I’ll return to the road trip and the thought pieces shortly, but before we turned into the new year I wanted to take a minute to point out some past thoughts on the photography business.

I write a lot about photography and the photography business over at my other blog, Taylor Davidson: Photography, and since it’s difficult for new readers to dig into past content I’ve picked out the primary articles I’ve written on the topic in 2008. More articles are highlighted on TaylorDavidson.com: Start Here.

Five Lessons
Five Lessons on how photographers can take advantage of the opportunities in the changing photography industry:

• Introduction: Five Lessons: How Photographers can Create New Business Models

  Technology has democratized access to the tools of production and distribution, leading to a surge of creators, squeezing the middle class of the industry; the long tail of photographers are getting squeezed.

  We are seeing a massive mismatch of supply and demand; photographers have flooded the market with an oversupply of images created and distributed using mediums and based on economic models no longer in demand.

• Lesson 1: Photographers are your customers, not your competition.
  

  The way to make money in photography is to sell stuff to photographers

• Lesson 2: Take advantage of the atomization of demand and expand the scope of consumption.
  

  People spend their money, time and passion to better their lives, not to better yours. Accept it. Remind yourself of this mantra every time you create, market and deliver a product or service, and it will make you focus on exactly why someone should spend their money, time and passion on you.

• Lesson 3: Take advantage of the oversupply and target your brand, your niche, your fans, your customers.
  

  Forget about fighting the market. Stand above the market and create your own.

• Lesson 4: Connect with context and content.
  

  It’s always been about creating great content, but there’s now a larger opportunity than ever to deliver great context.

• Lesson 5: Make great work.
  

  People still love photography. People still love seeing stories communicated through images. We’re living in a world with a far wider range of mediums in our daily lives that can create, manipulate and display images. We’re not limited by options, we’re limited by our desire and vision.

The Changing Photography Business

• Photography needs a new business model

  The fundamental shift has been the democratization of the tools to create share, promote and distribute content. The tools are no longer available only to the rich, the connected, the judges or connoisseurs of taste: available and open to all, we now have the opportunity to create ourselves, distribute ourselves, and rate and rank by ourselves. Eliminating the opaqueness of the process has spread the opportunity to the masses and increased participation and interest.

• Can the photography business create a new DNA?
  

  The basic economics of the photography industry have been absolutely, fundamentally, permanently upended, flattened by the democratization of the tools of the production and distribution and a shift in the technologies, mediums and methods of communication.

• Everyone is a photographer
  

  Communication has never been about pure quality, but rather about exchanging information efficiently, and once you accept photography as a form of communication then you completely change your expectations and use of the medium.

• Are we losing our focus? (on the Canon 5D II)
  

  “The medium is the message”; multimedia and video communicate differently than static images simply because of the medium used. Not all stories can be told the same way.

Stock Photography Business

• The stock photography industry needs to be unbundled

  We need to unbundle the functions of the traditional stock photography agency. There is no fundamental need for the image delivery and management platform to be delivered by the same company that makes the market and connects buyers and sellers.

• What will the stock photography business look like in 10 years?
  

  What will the stock business be like in ten years? Will the traditional functions of the stock agencies be unbundled?

  … What are the pain points in the stock photography industry?

  … The existing industry structure is simply not sustainable.

• Digital Railroad continues the “rebalancing” of the photography industry
  

  Digital Railroad’s problems have nothing to do with the current macroeconomic credit deleveraging and rebalancing; it’s about a dead business model, a reliance on old DNA, a failure to adapt to the industry’s fundamentally different balance of supply and demand of images, photographers and publishers.

  What will the industry do? Instead of trying to sell images, we’ll probably see a continued focus on selling stuff to photographers.

Assorted: Critiquing, defining, learning

• How can people define their brands in physical spaces using digital content?
  

  How else do people display objects to create their image or “brand”, and how can the content you create help them build their image?

• You can steal content, but you can’t steal me
  

  You can steal my content, you can steal my thoughts, you can steal my photography, but you can’t steal me.

• The importance of looking around
  

  Looking around, exploring viewpoints, is how a photographer explores their eye, surveys a scene, and “sees” the world in a way to extract meaning.

  The same applies in business.

• Messages and Messengers
  

  Instead of critiquing his eye, it seemed far more meaningful to help him develop his voice.

Search: all posts on TaylorDavidson.com on “photography business”.

Continuing the cross-country trip to meet entrepreneurs, investors, photographers and “change agents”…

Scottsdale, AZ

Is there a Scottsdale / Phoenix rivalry? Is there a dividing line that hard-core residents of the towns refuse to cross?

On my way from Dallas to Los Angeles I stopped over in Scottsdale, AZ to meet Brandon Zeuner (bzkicks on Twitter) and Ryan Swagar (ryanswagar on Twitter). Both are experienced technology entrepreneurs in the Phoenix area.

Throughout my trip I had depended on friends to virtually introduce me to interesting people in the cities along my path, however for Phoenix I had to reach out without an introduction. Brandon has always stuck out to me on Twitter as an interesting entrepreneur in Phoenix, and I was lucky that he was open to meeting a complete stranger for lunch.

Among their many past and current projects, we spent most of our time discussing Venture 51, a project that strikes close to my thinking about venture capital and entrepreneurship. Venture 51 is a venture firm that focuses on launching early-stage ventures. Instead of merely supplying early capital, Brandon, Ryan and their team will use their experience in marketing and business development to actively help the companies under the Venture 51 umbrella move beyond the “product-first” approach to building a business.

As Brandon and Ryan explained their reasoning for Venture 51, it became apparent quite quickly that we shared many of the same views of the trends and opportunities in venture capital and entrepreneurship; Y-Combinator, TechStars and Launchbox Digital are merely one approach of many available to funding and launching early-stage ventures, and the cultural, technological and business trends we are all seeing may result in a variety of opportunities available to entrepreneurs. Venture 51 is one such alternative approach, and I would bet that we will see more private and public approaches created throughout the US and abroad in the coming year.

Los Angeles, CA
I visited Los Angeles to add some offline experiences to my daily online conversations and to get the chance to hang out with some very interesting people that I’ve met online. I’ve mentioned, quoted and bandied ideas with Ethan Bauley, Bryan Landers and Mike Bonifer extensively throughout the year, and I luckily I had the opportunity to hang out and share ideas with all of them (and Ethan’s wonderful wife and Bryan’s fantastic girlfriend) during my weekend in LA.

Ethan is a Director of Social Media Strategy at M80 and writes / curates a blog about Music, Technology, Art and Economy. Not many businesspeople have an MFA in Fine Arts, but Ethan integrates his background in music and finance with his passions for media and communication strategy into a rare blend of “business geekery”.

Bryan is a freelance web developer, product manager and a gifted musician; what is it about the web that brings out people with a diverse set of talents? Bryan and I have exchanged a number of ideas throughout conversations on the web throughout the year, yet only recently did we start figuring out what we each do.

Mike Bonifer is the writer of the Game Changers book and blog. He brings improvisation to the business world by teaching the “teamwork, creativity, flexibility and problem-solving skills” necessary for success in the “fluid, non-linear models of the Networked World.” I’m looking forward to continuing to dig into his book.

Due to the holidays and scheduling I was unable to meet a number of people, so the trip will have to return to LA in January.

—

Where have I been?
Follow the continually updated map of the trip for all posts, more stories and photos.

What’s next?

• San Francisco, CA: coming up in the new year…
• And next? I’m not sure…

How can you meet me?
Drop me a line; I’m here for you.

Last Friday SXSW added “Venture Capital for Long Tail Entrepreneurs” to the Core Conversation schedule. Obviously I’m looking forward to leading the discussion; I have been thrashing around the topic in blog posts and conversations with friends for the better part of a year. Thanks goes to Ethan Bauley for originally suggesting I submit the idea to SXSW.

“Venture Capital for Long Tail Entrepreneurs” is an idea that describes the need for a fundamentally different model for for creating and funding micro-businesses in the Long Tail of the economy as our society shifts towards a more personal, collaborative and distributed system of value creation.

I’ve continued to see the themes crop in a wide variety of conversations with friends, entrepreneurs and investors through the year and during my travels; there are a number of people that have seen the same gap and are pursuing a wide variety of approaches throughout the US. As we’ve discussed before, Y-Combinator, TechStars and Launchbox Digital are three obvious examples, but they are merely one approach, applying the same investment model, incenting the same goals, using a different economic structure for a rather specific industry. It’s the same approach with different math.

There are some interesting parallels with Chris Tacy’s core conversation “Do We Really Need VC’s Anymore?”, but the key is that this is not just about the the changing cost structures of startups, the current economic downturn or about the “too small to fail” ethos; this is not a call that “venture capital is broken”, but rather, it is realization of a broader cultural shift that will impact all industries (not just web businesses) as people look for ways to apply the same organizational and economic principles to the broader economy. It’s about finding a model for allocating and deploying capital (money, time and social capital) that can profitably support and encourage a broader, more personal and collaborative approach to entrepreneurship. It’s about reframing the goals, incentives and approaches to creating value.

That’s a lot to think about; looking forward to more conversations from everyone, and of course, come to SXSW and participate in the discussion…

—

Background: below are a series of posts building up to and thrashing around the idea. I suggest you start with Venture Capital for the Long Tail (July 21st) as a good introduction, then dig into the April 10th and June 4th posts for the broader “thinking out loud”.

• Is this what we need? Is this what we want? (April 10th) on taylordavidson.com)
• Do we need a new funding model for starting businesses? (June 4th on taylordavidson.com)
• How can we create a funding model for lifestyle businesses? (June 12th on taylordavidson.com)
• Venture Capital for the Long Tail (July 21st)
• Venture capital creates real options (August 8th)
• Want to hear more about Venture Capital for Long Tail Entrepreneurs at SXSW? (August 8th)
• Markets in Everything: Innovation in Angel Capital (Sept 2nd)
• Update: Venture Capital for Long Tail Entrepreneurs (Nov 3rd)

Honestly, right now I think the name “Drive-By Consulting” is a bit of a misnomer: I’m getting a lot more out of this than I’m giving. Anybody have any ideas on a better name?

Continuing the cross-country trip to meet entrepreneurs, investors, photographers and “change agents”…

College Station, TX
In College Station I had lunch with Travis Collins at Dixie Chicken, a restaurant and bar next to the Texas A&M campus that proudly proclaims that it “serves the most beer per square foot of any bar in the U.S.” Gotta love Texas.

Travis is an insanely talented programmer and creative problem-solver who has carved out a niche for himself in “getting wandering projects back on track.” In addition, Travis has also independently created a number of e-commerce solutions under his DreamingWell brand.

Talking to Travis about his projects reminded me what’s possible if we spend our time identifying problems and creating solutions instead of creating plans, outlines, pitches and approaches to partners and investors. (More on Travis and DreamingWell to come in the future…)

Dallas, TX
I met Brad Garland (bradgarland on Twitter), Mark McSpadden and Dave of The Garland Group for lunch in Plano, TX (thank you to Ron Shevlin for the introduction). The Garland Group is a consulting and software firm that specializes in risk management service and solutions for financial services companies and has also launched Banktastic, an online community for helping banking industry professionals quickly find relevant, industry specific information and share it with others.

We talked a lot about the credit union v. bank “issue”; the division between banks and credit unions is a source of deep-seated acrimony throughout the banking industry, yet for all the debate within the industry among the professionals and insiders, the differences between banks and credit unions are not readily apparent to customers.

Most of our conversation centered about the nature of communication, about our choice of channels, the implications of anonymity in communities, the “CU Skeptic”, the varying rules and codes of conduct we form throughout our relationships and the tyranny of email. It’s pretty easy to pick up that Brad, Mark and Dave are very smart, intelligent and insightful guys that blend their financial services industry experience with a broader view of how the Internet is altering the technological and cultural foundations of the industry.

Communication in financial services is an interesting topic. Historically communication and innovation are very closed in the industry, but recent changes in technology and culture are creating some cracks and opportunities. A maze of legal restrictions have created many of the walls between bankers (and between bankers and customers ), but it is as much based on the culture of the industry; bankers put heavy guardrails on their communications with customers, bankers don’t talk to other bankers and bankers certainly don’t talk to credit union professionals. But Banktastic is working to change that by offering an outlet for people to share on their own terms, to find value and knowledge outside their organizations; perhaps empowering the actions will lay the seeds for changes in the industry.

Later I met with Andrew Hudson (thanks Ryan Booth for the introduction), an independent video professional who pays a lot of attention to the changes going on in the video and photography industries has some great plans for the future (I won’t spill any of his ideas). Andrew’s passion and love for his craft shines brightly; I love meeting people like Ryan and him who live for their craft and are dying to create great work and great businesses. It’s what entrepreneurship is really about.

Meeting people like Andrew, Brad, Mark and Dave is what excites me; I get much more from them than I can hope to give in return. I don’t have a great master social media plan, but it’s still leading me to great people.

—

Where have I been?

• Washington, DC and Charlotte, NC
• Atlanta, GA and New Orleans, LA
• Houston, TX

Follow the continually updated map of the trip for all posts, more stories and photos.

What’s next?

• Phoenix, AZ: today.
• Los Angeles, CA: starting this upcoming weekend, and around for a bit.
• San Francisco, CA: coming up soon…

How can you meet me?
If you’re on my route, contact me if you’re an entrepreneur or if you’ve got an idea for a product or company and you would like a bit of free consulting and advice, or if you want to hack out a financial model for your idea, or want to do an interview about your idea, or if you just want to say hello. I’m here for you.

Continuing the trip, leaving New Orleans, and on to Texas…

Also: follow all the stories and photos from the Drive-By Consulting road trip using this continually updated map.

Houston, TX

Houston was one of the few cities in the United States I had not visited, and since I had heard positive things about the city from my friend and former colleague Gautam Gandhi, I was looking forward to meeting a variety of people in the city.

I’ll start with the creatives.

I had followed Ryan Booth (rpbooth on Twitter and ryanbooth on Flickr) for a number of years and was looking forward to meeting him after our online conversations about the photography business. Ryan is a very talented creative professional with a growing portfolio, reputation and customer base, but like all creative artists, he is in the middle of pretty destabilizing trends in music, photography and videography. I have a couple opinions on how photographers can succeed in the changing photography business, but I benefited from talking to him: discussing his business, experiences, ideas and plans helped me a more concrete understanding of how creative professionals are thinking about the industry changes and adapting their businesses.

I also met with Marc Brubaker (clickwindrepeat on Twitter and click. wind. repeat. on Flickr), an emerging photographer in Houston who is building his portfolio and working on plans for an interesting local artistic business. Trying to figure out what to focus on is something we all struggle with; defining our priorities and allocating our time on the right activities is battle we all face every day. It’s a tough fight, but it’s worth the effort.

Marc also gave me some pointers on my image developing workflow, something I really need to fix… tomorrow.

But to me, Houston is really about business.

Houston’s reputation as center for the oil and gas industries is well-deserved; but Houston also has strong life science, medical device and information technology industries, created and nurtured by Houston’s strong universities and vibrant private sector.

The Rice Alliance is one of Rice University’s primary initiatives to support the “creation of technology-based companies and the commercialization of new technologies in the Houston community and Southwest”.

Unfortunately I was only able to drop by the Alliance due to scheduling conflicts with their IT and Web Venture Forum, but thanks to the introduction from Chris Schultz I met Marc Nathan, Director of Entrepreneur Development, Information Technology at the Houston Technology Center. The Technology Center is a joint state and private-funded startup incubator that provides a range of services to startups, including entrepreneur coaching, connections, facilities and startup capital.

Marc is pretty passionate about Houston and the entrepreneurial community and can rip off a long list of Houston’s strengths pretty quickly. But what does Houston need? Houston has a number of successful companies and a history of innovation in oil and gas, but despite Houston’s success in creating a couple major information technology companies (including Compaq Computer), Houston has yet to see an IT company create the kind of experienced IT management and investing talent needed to really grow the IT early-stage community.

It’s a common refrain; I’ve heard similar stories in Raleigh, NC and New Orleans, among others.

Local entrepreneurial scenes are framed by history and unique events; huge successes and equity events tend to spin off entrepreneurs and investors with the experience and talent to take forward specific industries. For example, close to home, the Washington, DC and Northern Virginia venture community is framed by the federal government, telecom (notably Nextel, MCI) and AOL. Even Silicon Valley, the bastion of entrepreneurship, was formed by its universities and early corporate success stories, and is still largely limited to a couple industries.

Growing an entrepreneurial community (entrepreneurs and investors) without a successful “seeding” event is a difficult proposition. I’d argue that even government intervention is largely unsuccessful; the history of various attempts by governments to target and fund “industry corridors” in the United States and abroad are spotty at best.

Houston has an active, experienced base of entrepreneurs and investors in the energy (notably oil and gas) and medical device industries (and I had the opportunity to meet a very experienced and successful angel investor while I was in Houston), but Houston lacks that same kind of talent base to grow its IT industry. But the pieces are in place.

Thanks to an introduction from Ethan Bauley I met Clint Schaff, Senior Director of Marketing at Mouth Watering Media and JamsBio, a web startup focused on the experiences around music, helping people share their lives through music.

Interestingly, I ran into Clint at a Houston NetSquared meetup prior to our scheduled meeting; NetSquared is a national initiative that brings together social changemakers and technological forerunners to mix stories, ideas and foster relationships between like-minded people.

I had never been to a NetSquared event, let alone the Houston meetup, and I didn’t get the chance to spend enough time with anyone to get deep into their initiatives, but I was really interested by the range of passions in the community. One interesting effort: the Recipe for Success Foundation, an organization encouraging healthy eating habits to combat childhood obesity by educating and teaching children how to understand, appreciate and prepare food (contact Carlos Meltzer, Director of Media and Community Outreach at the Foundation for more details).

—

Where have I also been?

• Washington, DC and Charlotte, NC
• Atlanta, GA and New Orleans, LA

What’s next?

• Phoenix: Wednesday-ish this week. Drop me a line to get on the schedule.
• Los Angeles, CA: starting this upcoming weekend.
• San Francisco, CA: coming up soon…

How can you meet me?
If you’re on my route, contact me if you’re an entrepreneur or if you’ve got an idea for a product or company and you would like a bit of free consulting and advice, or if you want to hack out a financial model for your idea, or want to do an interview about your idea, or if you just want to say hello. I’m here for you.

Laziness = links…

Comedian Steve Martin on how to make it in any field:

Be undeniably good. When people ask me how do you make it in show business or whatever, what I always tell them and nobody ever takes note of it ‘cuz it’s not the answer they wanted to hear — what they want to hear is here’s how you get an agent, here’s how you write a script, here’s how you do this — but I always say, “Be so good they can’t ignore you.” If somebody’s thinking, “How can I be really good?”, people are going to come to you. It’s much easier doing it that way than going to cocktail parties.

(via Chase Jarvis, Secret to Success in Photography)

Sean Howard, Wayne knows what many Word of Mouth experts don’t (in comment):

I believe that there is a new trends back towards small, where small is not a size of company but rather a mindset. We have to remember that the world has been lost in this idea of “scale” to the point that the very markets were expected to never correct themselves.

In a world gone mad with supply chain management, commodification, and outsourced value can we be so surprised that those providing services of quality with their own hands are a) valued or b) in short supply?

Great marketing cannot make up for poor product. Marketing can no longer obscure a product’s shortcomings.

Diamond D of Tribe Called Quest explains:

You gotta get a label that’s willin’ and able
To market and promote, and you better hope
(For what?) That the product is dope

The question: can great product make up for poor marketing?

Just thinking out loud…

Combing some loose threads around some lazy thoughts, readings and conversations I’ve had with Nicholas Tolson, Chris Schultz, Angela, Ryan Booth and other friends of mine over the past week…

What is the right price to put on your work? Often, the right price is zero.
Michelle Goodman in the New York Times, When to work for nothing:

When you agree to work free, you reinforce people’s misguided ideas that the self-employed are independently wealthy hobbyists. Don’t degrade your profession by letting a cheap client take advantage of you.

While it’s important to get a fair price for your time, it’s entirely up to you to determine your own fair price. In many situations free may be the fair price for you, and don’t let anyone attempt to convince you otherwise.

Whenever we talk about free services or pro-bono work, it’s valuable to revist the idea of the “freemium” business model. Lately I’ve realized I operate my life on the freemium model, and I love it. But can the freemium model work for products and services with high marginal costs? Can it really work for me?

Freemium is not the same as free

Freemium is a business model which works by offering basic services for free, while charging a premium for advanced or special features.
(Wikipedia)

The freemium model flips the normal equation: instead of selling the vast majority of what you produce (and giving away a small amount to promote and incent sales), the idea is to give away the vast majority of what you produce and instead make a profit by selling a much smaller amount.

Let’s be clear: freemium is not the same as free. The cost to deliver the free versions of the product can be thought of as business development or marketing expenses; spending on customer experience supplements (or replaces) advertising.

While there is an active debate about whether the freemium model works, the fact is that the freemium model is not new; what has changed is that the range of products and services that can be delivered at zero marginal cost has increased drastically.

A Freemium Life: How do we balance giving away our time with making a living?

Simple: giving away our time is a way to make a living.

What I do has a high marginal cost; dedication, time, passion and intellectual energy all carry a high marginal cost. And especially in today’s world of early-stage startups, time is more valuable than money.

But even if I do not directly trade my time for money, I earn a lot in return for giving away my time. If you’re spending your time on doing things that make you better, work no longer consumes you; it creates you. We owe it to ourselves to spend our time on our passions, but more importantly we owe it to everyone we care about: only by fully engaging ourselves can we truly give back to others.

Would you rather:

• Spend 100% of your time chasing and working on many projects for marginal compensation on each, or
• Earn the same amount of compensation and spend 100% of your time on projects you really care about, but give away 90% of your time and only charge for 10% of your time (for an obviously higher per-paying project compensation)?

“Social capital” might be the key next-gen asset.

Moreso, giving away my time and connecting with people still creates something real: relationships and reputation have values. We all implicitly know this, but we’re reaching a point where we might be able to explicitly value our relationships… for better or worse.

Umair Haque, How To Be a 21st Century Capitalist

Next-generation businesses are built on next-generation assets. Yesterday’s businesses were built on cash, factories, and IP – financial, physical, and intellectual capital. Next-generation businesses are built, instead, on human, social, natural, and cultural capital – to name just a few.

… Here’s one of the commandments of next-generation business: capitalize something.

What happens if you “capitalize” your relationship and reputation networks? Can you become a “Pareto node”? John Hagel, Pareto Power and Leveraged Growth:

Effectively engaging with Pareto nodes requires a form of collaboration marketing. Collaboration marketing emphasizes the need to attract others, creating a motivation for them to seek you out wherever you are, rather than trying to reach out, intercept them and get their attention. Of course, in order to do that you need to develop a deep understanding and appreciation for what motivates the other party. It forces you to get out of the “what’s in it for me?” mindset.

The best way to attract others is by offering assistance to them, by being more helpful to them than anyone else. Once again, this requires a deep understanding of the unmet needs of the other party.

“Capitalizing social relationships” is an ideal with very practical applications

How can this apply to venture capital and entrepreneurship? In response to my post What is the next platform for new businesses?, Ethan Bauley outlines how the “the network is the platform” for Y Combinator:

So what do we do with this knowledge? A quick and obvious example of a node that exploits these trends is Y Combinator. YC is 1) launching a large volume of new companies; every new company brings along relationships that other YC companies can access 2) emphasizing collaboration among their portfolio companies, so that their social capital is exposed to other people that can use it, and 3) exposing their principal’s network to portfolio companies (of course all financiers do this, but because of the sheer volume of companies YC is dealing with, Paul Graham et al drive even more value for their pre-existing network).

Social capital has always been an important part of business, but what’s changing is our ability to monitor, measure and value relationships and the varied degrees of value they create.

What happens when we start trying to measure, value and “sell” social capital?

But what does “social capital” really mean? Better yet, what happens when we try to practically apply the concept to our lives and our businesses?

• What happens when we develop an “accounting system for social capital”? How does our social structure change? How does explicit measuring and valuation change our behavior?
• Similarly, what happens when we create a social communication system based on asymmetric intimacy? What happens when we create systems to publicly display our status?
  

  By creating systems that allow us to publicly display, measure and compare some facet of ourselves, we implicitly create societal competition over that artifact.

  How will we compete over “social capital”? Will we realize it is not a zero-sum game?

• What happens when our methods, standards and codes of conduct for business development, promotion and selling change?
• How will the “shadow system” of social and business relationships change as our social ties become increasingly transparent? Are the days of back room deals coming to a close?

Our current online social networks are just a start, a limited application of our maze of relationships and connections. The real cultural and business impacts are still to come.

And only by participating now will you play a role in setting and leveraging those trends. Start now.

—

[1] There has been a pretty active debate lately among professional photographers about “working for free”. John Harrington and Chase Jarvis have provided two of the more interesting viewpoints on this pretty hot issue in the photography industry…

Drive-By Consulting rolls on…

Atlanta, GA
A last-minute change in plans routed me through Atlanta to visit Patrick Rutherford, a friend of mine from graduate school and a corporate finance rockstar. As usual, most of the evening was spent discussing macro-economics, geo-politics, housing markets and investment strategies.

New Orleans, LA
Thanks to the introductions from Lyell Petersen (93octane) I was able to meet Jessica Rohloff and Chris Schultz.

Jessica is a nonprofit fundraiser and community organizer who is active in the New Orleans technology community. She was also introduced me a number of her friends in the area, including Brian, Reid Stone and Jerry, and helped me understand a wide range of local issues.

Speaking of local issues, I spent a couple hours on Monday with Chris Schultz of Voodo Ventures discussing trends in early-stage ventures and venture capital in New Orleans. Chris has established himself as an active member of the New Orleans entrepreneurship community through his own startups and his work on events such as Startup School.

Throughout my travels and discussions with entrepreneurs and investors around the US the comparison to Silicon Valley always comes up. In almost every city I’ve visited, I’ve heard both entrepreneurs and venture capitalists proclaim the other side “just doesn’t get it”; neither really understands why their local community doesn’t create or invest in companies similar to the ones the Valley seemingly creates with ease. Every time, I ask a variation of “Why should this city be like the Valley?” Every city is shaped by its own particular history, strengths, weaknesses and local particulars that create different climates for startups. The biggest problem I see is this disconnect between entrepreneurs and investors that inhibits the ability of both sides to work together in making their local area as successful as possible. Instead of copying the Valley’s tactics, create your own strategy.

Therefore, Chris and I spent most of our time talking about New Orleans and its own particular history and potential. Everything in New Orleans today is shaped by Katrina; the devastation Katrina brought to the city has changed the course of its development. While that has brought some significant challenges (including a smaller talent pool created by a lower population and cutbacks at Tulane Universty in their computer science and engineering departments), it has also forced the state and local government to focus on creating an environment for new opportunities, including new angel funding and digital media tax credits and an new attitude towards breaking down some of New Orleans’ historical resistance to change.

New Orleans is also a great place to live. Giving up New Orleans’ unique heritage, culture and way of life to achieve the Valley’s success would be a waste; the opportunity is for New Orleans to leverage its social environment and business strengths to retain and attract talented entrepreneurs and investors.

What’s Next?

• Houston, TX, College Station, TX and Dallas, TX: Already have meetings set up with entrepreneurs, professional photographers, investors and entrepreneurial community organizers. Contact me if you’re interested in meeting in Houston on Tuesday (12/9) or Wednesday (12/10), or in Dallas Friday (12/12) through Monday-ish (12/15).
• New Mexico and Arizona: I’ve got a bit of a gap in the schedule coming up after Dallas. I know there are entrepreneurs in the Southwest; I’ll be coming through Phoenix and would love to learn about the local entrepreneurship and investment community in the southwest.
• Los Angeles and San Francisco, CA: Already looking farther west…

As I’ve mentioned before, if you’re on my route, drop me a line if you’re an entrepreneur or if you’ve got an idea for a product or company and you would like a bit of free consulting and advice, or if you want to hack out a financial model for your idea, or want to do an interview about your idea, or if you just want to say hello. I’m here for you.

Summary
Maybe the traditional venture capital model is broken for Internet-based businesses; but maybe the larger issue is that Internet technology-based businesses no longer need venture capital. Venture capitalists right now are faced with the opportunity to either:

• Create new operational and economic structures to serve and profit from micro-entrepreneurship, or…

• Find new platforms for businesses that fit the traditional venture capital model.

Read on…

Paul Graham, Could VC be a casualty of the recession?

VC funding will probably dry up somewhat during the present recession, like it usually does in bad times. But this time the result may be different. This time the number of new startups may not decrease. And that could be dangerous for VCs.

When VC funding dried up after the Internet Bubble, startups dried up too. There were not a lot of new startups being founded in 2003. But startups aren’t tied to VC the way they were 10 years ago. It’s now possible for VCs and startups to diverge. And if they do, they may not reconverge once the economy gets better.

The reason startups no longer depend so much on VCs is one that everyone in the startup business knows by now: it has gotten much cheaper to start a startup.

Completely agreed; I’ve been writing about the changing environment for entrepreneurs and venture capitalists for most of this year.

Even though most venture capitalists are poorly structured to invest in micro-entrepreneurship and “lifestyle businesses”, the venture capital industry is not going to die; just like any industry undergoing changes, venture capital will adapt to the changing demand and supply and find ways to thrive in the new environment.

Venture capital in its current state emerged to serve a need: fund speculative, emerging businesses looking to create new products and services that require time and money to get the company to a point where cash inflow will cover expenses. In return for that risk, venture capitalists expect an appropriate risk-adjusted return, and given the high failure rate for small businesses, venture capitalists require substantial returns from the companies that do succeed to subsidize the losses from the failures.

Over time, venture capital got big because the companies they invested in required large amounts (millions, tens of millions) of capital to create, scale and prove an idea in the marketplace.

The need to raise large amounts of capital created a gap between the lifestyle entrepreneurs and the “big company entrepreneurs”: in order to get funding you had to had a business that could get big and be sold (to the public or to other companies) within a fairly short timeframe (approximately 7 years) in order to make it a viable investment opportunity.

This is obvious. But what happens if the underlying variables change? What happens if the costs of the factors of production decline drastically? What happens if the amount of risk capital and the time needed to startup companies goes down? What happens if the type and amount of risks change dramatically?

Given these broad changes, the “venture capital is broken” refrain has been popular lately; I have used it a couple times myself.

But perhaps that’s not the issue. Perhaps Internet technology-based businesses no longer need venture capital. While some venture capital funds will restructure themselves to better serve the need of micro-entrepreneurs, perhaps the larger opportunity is for venture capital to invest in businesses based on new emerging platforms.

So, the real question:

What’s the next platform?

The Internet made these changes possible: people have taken advantage of the opportunity to access, use and deliver an increasing range of applications and services over an increasingly ubiquitous, inexpensive and broadly understood platform.

Perhaps the opportunity for venture capitalists and entrepreneurs is less to find a new economic structure to better serve micro-entrepreneurs, but instead to find, develop and base businesses on new, emerging platforms that will require the traditional economic and operating model that venture capitalists are used to serving. Many entrepreneurs and venture capitalists will work on changing the math to fit the new environment, but there is also be an opportunity to find new environments where the old math still works.

What platforms could emerge?

• Energy infrastructure.

  Governments and private businesses have invested in basic and applied research in energy for many years now, but the level of interest from the public has changed drastically in the past ten years. While energy infrastructure will be a largely government funded and controlled system for the near future, venture capitalists have begun to actively fund companies developing new technologies to fix the many energy problems our economies face.

  What could happen if we had an open energy infrastructure similar to the Internet for communications? What could companies do with an open energy grid? What would consumers want?

  What new energy infrastructures are being developed? While we can work to make cars with better gas mileage using better gasoline or electric technologies, what if we developed a new ecosystem for auto transportation? Think that’s impossible? Better Place is doing it.

• Wireless telecommunications.

  While mobile is mostly used for entertainment in the USA and Europe, mobile technologies are used for survival in many countries around the world. Throughout Africa, India, China and the rest of Asia companies are developing businesses based upon closed and open wireless platforms.

  What could companies do with unlicensed spectrum? What could companies do with open platforms and open access?

• Public services.

  What could happen if governmental authorities were able to create more efficient marketplaces for government services? What could happen if government operations became more transparent, open, efficient?

  We have already seen a huge increase in private consulting companies operating government services in the USA; but what could entrepreneurs do if the transaction costs of working with the government were drastically lower? What current trends in politics and government could entrepreneurs leverage?

• Personal data management.

  What happens if people could own, control and promote their own data?

  What happens when people can advertise to companies what they want?

  What happens when we can bring relationships into markets?

• Transportation.

  The US has a fairly established transportation network, even if major parts of the infrastructure need significant investment. But transportation is a major need for many economies around the world; India desperately needs to improve its transportation infrastructure to continue its economic growth.

  Governments around the world have struggled to operate transportation networks efficiently, and privatization has not been the cure-all: just ask Britain, for example. The US is struggling under and inefficient FAA and air traffic routing network, poor airports, inefficient gate allocation procedures, and a security system that has failed to efficiently and effectively new security threats.

  Venture capitalists and entrepreneurs have traditionally stayed away from opportunities that require big, inflexible, systemic changes to succeed. The required scale is simply to large, the risks are simply to big, the timeframes too long. But how could the government create a new platform in public transportation for entrepreneurs to leverage? How could entrepreneurs develop businesses based on existing transportation networks?

What opportunities do you see? What platforms do you see emerging in the USA and abroad?

A couple weeks ago I announced my cross-country road trip from Virginia to California and offered to stop by and meet with people interested in entrepreneurship and business ideas along my route.

Washington, DC
I kicked off my trip Sunday in Washington DC, meeting with a couple friends of friends about creating personal brands, getting involved in the “startup scene” in a city and cutting the “big company” cord. I also had the opportunity to meet Nicholas Tolson and talk about a wide range of entrepreneurial and artistic topics, including his projects DeGeeked and others. (More to come soon…)

Charlotte, NC
Monday I drove down to Charlotte to meet many of the Charlotte Twitterati, including Lyell Petersen, Scott Lundgren, Amy Petersen, Jason Keath, Katie Morse and Andria Krewson.

It was inevitable that our conversation would stray towards social media. Charlotte has an interesting local Twitter scene; in trying to tease out the differences between how social media is being used in DC, Raleigh, NC and Charlotte, I find that Charlotte has a surprisingly active social media community that’s finding ways to use Twitter for fun and business. Social media by no means “known”; we’re all learning as we’re going, and the Charlotte community is testing the boundaries and learning in the process. But I’m open to thoughts from people more attuned to each area.

Tuesday morning I met with Lisa Hoffmann (and Lyell and Amy) to talk about the trip (plans, background, ideas and goals) and to get some ideas around how I could connect with people along my route. (More to come soon…)

What’s Next?

• Over the next couple days I’ll be working my way through Georgia and the Florida panhandle, mostly working on some photography projects.
• If you’re around Tallahassee, FL, Mobile, AL or the Gulf Coast, drop me a line.
• I missed Startup School a couple weeks ago, but I am looking forward to meeting some of the entrepreneurial community in New Orleans, LA. Drop me a line if you’re around this weekend and early next week.
• After that, Houston and Dallas, TX…
• And then, on to the southwest and California. You still have time to influence my route…

If you’re on my route, drop me a line if you’re an entrepreneur or if you’ve got an idea for a product or company and you would like a bit of free consulting and advice, or if you want to hack out a financial model for your idea, or want to do an interview about your idea, or if you just want to say hello. I’m here for you.