feedback, guts, ruthlessness, innovation, progress, etc. Why producers don’t like to cooperate with that? Because every technology requires an investment to make it work.

Think of the poor embroiderer, which is what inspired this post (bound to get a lot of flack). It’s a funny industry. I wasn’t aware that needlework designs are being sold over the internet and thus at the risk of piracy. I suppose I always thought an embroiderer embroids, then sells their product and ships it to consumers. Instead, they seem to go to the simplest side-product of their work, the one that becomes a foundation for potential mass-production, the “design-chart,” which is then being “shipped,” via download, to customers. Interesting! It kinds of makes sense from a distribution standpoint. Customers are not willing to pay for the shipment of needlework, instead they prefer producing locally, which really is a great idea. The only problem here is the way it is distributed.

In a B2C relationship over the internet, I think, it always comes down to eliminating as many barriers as possible. When you buy from an online shop, you really want the product in your house as quickly as possible. If I could reach my arm into the screen in front of me and pull out the product that I just ordered, that would be just perfect. It’s worse when the product is digital, because the customer knows that it’s just bits & bytes really not worth anything tangible (I’m just talking about the 1s & 0s here) and it could be in the customer’s home in a millisecond. Instead, business erect as many barriers as they possibly can, whether it’s a big ‘copyrighted’ sign across a picture, an overly complex signup/payme page, or the somewhat convoluted iTunes-model, where it really is easier to pay than to pirate.

But in the light of evolution, these barriers are bound to be broken! The same reason why gold is no longer a form of payment, because it’s really heavy and annoying to handle, the world of commerce has a way of evolving towards something easier and easier and easier, until finally I pay by waving a magic wand (eh RFID chip) across a panel.

Let’s get back to embroidery. The problem is two-fold. 1. fragmentation, because any solution that I am about to propose will not get blanket acceptance. 2. the silly notion that selling designs, which seems like the most valuable thing an embroiderer has to offer (actual IP), is something that should be done in a direct B2C relationship. In the light of consumers constantly wanting to break barriers, this offering of valuable IP seems like an industry-defeating purpose.

So what are possible solutions?

• consolidation & protection. Basically the iTunes model, where everything is placed behind a secure window that can preferably only be accessed via a specific device (my personal belief is that anything bits & bytes will eventually be free as that is not where the real value lies).
• selling designs via local shops. If the problem is distribution, why not partner with local shops that keep your designs behind bars and just print out the end-product for consumers.
• selling designs via the machines that produce needlework. No idea what they are called, but they have a strong incentive to keep their machines being used and have a direct line to consumers.

I’m sure any of the above is a solution with problems, but my point is the following:

• Piracy will continue to exist and will become worse if you make it easy for people to pirate.
• Consumer products evolve in a fashion that keeps pushing out inefficiencies and piracy is one of the quickest ways online to remove these inefficiencies.
• The only way to prevent privacy is to not distribute anything that can be distributed via bits & bytes.

Case in point: the idiot that just walked into an Apple store and jailbroke every damn iPhone 4 on display.

Last point: I am not advocating piracy. I run a company myself, I have a business degree, and I believe in getting paid for your work. But I do believe silly strategies deserve to get punished. And there are plenty, plenty, plenty of them that I have mentioned on this blog over the years.

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ABBA, The Cardigans, Ace of Base and Roxette to name just a few – there’s no doubt Swedes have always known how to pump out pop music. So, it should not be a wonder that, once again, it took the Swedes to show how to bring music to the masses in the form of Spotify.

However, in a modern home, the other problem with music is that today most people have their music inside their computer – which, more often than, is a laptop instead of a bulky desktop and anyway probably not stationed anywhere near one’s stereo setup. There are many solutions to this problem, Apple has its Airport Express but it only supports playback from iTunes out of the box. So, if you want to stream Spotify from a bigger set of speakers and without cables this is not a good solution.

For a long time, I was looking for such a solution – no additional cables or stuff to just play audio from my Mac to my living room. I did find a bunch, but most of them were complex and riddled with lots of strange limitations (like cost). I was sure that there had to be an easier way to enjoy Spotify further than 2 meters from my laptop. Many A/V manufacturers sidestep the issue by adding a WLAN, Ethernet and/or USB capability to their hardware, so one can play music out of a shared hard drive but this rules all streaming services, like Spotify, out.

Maybe in the future Spotify might be inside our radio tuners and televisions. The latter is possible already in Sweden and Finland, where you can get Spotify on your digital television thanks to the Swedish-Finnish ISP and mobile operator TeliaSonera. Changing my internet and cable operator just for Spotify sounded a bit too complex solution so that wasn’t for me. But it might be a nice setup for one’s parents – if they weren’t just fine with their CDs, probably. Is it really this difficult to just stream arbitrary audio from one’s laptop to speakers wirelessly?

So, more Swedes to the rescue. The good folks at the hi-fi spekaer company Audio Pro have come up with probably one of the simplest and cross-platform solutions with their wireless offering. But, it’s an USB dongle. Aren’t there enough wireless transmitters inside my MacBook Pro to do the job? Well, thanks to yet another Swedish company, Ericsson, and their Bluetooth technology (with AD2P-profile), streaming audio wirelessly should be simple. So, why not just add Bluetooth inside a radio and then things should work with no wires or restrictions, right?

However, this, like many other Bluetooth applications, hasn’t really caught on. Sony has some setups with Bluetooth, but I went with Audio Pro Radio One. Sure, it looks like any Tivoli Audio’s radio and Tivoli Audios are really nice, but the only “modern” one with any connectivity (and radio presets!) is NetWorks and that one costs an arm and a leg – and even that one can’t stream music from a computer in a simple way. Radio One, on the other hand can, because the smart folks at Audio Pro put a Bluetooth receiver in it.

And so, with Radio One, Spotify and a Mac things are quite straightforward. Because the Radio One acts like an ordinary output device which means you can stream any audio to it. No need for Airport Express or Airfoil, things work even simpler than that. Setting up a Windows-machine should be equally easy as long as you have correct Bluetooth-drivers that have the A2DP profile. Connecting your iPhone – or any other mobile phone with BT – to Radio One? Thanks to Bluetooth, really easy. However, because there’s no iPod or USB dock in Radio One, you’d better watch battery usage or use a stereo cable instead.

So, thanks to a bunch of ingenious Swedes, I can finally stream music from my laptop to my living room. The only limits are that Bluetooth’s range is relatively short and it does consume battery. But no artificial limits like with oh so many other solutions. Aren’t standards and simple solutions a fun thing?

A sidenote: Americans and other developing mobile countries take note, Bluetooth does not mean a wireless headset. Bluetooth can do a lot of pretty cool stuff, but unfortunately introduction of cheap mobile broadband and before that Nokia’s and then Apple’s reluctance to actually support any interesting profile (without crippling them beyond any recognition) on their handsets have meant that Bluetooth is not in the spotlight anymore and is mostly in hands-free headsets and wireless keyboards and mice.

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I feel that something like this does not need to be said, but Spotify a relatively new service here in the Netherlands and selected countries, while cool, is missing one key ingredient: suggesting new music to users that feels somehow related to what they want.

Spotify knows what users want. There are few songs that I haven’t been able to find on Spotify, which in itself is awesome. But it ends there. When I look for the “Baby got Back” song, which I tend to do, it plays EVERY song that has those terms in the title (luckily fewer than you might expect). Instead of saying, hey, it’s “Baby got Back,” it’s a 90s song, it’s a hip-hop song, it’s funny (to some), it just plays the list of whoever decided to use those terms in the title (no seriously, there’s only 72 tracks).

Why it doesn’t need to be said that such a feature needs to exist, is because it already has for some time. Starting with Amazon, which suggests products to you based on what other people with similar tastes like, to Pandora Radio, which unfortunately (grrrr!) doesn’t work outside the US anymore, to Last.fm, which also plays some funny regional games since CBS took it over, iTunes Genius, which rocks (though iTunes as a music-player is way too bloated), Netflix, another US-only service (I’m sensing a pattern here…), etc. etc.

It’s called collaborative filtering, it’s not a new thing and I don’t at all get why not all (music-)services have it. It leads to more user-engagement, it allows listeners to navigate a musical world that has become increasingly diverse and fast-moving, and it has drastically improved my music-listening experience.

So my question is: why doesn’t Spotify have collaborative filtering? Is it expensive to implement, does it require more data than Spotify has, is it an up-and-coming feature, or is it a hidden feature that I haven’t discovered yet? In any case, it is the No. One Reason why I don’t open Spotify as often as either of us would like.

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We’ve talked to a number of investor these last months and I can classify their questions into three categories:

• Intellectual Property Protection (IPP)
• Revenues
• and Operations

Revenues is a straightforward concept and reflects market potential, market share, and business-model. Operations can also mean business-model as that clearly affects your operations, it also concerns the team, and it very much concerns *the last mile*—a very detailed understanding of how your product comes of the “factory line” and goes into a customers hands (every step and every screw has to be planned out). And IPP, well IPP is something special.

Intellectual Property Protection refers to legal and other ways that you protect the innovation and knowledge that is built within your company and its people. It is not as straightforward as simply taking out a patent, copyright, or trademark, though those are usually the first avenues that investors will pursue when talking to you about IP. IPP can just as much come from keeping information tacit—inside the heads of your team—, developing systems that spread an innovation across many parts—e.g. the way technology companies prevent copying from factories they outsource production to, by only giving them parts to produce, but not the whole—, another systematic answer could be deep vertical integration, which ensures a higher quality of products and services than can be replicated by vertically smaller competitors (a strategy pursued by Apple and Starbucks), and last but not least: speed—in some industries it pays to just scale very quickly, rather than build a protective base around IP (a contrast between e.g. web and medicine).

But let’s get real for a second. You’re an inventor, you developed something new. The most obvious path to pursue is a patent. The first issue is cost, because taking out a patent is not cheap. Basically, by filing a patent in your country, you can protect yourself for a while because there is a period, 1-2 years, I believe, where you are filing it and it can serve as a type of legal instrument to prevent other companies from filing a similar patent. But in the end, you have to shell out maybe €5000 per country to protect your invention internationally—and those costs do not cover the legal cost or protecting a patent once it’s being breached. Let’s get real x 2: you’re a startup and while your technology may be innovative, it may not be what the market needs (which can relate to actual taste, but also to cost, to regulatory issues, etc.) and that means that your patent, if you decide to take it out, may not be worth squat. Let’s get real x 3: your invention may not be unique, at least not in its current form, and pursuing a patent in that case is not even feasible.

So practically speaking, what do you do? Just to be clear, I don’t have the final answer to this, though it is something I am constantly thinking about as a potential risk in our, a technology startup. So my interpretation and approach are entirely my own, but I am writing this to start a discussion more than to give the final answer.

The answer to me is all about strategy. IP protection has to make sense in the context of a longer term business strategy, long term meaning to me longer than 2 years and preferably longer than 5 (if you have an actual patent and it has market value as well, you have over a decade of protection). And IP, just like a business, is something that can be split up to cover different areas related to supply, to the manufacturing, to the end-product, to the service, etc. So the more broad and comprehensive your way of protecting your intellectual value is, the less it can actually be replicated by your competitors.

All IP concerns aside, it is sometimes of benefit to not protect the whole value chain. This is true in our business, which I will write about some other time, where we can split up our technology into core-components that are integrated into new solutions which act as a platform for more solutions. Locking off that whole chain is perhaps of some benefit, but in some ways we would like to have people innovate in their respective areas and for us to focus on developing better products out of that. My point is that IP protection should be seen as something that can be shifted to those areas most critical to your business and that new development in your industry is not necessarily something to be scared of. In the end, we are in the product business and if we can produce superior solutions for customers that outweighs comprehensive IP solutions.

So the conclusion is, even if you are developing a product that is not entirely novel, there are places in the value chain where you can still develop an IP solution. And if you are developing novel solution, it has advantages on both the supply and the market side, to not make your IP too restrictive and thus diminish your product potential.

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In his MBA-series (that I don’t read enough, but I may not be the target audience), Fred Wilson writes about the role of sunk costs in making future decisions. As an entrepreneur, I am constantly concerned with the cost of decisions, so I was kind of happy to find out (though I do vaguely remember learning this before) that sunk costs—the costs previously incurred in an enterprise (of any kind, incl. love)—should not be an explicit factor in making (financial) decisions about the future. I remember a distinct case not too long ago, where I did include sunk costs as part of my decision-making, so here’s a few thoughts on it.

Sunk costs are part of reality. Every decision you make comes at the cost of not doing another one (opportunity cost) and as soon as you make a choice and invest in it, that money / energy is sunk / gone. The thing that counts then is to evaluate both the context under which the decision was made and the outcome of that decision. While it makes sense to not include sunk costs in a financial decision-making formula, a negative outcome does require taking pause before making new investments. Perhaps this is a European attitude to things, or a risk-averse one, but much of our thinking about forecasts is based on looking at past performance.

What matters most then is the context, and this, in a startup environment, is rather a complex affair. I’m going to draw some analogies with rocket building in the early 1900s, producing art (at any point in time), and staring at goats here. Art is, I believe, a calling that is very difficult to quantify. It is very strong amongst people that seem to be bad at everything else—just based on my own experience. In this case, you have no past performance to base future performance on. And art being a fluid craft where aberrations of the status quo seem to produce some interesting results (but also at terrible odds), it is nearly impossible to predict the future of such an enterprise. Rocket building in the early history of rocket building suffered from similar dangers, in that no one had done it before and it required cracking a great number of eggs before reaching the moon.

All of these are sunk costs that may or may not lead to greatness, and what I take issue with is to then ignore sunk costs in making future decisions. At what point is it justified to ignore sunk costs and at what point isn’t it? If the “staring at goats” division in the army spent half a century, eh, staring at goats, you could argue that it’s an investment in the future, but you could also argue that it’s a foolish enterprise—just for fun, I tried staring at the back of the heads of a few people standing in front of me in a supermarket, I did make a few scratch an (imaginary) itch themselves upon my specific mental request, but I can’t say that this “sunk cost” was a reason to invest some more energy into it.

When we made a financial plan for our startup, we didn’t give much thought to making the wrong decision, though that is a very important factor to consider at this stage. It is nearly impossible not to make a wrong decision when you’re building a rocket to go to a place no one’s gone before. What we did do were two things: 1. we researched as much as we could of the environment we were heading into and the tools & reality we had to work with. 2. Every, and I mean *every* decision that had to be made that involved a financial or time investment was scrutinised as much as possible beforehand. But… both research and execution can be flawed in that not all information may be clear—especially regulatory stuff can be a maze to travel through, as can understanding a science or technology—and execution depends on both good information and good people to execute. And the fact is, I believe with any startup, that we have incurred certain costs that can be considered sunk and gone. When we make the plan for the next stage, we will have to ignore those investments, as painful as they have been.

I’m a great believer in the lean startup. This comes from my father, whose whole life philosophy is based on a Ghandhiesque lifestyle that involves discipline, routines, and a leanness when it comes to living and working. I can’t say that this is exactly the way I want to live my life, but I do believe that the opposite, coming from an abundant lifestyle and trying to make good decisions, is more than often a formula for failure. Entrepreneurs and their startups should to a certain degree remain hungry so that the decisions they make are made with the desire to improve life. If you see the amount of hurdles that are presented to startups everywhere, you know that this attitude of keeping startups hungry is shared by many people.

A part of this leanness in decision-making is what I discussed before: scrutiny, scrutiny, scrutiny, among many a step of the way. But I have to frankly admit that this scrutiny can lead to a near bureaucratic way of doing business, which, to me, seems quite incompatible with creating great innovations that require some significant dreams. Dreams are your mind processing information in funny and interesting ways, and if there was an accountant sitting in the back of your head telling you to not dream this and that because it costs too much, it wouldn’t be much of a dream.

That brings me back to the role of sunk costs in decision making. One must be allowed to make mistakes when engaging on an enterprise. It’s quicker to learn from a mistake than to try to constantly prevent it. I’ve also been thinking quite a bit on the role of subsidies in early stage startups and the chance they present to make these mistakes. That, however, should be the topic for a future post.

My conclusion thus is that while entrepreneurship is a serious business, there can be little great ideas without some (in many cases considerable) room for experimentation. How you quantify this, I think, remains subjective. It can’t be Google’s 80-20 rule, where 20% of an employee’s time is spent on his own ideas. When you start, it should more likely be 50-50, with 50% being aimed at making good decisions and the other 50% at pursuing the dream that make those decisions have meaning.

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The door slid open slowly, all that was visible from inside the store was a wide beam of light that slowly expanded into the shape of a door. The automatic triggers kicked in and the other security-panels in front of the windows slide open also, illuminating the last retail store left in the world 2020.

He entered. The last ever retail-clerk left on earth. A wide smile on his face, from years of practice, a swing in his step from his regular work-outs. All part of the routine.

The camera-system, also the lighting system of the place, followed his every step—one tiny camera in every tiny light-bulb, giving combined resolutions beyond that of any screens in use today and filming whatever was in the store with more dimensions than the holographic output to date would require. As he reached the music-rack, the one closest to the door, the one most geared towards impulse buying, he passed the security threshold and the system was forced to react—was he an intruder or an insider? Always a fun game to play with this flaky system… He passed the test and personalised systems started turning on all around him.

It started with the music-rack, a 50 metre (150 feet) long pathway surrounded by holograms of artists’ heads performing—sometimes in group-form, if it was a band—and tiny beams triggering the sub-dermal speakers behind his ears to play a song, just right for his mood and of course just out in the charts that week. He sometimes felt he was his best customer, because he rarely left that isle without purchasing at least one song. Another credit down from his, well , limitless credits that he could spend on these things. One thing caught his eye, the Beatles hologram was slightly off-colour, the yellows not quite as yellow as they should be. He knew banging the holographic projector would only make it worse, so he made a mental note to call the mechanic, who could probably calibrate it from his home office.

Next up, the movie isle. He loved how movies had evolved over the years to become a hybrid of a blockbuster movie with great effects, a great story-line that was essentially limitless and could be changed by the viewer as he or she consumed the movie. The movie isle was a mini-experience of such a thing, also targeting his past taste, his current mood, as well as plenty of other variables of course. The result was that as he moved onto the platform, he saw Disney-bunnies playing in the grass around him, and walked along a couple of prehistoric hunters in their furry outfits with, in the distance, their attractive female mates waving at them and cheering as they got closer. He could smell the food as he drew closer, another marketing gimmick, and he was happy that after this came the food isle.

At this point, it should be said the last retail store in the world (also the name of the store) was in fact a great big mall. The difference to other stores that came before? It was run by a single man and everything else was automated or remote-controlled. A consumer would enter and would first be entertained through music and movies, and could then choose to fulfil his primal needs: food, hygiene, etc. The second-smallest section in this store that had everything was the electronics section. People basically had electronics implanted into their bodies or they ran everything off a terminal. There was no hardware differentiation, everything had already been invented, and every software could run on the hardware that people owned from the day they became an adult or when their parents gave them permission. The smallest section of this store was the payment area, in that there was none. Why pay when every credit you need is stored on your person and you can just swipe the product you want and get it?

The clerk had said his goodbyes to the women in his personal film and started down the food isle. Again, a moving platform, on which he could sit this time, with choices flicking across the tables next to him, sushi-style, until he identified his favourite, grabbed it, and munched it down. The platform, measuring his progress and seeing that there were no impatient customers trying to get by, basically came to a standstill, allowing him to eat and enjoy.

This was a typical start of the day and arguably he had the best job in the world. The rest of the time would be spent on support, on dealing with customers that “didn’t get it,” take care of the technical issues that arose even in his technology heaven, and, even, doing some sales, though that was highly unlikely with the kind of data computers already had on consumers, making every product suggestion the perfect one.

The clerk didn’t care where his customers came from or where they went, but he suspected that they lived very much like he did, in an overcrowded apartment block with a big postal area designed specifically to receive all the UPS shipments people ordered online or in his store (mail and those inferior small postal boxes were out-innovated years ago).

The first customer came in and he smiled in anticipation of having to do absolutely nothing, while the customer spent at least 20% of his disposable income that month. Typically, people only came in once a month, if ever, just to get that personal, immersive touch that systems at home and elsewhere would never be able to replicate.

Welcome to the last retail store on earth.

This story was inspired by a recent Macworld article on comic stores vs. iTunes, my blogging on food and retail, and thinking about the future of the physical retail store. Pictures courtesy of the movies “Clerks” and “Thomas in Love.”

Prefer to have me blog in fantasy format? Let me know and I’ll continue to do so!

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Starting a business, just like anything else, really is defined through personal contexts. For instance, I’m a first-time entrepreneur and my partner is a 4-5-6th (hard to keep count) entrepreneur—for him, he views starting a business very differently than me. There are other differences as well, such as age, type of education, culture, marital status, all of which affect how one views the starting of a company. I aim to not pronounce these differences, rather this is a blog post about the generalities of sending out positive signals and raising the status of a startup.

Here’s a list of signals a startup might want to send out (I will discuss these further below):

1. The quality of your idea/prototype/product (the whole range of what your startup is centred around)
2. The quality of the team
3. The quality of your associations
4. Your legal status as a company
5. Your financial situation
6. The satisfaction-quotient of your customers
7. The speed of growth, which is really a component of ‘quality’
8. Your location & office

I kind of threw a few in there, as you can perhaps tell, because for instance some signals can be bundled together into tangible vs. intangible signals, as well as technology, people, financial, legal, etc. You can of course also split op signals into external—to the outside world—and internal—to your co-workers or board.

Why does any of this matter? On a basic level, because we all care about showing signs of being good at something (and starting a business is a highly personal thing in which individuals determine the direction such a venture takes), and more practically, because startups are about bringing ideas to the world that do not exist yet.

Signals are about increasing your worth in the eyes of someone else. To go back to the list, the first one, product, should be obvious: either create a kick-ass product or find a kick-ass customer that really needs your product (the latter is more realistic).

No. 2, the team, is trickier, though still crucial. It’s about getting the right mix of people in a company; people that have different educational backgrounds, possibly different genders, different ages, different networks, etc. It’s tricky because any relationship risks becoming a liability if people don’t match (that’s a big IF). And because getting quality people doesn’t always come easy, either because you can’t afford them or because the type of quality you need cannot be measured on paper or elsewhere.

Three, associations are pretty straightforward. If I have a board-member that has a good reputation, that opens doors. If I have partners in a market that is my target market, that kicks ass. If I can stamp logos of companies on my product that already have a name, that’s great marketing. It’s not rocket-science and the only thing that is required is to make these kinds of connections happen, usually through the quality of your pitch, your product, and your team-members, each of which comes with their own network.

Four, legal status, is not so straightforward. For many companies, having LTD written next to their name is a sign that they reached a certain stage. But in of itself it means nothing, only if it actually makes sense from an accounting point of view. So this is actually something that I don’t think should be up to the entrepreneur, but to an accountant and tax-lawyer. Having LTD or equivalent next to your name is still sweet of course (though not if it costs you 1000s of dollars/euros to set up and you haven’t written your business-plan yet…). Another legal status symbol is having a patent or a trademark. Both are valuable only in certain situations and require a serious strategic analysis beforehand, not least because it is so expensive to maintain (between 6000 – 100,000s for a patent & that doesn’t include the legal cost of going to court over a dispute), but because if you haven’t done your homework, you could be spending money on protection that isn’t worth a damn. Legal signals always require the help of experts, which is why lawyers will, for better or worse, always be around.

Five, the finances, has consequences on so many things that it’s impossible to summarise it well. What kind of company do you have if you can’t pay your employees, if the effort you put into it isn’t generating any cash-flow, etc.? The answer is simply a bad one. Other positive signals here are having a high profile investor on board or, preferred by most companies, a high paying customer or 100.

Six, your customer, should really be number one. Again, what kind of company do you have if you don’t have happy customers? It’s not impossible that this is the case at the start, but there should always be room for making customers happy—interesting story about how Zappos decided to sell to Amazon because its stakeholders thought Zappos was investing too much time/money in increasing customer satisfaction. There will always be conflicts in regards to customer satisfaction vs. financial satisfaction. Another often underestimated problem is that one happy customer doesn’t translate to another. This is the topic of a little book called ‘Crossing the Chasm,’ which is about going from early adopters to the mainstream, different types of customers with very different values and expectations!

Seven, speed, is one that I don’t like, but became aware of through my studies of entrepreneurship. It’s crazy how much media-attention fast growing companies get, as well as how much government-attention. If you can grow to 20+ employees in 2-3 years, it wouldn’t surprise me if politician X gives you a call to thank you for the good you’re doing the economy. If you grow to 1000, the queen/president will probably shake your hand. On the other hand, there are plenty of situations, the internet boom & bust comes to mind, where speed is actually a detriment and it would’ve been better for the entrepreneur(s) to take better care of the foundations of the company (you know, building a profitable business), rather than focussing on the status of having a ginormous team. A debatable point, I know…

Finally, location, well who doesn’t want an office looking out at Manhattan or, in my case, some tropical beach somewhere (I don’t really need the office…)? Who doesn’t want to be able to invite clients and show them your shiny office, with plants, fountains, and beautiful people everywhere? As I hopefully made clear, sending out signals is fine and good, but it should always be weighed against what you give up and if you actually need it. Kind of the same thinking that should be employed when deciding whether to get a new Apple product or Aston Martin—will those shiny objects really make you more desirable to the opposite sex? Well, maybe a little

That was a little braindump. Hope you enjoyed it.

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People frequently ask me why the $%^# I decided to ‘get my genes done.’ I get the feeling that this is a scary area for many of us and that is part of the reason why I did it, to explore something that has an interesting future possibly. I also thought it would be a good idea to both understand where I’m from, genetically, and what possible risks lie ahead for me. Finally, 23andMe offered a DNA-day special a few weeks back and the price was right for me to do it.

For those that don’t know, 23andMe is a company who’s mission statement it is to develop new methods and technologies that will enable consumers to understand their own genetic information (source: Wikipedia). It has made headlines because Google invested in the company and one of the co-founders of 23andMe is married to one of the co-founders of Google.

In the following review, I want to write about several things: the last mile, which is a concept I discussed in my last blog post; the analysis; and finally, about whether it means anything.

The Last Mile
I previously wrote how crucial this concept is to running a successful business because 99.9999% of customers pay a business to get not only a product, but none of the headaches associated with getting this product—they don’t want to spend time making bank-transfers, physically going to a store to buy it (debatable), physically carrying the product home, reading complicated manuals. They just want to use it! Taking care of the last mile means that you can charge 2x or 10x for a product because the last mile is simply part of the product.

That 23andMe takes care of the last mile was very apparent to me in the context of the discount I received and the fact that live in Europe. If I remembered correctly, they discounted ca. 80% of the price of the product, but the non-discounted shipping costs of getting a ‘spit-vial’ to my home and back again to their labs was more expensive than the price of the product. It made me think twice about doing this, but in the end the result was that I had a pretty perfect service that required nothing from my part except:

1. paying,
2. waiting for delivery,
3. spitting into a vial,
4. filling out the Fedex papers,
5. sending it off,
6. and waiting for the results.

The total process took ca. 6 weeks, and while I’m not a particularly big fan of the shipping process in general, it was pretty comfortable on a whole.

Once the lab-analysis is done, you receive a mail notifying you that you’re results are ready, which you can access on the 23andMe website. Nothing wrong with that, except I hope that they use the dynamic nature of the web to keep updating info about my genes as their understanding of genetics improves. As I find it unlikely that people will do this analysis very frequently, I consider me not having to retake the test to get a marginal improvement in results a ‘last mile’ service as well. But we’ll see…

The Analysis
It’s important to state that ‘while you wait,’ there’s plenty to do on the site other than seeing your results, which frankly requires some (4-6 weeks after sending) patience to arrive. There are endless surveys you can take, forum-discussions, and articles. The whole thing feels like a Wikipedia for genetics, written in a clear format that even dumbos like me can understand. It does require time and interest in the matter.

The actual data that you get from the analysis is split into health results and ancestry results. Of these two, I found the ancestry part the least useful, even though I consider my personal ancestral history to be quite mixed and thus, for some, fascinating. Things you can do there is find out your maternal and paternal ancestry, find relatives (so far, completely useless, probably because most 23andMe users are American), and see visual representations of your geographic ancestry. I appear to be 100% European and resemble Northern Europeans the most, but the site also writes that “all humans are more than 99% similar to each other genetically,” so I’m not sure how significant or interesting this is.

The health results are much more interesting and for obvious reasons I will not go into great depth about my own results. The results are split into five categories, ‘Disease Risk,’ ‘Carrier Status,’ ‘Drug Response,’ ‘Traits,’ as well as a category, called ‘Health Labs,’ which goes into more experimental data. For some results, specifically carrier status and drug response, I feel like it’s a list I need to discuss with a doctor, as a lot of terms are quite scientific and it would require considerable time to understand what is relevant and what isn’t.

Most interesting to me is ‘Disease Risk,’ as it identifies areas to watch out for in the future and areas that are of less concern, and ‘Traits,’ which tells me stuff about lactose intolerance, muscle type, etc., all of which are handy to know in everyday life. Regarding Disease Risk, I like that they hide more serious conditions, until you specifically give permission to see these results. I was a little nervous about finding out exactly about those conditions, so I was happy the site allowed me some time to prepare myself mentally before seeing “the truth” (as far as that can be determined through such an analysis).

Does it mean anything?
Will you be able to live life without knowing these results? Clearly, we have survived for a long time without knowing much/anything about our genes and plenty of people today live on just fine in ignorant bliss. I have also lived my life in relative ignorance so far, though through years of playing around with exercise and diet, I realise that healthy living certainly benefits my current life and hopefully leads to a longer one (the analysis incidentally also shows your odds of living a certain age).

While frightening to find out whether you have an elevated chance of dying from things like cancer or getting Parkinson disease, I was relieved to find out about my chances, good or bad. Information means that you can prepare yourself, whether it’s just the idea that we are all mortal in some ways or that you have a checklist to visit your doctor with. I think my family will also be interested in finding out what my ancestry information reveals, though I didn’t think that part was particularly detailed.

Finally, while I’m a believer that no matter how well we understand ourselves, the chances of humanity as a species destroying itself or our planet destroying us are much more significant, I still think that we have for some years been on the threshold of a genetic revolution, one that will very likely result in things like a much longer and healthier life, though not without some significant societal consequences such as how to support an ageing population.

Just like the Apple iPad could potentially revolutionise computing and it’s good a reason for buying one, I consider the ‘plug-and-play’ 23andMe service to be a worthwhile purchase to gain a better understanding of where we stand in terms of the revolution in medicine.

Marks out of 10 – Service: 7/10 (points taken off for the time it took to find out the results); Analysis & presentation: 8/10 (points taken off for ancestry & complexity of certain health information); Overall Usefulness: 6/10 (you can live without it, not sure how doctors will react to this, more targeted at US than elsewhere); Overall grade: 7/10.

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I am not someone that typically applies for a sales job, yet I consider it a vital function of the job of an entrepreneur and hence my job. Running a business is all about convincing people, both on the inside and out, and the best way to describe it is Sales.

One of the most important things you should be doing as a new player in a game is to fail fast and fail often. In practice this means going out into the field, trying out many, many alternative approaches, always listen to the feedback you get, whether negative, positive, or meh, and try, try again. There is no better teacher and overcoming the fear to approach new people with new ideas is actually step 1 in sales and entrepreneurship.

I probably wrote about this before, but as a startup, you tend to make changes in the direction your product development takes. Sometimes this is based on technological barriers that force you into a different direction. We faced some of those and needed to adapt. Sometimes, perhaps more often, you are forced to change because people don’t react that well to your “awesome idea.” Naturally, not everyone is right in criticising you and one thing I learned is that criticising is easy, building is hard, and sometimes people just need to shut up.

But when you take the ‘fail fast, fail often’ approach, you overcome the over-criticism-issue through spreading the love/hate and drawing out an averaged out answer. For us, one re-occurring feedback was that we were being too academic in our approach. Our sponsor sponsored us because of this approach, but the market sometimes has different objectives. We learned this by presenting our idea over and over again, and by involving smart people in our development on a continuous basis. Blogging is good practice in that, as I now keep people updated through lengthy mails that might as well have been published on this blog (but they likely never will).

When you start selling something, you first have to know who you’re selling to. That entails listening. So principle 1 of sales is generate lots of feedback as it will make for a better sales proposition down the line. I have no tips on what message to use, as I think this is different for every idea.

But there is another thing to bear in mind, which is that The Last Mile Matters… incredibly much! The last mile can be seen as two things: the mental map you create for your customers and the physical last mile that you build into your product-/service-delivery system. As to the latter, people like it when Amazon or Apple set it up that you only have to click 1-2 times to order a product and have it delivered to your door. They like it when Ikea makes buying furniture not only cheap but a furniture builder out of all of us (though I think this is more of a masculine-marketing thing). And they like it when Facebook presents them with a list of “close friends” immediately after joining.

While that takes some ‘mental mapping’ too, there is the other part of selling, appealing to the irrational part of the brain. Steve Job’s reality distortion field is an example of that. You walk into a bar… and you come out with a horse that you don’t have a barn for. What this comes down too and this is something that places like McDonalds have made a science out of, is to appeal to the part of the brain that lusts after things. By making the french fries smell of … I was looking for the right term, I think this quote says it all: “complex aromas comprising bitter cocoa, butterscotch, cheese, earthy potatoes, onions, and flowers.” And yes, that is a science.

If you have a good product, the process of making someone believe in it goes beyond the pragmatic last mile. It’s about making the recipient of your message envision what you’re seeing, about making them want to have this at all costs. Once again, two words, Apple products, and I think the point is made.

To reprise:

• 1st principle is to listen, i.e. get a good understanding of what your audience needs.
• 2nd principle is painting the right picture in the mind of the customer.
• 3rd principle is creating the perfect last mile in terms of delivering a product or service into the customer’s hands.

And afterwards comes profit? I really can’t say, but if you see life as an opportunity to make lots of mistakes to learn from, then I think everything will be all right.

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I think in very a short time humanity will have to make a choice regarding the path that computer interfaces take: allow them to enslave us a la Terminator (or financial algorithms) or to enhance our innate capabilities. This video [embedded below] makes my new Macbook Pro feel like outdated technology.

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I’m bearish on blogging and have been so publicly since the publication of the Techmeme 100. The “problem” (more of a natural phenomenon really) is as follows: in order to compete in today’s ‘blogosphere,’ you need a high volume of news being published. What this means for a blog: you need to do a lot of writing, which means a ton of research (sometimes), a ton of time, and a ton of output.

You’ll need to have multiple people on the team to hit the magic timeframe of where people in your market (usually the US one) read news. You need to pay these people somehow. This already represents a barrier to blogging on a professional level, as to pay people you need traffic and to get traffic you sometimes need to do things that are out of your ethical sphere. Gizmodo’s questionable appropriation of the next iPhone comes to mind.

It comes down to being newsworthy. Gizmodo’s actions are nothing new to media, as news usually comes from 3 sources:

• good research, leading to original IP
• copy-pasting other stories (hopefully combined with some value-adding research)
• wallet-based reporting—you pay sources for original IP.

As mentioned, this is nothing new and what the Techmeme leader-board made clear was that the leading blogs are actually no longer “blogs,” they are digital newspapers. And, I assume, because blogging still has this cool ring of independent news reporting to it, those sites decided to keep the title.

So what does that mean for an up-and-coming website? Take TheNextWeb, which I’ve been aware of since the days of Friendfeed—Zee, the editorial director of the site, had a very high-profile presence on FriendFeed (incidentally, it makes for an interesting case study of how early adopters on social networks can rise to the top and use that to leverage their relevance in other areas) and it was interesting to see how they went about making their site a significant news source. And, sadly (but perhaps realistically), their strategy at the beginning appears to have been to simply report the same news that others have been reporting. This year, there was of course the TheNextWeb conference, which made some headlines and which perhaps means that there will be a shift in strategy of news reporting by the site.

I think that, bearing the economics of news reporting in mind, which largely depend on producing large quantities of timely news, copy-pasting news is a realistic approach towards growing a blog to professionalism. On the other hand, it represents a big problem. Back when my Twitter-feed followed Techcrunch, TheNextWeb, and some other tech-blogs, I was bombarded by the SAME news coming from different sites within 20 tweets. It got so annoying that I complained to e.g. Zee at TNW, and I finally ended up unsubscribing from any newsblog on Twitter, instead subscribing to their newsfeed via RSS, which is more manageable.

It sounds like a cliche, but we live in a highly transparent real-time web. Every online news source is trying to profile itself as the most relevant and they do so by trying to be quickest, loudest, but not necessarily by being the most unique. It’s easy to copy news, because there are no pay-walls to prevent this from happening. The problem is how this affects people, and as a consequence other blogs (I’m a firm believer in survival of the fittest, so in principle blogs that do not make it simply do so because the nature of the blogosphere is pushing them out).

I think that people react to the bombardment of news in a way that they prefer to stick to a few sites that give them enough news to be informed (this is ignoring aggregators like Digg and YCombinator, which adds another layer of complexity). Ultimately there will only be a few professional blogs serving news for a given industry (arguably, there already are just a few relevant ones with many, many irrelevant ones), and they will benefit from network effects for both access to news, access to advertisers, and access to other factors.

To answer my question of “Is “Great artists steal” still a good mantra for Blogging?”, it is a great startup strategy, which leads to more visitors, more advertising revenue, better research/writing, and ultimately (HOPEFULLY!) a better blog. But it requires a shifting of ethics that usually comes with running a business. Instead of serving your own interest as a writer / creator, you serve business interests of generating traffic which ultimately leads to a better quality blog (again hopefully), but not without its compromises.

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Many thanks to @flapinta for pointing this one to me (french link). What a revelation !

Isaac Getz is is a professor of Idea, Involvement, and Innovation Management at ESCP Europe. He has been Visiting Professor at Cornell University, Stanford University and at the University of Massachusetts. He graduated in Computer Science, then obtained a M.Sc. in Management Science, a Doctorate in Psychology and a post-doctoral degree (HDR) in Management.

I usually don’t spend too much time providing information on the business thinkers I quote, but considering the content, I just wanted to make sure Isaac Getz is not mistaken with some kind of hippie smoking ganja on a beach in Goa.

With Liberating Leadership : How the initiative-Freeing Radical Organization Form Has Been Successfully Adopted (pdf) Isaac Getz received the accolade of French Management Union of engineers (SYNTEC) with the Academic Prize of Management (french link again).

This 26 pages essay provides us with further evidence that methods of management that arose in the 50s (Chris Argyris and Douglas McGregor), have been successfully applied by dozens of world class companies and market leaders in their area (Toyota, Southwest Airlines, USAA, Avis, WLGore, QuadGraphics, FAVI in France etc …) to foster employees engagement. The amazing thing is how they align with the management principles that are consubstantial to Enterprise 2.0.

In a time where leadership has never been so critical for businesses, some lessons to remember from this essay :

Read more »

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A part in the series of just writing out an idea and rambling on it on this blog.

One of the core architectural big ideas of the web is that each resource, or web page has an URL or a link, and other pages can link to them. However, in the “social media” reiteration, these links are called “permalinks” in a strange doublespeak way as the ordinary Web 0.1 links were meant to be permanent as well and, instead, “link rot” seems to be more prevalent as ever with short-url services and other strange URL schemes.

I am of the opinion that we make a great injustice to discussion on the web by calling those things that hang on the bottom of web pages (and hence do have URLs) “comments” and, as non-entities of the web, only rarely have URLs of their own (even of the hash-variety). This is the second injustice. It is often that in these “comments” there are real gems, but you can’t refer to them with any direct link.

The worst offender, unsurprisingly, is Facebook, which from a cultural-historical viewpoint is going to be a huge black hole. It is in a stark constrat to Twitter, where each tweet has an URL. There are many social “objects” on Facebook that are completely inactionable and this is completely against the very nature of the Web. Technically, with stuff like Activity Streams, it’s possible to “like” a “like” and so on, but this isn’t possible from most social network tools’ user interface.

From the Web point of view, having URL for each tweet might be one reason why Twitter is gaining more steam and Facebook is struggling. Twitter is actively becoming a part of the Web, while Facebook is actively trying to turn the Web into Facebook (see Open Graph and Wikipedia-entry Pages) – this walled garden -strategy has always failed on the web, but it hasn’t stopped businesses from trying.

My thinking might be biased because I’m a firm believer in the open web and the idea that the web promotes openness and sharing of ideas, but not in the way Facebook has recently tried to open its users’ identities and “life streams” to the world. I believe the web is a great platform for collaboration and it’s a shame that while (as Tim Berners-Lee has pointed out) there is no shortage of URLs, we don’t give them out to all objects that live on the web.

However, the one exception that I’m willing to make are YouTube comments, which in number exceed the amount of information (with a loose definition of “information) in the library of Alexandria, but loss of which absolutely no-one would cry over.

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As Enterprise 2.0 activists, we keep on trying to sell Enterprise 2.0 as the ideal solution for your organisation.

But to be completely honest, depending on your company objectives, values and culture it may just not work.

10 principles your company may have adopted that will make Enterprise 2.0 implementation counter productive … Read more »

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