“Brevity is the soul of wit.”

I doubt Shakespeare was referring to traveling 10,000 kilometers to attend 2 meetings when he extoled the virtues of pithiness.

Yet, here I am. Watching the sun rise over the Hangang River from the executive lounge at the Conrad Seoul Hotel. It is transformational, humbling… and yes, a bit humiliating if you happen to be a technology evangelist like me. Even the toilet in my hotel room has more technology than the entire state of Mississippi. Why is it so much easier to sell truly disruptive technologies in Korea than the United States?

I knew this would be a different kind of business trip from the moment I got on the airplane. Korean Airlines is a reflection of its homeland: Universally clean, polite and functional. Every employee is young, fit and remarkably educated. This is the diametric opposite to eponymous US carriers like United and American Airlines.

I’m here for less than three days and two meetings. It’s been more than a decade since I traveled to Asia. This is the first time I have ever done business with a South Korean mega-electronics conglomerate. Moreover, this is the first time I have ever traveled to an area threatened with nuclear annihilation.

This is one of the more exciting sets of meetings of my career. The senior management team evaluated more than 80 leading-edge technology companies. They selected only five to visit their headquarters in Seoul. We were chosen to show how to embed artificial intelligence as a way of personalizing consumer electronics. Imagine: Every electronic device doing exactly what you want simply by knowing who you are and how you behave – without any programming or explicit commands. Our technology enables these devices to “just know.”  Even better, they will talk and interact with you in an almost human way. And best of all, our design gives the end-user total control over the artificial brain embedded in each device – eliminating any risks posed by “Big Brother.”

The engineering for this is remarkably straightforward – our team has been working on developing the core technology for more than a decade. I’ve spent the past two years bringing it to market.

Most people can’t understand why it is hard to sell a technology that enables machines to learn like humans. At best, our claim raises eyebrows. More often, people just roll their eyes.

So, yes, getting this meeting was difficult. We approached three major consumer electronics manufacturers in the past year. Unlike the other two, our Korean friends moved at lightning speed with open minds. It took less than a week for them to schedule meetings with their senior management in Seoul. And once here, we find ourselves meeting with executives, scientists and engineers who enthusiastically embrace new ideas. They take copious notes, ask the right questions and help each other prepare for the next meeting.  We walk into one meeting without any need to review what we said in the last meeting – a process of unimaginable efficiency, especially considering we are talking about a completely new form of artificial intelligence.

This is in stark contrast to the “normal” experience of presenting enabling  technologies to large US firms — especially those in the US defense industry. The cult of “not invented here” kills most ideas younger than the matriculation date of the oldest manager. Innovation is rare. It is more common for engineers, scientists and managers to doubt the potential of any new, unfamiliar technology. It’s less scary for them to invest in “what works” rather than risk failure by experimenting to find “what’s next.” As a technology evangelist, I spend a lot of time thinking about this phenomena known as the  “innovator’s dilemma.” And I’m flummoxed by what I’m seeing in Seoul – a culture painted by the American media as hierarchical, conformist and homogeneous. Traits abhorrent to innovation. Yet why is everything in Korea so incredibly advanced?

Business is the best way to learn about a culture.

I tried hard to get out of this trip. It seemed like a really bad idea to travel to an area under threat of nuclear war. CNN and other US news outlets spent two weeks warning of impending doom – only  to be interrupted by the Boston Marathon bombing. Why go to Korea when we could save a massive amount of time, effort and expense with a simple webinar?

The absurdity of North Korea’s war-mongering bloviating was obvious when I called our customer to get out of the meeting. They were offended. “No one takes the North seriously,” I was told. “Just come. All decisions get made in Seoul.”

I arrived on Saturday night with the COO of our company. We worked most of the day on Sunday. Around 4pm, I decided to take a walk outside to see how South Korea would respond to the latest threat from Kim Jong-un: Millions fled to the Cherry Blossom Festivals to celebrate Spring. Not a single gas mask, solider or worried face in sight. Only an abundance of more young, fit and highly educated people.

Our meetings went remarkably well – or so we think. The proof will be learned in the next few months. It’s not appropriate for me to go into details… but it is interesting for me to document the nine lessons I learned in 72 hours in Korea:

1. Listen.
2. Show physical commitment. Be there, don’t phone it in. I bought a cell phone from our customer to use as a prop in the meetings. They loved it when I demo’d the artificial brain working on their own product.
3. Learn from locals and ignore the news. Everything that CNN reported about Korea turned out to be false, irrelevant or distorted. As always, the best information comes firsthand.
4. Focus your pitch on the managers and engineers who ask the best (hardest) questions. They tend to fall into two camps: Your best advocates and your worst skeptics. Gaining a trusting, open relationship with both is essential to moving forward.
5. Keep it short. When people ask for a “technical meeting” they are really asking for a “factual meeting” – not a “long meeting.”
6. Use a white board, not PowerPoint. Nothing is more boring than “Death by PowerPoint in a Foreign Language.” Using a white board keeps the audience engaged even if they don’t understand every word.
7. Make it easy on the audience by never using acronyms. They waste valuable cognitive capacity as people try to disambiguate the acronym in English to the terms in Korean.
8. Assume everyone is a genius. In Korea, they probably are. Google and Apple are the only places where I have seen as many smart people under one roof.
9. Exercise. It keeps your brain alert while helping your body adjust to time zone changes.

Posted by: Olin Hyde

Want to be in a WGBH documentary for PBS?

The Site of the Battle of Hattin in 1187 along The Jesus Trail

I just got back from an amazing vacation to Israel (and Austria and Turkey). My very close friends Maoz Inon co-founded the Jesus Trail™ — a hiking tour that follows a path from Nazareth to Capernaum which connects important sites from the life of Jesus as well as other historical and religious sites. Maoz’s wife Schomit runs amazing hiking tours where guests stay in really nice hotels starting at their family hotel The Fauzi Azar Inn. The best part:  They carry your bags for you from hotel to hotel… all you need to do is walk.

Maoz and I have been friends since 1998 — back in my artistic days (many years before my ventures into artificial intelligence) when I was writing screenplays, acting in commercials and making films. So it was only natural for him to tell me about Leo Eaton‘s documentary that will feature the Jesus Trail. He asked if I wanted to be in it? No. Absolutely not. BUT… I am more than happy to promote the project to my friends.

So if you want to be in this, just follow the links and contact Leo Eaton directly. (Again, please contact Leo directly at leo@eatoncreative.com.

Hope to see you on television!

Map of the Jesus Trail

Seeking Christian Pilgrims for Sacred Journeys – A Documentary Series for PBS (really… I’m not kidding)

SACRED JOURNEYS is a 6-hour documentary series for PBS (Public Broadcasting System of America) that follows pilgrims and travelers of different faiths from the US who are embarking on Journeys of Faith to some of the world’s greatest Sacred Places. We will follow American Hindus to the 2013 Kumbh Mela in India, American Buddhists on the Pilgrim Trail around the island of Shikoku in Japan, wounded US soldiers and their families traveling to the Catholic shrine of Lourdes in France, American Muslims on the Hajj to Mecca, African Americans traveling to Nigeria for the Osun Festival of the Yoruba faith, and Christians coming to the Holy Land of Israel.

Posted by: Olin Hyde

Almost Independent Advice from an Entrepreneur and Computer Science Geek

Like many Americans, I am disgusted with our political leadership in California and Washington DC. This election cycle is one of the most important in my lifetime. The United States, California and San Diego all face tremendous fiscal and civil challenges.

I thought it would be useful to share some of my political opinions for my friends, business associates and family. The intent of this posting is to provide food for thought — not definitive advice. I strongly believe in the Wisdom of Crowds. The best choices will be made by an electorate of informed citizens armed with the power of critical thinking. I hope this blog will foster greater civic engagement and more thoughtful votes.

Please consider me an Independent. Unfortunately, I am still a registered Democrat. This is unfortunate because I feel the Democratic party no longer represents my interests — especially in San Diego County. I was registered Republican many years ago. However, I feel the current Republican party also fails to represent my values.

Full Disclosure: My Political Involvement

Earlier this year, I resigned from my board positions at the New Leaders Council and San Diego Leadership Alliance — both are progressive organizations with charters to train leaders to enter local politics and civil service. These organizations have strong ties to organizations that traditionally support Democratic candidates. My resignation had more to do with my time commitments to work and less to do with politics. I remain a firm believer that society most progress — to continue the expansion of civil liberties.

Personally, I am connected to three of the four Presidential ticket candidates. I am acquaintances with Gov. Mitt Romney’s first cousin, several of his business associates and my office is only a few blocks away from his home in La Jolla. I am acquainted with Mr. Paul Ryan through several mutual friends. We both attended Miami University (four years apart) and I know several of his fraternity brothers that graduated a few years after me. President Obama attended Harvard Law School with a close friend of mine and I know several people who have (or are) serving in appointed positions in his administration. I do not have any association with Vice President Biden.

This is the first election where I feel I have equally strong ties to both major party candidates.

More importantly, I feel that all of the presidential candidates are great Americans. Both Gov. Romney and President Obama are very smart men. They both care deeply about the future of our Nation. And yes, they have very different visions for what is best for America.

My Values: Fiscally Conservative, Socially Liberal

I feel the role of government is to maximize liberty at the minimal cost. There is a “right size” and a “right role” for government. Neither value is zero or infinite.

The political, economic, security and social landscape is far too complex to reduce my voting criteria to a few simple guidelines. Understanding the impact of policies and elected officials requires an appreciation of nuance and a deep commitment to evaluating data over ideological principles.

It would be impossible (and boring) to list all the values I use to evaluate a candidate. So I will only list the most important issues to me at this moment:

1. National security. Our enemies are real and persistent. Our nation faces threats from non-state Fundamentalist Islamic terrorists, cyber warfare operatives, sovereign and rogue governments. The specifics of these threats are too numerous to list.
2. Debt. On every level of government (applicable to me) we spend more than we can afford. Fewer and fewer people are paying for the social services that benefit more and more people.
3. Health. Almost 40% of all disease is preventable and more than 63% of Americans are overweight — causing tremendous burden on our inadequate healthcare system. Spiraling healthcare costs show no sign of abating and pose a threat to bankrupting our nation.
4. Civil liberty.  The USA has long tradition of steadily increasing freedoms. This trajectory must be maintained.
5. Social mobility (and bifurcation). The increasing separation between rich and poor threaten the stability of society and undermines the fabric of capitalism.
6. Fostering innovation (and adaptation to technology). The USA is the most innovative nation in history. Ipso facto: Our technology is ubiquitous and overpowering. Moreover, human knowledge now doubles every 5 years and the pace is increasing — both here and abroad. My work in artificial intelligence exposes me to the tremendous possibilities for improving the human condition through technology and the dystopian risks if technical advances outpace human wisdom.
7. Sustainability. We must serve the interests of future generations — economically, ecologically, socially and politically.

These principles are my guideposts for the following endorsements.

I will list them as presented on the Registrar of Voters for the County of San Diego. Not all candidates are listed since I do not opinions on all them.

My Endorsements

Federal Offices

President and Vice President

I (very reluctantly) endorse:  Barack Obama and Joe Biden (D)

This is the hardest choice I have had to make for President. I am disappointed with the performance of President Obama. I have sought the advice and opinions of many. To my dismay, my doubts about Obama were largely answered by demagoguery — attacking his character, making false and unsupportable claims about his ineptitude and criticisms about things I find completely irrelevant (like his religion).

The attacks on Obama swayed me to support him. I fear that if Mitt Romney becomes president, the Republicans will perceive the win as a mandate to do everything from ban gay marriage and women’s healthcare choices to expand military spending and abolish healthcare reforms. If Republicans were more reasonable and less angry about Obama, I’d vote for Romney.

I believe Mitt Romney would be a fantastic and moderate president. However, I do not trust the anti-science, Christian fundamentalists within the party that seek to impose their social and religious values on the rest of us. Romney could not win the primary without appeasing them… and I fear he would be unable to control them once in office. His basic premise that lowering taxes increases growth is highly dubious.

We need government to adopt a new philosophy: Do more with less. Unfortunately, this is not a political reality as both parties seek to fund their favorite programs.

United States Senator

I (very reluctantly) endorse:  Diane Feinstein (D).

The other candidate did NOTHING to even get on my radar screen. Too bad… I probably would have voted for Elizabeth Emken if she presented herself as a moderate, reasonable candidate. Instead, she doesn’t even appear to be running for office.

Sen. Feinstein has been office for too long… but at least she says she cares. This mere statement is more than I’ve heard from Emken.

House of Representatives 52nd District

I (reluctantly) endorse:  Brian Bilbray (R).

Neither candidate represents my values. This is more a choice between two bad candidates: Brian voted for Bush’s budget deficits, unfunded wars and “pro-family” legislation that ended critical funding for women’s health. As dumb as some of Brian’s votes have been, at least he is not responsible for the San Diego pension crisis like his opponent Scott Peters. I had the occasion to ask Scott how he would restore fiscal responsibility — and he completely ignored my question.

Both candidates are part of their respective political machines. The biggest reason to vote for Brian is that I think he listens better than Scott.

San Diego Offices

County Board of Supervisors

I (strongly) endorse:  Dave Roberts

Great guy who understands how to attract businesses, spend wisely and protect our environment.

Mayor of San Diego

I (very strongly) endorse:  Carl DeMaio

OK… My first choice was Nathan Fletcher but he lost in the primary. Carl won my vote when he personally called me on the phone — not his assistant, not because I asked… he called because he genuinely wants to be mayor. Unlike Bob Filner, DeMaio sees himself as as a servant. He’s forgone pension participation, cut his own budget and reduced his own pay. DeMaio wants to restore city streets (we some of the worst in the nation), reduce spending and reform our very broken, bureaucratic local government. No he is not perfect: I am concerned about his ties to the extreme right wing of the Republican party. But let’s be clear: Filner is the worst possible candidate. He is an old-school Democrat that believes in giving unions anything they want, spending money without any respect for those that pay taxes and he’s not had a new idea in 30 years. I encourage you to look at the video that the highly partisan Nick Popaditch sent to me when I challenged his claims about Filner’s dishonesty. I checked out Popaditch’s claims and he was right: Filner has a history of lying, not showing up for votes in Congress and staging political theater  Also, look at Voice of San Diego Fact Checks on both candidates.

The next mayor will have big shoes to fill. Mayor Jerry Sanders (R) has been fantastic — fostering innovation and restoring fiscal discipline to City Hall.

San Diego City Council District 1

I endorse:  Ray Ellis

Ray has one position: Reform pensions. He is a friend of a friend. He’s independently minded and the best candidate to help clean up the incompetence and excessive pay in city government that the unions so fight so desperately to protect. I met Ray through his involvement with the San Diego Social Ventures Partners — a great organization that he was instrumental in leading.

His opponent, Councilmember Sherri Lightner is also a great woman. She’s done a fine job — I just don’t think she will be willing to take a hard stand against the unions that are holding the city budget hostage.

Ballot Propositions

Generally speaking, voting NO is the right answer to most ballot propositions. California’s budget crisis is largely due to previous ballot initiatives that mandate over 60% of state spending. Although the intentions of these measures are well-intentioned, such as Prop. 13′s restriction on property tax increases, there are FAR TOO MANY unintended consequences.

That said, our state legislature is so broken that they are no longer functional.

So here are my YES votes:

Yes on Prop 34 — End of Death Penalty

Too many innocent people have been executed, the cost of death penalty appeals exceeds the cost lifetime incarceration and I believe that all humans have the potential for enlightenment. Killing is wrong. Killing killers is only justified to keep them from killing again. Once incarcerated they are no longer a threat to society.

Yes on Prop 36 — Reform Three Strikes Law

It was a stupid idea to begin with… so anything that reduces the cost of imprisoning petty criminals for life sentences is a good idea. We spend more money on prisons than schools. Time to cut the number of prisoners and start the process of using new discoveries in cognitive science to reform criminals into productive citizens.

Yes on Prop 37 — Labeling Genetically Engineered Foods

In short, we have a right to know what we are eating. Big Agricultural interests have financial incentives to sell GMO as if it were exactly the same as non-GMO foods. Bottom line: We don’t know what impact GMO has on long-term health. My fiancee changed my mind on this one. I was convinced when I looked at who was supporting and opposing it.

Yes on Prop 38 — Tax to Fund Early Education

Democracy and innovation depend on a well educated public. We’ve gutted education budgets and risk losing our edge in having the best labor force in the world. This measure provides funding for schools so we can restore the great educational system that helped build Silicon Valley and California’s economy.

Here’s why I vote NO on the rest:

Prop 30 – (Sales Tax to Fund Public Safety, Education). Sales taxes are already too high. Does nothing to reform the way services are delivered. Spending more only reinforces inefficiencies rather than using the budget crisis as an opportunity to force the system to evolve a lower cost, better way of operating.

Prop 31 – (Establishes 2 Year State Budget) Not sure… too many risks of unintended consequences.

Prop 32 – (Payroll Contribution Restrictions) HELL NO!  This is a twisted bill that has so many loopholes and exceptions that it reads like a joke.

Prop 33 – (Auto Insurance Pricing) Stupid idea. Sponsored by insurance companies to serve the interests of insurance companies.

Prop 35 – (Human Trafficking Penalties) Unnecessary. This should be handled by the legislature. Also, it conflates the definition of different crimes.

Prop 39 – (Taxing Multi-State Businesses) The most stupid idea. Chases businesses away with more taxes. California needs to attract business — not scare it away.

I just finished reading “The Rainforest: The Secret to Building the Next Silicon Valley” by Victor W. Hwang and Greg Horowitt. I met Greg through a mutual friend and was very impressed with his candor and interest in viewing innovation as a biological system.

Hwang and Horowitt are right: innovation is a combinatorial process. However, it is important to note that Hwang and Horrowitt are venture capitalists — NOT an innovators or an entrepreneurs. Rather, they are a source of capital for entrepreneurs SEEKING capital. Their world view is about finding the idea that offers the greatest ROI in the least amount of time. This is where the metaphors of the “rainforest” and biological systems fall apart.

Thriving start-up communities, such as Silicon Valley, require huge amounts of capital that are committed to long-term results in an environment where there is ample human capital with the right emotional dispositions and intellectual skills. This was what built Intel, Hewlett-Packard and other icons of the early days of Silicon Valley.

Recent history for VCs is much different: They under-perform the Dow Jones. ROI on VC investments was a paltry 2.66% compared to the Dow Jones 2.7% during the past decade. If VCs are so smart, why can’t they outperform a far less risky Dow Jones index? Because they focus on short-term results.

Even worse: VCs rarely invest in San Diego. In fact, San Diego got only 4.1% of all VC invested in the Q4 2011 — with only 23 deals. Pathetic compared to the 46% of all VC money that went into 273 Bay Area start-ups.

We would all be well served by confronting the hyperbole of venture capitalists with facts.

It would be far more interesting for Hwang and  Horowitt to provide insights into why they think San Diego is such a great “rainforest” when his VC brethren invest 10x more into the Bay Area.

Moreover, we would all benefit from more detailed analysis of the educational pipeline that creates entrepreneurs and how to foster a younger generation to take the risks to create something new. Possibly we need more non-profits like Raspberry Pi that saw the need to create $25 computers to inspire a new generation of engineers as described in Eben Upton’s brilliant TEDx speech.

In mid-2011, my company was acquired by ai-one — a startup that has discovered hybrid-approach to machine learning called “biologically inspired intelligence.” As the VP of Business Development, it is my job to figure out how to bring this completely new form of artificial intelligence to market. This blog summarizes my thoughts so far to bring Topic-Mapper to market…

Innovation as a process of combining technologies

In his famous TED speech “When Ideas Have Sex“, Matt Ridley pointed out that throughout history innovation has been the process of bringing together great ideas.

One of the few reliable recipes for starting a successful company is to combine two emerging technologies to create new value. These combinations shape almost every aspect of our daily lives: Vonage combined VOIP with a web browser – and built an empire at the expense of industry heavyweights like AT&T. Apple embedded wireless internet access into a cell phone – and disrupted the entire mobile phone market with the iPhone. Amazon combined an always-on device with cloud computing to create a new way to browse and buy books – the Kindle – which effectively put the nail in the coffin of old-school bookstores like Boarder (which went bankrupt).

Combining technologies creates new value in three important ways:

First, it synthesizes the collective intelligence of two groups of engineers. We can think of this as aggregating the brain power that created both technologies. This collective intelligence represents more brain power than any one project or technology could muster on its own. For example, it took more than 50 years to develop packet switched technology to the point where it could be deployed as wireless Ethernet and it took more than 20 years of engineering cell phones signals to the point where they could transfer voice and data across the same signal. By the time Apple came along with idea for the iPhone, they were able to tap into the work of tens of thousands of years of engineering that built the core technologies that made their vision possible. The genius of Apple was not in the invention. Rather it was in combination. They had the vision to see what others did not (or could not execute upon).

Secondly, successful combinatorial technologies solve more fundamental problems than either of their constituent parts. For example, wireless internet solves the problem of mobility because it eliminates the need to hard-wire your computer to the internet to get to the web. Wireless internet on your cell phone solves the problem of mobility by eliminating the need to be around your computer.  A cell phone fits in my pocket. My notebook computer, regardless of how small, does not.

Finally, combinatorial technologies are often far less expensive than the sum of their constituent parts.  My cell phone costs a little less than my notebook computer yet it provides far more utility. I can use it in most of the ways I use my computer… only it weighs far less and is completely mobile.

Innovations that combine technologies synthesize our collective intelligence. You can think of these innovations as aggregating the work of many brains into a single concept. Let’s call this “the collective brain.”

The Collective Brain, Innovation Acceleration & Pattern Recognition

Collective intelligence drives innovation at an ever increasing pace as communications get faster and more ubiquitous. The collision of ideas happens far more frequently with each passing year. So much so that the rate of innovation doubles every decade. By this estimate, humanity now innovates more in one year now than the entire Roman Empire did over the course of more than seven centuries.

Just like Adobe’s Flash needed YouTube to become ubiquitous and Intel needed Windows to become a mega-corporation, I am seeking a way to find the partner technology that will demonstrate the power of our machine learning technology. So…

How do we find the right customers to start the virtuous cycle where our technology becomes embedded into every computing device?

The answer: First, find the fail modes where a new technology extends the available markets for existing technologies. Then, combine the new technology with an older technology to create new value.

For the purposes of ai-one, we know that the biggest value of the technology is unsupervised learning. That is, the system learns without any human intervention. It does this by detecting patterns in the data. Any pattern in any data. Once a pattern is known, the meaning of any data element can be revealed by context. This is the way humans learn: We create an associative network that links stimuli (the picture of dog) to an experience (petting a dog) that has a point of reference (our mother telling us the word “dog” while we see the picture and pet the puppy.

So let’s stick with unsupervised pattern recognition as a key value. Now all we need to do is find other technologies that fail because they can’t learn.

Minimally Viable Products & Customer Discovery

In the past couple months, we started experimenting with building minimally viable products (MVPs) that will enable us to discover how our pattern recognition technology adds value to other technologies that fail to deal with constantly changing data and/or very complex situations where rules-based approaches fail.  The key, of course, is to get to a maximally buyable product as quickly as possible.

Enabling machines to understand human language is where we started. Data mining unstructured text is a massive problem for many companies. Solving it could result in creating a many-billion dollar market.

Our first experiment combined ai-one with natural language processing (NLP) to summarize websites by finding keywords and their associations. This MVP is called ai-Browser. It is a plug-in for Chrome and Firefox web browsers that uses an open source NLP library that calls ai-one’s Topic-Mapper API to summarize complex text into a few sentences that condense the meaning of a webpage.  The combination of NLP and ai-one results in a knowledge representation graph that summarizes the meaning of any document.

The goal of our MVP is to inspire both business users and technicians to see the potential uses of Topic-Mapper to extend NLP functionality. Ideally they will see ways to build new businesses or extend the markets for their existing business by enabling machines to understand the context of how words are used in a given article. This is tremendously valuable for:

• Sentiment analysis
• Content summaries for feeds from news, social media, Twitter, etc.
• Extracting entities (concepts) from unstructured data.

Or put another way:

For business users dissatisfied with the accuracy of text search tools, ai-Browser provides a quick and easy way to summarize the content of a webpage by using keywords. Here is a presentation we published yesterday on How to Build Tools to Data Mine Unstructured Text. More than 100 people have viewed it in the first 24 hours. So maybe we found something.

Here’s my elevator pitch… let me know what you think:

For technicians unhappy with NLPs inability to recognize patterns in text, ai-Browser provides a proof of concept that ai-one’s Topic-Mapper API can extend the functionality of NLP to recognize the context of a word, its associations and most relevant sentences.

Last month I hosted a seminar on “progressive entrepreneurialism“ for the alumni of the San Diego Chapter of the New Leaders Council.

Here are my notes for the seminar. They provide an outline of some of the lessons I have learned from more than 20 years of starting businesses — sometime successful, sometimes not.

My most recent startup, Auto-Semantics.com, was purchased by ai-one in July 2011. This explains the silence on my blog. I am thrilled with the terms of the sale and eager to join the ai-one team as VP of Business Development. The press release was released today.

What is progressive entrepreneurialism?

Progressive Entrepreneurialism = Finding a repeatable way to create, sell and deliver products that improve the human condition.

• • Progressive = Improve the human condition (e.g., civil liberties, social liberalism)
  • Entrepreneurialism = Process of finding a repeatable business model for a new enterprise.
    • Startup process
      • Inspiration
      • Product driven
      • Customer driven
    • Business model = A way to create, sell and deliver products and services
      • Scalable
      • Profitable
      • Predictable
      • Sustainable

Types of entrepreneurs

• For-profit
  • Startups that improve the human condition by:
    • creating better business models (e.g., Google)
    • changing the way people interact (e.g., Twitter, Facebook, Stay Classy)
    • transforming our relationship with the environment (e.g., Bloom Energy, Sapphire Energy)
    • disrupting sclerotic, obsolete industries (e.g., Tesla, MeetUp)
  • Corporate social responsibility– people, planet, profit (triple bottom-line)
    • One of the only tricks big companies can play to stay in the game.
    • Must be part of company DNA – not just lip service.
    • Effective examples: The North Face, Qualcomm

• Non-profit
  • Social entrepreneurship – creating value through non-profits (501.c.3)
    • Founder – Creating a new non-profits fantastically difficult. Success rate is far lower than starting a successful for-profit
      • Usually requires at least 4 or 5 major donors willing to fund first few years.
      • Requires building both operational and funding support concurrently.
    • Boards, Supporting roles
      • Much easier to get involved with existing non-profit (there are many)
      • Passion and commitment from board members and supporters is essential to the success of any non-profit

The Innovation Process

• Create new or more effective _____ {fill in the blank with the problem that you are obsessed to solve.
  • Substantial – it must solve a problem people care about. Best measured in $$$.
  • Measurable – the solution must solve the problem in a way that can be measured and monitored. Usually in $$$.
  • If you don’t have the “big idea”– then relax. Go through the process of discovery. Might take take a 1 – 2 years.
    • Personal experience – “pivots” usually bring about great things. The first idea is rarely the best idea.
    • Personal observation – the period between “big ideas” often are times when people that are actively seeking the next business find ways to grow personally and spiritually.

• Innovation is rare:  Innovation ≠ Invention…but Invention ∝ Innovation
  • Patents for individual investors in all USA
    • Pre-1994 = 239,928
    • 1994 to 2010 = 294,521
  • Most productive = Utah, California, Mass & NY
    • Utah looks like the epicenter for patent trolls (subject worthy of a blog)
      • Many more patents than companies taking patents to market
      • Far more patent activity than VC activity – indicates people inventing and not taking to market.
  • Only ~16,000 to 20,000 individual patent holders in USA a given year – largest patent office in world yet only ~0.006% of population in any given year. (<0.3% in 50 year career).
  • Most businesses are not innovative nor can they ever become one – risk & attributes are anathema to status quo.

Attributes of innovation

• Iconoclastic. The neurology of entrepreneurs is fundamentally different than most people. Suggested reading: Gregory Bern’s “Iconoclast — How to Think Differently.”)

• Environment. Innovation requires the right conditions to flourish. Suggested reading:  Steven Johnston’s “Where Good Ideas Come From — The Natural History of Innovation.”  Here is a quick summary of Steven Johnston’s observations:
  • Slow Hunch – It takes time to come up with innovative ideas. 10 years or more to come up with fundamentally strong ideas. For example, Tim Berners Lee worked on the WWW for almost a decade as a solution to the knowledge sharing problems he faced at CERN.
  • Collision of Ideas – Johnston echos the concepts of Matt Ridley’s TED video “When Ideas Have Sex“.  The combination of ideas produces better ideas.
  • Liquid networks for connectivity (community of ideas) – Kleiber’s Law applies to scaling ideas (NYC is 145% more productive than national average, more patents than anywhere).
  • Adjacent possible – adoption is a next step not a giant leap. An invention that arrives too early is one that is not adopted – even though it might be very effective at solving a complex, expensive problem. For example, Charles Babbage’s differential machine.
  • Exaptation – adapting one idea to solve a different problem (interdisciplinary)
  • Platforms – ideas progress built upon each other. Different from adjacency but related.
  • Error – cornerstone to learning.
  • Serendipity – see iconoclast personality types.

• The Acid Test:  Have you solved a problem people care about? Will they pay for the solution?

• TALC (technology lifecycle adoption curve). Required reading for every entrepreneur and innovator is Geoffrey Moore’s “Crossing the Chasm.”
  • Concept of how to “Cross the Chasm” applies to everything that is new to the market.
  • Red Ocean vs. Blue Ocean (“Blue Ocean Strategy”). Excellent way to find markets that are emerging where first mover advantages can create tremendous market share.

Innovation: The only way an entrepreneur can affect progressive change.

Two types of businesses:

• Operations driven – where success is all about execution in operational details. The vast majority of companies fall into this. Wal-Mart, GE, Goldman Sachs and Toyota are great examples. Yes, they create intellectual property, but the amount of innovation is relatively low and usually incremental (not disruptive). Without any new innovation, these companies will continue to exist for many years. Their competitors are often companies that have failed because they have focused on protecting aging business models – such as Sears, GM and Citibank – yet exist through momentum. Operations-driven companies are successful because they focus on improving doing what they already do. Success is pushing numbers on a dashboard. For example: Sales ∝ Call Volume. Profit ∝ Operational Efficiency.

• IP driven – all about how to getting market adoption of a new idea. This is relatively rare – usually found in companies that are filing patents or rely upon trade secrets to add value to a customer. Qualcomm, THX, Google and Intel are classic examples. They are ultimately driven by how well they can get a customer to adopt what they have invented. Measurements for success are far more elusive. For example, profit is proportional to the percentage of ownership in a final product that might be manufactured, marketed and distributed by several other companies. The metrics for success might be the number of licensing deals or channel partnerships formed, how well is each deal performing, etc.

Join the Club

• The Club – The only way to consider yourself an entrepreneur is to “just do it” and earn your living with a company that you start. That means quitting your day job and making it happen.
  • Entrepreneurs have a way to finding each other. Likely because we all share a few personality attributes that would be considered dysfunctional in other environments.
  • Starting a company is transformational. It changes how I perceive “how the world works.” Similar to the way I see how others have changed their perspective through big experiences like: parenthood, divorce, war, major illness and serving a prison sentence.

Costs of becoming an entrepreneur

• Founder mortality — few founders survive after a company gets funding
  • 63% replaced within 2 years in VC backed firms (source SVB.com)
  • About 29% survive the first 10 years (the time it takes to get a “big idea”
  • Success rates of taking company public: ~18% first timers; ~30% for those with previous success; 20% for those with previous failure. (according to HBS working paper)
  • Social life: None unless you make it a priority.  60 – 80 hour weeks are “normal” à self-sufficiency, time/cash balance

• Founder personality
  • Hypomania – look it up in DSM (http://www.hypomanicedge.com/)
  • Defiant, Self-Sufficient, Risk Taker, Dreamer
  • Know thy self – Use “Strengths Finder” book and/or other 360-assessments.

Funding sources & stories

• Be careful of who you take money from…money is a commodity – its only purpose is to transfer wealth. Investors are not “giving you money.” They only invest money to make more money — and their fear of losing money can derail you from the path necessary to transform you vision into reality.
  • VCs – wolves, lemmings or sheep. Underperform DJA for past 10 years (WSJ). Good for companies that need lots of capital to scale quickly and are willing to give up control.
    • You must ask: Why would you want to work for someone who is underperforming the average performance of the largest companies in America?
    • Also, what makes you think they won’t replace you with a stooge they met in business school?
    • If you are confident you can survive these issues AND you absolutely need cash to grow, then VC might be good for you.
    • Case in point: Facebook, Google and Intel all needed VC money to be so successful. But the guys at 37Signals did not – and are probably both happier and wealthier than the overwhelming majority of VC funded founders.
  • Angels – All about the relationship, akin to marriage.
  • Friends, family and the inner circle – This enables you to raise capital and keep control. But you are limited to less than 27 or so total investors in the USA before you must file with the SEC. Thus, this is not a scalable approach for most entrepreneurs.
  • Bootstrapping – painful. Capital is necessary to scale. However, bootstrapping gives the founders complete control. This is my favorite route.

Methods to start a business

• Determine how close you are to end-customer (business-business, business-to-government, business-to-consumer, geek-to-geek)
• Lean Startup – Ideal for end-user (B2C, some B2B) (read Brand’s “Four Steps to the Epiphany”)
• Product driven (G2G, some B2B, almost never B2C)
• Relationship driven (B2G)
• Vision is not a methodology – must be solid and unwavering
• Key is to know when to pivot

• Just do it
  • MVP – minimally viable product (or service)
  • Get first customer
  • Fail fast, fail often à don’t give up. Persistence is more valuable than IQ

Last night I attended an awesome concert by Orchestra Nova – featuring classical works by Ludwig von Beethoven, Arnold Schoenberg and a new composer I’d never heard of (Nancy Bloomer Deussen).  It ranks as one of the best shows I’ve ever seen – in the same league as U2, the Grateful Dead, the Rolling Stones and Bruce Cockburn.

Great music inspires. And last night, I could not stop thinking about how this small, non-profit ensemble was doing what so many companies fail to do:  Bring new life to old ideas. Conductor Jung-Ho Pak and his crew embody innovation.

Orchestra Nova is noteworthy because it is exceedingly difficult to “innovate” in a musical genre that is defined by following tradition. “Reinventing classical music” is (at best) an oxymoron. At worst it is deceptive marketing dribble to stem box office decay.

Why Innovate on a Classic?

The market for classical music is dying. Literally. This is no joke.

Research from the League of American Orchestras shows the demand curve for classical music performances across successive generations are in free fall (as cited in The New Yorker).

This pains me. Civilization would be far poorer without the gifted musings from Mozart, Chopin and Beethoven. The complexity and nuance of symphonic compositions are keystones to our musical heritage. The loss of live classical music performances would deny countless future generations of the inspirations that helped create jazz, rock & roll and much of the canon of Western music.

I have seen three groups in San Diego experiment with radical approaches to cultivate new audiences, most notably: Orchestra Nova, Art of Elan and Luscious Noise. Each group has a different approach. Each are worthy of a blog posting. That said, I am most familiar with Orchestra Nova because I feel a personal connection to their leadership, philosophy and music – so much so that I proposed to be married after a concert in November.

We can learn valuable lessons on innovation by examining how Orchestra Nova brings new life to an ancient art.

Elements of Innovation

What made last night’s performance so great?

The Easy Stuff

• Venue: Yes, we had great seats – in fact all the seats Irwin M. Jacobs Qualcomm Hall great thanks to some of the best acoustics in the world.  Many thanks to Mr. Jacobs and his company for providing such amazing space available for the performing arts.
• Talent: Yes, the musicians played with unbridled passion – horsehair flinging off their bows.
• Material: Yes, the music was really difficult – showcasing why it takes a lifetime of practice to master the classics.
• Management: And yes, the conductor, Jung-Ho Pak, brought life to the music by telling short stories about what makes each piece so unique.

Organizational Elements

Orchestra Nova combined these elements (that are accessible to any classical music group) create a new way to experience classical music – what they call the Nova Experience. Most classical music groups never take the risks necessary to create a unique experience. Rather, big city symphonies, like big corporations, are prone to do exceedingly dumb things to attract new audiences. Often these turn out to be one-time tricks that forever alienates the next generation of fans. (Think: New Coke’s betrayal of the brand relationship.)  Nothing is more painful than sitting through a performance of pop music played by an uninspired symphony pounding out a three chord rock & roll melody that panders to a pre-retirement audience – then having the arrogance to call it “something new.”

As in business, symphonies are only as good as their last performance – and that depends entirely on proper prior preparation. In other words, having the right business model, leadership and knowing when to change.

Business Model

Nova creates an atmosphere of inclusion – where the audience feels they are a part of the performance. This philosophy starts with their business model – making tickets very affordable so that anyone can attend, providing deep discounts to students, teachers and the military. As Executive Director Beverly Lambert said last night, “We want to make the Nova Experience accessible to everyone.”  Even more impressive, next year Nova will give discounts to everyone who attends a show if they buy a ticket for the next show the next day.

Leadership

Orchestra Nova benefits from leadership that values innovation. The board is diverse and deeply involved in the community: Lee Ann Kim is a news anchor who founded the San Diego Asian Film Festival. Dr. Samuel Dychter is a drug discovery researcher and biotech executive. Lisa Norton founded San Diego Power Networking and provides strategy consulting services to business leaders around the world.  And my friend Jesi Betancourt lives her life in the service of others.

Most impressive is that the major donors include previous executive director Ms. Gay Hugo-Martinez and some of the most prominent business leaders in the San Diego tech scene. This shows that Orchestra Nova has the confidence of people who both know the organization’s weaknesses and see the potential for it to grow into national prominence.

Pivoting

Orchestra Nova is a turn-around story. My sense is that their audiences were declining and are now picking up thanks to a major shakeup. About three years ago the board rebranded – changing names from the San Diego Chamber Orchestra to Orchestra Nova to reflect their transition from traditional performances into something truly different. I first saw them perform in late 2006 as a chamber music group – and it was rough. I almost vowed that I would never go again. Thanks to the prodding of two former board members, I gave Orchestra Nova another try. Wow, in less than a year the board and conductor did a lot of work to modify the mix of musicians, venues and performance formats.

I encourage everyone to go see Orchestra Nova – especially guys like me who get inspired by world class artists as they masterfully redefine the familiar into something completely new. This is the essence of our human imperative: Innovation.

One of the worst parts of entrepreneurship is collecting from clients who are late on payments. Delinquent accounts receivable (AR) is a problem that, if ignored, can be disastrous – forcing many small companies out of business.

I recently went through the problem of collecting from two over-due clients. Both were happy with my work. Both were also startups with cash flow problems. And, most importantly, both were customers whom I really value and want to maintain good relations.  Here’s my advice on the do’s and do not’s on how to collect from customers and preserve the relationship.

Do:

1. Take the high road. Always assume that your customer is doing the best they can do.
2. Look at the situation from your customer’s perspective. Make sure to preserve civility and dignity. Everyone deserves it.
3. Listen. Almost every business goes through periods of tight cash flows. Many will emerge as great customers in the future. Make sure to listen to your customer so you don’t over-react to non-payment.
4. Be firm but polite in reminding them that money is owed.
5. Consistent communication. Most businesspeople want to keep good relations with vendors. The value of our personal relationships is growing exponentially as the world gets smaller and more connected. However, the easiest payment to skip is the one that comes from a vendor that has been silent the longest. Thus, make sure that you stay in contact with the customer – always. Make sure you communicate with them at least every month and never miss an opportunity to ping them with a news item or other information that will help them with their business.
6. Find ways to add value to their business. The best way to get paid is always to help them succeed. Sending them a customer or providing a good reference can help ease tensions and move your bill to the top of the accounts payable list.
7. Always charge interest and/or late fees. Make these clear from the very beginning.
8. Provide a one-time only discount or rebate if they make full payment within a specified (but reasonable) time frame. Most companies will jump at the chance of paying the bill if they can get a 2% discount if they pay within 15 days.
9. Know when to get a lawyer involved. I carbon-copy (CC) my attorney on email asking for payment when a client is more than 60 days late. I also include all documentation so there is no question or debate about the bill.
10. Speak to the owner or President of the business prior to starting any collection process. Explain that you value the relationship and need to be paid.  This is a tough converstation for both parties. However, conversations between two rational businesspeople are always (without exception) more productive than getting lawyers involved.
11. As a next-to-last resort, offer a payment plan to owner or President of the business.
12. Get creative with other ways to collect… the last thing you want to do is…
13. Hire a lawyer file a complaint OR walk away. Realize that once a lawyer is involved, the only people that will get paid are the lawyers.

Do Not:

1. Let emotions take over. If you are upset then take a couple days to think about what you will do or say. Bad things tend to happen far faster than good things.
2. Make every communication about the overdue bill or your own business. Nothing is worse than self-absorbed, greedy vendors.
3. Try to be a lawyer or make representations about the law. You will only make mistakes that cost you fees from real lawyers.
4. Make threats or ultimatums. Presumably you are older than 12  – so act like it.
5. Talk too much. Over justifying a bill is just as bad as under justifying.
6. Do business with scumbags. A mentor once told me “sleep with dogs and you will get fleas.” I ignored it and found myself in court with the worst customer imaginable.
7. Talk trash about a customer. This will always come back to haunt you – landing you in karmic and/or legal trouble.
8. Worry. It will never bring you any closer to resolution. Just do or don’t do – those are the only two options.

Case Study:  Carrots are useless without a stick

In previous businesses, I took adversarial approaches to collection. My worst experience was with a county (governmental) agency in Illinois that owed me $250,000 and were more than 6 months late. I followed steps 1 though 12 (in the “Do” list above) and it was clear that my bill just was not going to get paid. Rather than hiring a lawyer, we offered to upgrade the software package which was eagerly accepted by the end user at the county. In the upgrade, we included a way to shut the system down (with lawyer approved language in the license agreement) if the customer did not have the proper online authentication. So, within a day of the upgrade the system went down, the end-user howled and President of the County Board of Supervisors called in a furious rage. I explained the situation and held firm: I was not a bank and was not in the business of providing software for free. The county paid the very next day and went on to be a regular paying customer. However, the experience was so foul that I vowed never to do business with that government agency or official again.

Fortunately, the vast majority of businesses are far more honest than the government agency listed above. However, it is a story that illustrates that some organizations only respond to sticks – regardless of how many carrots you offer.

The Importance of Egypt’s Revolution

History was made this morning in Egypt. Egypt is free!

Although the outcome is far from certain, it is clear that this moment in history represents a paradigm shift in the human experience: Mass movements can almost instantaneously change even the most rigid power structures. Egyptian dictator Hosni Mubarak stepped down from power after only 18 days of peaceful demonstrations. His military, vast legions of civil servants and overwhelming support within the Arab oligarchy failed to keep him power.

Viewed from another perspective, the Egyptian revolution is just another failure of a large corporation: The vendor (Mubarak) failed to understand the market (Egyptian citizens) and collapsed because they could not adapt quickly enough to the demands of the market (representative governance).

The revolution was remarkable for many reasons:

1. It is the first major revolution that was initiated and coordinated using social networks (most notably Twitter and Facebook).
2. The epicenter of the revolution was in Egypt’s technology center – Cairo – and was leaderless.
3. Protestors opposing the status quo remained peaceful throughout the entire revolution as the military was steadfastly neutral. Only Mubarak’s supporters engaged in violence.
4. There was no single unifying cause for the revolution – no overarching political, religious or ideology unified the protestors. The people just wanted change.

Welcome to the new world governed by the hallmarks of the information age: exponential change driven by mass connectivity.

The Math Lessons Learned from Egypt

The Egyptian revolt can large be explained by three quantitative laws that describe the efficiency of concentrating mass the value, the power (sic influence) of social networks and, most importantly, the accelerating nature of human knowledge:

Kleibler’s Law & The Efficiency of Crowds

Kleibler’s Law states that the metabolism rate of an organism is proportional to the ¾ power of its mass. This means that the energy required for any organism, from the smallest bacterium to the largest whale, is accurately described by the equation R ∝M^3/4.  The implications of this can be extended to the energy efficiency of cities (which require less resources per person than a farm) to the how innovation scales with density (cities are more innovative than small towns). This concept has profound implications on explaining cultural gaps between cities and rural area (maybe a subject for a future blog) and why wealth concentrates in urban areas in advanced economies.

Lesson from Egypt:  Mubarak, like almost all dictators, lived inside a close nit group of advisors and supporters. Implicit to his assumption that he could control the entire nation was his assumption that his inner circle could adapt and innovate as quickly as the masses that protested against him. Clearly he didn’t understand the implications of M^3/4 where the opposition value of M represented tens of thousands of protestors versus and Mubarak’s M value was measured only in dozens of generals, ministers and other “yes men.”

Metcalfe’s Law & the Value of Communication Networks

Metcalfe’s Law states that the value of a communication network is proportional to the number of connection points within the network. For example, if I have 1,500 Twitter followers then the value of my network is smaller than the value of my friend who has 3,500 followers. This theory was popularized during the dot.com boom when investors used this equation, v ∝n², to approximate the value of communication systems (such website, telephone companies, the Internet, etc.). However, in the past decade a more sober equation, v ∝n log (n), yields a more accurate estimate of network value that is still proportional to the number of connections yet accounts for some connections being more valuable than others. One way to approximate the value of each connection is to apply Zipf’s Law of distributions where v = 1/k as k denotes the ranking of a given connection. Put another way the 2^nd ranking connection has a value of ½ of the first ranking connection, the 14^th ranking has a value of 1/14^th and so on.

Lesson from Egypt: The regime had far fewer connections than the masses. Even though the power of each connection within the regime may have been far greater, the sheer scale of the connectedness amongst the citizenry was overwhelming. Shutting down the Internet could not possibly help – once connections are established in one medium (e.g. Twitter) they easily transfer to other types of connections (e.g. friendships formed in Tahrir Square).

Kurtzweil’s Law of Accelerating Returns & the Nature of Human Knowledge

Ray Kurtzweil coined the phrase “Law of Accelerating Returns” to describe his empirical observations that the rate of innovation increases at an exponential rate, R_I = t². This is an extrapolation of Moore’s Law which accurately predicts that the density of microchip circuitry doubles every 24 months at the same or lower cost – resulting in the exponential increases in computational speed. The implications of this concept are profound. Most notably, human knowledge doubles at an ever increasing rate. Currently, Kurtzweil estimates that knowledge doubles every 5 years. By the year 2040 it will be doubling every day. This exponential view of the world is radically different than the way we think about change. For example, most personal endeavors are linear. When we lift weights or train for a running race, our progress is incremental. If anything, the rate of improvement declines as we get better. In technology, the opposite happens. The progress we made last year is fractional to the progress we will make next year.

Lesson from Egypt: The regime failed to learn quickly enough to keep up with the consciousness of its citizenry.  It also probably failed to adopt new technologies. Mubarak did not realize that the accelerating rates of change required that his administration focus on being the early adopters of technology. He relied on 1950’s technology (broadcast television and radio) rather than using Internet technologies such as social networks. TV reach is linear (unlike the logarithmic growth of social networks). Moreover, almost no one watches TV on their mobile phones (if they are working) but almost everyone has email, Twitter and Facebook apps.  Mubarak was a loyal consumer of whatever he was given by the US – mostly in the form of military training and equipment. Although he had a state-of-the-art military, Mubarak had a 1950’s vision of communications that was top-down and deaf to the cries of the people.

How Not to Interpret the Egyptian Revolution

The American and British press were quick to label the revolution as the result of social networks. Some, such as Fox News, were quick to point to Muslim extremists as the beneficiaries of the revolt — of course leading to an eventual world war. The Mubarak regime spewed xenophobia, citing foreign agitators as the cause for the revolt.

Nothing could be farther from the truth: The protest was a grassroots movement that grew out of years of discontent. Chaos theory does a better job of explaining the revolution as a random “Black Swan” event than the predictive models from intelligence services.

The movement only grew after Mubarak cut off access to the Internet.  And despite the best efforts of Western news crews to film Muslim extremists, there were no reports of any major Islamic protests. Unlike Iran in 1978, Egyptian protesters were not chanting “Death to America, Death to Israel” or any of the other touchstone mantras of Muslim extremism. In fact, no cleric could be found in any position of leadership amongst the protestors. Only now are we seeing the beginnings of Islamic influence on the revolution from the Muslim Brotherhood – a small group that is no more extreme in its worldview than its American analog, the Tea Party, which exposes similar calls for government reforms, return to “traditional values” and greater popular influence over the body politic.

There are many reasons to celebrate today. Egypt is free!

The only people that need to be concerned are those that stand at odds with the populace AND fail to understand the mathematics of our new global, connected society.

Anyone that has been around me for more than 3 minutes in the past four months knows that I’m obsessed with learning more about:

1. Lean startups
2. The implications of how the Law of Accelerating Returns is changing the world (and creating business opportunities)
3. Semantic technologies

Yesterday, all three converged into a single tweet about Meetups. I was sitting in a Tech Founders event organized by Brant Cooper — one of the guys who introduced me to the Lean Startup approach based on the ideas of Steve Blank and Eric Ries.

The Meetup started with Howard Lindzon ranting about the importance of social media to entrepreneurs. He railed against the vices of Goldman Sachs, broadcast news and trade shows as he extolled the virtues of Meetup groups, angel investing and social media.

Why was I listening?  Howard invested in a semantic web company that had the same idea as mine – only they got funded and I did not. The whole reason I came to the meeting was to get insights on what they did right and I did wrong.

My failure to attract investors is one of the many reasons I’m obsessed with Lean Startups. The others related to all the mistakes I have repeated in my entrepreneurial career — including spending far too much time and money on trade shows. Yes, I am a recovering trade show junkie. I love them but I know they are a part of many entrepreneurial go-to-market failures.

Howard’s comment got me thinking…

So at 7:51pm @olinhyde tweeted: Meetups are the displacement tech for tradeshows.

Soon thereafter, I got a tweet from Marco Neumann asking me to justify my outrageous claim. Marco is one of the thought leaders of the semantic web community. He is very smart. Moreover, he is very influential among the people that are essential for my new venture – including people who organize and attend trade shows about the semantic web.

Why Trade Shows Suck for Entrepreneurs

In short, trade shows are expensive, highly structured events that happen only once or twice a year.  They are the provenance of the status quo: Focuses on promoting the values and authority of an established group of industry leaders. By contrast, Meetups are cheap, self-organizing and can happen anytime. Meetups are to entrepreneurs what gyms are to athletes: A place to train while meeting others that will help make you more competitive.

We live in a world where knowledge doubles every five years – so it is impossible for an annual trade show to modify programming fast enough to keep up with the 20% of new knowledge that evolved since the last show. Even worse, trade shows are all about “going and showing” while Meetups are about “attending and participating.” Put another way: trade shows are classic push marketing while Meetups embody the principles of inbound or attraction marketing – bringing together those people who care the most about a subject.

This all relates to the Lean Startup principles of how to take a product or service to market.

Go-To-Market Before 2007 (or so)

Not so long ago, starting a company followed a predictable path:

1. Invent product or service that theoretically solves a business problem (at least on paper).
2. Sell vision of Step 1 to people who will create product or service (such as engineers) and/or people who will invest money to hire people (such as VCs).
3. Build product or service that solves the problem in Step 1.
4. Create marketing collaterals using a design that is makes the real solution appealing to the customer who should (theoretically) want to solve the problem in Step 1.
5. Buy or build a list of potential customers (prospects) that theoretically have the authority to buy the real solution to a problem that was theorized in Step 1.
6. Get customers (revenue) by meeting as many prospects as possible.

The easiest way to get to Step 6 (revenue) was to start marketing at a trade show – ideally with a keynote speech, sponsorship or lecture on a white paper.  This was a surefire way to win: Sales and marketing people always returned to the home office with hundreds of business cards and dozens of stories of “customers who are just about to buy.”

Why So Many Entrepreneurs Fail

If you were close to being right on Step 1 (finding a solution to a business problem) then you could count on few dozen enthusiastic calls from prospects. They all want more information. They schedule meetings, demos and telephone calls. Then, one of the following happens (in increasing order of probability):

1. After 3 or 4 months a few enthusiasts (sic innovators) become customers –meaning they actually signed a contract or issued a PO. Next they complain that the product or service is not quite right. They ask for changes or refunds or they just don’t use it anymore. Or they want you to rebuild it to their specifications because they know the market better than you. In this case, you blame the people in step 2 (the team and/or investors) or the execution of Step 3 (engineers) for getting the product build wrong.
2. After 3 or 4 months, you only have enthusiasts who offer many opinions but no orders. Everyone involved in steps 4 (marketing) and 5 (sales) gets blamed (or fired).

Only in the rarest cases does the market entry go well.

This model, my friends, is dead.

Go-To-Market After 2007 (or so)

The sheer size and number of entrepreneurial failures over the past twenty years is staggering — especially in advanced technologies like the Internet, bio-tech, etc. Remember the Dot.Com bubble? Yes, most investors do too. And now VCs have a tougher time exiting thanks to the absence of IPOs on Wall Street. The money people (banks) would rather dedicate resources to gambling with publicly guaranteed money high-frequency trading than invest in innovation or lend money. Let’s face it: It’s much harder work to find good startup investments than it is to gamble engineer new financial products.

So along comes Steve Blank and the ideas he put forth in Four Steps to the Epiphany. Eric Reis, Brant Cooper and others expanded these ideas to flush out a radical new paradigm for taking new products and services to market: Lean Startup (click to pre-order the book!). This model focuses on concurrently develop a customer based while building the prototype of the product or service. This approach comes from the Agile Development methodology where software engineers and business users work closely to build systems in a series of iterations. The goal is to build exactly what the business users need – testing and refining along the way. This stands in stark contrast to traditional waterfall approaches to software development (such as CMMS).

So now, the go-to-market approach for a new product or service goes like this:

1. Envision a solution to a business problem.
2. Build a community (using social media, etc.) to concurrently achieve two goals:
   1. Identify and engage potential customers. Develop a relationship with them. Get outside the office and talk to real people to confirm your assumptions about customers. Repeat Step 1 to refine solution.
   2. Identify and engage potential partners, team members, engineers and all the people that you need to build and manage a successful business. You can’t afford to hire them – but if they are passionate enough about the vision… they are likely to help. And you will attract great ideas to help refine Step 1.
   3. Once you have your vision (Step 1) and a growing seedling of a community (Step 2) then move FAST. Concurrently do two things before your competitors beat you to the market:
      1. Sell minimally viable product (MVP) to customers. Yes, you are selling vapor-ware to prove there are customers. You are getting orders that will result in revenue when you deliver. Promise a future delivery date.
      2. Build the MVP so you have something to deliver (something) on the promised date. Deliver on that date. Get revenue early. This makes it really easy to get money for growth on very favorable terms.

In reality the process looks like this – where the top circles represent the process of cultivating customers and the bottom steps represent engineering and development.

VCs hate this approach because entrepreneurs don’t need them. Angel investors are just now seeing the brilliance of this low-capital approach.

Anything VCs hate is worth examination: VCs under-perform the market while earning the nasty reputation of sucking equity away from founders.

Why Lean Startups Work Better

The Lean Startup approach quickly adjusts engineering and marketing to ensure that you take the shortest path to a viable business model.  I think of this as using the sensitivity of early conditions as an advantage – rather than an element of chaos. Benefits include:

1. Lower risk. You are not trying to outsmart the market. You are building what the market will buy.
2. Faster development. You are not trying to build the best possible. You are building what is the minimum necessary to be sellable.
3. Potentially lower cost. You are not wasting time and energy on stuff that is not important to customers.
4. Agility. You can pivot your business model faster – so your money goes farther.

Trade shows are places to spend money. Meetups are places to make money.

Trade shows are great for golf, fancy dinners, developing personal relationships with prospects from far way… but they suck at creating value for innovative products or services. The very nature of a trade show is waterfall – first design, then build and finally go-to-market.

Conversely, Meetups don’t offer boondoggles. They bring together people with a common passion: Engineers who know technology, customers who want to learn how to solve a problem and entrepreneurs seeking to create a new business (often the organizer).

By definition, disruptive technologies replace existing technologies. They usually do this by offering fewer features at a far lower cost. As Clayton Christensen pointed out in The Innovator’s Dilemma, advances in technology usually outpace what customers want. The result is that established players (such as trade shows) offer features (such as golf outings) that customers might enjoy – but can live without.  A disruptive technology (like Meetup) addresses the core needs of customers (such as forming industry relations and sharing knowledge) but does so at a far lower cost by using a radically different approach (like leveraging and Internet community).

For me, Meetups provide benefits that Trade Shows can’t compete with:

1. Low cost – so cheap that cost is not a consideration. $10 to attend a Meetup vs. $2,000 for a trade show. No brainer.
2. Higher value. Trade shows make me commit to a track of speakers. How do I know they are any good?  What if I want to go down two tracks at the same time? Meetups allow me to test, iterate and change paths as frequently as the meetings are scheduled.
3. Quality of connections. Meetups form an ecosystem of professionals that are engaged. Trade shows attract vendors trying to sell vendors.
4. Depth of knowledge. The sheer pace of innovation makes it impossible for an annual trade show to be as relevant as a monthly Meetup.
5. Time and attention span. Can we really pay attention to 8 hours of lectures a day at a trade show? Meetups are usually brief enough that we can work a full day, attend a meeting at night and retain what we learned.

Yes, I confess, I still love going to trade shows. But I also enjoy going to the opera. Both are anachronistic relics; indulgent luxuries from a by-gone era. And neither are known for being “lean.”