Saturday, February 24, 2007

Why We Need Income Inequality

Almost 18 months ago, I wrote a post agreeing with and summarizing Paul Graham's essay on why attacking income inequality would kill the market for startups. Here's the essentials:

"Economic inequality" is one of those terms which "frames" a debate. After all, who can be against "equality?"

Yet Paul shows in with clear, inevitable logic that trying to get rid of economic inequality kills startups.

Here's the chain:
Get rid of income equality ==> Take money from the rich
Take money from the rich ==> Decrease the willingness to take risks
Decrease the willingness to take risks ==> Kill startups
Kill startups ==> Decrease growth in new technology and new jobs

Almost 18 months later, an anonymous commenter wrote:

If wealth is distributed to all people in a more equitable manner, it does [not] follow that it will kill start-ups.

While the willingness to take risk may decrease some for the once-ultrarich, the once-poor willingness to take risk may increase. Those who have been struggling to make ends meet will have more security and the fina[n]cial ability to follow their dreams. The difference may be that the way start-ups would begin would change.

Furthermore, it is not necessary for startups to begin with a large amount of money.

The logic is full of holes... be more wary of accepting an argument because it is well presented.

I was a bit miffed, not just because someone was implying that I wasn't using my reasoning faculties, but also because the person commented anonymously, preventing me from starting a dialogue.

So if you are out there, anonymous commenter, here is my response:

There are two key flaws in his or her argument (for the sake of brevity, I'll use the male pronoun for the rest of this comment.

1) He argues that wealth increases the propensity to take risks, and that because the effect of this is higher at the low end of the income scale, lowering inequality by taking from the rich and giving to the poor will increase startup activity.

The problem here is that the key impact that wealth has on startups is the motivation that potential wealth provides, not the capability that actual wealth provides.

Entrepreneurs start companies dreaming of building the next Google and becoming a billionaire. They don't create breakthrough companies because of a desire for a comfortable salary.

It's certainly true that being poor makes it nearly impossible to take the risk of starting a company (though many have done so anyways). But it's even more true that without the prospect of phenomenal success, few would go through the incredible stress and heartache of starting a company.

2) He argues that Graham's argument is false because startups don't need a lot of money to begin. Again, he seems to have missed the point. Steve Jobs and Steve Wozniak didn't need a lot of money to start Apple. Sergey Brin and Larry Page were poor grad students when they started Google. Ditto for Jerry Yang and Dave Filo of Yahoo.The point is that if we took away the outrageous rewards of success, simple supply and demand will dictate that people will gravitate instead towards safer, lower-variance jobs.

If startups didn't offer the prospect of incredible wealth, as a responsible family man, I'd have to take a job as a consultant (and make $500K+ per year) or on Wall Street (and make $1MM+ per year). It would be economic suicide to be an entrepreneur. As it is, it's still a pretty shaky decision, but one I'm willing to live with!

Thursday, February 22, 2007

Smart Cell Phone Tricks

I received the following today from a friend. I think it's a super-clever viral marketing campaign for Jingle's free 411 service (see point 5).

Reliable sources have already confirmed Points 1 and 4; I wasn't able to verify Point 3.

Can you create something like this to promote your product?

FIRST
The Emergency Number worldwide for Mobile is 112. If you find yourself out
of the coverage area of your mobile; network and there is an emergency, dial
112 and the mobile will search any existing network to establish the
emergency number for you, and interestingly this number 112 can be dialed
even if the keypad is locked. Try it out.

SECOND
Subject: Have you locked your keys in the car? Does your car have remote
keyless entry? This may come in handy someday. Good reason to own a cell
phone: If you lock your keys in the car and the spare keys are at home, call
someone at home on their cell phone from your cell phone. Hold your cell
phone about a foot from your car door and have the person at your home press
the unlock button, holding it near the mobile phone on their end. Your car
will unlock. Saves someone from having to drive your keys to you. Distance
is no object. You could be hundreds of miles away, and if you can reach
someone who has the other "remote" for your car, you can unlock the doors
(or the trunk). Editor's Note: It works fine! We tried it out and it
unlocked our car over a cell phone!"

THIRD
Subject: Hidden Battery Power. Imagine your cell battery is very low. To
activate, press the keys *3370# Your cell will restart with this reserve
and the instrument will show a 50% increase in battery. This reserve will
get charged when you charge your cell next time.

FOURTH
How to disable a STOLEN mobile phone? To check your Mobile phone's serial
number, key in the following digits on your phone: * # 0 6 # A 15 digit code
will appear on the screen. This number is unique to your handset. Write it
down and keep it somewhere safe. When your phone get stolen, you can phone
your service provider and give them this code. They will then be able to
block your handset so even if the thief changes the SIM card, your phone
will be totally useless. You probably won't get your phone back, but at
least you know that whoever stole it can't use/sell it either. If everybody
does this, there would be no point in people stealing mobile phones. And
Finally....

FIFTH
Cell phone companies are charging us $1.00 to $1.75 or more for 411
information calls when they don't have to. Most of us do not carry a
telephone directory in our vehicle, which makes this situation even more of
a problem. When you need to use the 411 information option, simply dial:
(800) FREE 411, or (800) 373-3411 without incurring any charge at all.
Program this into your cell phone now.

Wednesday, February 21, 2007

Boomers, Xers, and Millenials

Originally posted as a comment on Penelope Trunk's post on Barak Obama as potentially the first post-Boomer president:

***

Wow, what an incredible response to this post. It's definitely touched a nerve. Note to self: blog about Barack Obama and generational conflict.

It's fascinating to me to see the generational divide. Like Penelope, I sit firmly in the baby bust. In fact, as a 1974 baby, I come from the single most sparsely populated birth year in recent memory.

When I first came into the workplace, I worked for baby boomers. My first boss often commented, "What's wrong with you kids these days? When I was your age, I was busy partying and smoking pot. All you guys do is work."

Now, standing astride two generations that dwarf my own (Boomer and Y), I can definitely see that a generational divide exists.

I have dealt with boomer managers who were shocked that someone took a week off for paternity leave, because "Hey, when my son was born, I was back in the office that afternoon."
I have also dealt with teens and 20somethings who swear that they will never have a real job, and are instead building companies that let them live their lives. Loyalty to one's company is as dead as the dodo, and I can't say that I miss it.

The younger generations envy the Boomers because they got to enjoy the Austin Powers era ("As long as people are still having promiscuous sex with many anonymous partners without protection while at the same time experimenting with mind-expanding drugs in a consequence-free environment, I'll be sound as a pound!") as well as the unprecedented global domination of the US economy and military.

The Boomers envy the younger generations because they have freedoms and possibilities that the Boomers never had, thanks to the Internet, and because, well, they're YOUNGER (aging well has never been a Boomer trait).

And because they have such different expectations of the workplace, Gen Y employees think Boomers are boring martinets, while Boomers think Gen Y employees are impertinent know-it-alls (ponder the irony of that for a second--Boomers resenting the young for believing that they know more than the old).

And don't forget to shed a tear for the poor Gen-Xers, who grew up being punished for the sins of their parents (thanks AIDS and the Cold War), then had the good fortune to enter the workforce during a gut-wrenching recession, and get tabbed as "slackers" to boot. No wonder Nirvana albums sold so well in the 90s.

But while the generations are different, and conflict exists, we as individuals don't have to fall into it. Avoid the "us versus them" mentality, and concentrate on working with people you enjoy and admire, regardless of their age. Find a company that respects your values (because as Bob Sutton points out, when you work with assholes, you don't change them for the better, they change you into an asshole).

Above all, do work that you can be proud of, and that makes you happy.

Boomers, Xers, and Millenials

Originally posted as a comment on Penelope Trunk's post on Barak Obama as potentially the first post-Boomer president:

***

Wow, what an incredible response to this post. It's definitely touched a nerve. Note to self: blog about Barack Obama and generational conflict.

It's fascinating to me to see the generational divide. Like Penelope, I sit firmly in the baby bust. In fact, as a 1974 baby, I come from the single most sparsely populated birth year in recent memory.

When I first came into the workplace, I worked for baby boomers. My first boss often commented, "What's wrong with you kids these days? When I was your age, I was busy partying and smoking pot. All you guys do is work."

Now, standing astride two generations that dwarf my own (Boomer and Y), I can definitely see that a generational divide exists.

I have dealt with boomer managers who were shocked that someone took a week off for paternity leave, because "Hey, when my son was born, I was back in the office that afternoon."
I have also dealt with teens and 20somethings who swear that they will never have a real job, and are instead building companies that let them live their lives. Loyalty to one's company is as dead as the dodo, and I can't say that I miss it.

The younger generations envy the Boomers because they got to enjoy the Austin Powers era ("As long as people are still having promiscuous sex with many anonymous partners without protection while at the same time experimenting with mind-expanding drugs in a consequence-free environment, I'll be sound as a pound!") as well as the unprecedented global domination of the US economy and military.

The Boomers envy the younger generations because they have freedoms and possibilities that the Boomers never had, thanks to the Internet, and because, well, they're YOUNGER (aging well has never been a Boomer trait).

And because they have such different expectations of the workplace, Gen Y employees think Boomers are boring martinets, while Boomers think Gen Y employees are impertinent know-it-alls (ponder the irony of that for a second--Boomers resenting the young for believing that they know more than the old).

And don't forget to shed a tear for the poor Gen-Xers, who grew up being punished for the sins of their parents (thanks AIDS and the Cold War), then had the good fortune to enter the workforce during a gut-wrenching recession, and get tabbed as "slackers" to boot. No wonder Nirvana albums sold so well in the 90s.

But while the generations are different, and conflict exists, we as individuals don't have to fall into it. Avoid the "us versus them" mentality, and concentrate on working with people you enjoy and admire, regardless of their age. Find a company that respects your values (because as Bob Sutton points out, when you work with assholes, you don't change them for the better, they change you into an asshole).

Above all, do work that you can be proud of, and that makes you happy.

Why Blog Famous Isn't Real Famous

In case you are ever tempted to mistake blog fame for real fame, read this Bill Simmons column on riding through South Beach with NBA journeyman Damon Jones during Superbowl week:

As we started our drive down Ocean, Damon called it "the most entertaining street in America." And since he's played for eight different NBA teams, he would know. We cruised along at a slow pace, with people occasionally screaming out "DJ!" or "Damon" or even "Wassup boi!" at him.

Jones has never made an All-Star team, won a championship, or even averaged 12 points per game.

Now imagine that Robert Scoble, Chris Pirillo, and Jason Calacanis were cruising through South Beach in a black Escalade. Would anyone have a frakking clue who they were?

Bonus: Nude photos of Scoble and Pirillo. Not embedded to protect the children.

Meeting MC Hammer

This week's example of the power of blogging is the following story.

I was on my way out the door from a meeting in a cafe on University Avenue when the contact I had hot chocolate with noticed a friend at one of the tables. We strolled over and greeted the party. My friend introduced me to Geoff Arone, one of the co-founders of Flock. Geoff in turn motioned to his dining companion a dapper man in a three-piece suit, and asked if we already knew him.

Recognition flashed through my brain, and I extended my hand. "MC Hammer, I presume? I'm a big fan of your blog." (I successfully resisted the temptation to add, "Please Hammer, don't hurt me.")

Yes, it was in fact the multi-platinum rapper turned minister and blogger.

I'll leave it to you to speculate what MC Hammer was doing having coffee with a Bessemer EIR....

The Grand Unified Theorem of Blogging

As I've already noted, I'm not a blogger. But I'm not going to let a little thing like that stand in the way of explaining my unifying theory about the nature of the blogging business.

It all started when my old friend (and I use the term old advisedly) Ben Casnocha called me up to ponder the following question:

Is there a natural limit to the size of a particular blog's audience? In other words, does the type of content you provide impose some sort of ceiling on your potential readership?

I've actually been pondering this question myself, and I've come to the following conclusion:

The natural limit on the size of a blog's audience depends on the degree to which the blog
1) sticks to a particular topic, and
2) creates a cult of personality around the writer.

Here's why the non-intuitive reason why these limits exist. In a world of endless feeds, each blog reader will eventually end up running into a physical limit on the number of posts he or she can read per day. Even someone who devotes every waking minute to reading blogs cannot possibly read more than a miniscule slice of the new posts that appear--and most of us devote far less time than that.

As a result, every blog reader will eventually find himself forced to winnow his feeds, to focus on those feeds that are richest in relevant content. The two basic measures we can expect him to apply are:
a) Does the post cover one of my preferred topics?
b) Is the post from someone I like and want to stay connected with?

The First Law of Blogging states that the more topics a blog covers, the lower the percentage of posts that will match up with the preferred topic set of any particular reader.

I may be interested in both entrepreneurship and country music, but many readers who like posts on entrepreneurship may be indifferent to negative on posts on country music and vice versa.

As with mutual funds, the best practice is to stick to your particular "style box" and let the individual reader or investor pursue their personal portfolio diversification plan.

Mutual funds also provide a useful analogy for The Second Law of Blogging, which states that the other way to build an audience is to cultivate a cult of personality. Berkshire Hathaway doesn't fit into any of the usual "style boxes," but Warren Buffett and Charlie Munger are so successful and brilliant that no one cares.

Similarly, some bloggers do such a good job of projecting their personality through their blog that their audience tunes in just to keep up to date with an old friend.

If you don't believe me, take a gander at the Technorati 100:

In the Top 10, we find:
1) Engadget (focused)
2) Hexuncom (personality, I think--can anyone translate?)
3) BoingBoing (focused, though the personality of the contributors adds)
4) Gizmodo (focused)
5) TechCrunch (focused, though Mike's personality mattered in the early days)
6) The Huffington Post (focused)
7) Lifehacker (focused)
8) TodayLink.ir (focused, I think--can anyone translate?)
9) Daily Kos (focused, though Kos' personality mattered in the early days)
10) PostSecret (focused)

All of the top blogs are either focused, build a cult of personality, or both.

The maximum audience of a general blog like Ben's depends on the extent to which he is able to build a Cult of Ben. Meanwile, a general blog which does not generally delve into personal details and stances like this one is even more limited.

Ultimately, I realize that the audience for this blog is limited, but I'm willing to live with those limitations. If you aren't, you should focus your blog and start building a distinctive voice and personality into your posts.

Tuesday, February 20, 2007

Kaygetsu: NOT backed by Larry and Steve

This week's sign that blogs now rule the Earth:

Over the weekend, I got an email from Keiko Sakuma of Kaygetsu asking me to help quash the rampant rumor that Larry Ellison and Steve Jobs bankrolled the restaurant.

While I'm not the only one who passed along the rumor, when the subject of the rumor actually writes to me, I'm always happy to print a retraction.

"I just wanted to get the record straight about this rumor about our restaurant being backed up by Steve Jobs and Larry Ellison. Steve Jobs didn't even know we opened a new restaurant until someone told him about us. We don't have any inventors period! I hope you can help us in getting the word out. Thank you so much."

Monday, February 19, 2007

Willie Sutton and Silicon Valley

The following originally appeared as a comment on Ben Casnocha's post discussing whether or not you have a greater chance of success if you start your company in Silicon Valley. Ben argued that the Valley ecosystem did give you a leg up, while others like Fred Wilson argued that you were better off in a less crowded environment. Here's my take:

***

Ben and I chatted about this topic before he posted, and could boil down my thoughts to a single sentence:

"Wishing doesn't make it so."

We may wish that the world were fair, that it was just as easy to build a high-tech startup in our hometown as in Silicon Valley, but the fact is that it is not.

The Buffett paradox does not invalidate the fact that New York is the capital of finance any more than Buffett's amazing performance invalidates the general value of the efficient markets hypothesis. Six-sigma exceptions do not invalidate a rule of thumb.

Fred's "supply and demand" argument is true on some levels, but the fact is that in the case of clusters like New York for finance and publishing, and Silicon Valley for tech startups, supply and demand continually reinforce each other in a virtuous circle.

To some extent, one can also make a "big fish/small pond" argument; this may help your ego, but I suspect that the smaller fish in a big pond tend to do better, lifted by the rising tide.
On a side note, I tell all the entrepreneurs that I advise that if they want to make money, they should move to Manhattan and work on Wall Street. The expected value is higher, with much lower variance.

Ultimately, I can understand why people believe things like, "Silicon Valley is not a better place to start my company." It's unpleasant to contemplate the unfairness of the world. It's inconvenient to move one's family. But these seductive false beliefs are ultimately self-defeating--maybe not for everyone (after all, companies started in New York do succeed, just as great investors do arise in Omaha [though even the great Buffett studied at Columbia, natch]) but for the majority.

Life is unfair, folks. All men are not created equal. Nice guys do sometimes finish last. And the best place to start a high-tech startup is Silicon Valley.