Capital: Resource or Crutch?

When I was in the Peace Corps in Costa Rica, the program office gave nominal support of community-led, community-funded projects, but the de facto operations of my Peace Corps program often told a different story.

Volunteers were given access to $2,500 through CR-USA, a development partnership between the governments of the US and Costa Rica, to go toward community projects. While a great opportunity, the money appeared to be offered without condition, and our community counterparts (typically leaders of a semi-formal local government organizations called Development Associations) were well aware of this. Instead of thinking of the best projects for the community without prior knowledge of virtually guaranteed funds, the community leaders thought of ways to spend $2,500. In fact, the center director of our program said directly to the counterparts that the volunteers bring with them access to these funds.

Rather than being a useful resource for volunteers and their communities, to be called upon when needed, the CR-USA funding (or at least the idea of it) ended up being a crutch for many. I often felt lonely (and even angry) in my fight against our image as vessels whose sole purpose is to transfer $2,500. It seemed like a waste of young, talented people to put them in an environment that stifled hard work and creativity--not to mention a waste of roughly $40,000 (anonymous source, 2007) in federal funds per year to support a Peace Corps volunteer.

Many volunteers used CR-USA as a crutch. They held onto the idea of that funding, assuming it would be available when it came time to execute their big project. In my opinion, many projects were shaped solely around the CR-USA opportunity, with both the volunteers and the community limiting their possibilities to whatever they could get done with $2,500 (plus a smaller amount of matching funds from the community). The tragedy here is that even the projects that are successful may have the unintended consequence of complacency. Maybe the community could have done something much more profound, and with greater long-term sustainability, had the people banded together to do something without regard for seemingly guaranteed funds.

So, that's my take on the successes. The second part of the problem was demonstrated when the CR-USA organization started tightening up funds. It became harder to get funding, as money was set aside for a far smaller number of projects and funding came with stricter guidelines. Many people rightly panicked because they had put off applying for funding, assuming the silver bullet for their community projects would be there. Many of those same people were already too far along in their service to come up with a contingency plan for a project that appeared to be set in stone. Consequently, many of the projects didn't go through.

This example from the Peace Corps shows us how capital--or at least the idea of it--can be a crutch. In this case, the crutch often made people think to small, limiting themselves to a narrow set of opportunities. It was sad to see smart, capable people underachieve in this way, because I knew they could accomplish so much more if they opened themselves up to real local solutions to problems, powered by the locals themselves.

Not all examples of "crutch capitalism" demonstrate an underestimation of opportunities. Often when large amounts of capital are available to entrepreneurial start-ups, the companies become spend-thrifts out of the gate and burn money too quickly. In this case the "let's see how we can spend $X" attitude overestimates the business opportunity. A company might spend $100,000 marketing a product that's worth $50,000. (Just like capital, marketing should not be a crutch.)

So, whether you end up underestimating or overestimating your opportunity, available capital can (perhaps ironically) be a bad thing. I know this can be tough to stomach if you're a resident of the capital-starved developing world--or an entrepreneur looking at the devastated capital markets--but a dose of skepticism with regard to capital can be healthy.

Life beyond ticker symbols

I used to obsess over large internet businesses, especially publicly traded ones like Google, Yahoo, and Microsoft. I am genuinely interested in the search business as it relates to my own profession and to society as a whole, but I have also been interested in it because I used to find pleasure in trading stocks. While my trading added a decidedly personal twist to my blog posts, I didn't find the trading itself fulfilling.

In my posts Searchonomics and and It's Search, Stupid, I crafted my own big-picture view of the search industry and the "Internet's Winners and Losers", but I ended up finding myself tracking ticker symbols a bit too much...and I'm no day trader. In fact, I haven't bought or sold a single share in over four months. I no longer find tracking stocks exciting, so Yacrosoft will no longer cater directly to the investment crowd. So, you won't find me talking about stocks very often, but I will certainly continue to talk about companies as they relate to technology, business, and economics.

For these reasons I am dropping the moniker "The Internet's Winners and Losers". I am leaving it the title of the blog as just "Yacrosoft" for the time being until I can better define the direction I am taking.

In the short term I plan on writing more about sustainability in an effort to complement conventional thought on the topic.

Scalability as Sustainability

People view sustainable development from different angles and through different lenses. While I was in the Peace Corps, the prevailing wisdom held that sustainable development required the commitment of host country nationals to the particular development projects after the volunteer had left the country. While this is easier said than done, it doesn't necessarily say anything very profound. Of course, development requires commitment from the beneficiaries of that development.

While I was fighting to have Peace Corps Costa Rica expand or clarify its definition of sustainable development, I came across this Foreign Affairs article (sorry, the full text isn't available for free online) that discusses the origins of sustainable development. According to the article, the notion of sustainable development arose in the 1980's, thanks to an academic report called "Our Common Future," put together by the World Commission on Environment and Development. The report claimed that "boosting the economy, protecting natural resources, and ensuring social justice are not conflicting but interwoven and complementary goals." This line of thought paved the way for what many now know as Triple-Bottom-Line Sustainability.

Oddly enough, the Peace Corps (Costa Rica) definition of sustainable development lacked the environmental slant that characterizes much of the sustainability movement. Essentially, the Peace Corps' perspective focuses on the people who would sustain the operations of a project, whereas the triple-bottom-line perspective focuses on the social and environmental factors that would eventually prevent the continuation of a project's operations.

While both of these viewpoints are valid and entirely necessary, they often fail to highlight an important part of sustainability that can facilitate truly powerful ideas: scalability. An idea is much more impactful if it can serve as an example for other communities across the globe to emulate. Even further, I posit that scalability can be evidence that an idea is sustainable, at least in the more traditional sense of the word.

In the business world, the most promising business endeavors are the ones that exist independently of any one person's unique expertise. If a company has to rely on the creativity or management expertise of a single person, the continuation of that company's operations is at great risk. Perhaps more importantly, the growth and profitability of a business may be stifled by the inability of its model to scale to other regions when it is managed by different people in different cultural contexts.

The development world is similar in a lot of ways. Development projects that involve local people with unique talents may be quite advantageous in the short term, but what happens when the leaders move away, move on to something different, or retire altogether? One way to assess these risks is to ask yourself if a project could be scaled to include the neighboring community, the rest of the country, or the rest of the world. If this is the case, then the project probably has good prospects for sustainability. However, if the project doesn't pass this test, it probably will not be sustainable in the long term, or even in the short term in a disparate group of places.

I don't mean to belittle grassroots development that relies on talented, dedicated people at the local level who work for local benefit. In fact, I believe this to be the only form of develop that truly works. Ideas must first be tested for feasibility at the ground level. However, it would be quite wasteful for outside development workers to ignore the impact created by scalable ideas, models that can be adapted to a greater number of communities. In my experience, this broader perspective is often lost on grassroots development workers who are fighting tooth-and-nail to achieve objectives at the local level.

So, ideas pass important sustainability tests if they are 1) not unduly restricted to a small group of leaders and 2) scalable to other environments, thus proving their validity in a very powerful way. With a slight shift of perspective, we can ask ourselves important questions of sustainability and scalability to make a greater impact in our organizations and communities. These questions include--but are by no means limited to--the following:

What if Charlie gets hit by a bus tomorrow? What would happen then?

Would this new product sell in another country? If not, are there powerful attributes we must keep, or others we must do away with to adapt the product to a new environment. (See Four Actions Framework.)

What are some processes we can put in place today that could make this project work outside the confines of our own unique situation?

If we forget about scalability in our quest for sustainability, we can miss out on great opportunities to make small ideas big.

On Fair Use

Google just announced the expansion of its AdWords system to its Google News search results. While this may seem a natural extension of Google's primary revenue model, several newspapers are likely to raise arms over someone else making ad revenue on their content.

Recall the lawsuit that a Belgian newspaper slapped Google with, claiming the search company unlawfully used excerpts of its content. In particular, the newspaper had issues with excerpts that were kept from articles that had since been removed from its website and moved to the realm of paid archived content.

Google has faced similar scrutiny from critics of its popular image search service. For one, the service requires several clicks before the user can visit the actual web page where the image resides. All the while, the user is able to see the image and remains on the Google website. Some have also had an issue with the mere use of thumbnails in the search results. While most would argue that this falls within the realm of fair use, the debate certainly exists. Just check out this lawsuit threatened by an adult website.

Now that Google has taken the step to monetize its news search results, it invites newspapers to cite the first stated factor in determining violation of fair use:

US CODE: Title 17,107. Limitations on exclusive rights: Fair use

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
(2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
(4) the effect of the use upon the potential market for or value of the copyrighted work.

I have no training in the law, but having seen the inconspicuous links on the right-hand side of the news search results, I don't see it as a breach of fair use.

Assuming the news excerpts are short enough, I think Google has the right to display them. (I love it when Google gives me free web traffic, but I respect a media company's right to be forgotten and irrelevant.) If Google has this right, I also think it has the right to make money for providing this service, just so long as the means aren't deceptive, clearly harmful to the market value of the excerpted content, or both.

Again, having seen the innocuous nature of the sponsored links on the right-hand side of the search results page, my initial reaction is to deem this new Google practice as fair.

I welcome anyone else's opinion on this matter.

Good Times for Entrepreneurs?

Entrepreneurship has become attractive...considering the alternatives

Entrepreneurship has been in style for quite some time here in the United States. Ever since the last stock market bubble at the turn of the millennium, people have learned to appreicate the fiery spirit of the agile, small-cap companies. The business atmosphere gave rise to new entrepreneurs, held accountable to provide real business models to support their valuations.

However, in recent years Web 2.0 start-ups had been creating a bubble for the risk capital that is so essential for entrepreneurial firms. Just browse some of the companies on TradeVibes and you get a feel for some of the frivolity that once again characterized the web space. Several millions in VC money were thrown at some also-ran concepts. I mean, how many video sharing websites can the market support? How many x's, v's, and z's do you need in your domain name? (If these entrepreneurs were pushing pills it would be one thing, but people actually have to type these domain names into an address bar.)

So, what happened to the Web 2.0 bubble burst? It was precluded by the credit crisis, making a few goofy VC-backed deals look like child's play. The end result, however, is the same. There's very little capital out there for start-ups. Even some of the most legitimate companies and most enticing deals are met with undue friction, if not all-out rejection. It's a simple supply problem: Trillions of dollars in capital were sucked out of the economy in the matter of a few months!

I have seen the consequences of this firsthand, although in a somewhat contrived format. When I was at the Venture Capital Investment Competition in Boulder last week, I was shocked at the low valuations offered by some of the MBA teams. Even more telling were the reactions by the vast majority of the VC judges. Our team ended up offering the highest pre-money valuation to the entrepreneurs than any other team. While I am limited in what I can say about the company in question due to an NDA, I will say that my instinct (and analysis!) told me that the company was worth much more than what the judges wanted to admit. However, I'm not one to fight the market. If capital is limited, valuations will be depressed. Period. Lesson learned.

To many of you this may be perfectly obvious. Of course, if the economy is doing poorly start-up capital is scarce and the market opportunity for most businesses is dwindling--if existent at all. However, I feel compelled to set the record straight because many people are now attracted to entrepreneurship, some even saying that it's a great opportunity to become an entrepreneur. While this might be the case, it could only be because of a lack of options.

Taking the rose-tinted glasses off for a second, one must realize that entrepreneurship is still about money. Cash flows are the lifeblood of entrepreneurial firms and there's currently very little cash to "flow" around. Start-up capital is minimal, and--perhaps more importantly--consumers have a lot less money to spend. It's true that an entrepreneur might be able to scale down for a few years of austerity and position himself for better times, but not everyone has that luxury. Many businesses are heavy on capital expenditures and hefty overhead costs. On a more personal note, many people have mortgages and dependent children.

Putting the rose-tinted glasses back on, one must also admit that these trying times could present opportunities to the most creative among us who can adapt to the changing times and innovate in product, process, or business model. I have no doubt that entrepreneurs will play a lead role in the turnaround of the (world) economy, creating value through innovative products and services, and creating jobs for the would-be unemployed.

However, it is dangerous to make a blanket statement in praise of the opportunities in entrepreneurship. It might seem attractive because of the recent dramatic decrease in opportunity costs, but the market is tough out there...people aren't getting fired because of a favorable business climate.

So, try your hand as an entrepreneur, but only if you have the huevos or the great fortune to withstand a bumpy ride. If you're doing it for quick money and fanfare, you might want to wait for the turnaround when there's some capital to be had.

The Value of Twitter

Twitter recently signed a term sheet with a VC firm for a reported $20+ million at a $250 million valuation. According to Silicon Alley Insider, the lofty valuation implies that each of the billion or so tweets is worth $0.20. Perhaps more telling is the $40 average attributed to Twitter's 6 million users.

Justified? Maybe, but how? That's the 250-million-dollar question these days. How will Twitter make money?

Twitter probably poses the toughest monetization challenge we've ever seen on the web. For those who would say that Facebook faces similar challenges, let me point out that many of Twitter's most avid users never visit the website. Advertisements would not reach people who text their tweets. Also, factoring in the fickle nature of many Twitter users, you might just alienate too many people with an ad campaign that might not monetize well on a CPM basis, anyway.

What about the data that Twitter provides? That must be valuable, right? Yes, it is of great value to marketers, but who is going to pay for something that is already largely available? There are plenty of web tools out there that can help make sense out of Twitter data, presenting it in all sorts of different ways. Also, big businesses pay top-flight marketing companies like Networked Insights to make sense of the chatter surrounding their brands on websites like Twitter. The information that Twitter provides is already public, open to Google and all sorts of start-ups that offer insight into what happens on the micro-blogging site. What will Twitter do--make information only viewable behind a log-in, preventing Google's spiders from indexing it? This would go against the spirit of Twitter and its millions of users...which is a bad idea.

As for other options, Silicon Alley Insider once again offers some insight with its recent Twitter Business Model Contest. The "Twitter Antenna" program proposed by the contest winner resembles a paid data program, except that it allows companies to have direct correspondence with select groups of "tweeters" about their brands. The Antenna program would be optional, and among the main reasons for people to opt in is the desire to be heard. While few would doubt that this very human desire strikes at the heart of Twitter, it's unclear whether a conscious effort to profit from it will be met with anything but suspicion (to put it lightly). People like to spout off and vent--especially when someone is listening--but most tweeters aren't in it to make (other) companies rich. Case in point: many people refuse to reciprocate a follow from a company, especially if that company appears too self-serving in its tweets.

With that said, many companies do find value in Twitter. Dell attributed millions of dollars worth of sales to Twitter on Super Bowl Sunday. (Check out how Networked Insights ranked Super Bowl advertisers on "social ROI".) By simply shooting out promo codes for computer deals on the DellOutlet micro-blog, Dell was able to generate huge extremely low-cost sales from viral "re-tweet-style" (What is a re-tweet?) marketing.

As it appears, Twitter does create some real value. But for whom? Dell has harnessed the power of Twitter to boost sales. Guy Kawasaki, perhaps the most influential user, seems to be sold on the concept. What about Twitter itself? How do they cash in? We should see the beginning of this answer (if there is one) in 2009.

Surviving the Downturn: Be Like Tech

Companies are cutting costs across the board. Times are tough and cutting costs--often in the form of employees--is a necessary evil for firms seeking to survive the downturn. While the net effect of a recession will always be bad for society, it's always important to seek opportunities whenever possible.

One sure-fire way to be successful, even in a downturn, is to make other businesses more efficient. Google showed us yesterday (with its earnings report) that certain tech companies are well-positioned during a downturn because they make more efficient use of companies' financial resources when such resources are scarce. But tech companies aren't alone in their ability to make business more efficient. People can also learn to mimic the operations-enhancing qualities of today's best technology.

First of all, just as companies need to use Google as an accountable, cost-effective source of advertising, companies also need people who know how to harness the power of Google for these purposes. In the fields of search engine optimization and keyword advertising, people with real expertise are hard to come by and will likely serve many businesses well in these tough times. Companies need to make due with fewer people and a smaller marketing budget. Just as search will probably be the last thing cut from marketing budgets, so will search engine marketers. Even if you're not a search engine marketer yourself, simply being cognizant of the safest havens within your field can help you position yourself properly within your company.

That's not to say that by picking up a book on SEO you will suddenly become more valuable to your company. SEO is largely a moving target. It's no longer sufficient to think of just PageRank and keyword density. Also, rankings--in their crudest sense--mean very little. Google's search results are becoming more personalized to the individual web user, thus making an often disparate set of search results for a single keyword phrase. Beyond this personal data, Google will also pay closer attention to the richness of the media your website offers. According to this article (passed along by @SocialMediaGod), websites that currently rank highly could take a nose dive if they fail to offer the video that their rivals provide. To put it bluntly, quality is becoming more and more important. Staying alert on latest SEO trends can help, but one must always be concerned primarily with creating a good user experience.

Back to the point, cost-effective web traffic can be top priority for many businesses that are currently suffering--and such a priority should be trumpeted by employees. Protecting your job might be as simple as championing the right things, whether or not you are the best person to execute on the implied tasks. SEO and paid search are just two ways to voice your opinion. In general, be ambitious and take on responsibility. It's a lot easier to lay off someone who already appears to lay idle.

So, in your work you should mimic the cost-cutting, efficiency-enhancing characteristics of tech. See where the most pressing needs of your firm are and work toward solutions, picking up necessary knowledge and skills along the way.

*Afterthought:

For those who are looking for a job, here is an article on large companies that are actually hiring (passed along by @RJHealy). Unfortunately, many of those same companies are also slowing down their hiring...or even firing, in the case of Microsoft and Google.

For those who have a hard time finding work, I suggest looking into providing consulting services in the meantime. I have found that some firms that can't justify previous levels of full-time employees may still need some help on a part-time or limited-time basis. It might not be the ideal situation, but it might work out for some. (With that said, the recent spike in demand for my services still wouldn't allow me to pay all of my bills on consulting alone.)