Originally posted as a comment by Brooks Jordan in response to Venture capital is not broken. But it could use an alternate incentive structure.:

… I love your articulation of the fundamental problem (which absolutely exists):

“. . . how can investors and consultants help entrepreneurs start businesses and get fairly compensated for the value they create?”

Your third goal also jumps out at me:

“Create structures that enable flexibility, create more intermediate decisions and tie payments to actions, not to negotiations.”

And your proposed solutions have got me really thinking about what it would take to create a contract to support these goals.

You’ve hit on such an important issue. Starting-up a business is inherently uncertain, but the potential value is the natural counter-balance, so how do we share the risk and rewards of the germination phase given different types and amounts of investment?

If we had a new type of contract, as you’re suggesting, to allow a consultant or freelancer to “invest” in the company with services as well as allow others to make small seed investments in such a way that they could be compensated as the business matured and revealed itself, that allowed them to ante up or cash out or trade that value horizontally (other investors at their “level”) or vertically (with angel or VC investments), then it would allow for a lot of tinkering and innovation that’s not happening now.

I want it!

There must be some kind of cash/debt/equity structure, some of which I’m sure is contained in your post, that can make it a reality.

Perhaps it’s time to refresh my previous thoughts on creating cash + equity + debt structures for entrepreneurs, investors and consultants by focusing on the goals rather the (admittedly overly complex) mechanisms.

Relationship “contracts” need to be based on our inability to predict the future; our current legal structures and contracts were based on a world where we fooled ourselves about the quality of our predictions.

Financial structures need rebooting; legal structures need hacking; tomorrow’s world can’t look like today’s; in all of these cases, change is good.

Returning to the false reality of the past invites disaster; believing the “doom and gloom” predictions of the future stifles innovation and dampens our near- and long-term future; our actions today will shape the models, structures and incentives of the future. Let’s pay very close attention to what we’re creating.

Yochai Benkler in Edge.org, The End of Universal Rationality:

We have a lot of sophisticated analyses that try, with great precision, to predict and describe existing systems in terms of an assumption of universal rationality and a sub-assumption that what that rationality tries to do is maximize returns to the self. Yet we live in a world where that’s not actually what we experience. The big question now is how we cover that distance between what we know very intuitively in our social relations, and what we can actually build with.

We’ve struggled with this assumption of “rationality” for years; it’s where the traditional assumptions behind the “rational actor” in economic theory have failed, it’s why we experience cycles of “innovation” and collapse as we create and re-create systems of economic organization and compensation; its why “bubbles” are created by the human condition, and it’s why we continually fail in our efforts to create masterful plans that actually work as we intend.

A research study into organizational design compared structures based on social dynamics to systems based on monitoring and controling people from “shirking”…

… and what’s understood to be the right thing to do [social dynamic] achieves much greater internal knowledge flows than setting up an effort to create incentives.

An example?

… executive compensation packages that emerged in the 1990s. If you look at the U.S. around 1980, its executives are making roughly the same multiple of what an aligned employee is making as European counterparts. Japanese counterparts making somewhat less. This is on the order of 30 to 50 times as much.

Fifteen years later, you see multiples of 200 and 500. Across the board. You get to a point where you look in the mid-2000s, and the CEO of GM is making more than the top 21 executives at Honda put together. But it’s theory-driven. You need to align the incentives just right, because otherwise, the person at the top will shirk. Well, the fact of the matter is we didn’t get this alignment.

We create plans, structures and systems based upon our ability to predict the future, and even through we’re continually wrong, we keep trying, emboldened by the opportunity, ignorant of the past, unaware of the long-term implications of our short-term decisions.

Reality rarely matches our predictions; not only are our prediction models poor, but they’re often based on the wrong underlying assumptions.

Few of us get the chance to live through meaningful moments of history and truly experience cultural and economic inflection points; the opportunity to influence the outcomes and help shape our future systems has never been larger. Let’s not waste our chance.

What’s the biggest issue you can address today? What’s the biggest issue your passion is driving you to solve?

And how can I help?

On the opportunity (and dying, crushing need) to revamp organizational structures:

• John Hagel, Attracting Talent in Spikes and Firms (via Ethan Bauley):

  Attract and retain vs. access and motivate. Talent strategies of companies often focus too narrowly on the talent that resides within the enterprise. … Few companies make a systematic effort to map the relevant talent that exists outside the company. Even fewer companies develop effective strategies to access and motivate that talent through networks of relationships, including positioning in relevant spikes around the world.

  … At the most fundamental level, the rationale for the firm is shifting. As JSB and I have written, the rationale for the firm articulated by Ronald Coase back in the 1930s – that firms exist to economize on transaction costs – is diminishing in importance as continued innovation in IT systematically drives down transaction costs. In its place, we are seeing a new rationale for the firm emerge – firms exist to accelerate talent development. This is increasingly the reason why people choose to affiliate with firms. They believe they can get better faster by working with others within the firm, as well as with others across firms, through the privileged relationships built by the firm. If firms can’t find ways to deliver on this promise, talent will exit and Tom Malone’s e-lance economy will flourish.

  And a more recent refresh:

• John Hagel, John Seely Brown and Lang Davison, Tomorrow’s Talent Networks:
  

  Operations, organization, and strategy must all be reconceived through the talent lens. They must be re-thought as part of pull platforms that treat all workers as capable creators who are continuously improvising in response to unanticipated situations. In this view, talent isn’t just the highly trained and deeply skilled knowledge workers one typically thinks of as talent: they’re just about everybody.

  Push programs have enabled scalable, cost-effective operations. But they’ve come at a steep price: the rigid standardization and specification of activities and tasks they require. What if instead companies were to create more flexible pull platforms to help employees access resources whenever and wherever they are needed? What if, rather than treating exception handling as a nuisance to be eliminated, companies welcomed these problems as opportunities for participants to tinker and experiment?

  Pull platforms are essential to fostering learning on the job since they can make it easier to access unexpected resources in unexpected ways and thereby encourage participants to try new approaches that simply would not be feasible in more rigid push programs.

  Structures compete for talent; as much as I talk about the frames creating the opportunities for a larger scale of entrepreneurship based on the structures for personal, distributed, collaborative value creation, the issue is truly about economic organization and the rationale for the firm. In essence, firms will adapt to create better structures for organizing and utilizing talent to compete for talent being lost to better organizing firms and to new ventures.

  How?

• John Hagel, John Seely Brown and Lang Davison, The Strategic Advantage of Global Process and Practice Networks:
  

  … No matter how much talent a company might have, there are many more talented people working outside its boundaries. Yet all too many companies focus solely on acquiring talent, on bringing talent inside the firm. Why not access talent wherever it resides?

  … Companies must also participate in (and sometimes orchestrate) new organizational forms and structures called global process and practice networks.

  … Both kinds of global networks — process and practice — create opportunities for talent to come together and generate “productive friction”: a powerful force that shapes learning, as people with different backgrounds and skills work together on real problems.

  While many executives pursue the nirvana of a frictionless economy, aggressive talent development inevitably and necessarily generates friction. It forces people out of their comfort zone and often involves resolving differences among people with divergent views and experiences.

  How? Organize the right environments to generate productive friction and innovate talent management within the firm. Read the rest of the post for details.

  What are firms doing to create better structures for organizing value creation?

  (Note: organizing value creation is not the same as organizing people.)

• Morten T. Hansen, Harvard Business Review April 2009, When Internal Collaboration is Bad for Your Company:
  

  Internal collaboration is almost universally viewed as good for an organization… But the conventional wisdom rests on the false assumption that the more employees collaborate, the better off the company will be. .. Our research [into 100 experienced sales teams at a large IT consulting firm] yielded a surprising conclusion about this seemingly sensible practice: The greater the collaboration (measured by hours of help a team received), the worse the results (measured by success in winning contracts).

  Wait, that’s a surprise? Since when was collaboration merely about the HOURS of knowledge sharing? Since when was collaboration merely about sharing information?

  The rest of the article spends its entire time creating a decision framework based on calculating the “collaboration premium” using the benefits and costs from collaboration. Yet no time or thought is spent on the strategies or tactics behind collaboration; the entire article is based on the premise that internal collaboration is equal to time, when in fact many of the real opportunities behind current technologies are to create better structures for collaboration, making time a much less important driver behind collaboration. Collaboration is much more than just sharing information. A waste.

  How about a better example?

• Aaron Chua, A crisis in human resources. My comment:
  

  The biggest opportunity is to change the structure of management, the hierarchical systems we created in order to pass down structures and tie people to processes. As our ability to communicate processes and needs improves through better, cheaper, transparent and archivable communication tools management will be less needed, leadership will be more important, and “linear progression” career paths will be less necessary and lucrative.

  People follow value creation, and people will follow the value creation to the edges. Now if the edges could just make money

  Maybe they can…

• Via Ed Cotton, The Open Company – Running your business as if it were an Open Source Project..

  Based on the idea that “self-organizing groups in many cases can outperform traditional organizations”, E-Text Editor is working to create structures to give people “the freedom to decide for yourself what you want to work on”.

  Imagine you had a company like this. Totally open. No concept of bosses or employees. Anyone could join in at any time, doing whatever task they found interesting, for whatever time they found appropriate. How could you possibly find a way to compensate them fairly?

  The key is in a technology called Trust Metrics. In essence this is a technique for rating each other, but with the key distinction that the way ratings are calculated makes cheating ineffective. This is a new technology, which has not been applied for this purpose before, but it has already proven itself as the underlying principle behind such well known technologies as Googles pagerank and the certifications on Advogato.

  By basing the compensation on continuous rating by your peers, it becomes possible to start out by just participating a bit in your free time, and then gradually, as your ratings increase, spend more and more time on the project. It may eventually come to fully supplanting your day job, becoming your primary source of income, or you may choose to just keep it as something you do on the side. And not only can nobody stop you from participating, there is nobody who can fire you either. This makes it a far more secure way to make a living, where your status is solely dependent on your own ability and effort, rather than on arbitrary decisions from some superior.

Can we “pagerank” an organization?


• Developing open, flexible and transparent platforms to power a new breed of organizations has been a recurring topic of mine: how can we develop the funding and organizational models…
  … to incubate and “scale our lives” by creating personal ecosystems…
  … using systems such as peer-production and the social venture commons…
  … to power our personal “freemium” life models…
  … by enabling us to create and “exchange” social capital…
  … and lower our inter-personal transaction costs…
  … and create cheaper context behind our value-creating actions…
  … to create our own hubs on the edges of value creation?

  Much more on this later…

“Venture Capital for Long Tail Entrepreneurs” describes the need for a fundamentally different, economically viable model for creating and funding micro-businesses. Venture capital needs a new model to adapt to declining costs to start businesses, the impact of Generation Y and increased personal and corporate transparency and sharing.

• THIS IS NOT: “How to raise venture capital”, “How to fund your startup,” or “What is the right funding and operational model for a venture capital firm today.”
• INSTEAD: The future will be different than today; knowing that, what cultural, business, technological and political trends are “framing” our future?

Presentation and Talking Points
These slides won’t be shown at the SXSW Core Conversation itself, but will be available for anyone to view on their own devices in the room and at home.

Ten Frames (+1)

• A. Value is created at the edges, but captured at the hubs.
  B. The Long Tail has many edges ”and it better have a hub”.
• Broken or not, venture capital is ripe for creative destruction and reconstruction.
• Incubate people, not companies.

  “Lifestyle business” shouldn’t be a dirty word.

• Collaboration is a core competence.
• Companies are people.

  “Transparent lives” will create “transparent companies”.

• “Scaling people” is the untapped promise of the Internet.
• Creating context is more valuable than creating content.
• Social capital isn’t new, but everything about it is.
• Value (flow) is king.

  Value > Cash
  Flow > Stock

• “Passion allocation” is more important than asset allocation.

  Time, passion and attention are the most important costs of tomorrow’s economy.

• Generation Y isn’t waiting around.

  Conflicts create companies.

• Everyone is a futurist.

  Yet we’ll almost always be wrong.

Participate in the Backchannel
We all know the conversation is the most important part, but only a small part of the potential discussion will actually reach everyone in the room. Participate in the broader discussion in the comments below from SXSW and from home; I will answer all questions and dig into the backchannel after the “official” discussion ends.

Details

• “Venture Capital for Long Tail Entrepreneurs” Core Conversation on Sunday, March 15th at 3:30 PM in Hilton Room E.
• Short URL to this post: http://bit.ly/xxhRA
• Hashtag #SX09-682 to participate in the discussion on Twitter; admittedly, most people will simply use the #SXSW tag.
• Click here to read past writings and comments about the subject.

About Me

• I’m currently driving cross-country from Virginia to California (and back) meeting interesting entrepreneurs, investors, photographers and change agents. Check out the full details on the trip so far. And yes, I took all the pictures in the presentation.
• I write two blogs, Unstructured Thoughts (about business, entrepreneurship and innovation) and Taylor Davidson | Photography, Travel & Culture (about photography, photography business models, travel and more), and I love to interact and comment across the web.
• I’m easy to reach by email, phone or @tdavidson, and I’m easy to find on the web on my photography and business websites, LinkedIn, Facebook, Backtype and many more profiles across the web.

Influences & Thanks
Umair Haque, John Hagel, Kevin Kelly, Chris Anderson, Ethan Bauley (@ethanbauley), Alan Patrick (@freecloud), Michael Lewkowitz (@igniter), Chris Schultz (@cschultz), Mike Bonifer, Aaron Chua, Sean Tario and many, many more that have commented, provided their thoughts and added to the conversation.

A Forgotten Past, Dying Present and (No) Future | Orla, Texas | Feb 2009

Tom Friedman raised a few feathers with his article Start Up the Risk-Takers and the ideas about redirecting part of the US financial stimulus package to venture capital investors to invest in startups.

The basic idea about creating jobs and economic activity through supporting startups and new businesses is a concept that many in the venture industry have voiced previously. But this article stirred up a little debate as Fred Wilson, Roger Ehrenberg, Alan Patrick, Don Dodge, Brad Feld, Tom Evslin and others (including many, many insightful commenters) entered the scene with a range of opinions.

I’ll summarize and throw in a couple points along the way…

In a perfect world, “more money for entrepreneurs” would mean more businesses would get created. But it doesn’t work that way.

The title of Friedman’s article might be the most insightful part: “Start Up the Risk-Takers”.

That does not mean “start up the venture capitalists”: entrepreneurs are the true risk-takers in the venture industry.

Helping entrepreneurs create businesses in order to jump start the USA’s economy is a good idea: but simply giving money to existing venture capitalists is not the way to execute it.

Hopefully we’ve learned what happens when we give money to companies: they spend it how they see fit, not how we want them to.

The history of the government directly investing in startups is spotty at best, with In-Q-Tel as one of the possible success stories. But it’s unlikely that the USA government bureaucracy would be the most effective organization to invest in startups, and not surprisingly, few commentators advocate that approach.

That said, I would be curious to hear more about the examples of government-supported entrepreneurship in other countries. Examples? Thoughts?

But even more telling, more money doesn’t necessarily mean more (or better) businesses even if venture capitalists are the ones placing the bets.

Why?

The fundamental math behind venture capital works against:

• Early-stage investing. Roger has written about the subject of early-stage investing before, and Matt explained it particularly well in Roger’s post about the debate.
• Service-based businesses. As Don explained, “Service based companies create lots of jobs, but don’t get VC funding.”

  Fred also pointed out a role for government programs (using the example of current programs like SBA and SBIC as examples) to fund businesses that don’t fit the traditional VC economic model.

Incentives guide behavior; and the current venture capital models simply don’t create the incentive structures to invest in the early stages of new ventures, especially service-based businesses.

If you’ve read some of my past posts, none of this should be a surprise.

If “more money” is the path, where should it be directed?

Where are the needs?

• Traditional seed-stage, $200K to $1 M. We’ve developed effective ways to test ideas, but we’ve created a funding gap between “testing ideas” and “building businesses”

  Given Marc Andresson’s plans to start a venture fund and his thoughts on the industry from a recent interview with Charlie Rose, Marc might agree.

• Government programs or new private funds to “incubate lives”, focusing on service-based and “lifestyle” businesses. These companies won’t create big-hit investment returns, but they can generate cash flow and create jobs. The SBA and its programs are a start, but without other structural changes they are not the ultimate answer.

Should we focus or direct money towards specific industries, technologies or geographical regions? I’m open to thoughts, but I still believe the market, not the government, should decide which deals to fund. The big win is to focus on strategies instead of tactics, the system instead of the specifics.

The current needs will not always be needs; instead of plugging the gaps, let’s address what created the gaps.

Everyone is focused on pumping more money into the venture ecosystem. But why don’t we think more about removing costs?

My comment on Fred’s post:

Thank you. Dumping more money into the same structures, the same incentive systems, the same uses, is not the answer.

Instead, how about streamlining the legal processes behind creating businesses? Or reducing other transaction costs to starting new ventures?

Why don’t we invest in the underlying venture ecosystem by removing transaction costs and streamlining the processes in starting, funding and growing business?

A number of commentators touched on the issue:

• Fred explicitly noted the opportunity in investing in education; others added in thoughts about funding basic and applied research and development.
• Dan pointed out the opportunity to use existing structures like the SBA to increase the funding of the SBIC and SBIR programs.
• Brad pointed out the Seed Capital Tax Credit, a way for the government to incent seed stage investments. Chris Schultz mentioned similar programs in Louisiana specifically aimed at igniting post-Katrina economic growth when I met him in December.

But it’s not enough.

How can we invest in streamlining the system?

• Create easier and quicker processes for researching, applying for and accessing government funding (SBA, SBIC, SBIR, research grants, etc.)
• Reduce transaction costs, including legal requirements, taxation policies, accounting rules and government regulation. How can we make it cheaper, quicker and easier for companies to start?

Let’s be clear: this is not about “propping up startups”. I’m not advocating creating more structures to help entrepreneurs, but instead removing the need for those support structures in the first place. Investing in creating better structures would mean less distractions, less costs and more productivity, right?

Entrepreneurs face the problem of navigating government bureaucracies all around the world: take Singapore as an example in the difficulty (and opportunity) in figuring out government funding programs.

At the end of the day, this is just the latest round of a debate over the future of the venture capital industry.

It’s all about money: who, what, when, where, why and how, and the traditional answers to those questions may not be the right ones for the current situation.

More money does not mean more businesses, better businesses or more jobs.

Blindly pumping more money into the existing system will exacerbate, not fix, the venture industry’s structural issues.

All industries go through cycles of creative destruction and resurrection: why would venture capital be any different?

I re-started the trip by meeting Sean Tario (@eurotario) in Santa Cruz, California to learn about his passion in building authentic communities and engaging the local Santa Cruz geek community to drive local economic development.

Sean and I originally connected at a SXSW party in San Francisco (another reminder that a big part of life is in showing up), and I immediately loved his passion, energy and authenticity. Given what I’ve learned about local entrepreneurial communities throughout my current cross-country trip, I couldn’t pass up his gracious offer to show me around the Santa Cruz scene.

What’s Happening in Santa Cruz?

In short, people are organizing, getting involved and finding productive ways to drive economic change by focusing on the local community. Santa Cruz has some great assets: a great climate, beautiful surroundings, a deep talent base, proximity to the Valley “over the hill” and growing community support. The foundation for attracting and supporting the creative class is in place.

But it’s not perfect: the proximity to the Valley clouds the opportunities and “realness” of the entrepreneurs in Santa Cruz. Even successful entrepreneurs living in Santa Cruz may not know about the depth of entrepreneurial activity in the area, yet another reminder that organizing, building and promoting local communities can play a huge role in driving economic change, particularly entrepreneurial activity.

Even though we often focus on business leaders, building the community requires a broader focus on business, culture and politics.

Good Times Santa Cruz | New Blood:

Santa Cruz Next [is] an organization that is determined to get more twenty- and thirtysomethings involved in Santa Cruz civic life.

… “Since Santa Cruz Next has gotten started we’ve had dozens of people in our generation get off their butts and start applying to local positions in government and industry, to local boards and organizations,” says Sean Tario, a SC Next member who works for a tech company over the hill. “That’s a testament to what we’re trying to make happen.”

What’s awesome?

Lots:

• Coworking “entrepreneurial catalyst” NextSpace. The kind of place I have always wanted to create (or lacking that, work from).
• Customer feedback service UserVoice, a simple, easy way to capture customer feedback and empower innovation. Richard White, Marcus Nelson and Scott Rutherford were kind enough to take an hour out of their day to riff on business models and web innovation, topics I could have discussed all day, keeping them from, well, actually doing it.
• Sol and Jacob from 12 Seconds.tv, a place to share video status updates online. Why only 12 seconds? “Because anything longer is boring.”

And lots more: if you want to learn more about Santa Cruz and its economic, entrepreneurial and community evolution, I’m sure Sean would love to help you out, or start with the links below:

• Sean Tario
• Santa Cruz Geeks and the corresponding Google Group
• Good Times Santa Cruz | New Blood
• Santa Cruz Summit 2009
• Santa Cruz Next
• Santa Cruz Business Portal, and Cruz Business: 2008 was a Great Year for Santa Cruz Geeks
• NextSpace
• UserVoice
• 12 Seconds.tv
• Richard Florida, the Creative Class and The Rise of the Creative Class

—

Do you have a suggestion on people and communities I should check out on my way back to Virginia? Drop me a line…

• Scott Anthony, Solving the ‘More with Less’ Problem:

  And after decades of continuous improvement programs, most companies don’t have much fat to trim.

  Really? Most companies don’t even have an idea what fat is, not to mention an idea of where to find it or how to productively trim it. Perhaps instead of trimming the fat they need to cut out the bone.

  Most companies have been “continuously improving” the wrong things; but why?

• Prince Campbell, Art, Rocks and Obama (Or how to live in the age of the perpetual remix):
  

  …The rules we created in the 20th Century are now practically archaic. And when you attempt to use them on 21st Century situations they sound ridiculous to current sensibilities.

  Everything introduced to the public will be remixed and used in purposes that is only limited by imagination.

  It’s the age we live in.

  You have to accept that you never know where things will end up.

• In an environment where the foundations of our economies are constantly shifting, perhaps the greatest opportunity is to experiment with the basic foundations of organizations.

  I’ll explain more later, but start with this thought from Michael Lewkowitz on The proprietary/open balance in startup mode:

  I believe in the principles and power of peer-production but am finding it a constant tension as we build the for-profit startup. A big part of that I’m sure is my experiential conditioning. What’s been most recently tested is how much of our business strategy and development plans should be in the public domain.

  … As I’ve sat with it now for a couple of days, I’m actually questioning what if anything should be kept private. It comes down to speed of execution and I also think that the more broader the engagement the greater defensibility we have – provided we execute. If people are a part of it, they’ll rally to support it.

  What do you think? Is there anything that should be kept private? Why? What are the risks? What are the benefits?

  Right now I’m feeling ready to open everything up and push this experiment even further.

  Can business strategy be created in the open?

  Should a startup discuss and debate key strategical decisions in the open?

  What could be possible if we did?

There’s only one way to find out.

—

Related: The Mark Cuban Stimulus Plan – Open Source Funding:

… I was looking for an idea that hopefully could inspire people to create businesses that could quickly become self funding. Businesses that just needed a jump start to get the ball rolling and create jobs. Im a big believer that entrepreneurs will lead us out of this mess. I just needed a way to help.

So here it is. Some people will love it, some will hate it. It is what it is.

You must post your business plan here on my blog where I expect other people can and will comment on it. I also expect that other people will steal the idea and use it elsewhere. That is the idea. Call this an open source funding environment.

Paul Saffo, Harvard Business Review, A Looming American Diaspora:

When young knowledge workers look for a job today, they seriously consider companies half a world away. Homegrown American talent is moving abroad, in what could become a huge shift in the world economic order.

…The U.S. monopoly on leading-edge opportunities is at an end. The world’s best and brightest no longer assume that their future lies exclusively in the United States, and America’s best are coming to agree: Their path to a dream career may well lead them overseas.

It wouldn’t be surprising to see American knowledge and business talent follow the increasingly strong economic opportunities around the world. But is there any data to support the idea? Or at least any anecdotal evidence from people you know?

Lately I’ve been thinking of re-joining the American diaspora…

The big companies are not going to be the answer. We are going to need more people going out on their own. Some will raise venture capital, but the vast majority will not. They’ll bootstrap a business that hopefully can cover their cost of living. I think that is a more scalable model for replacing 3mm to 5mm jobs per year.

In other words, instead of looking for a job, create your own. It won’t be the best strategy at all points in time, but it could be right now. Creating your own job is the best way to get hired.

Falls in line with something I’ve been thinking about for a bit…

Kevin Allison in The Financial Times, Founders take aim at a bigger target:

… some entrepreneurs factor the unexpected into their business models, eschewing business plans that rely on a single big idea. Instead, they set up companies in which small teams of engineers work on several ideas simultaneously. The hope is that one or two will take off – a “shotgun” rather than a “sniper” strategy.

How does it work? Consider James Currier and Ooga Labs:

… Mr Currier says that, unlike earlier business “incubators” such as Idealab, which rose to prominence during the dotcom boom by spinning off companies such as eToys.com and CitySearch, all of Ooga’s ideas are home-grown and not reliant on venture funding.

“All of the ideas are ours,” he says. “We come up with them ourselves.”

By contrast, he says, Idea-lab was founder-driven. “They’d have people come up and pitch them. A lot of the companies weren’t synergistic.”

To encourage the teams to work together, Mr Currier has developed an unusual “cross-equity” ownership arrangement. “We have five different companies at Ooga Labs and everyone owns equity in each of the projects regardless of which one they’re focused on.”

Is this a socialist model of venture development?

The real question:

It is too early to tell whether the ideas being pursued by entrepreneurs taking the shotgun approach will lead to free-standing companies capable of standing the test of time – as opposed to, say, quirky products designed to be acquired by an existing social network or website.

Does the “shotgun” approach to testing ideas lead to products or businesses?