Sunday’s unordered thoughts on context, incentives, intellectual honesty and the changing venture capital industry:

• Malcolm Gladwell, Geek Pop Star (New York Magazine):

  People are experience rich and theory poor. My role has been to give people ways of organizing experience.

  Gladwell has become more popular than the scientists that create the fundamental ideas that Gladwell understands and translates to a broader audience. Need more proof that context matters?

• Michael Lewis on Portfolio.com: The End of Wall Street’s Boom:
  

  I had no great agenda, apart from telling what I took to be a remarkable tale, but if you got a few drinks in me and then asked what effect I thought my book would have on the world, I might have said something like, “I hope that college students trying to figure out what to do with their lives will read it and decide that it’s silly to phony it up and abandon their passions to become financiers.” I hope that some bright kid at, say, Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Morgan Stanley, and set out to sea.

  Somehow that message failed to come across. … I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They’d read my book as a how-to manual.

  When John Gutfreund and the partners of Salomon Brothers converted Salomon Brothers from a private partnership into Wall Street’s first public corporation,

  … they transferred the ultimate financial risk from themselves to their shareholders.

  The moment Salomon Brothers demonstrated the potential gains to be had by the investment bank as a public corporation, the psychological foundations of Wall Street shifted from trust to blind faith.

  Need more proof that incentives matter?

• Mike Speiser at Laserlike:
  

  I believe that the biggest advantage a startup has over a big competitor is intellectual honesty. Most of the entrepreneurs I know start their own companies or join startups in order to do what they wanted to do at their larger [previous] employers — to do something worthwhile. Then they finally reach the conclusion that the only way to avoid cargo cult management is to start from the ground up. This is particularly true of technical professionals who view intellectual honesty as core to their job. How often to you hear business people poke holes in their own arguments the way engineers do?

• Fred Wilson: A Slightly Different Perspective:

  The venture capital business is changing if you look closely. Many of the biggest and best firms are slowly but surely turning their attention from information technology to energy technology (ET). Not all of them will be good ET investors and the firms that don’t navigate that transition well will struggle. Firms that continue to focus on IT have largely turned their attention to the web where capital requirements are lower and technology and IP barriers are non-existent. Many firms are struggling with these realities and they may decide to throw in the towel on IT.

  … the reality that money is harder to come by and may stay that way for years will likely force the venture industry to get smaller not bigger.

  But be careful what you wish for. We will get a better, more efficient venture capital industry that produces better returns for investors from all these changes. But we may also get less capital for entrepreneurs. Just like there aren’t thousands of great VCs, there aren’t thousands of great venture capital investment opportunities. When the industry is flush with cash, entrepreneurs are the beneficiary. When it is not flush with cash, entrepreneurs will feel it too.

  My comment:

  The interesting thing is that there are a lot of different reasons being proposed and promoted about “why VC is broken”. As usual, some are misguided, incorrect or just wrong: but some offer a chance for some reflection as to ways VC could change or grow.

  VC evolved to solve a need: why should that need always exist in the same way forever?

  I think most of the people claiming “VC is broken” are entrepreneurs looking for capital…

  To be clear, I don’t think “VC is broken”. But I think there is an opportunity to adapt to better address a new economic reality.

Finding a consistent thread through my thoughts is difficult; one of the few is “Venture Capital for Long Tail Entrepreneurs”, 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 submitted a proposal for a SXSW panel on the idea back in August; as expected, it has yet to be accepted.

But I find the theme continuing to crop up in my thoughts and discussions with entrepreneurs and their ideas. Perhaps entrepreneurs just like to envision an environment where they can raise capital and start their businesses, or maybe there is a cultural change: I’m not sure.

Perhaps a broader economic downturn will create a more favorable environment for “too small to fail” startups and small companies: perhaps the push will be to get smaller, not larger, to “act small and think big”. I’m intrigued by the idea that an economic downturn could incent millions of people to start their own businesses as large company layoffs eliminate the cushy, lucrative jobs created by a bubble of fake, misplaced economic value creation. We’ll see.

In any case, I’ll be at SXSW Interactive in March 2009 of the long-shot change that the proposal gets accepted,

Series of posts building up to and thrashing around the idea:

• 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)

As always, I reserve the right to go off-topic, although I’m not sure what “on-topic” for me would be…

Is the Millenial generation shaping the future workforce?

The Millenial generation is creating a bit of generational tension as they bring their cultural imprint to the workforce. Employers realize Millennials are a large part of the future work force, but employers (namely Boomers, and to a lesser degree Generation X) are concerned about the generation’s desire to shape their jobs to fit their lives rather than adapt their lives to the workplace.

It may seem obvious that employees should show up on time, limit lunchtime to an hour and turn off cellphones during meetings. But those basics aren’t necessarily apparent to many millennials.

Seriously? Why is that obvious? [1] Why are we - all generations, not just the Millenial generation - bound by the old standards? How are the standards of “professionalism” being rewritten?

Why shouldn’t / can’t Millenials shape workplace rules and expectations rather than merely adapting to existing conventions?

John Hagel:

[Shaping] strategies use positive incentives to mobilize and focus thousands of participants in shaping specific markets or industries

Three key elements come together in these strategies – a compelling shaping view to provide focus for investment by participants, a powerful shaping platform that provides economic leverage for participants and a set of acts and assets by the shaper to communicate conviction and capability to potential participants.

Does the Millenial generation have enough of a shared view and platform to shape workplace conventions?

Will the Millenial generation just drop out of Boomer corporate culture and employ themselves by creating their own companies and workplace cultures?

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More: How might workspaces adapt to aging generations?

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[1] Granted, the third one is obvious, simple human respect.
[2] For more on shaping strategies download the full article (PDF) from Harvard Business Review: Shaping Strategy in a World of Constant Disruption.

Sample Financial Model created by Taylor Davidson Right-click to download. Zip file, 230 KB. See more details below.

Summary: Focus on what you can control. Download this Sample Financial Model (Excel spreadsheet) to help you explore and understand the key drivers of your business model.

There’s been a tremendous amount of discussion lately around a potential “startup depression”, highlighted by Sequoia Capital’s presentation to their portfolio company CEOs.

I’ve commented throughout the web on many angles of the subject; the general gist breaks down to a) most of the the actions startups need to take in recessions they should have been doing anyway, and b) recessions can be great opportunities to start companies. Paul Graham agrees.

The important takeaway from the “startup depression” conversations should be to understand how macroeconomic conditions could impact decisions and expectations made by your customers, investors, partners and employees. But the focus should remain on what you can control: creating value, solving problems, finding solutions, staying in the game.

What should you do first?
Take a hard look at your business model: not just the “revenue model”, but the entire equation: customers, revenue, costs, balance sheet, cash flows and financing.

• Do you understand your key assumptions?
• Do you understand the key drivers of your business model?
• Have you estimated the impact of varying your key assumptions? (univariate and multivariate)
• Can you estimate your financing needs and sources and uses of funds under multiple operational and macroeconomic scenarios?
• Do you understand your burn rate and where your cash is going? (”Cash is King”)
• Do you know what you can control, what you can change, and how it will impact your bottom line?

Download this Sample Financial Model to help you understand how reach those important insights about your business. This model won’t solve all your problems, it’s not customized to your business and it doesn’t do the analysis for you: but it should help you start thinking, and if you have questions or need help on the analysis or customization drop me a line.

Sample Financial Model created by Taylor Davidson Right-click to download. Zip file, 230 KB. See more details below.

• © 2008 Unstructured Ventures, LLC | created by Taylor Davidson
• License: This Excel spreadsheet is licensed under a Creative Commons Attribution Non-Commercial License. What that means to me: use it, share it, edit it, simply provide attribution to me as the creator; but don’t sell it.
• Warranties, guarantees, etc.: View Excel file for statements of legal warranties, representation, guarantees and liability.
• Microsoft, Windows and Excel logo are trademarks or registered trademarks of Microsoft Corporation in the United States and/or other countries.

I’ll start with a valuable perspective for entrepreneurs, startups, creatives or anyone trying to take something from an idea to a reality. Hugh MacLeod at GapingVoid:

“Good ideas have lonely childhoods”. When I say, “Ignore Everybody”, I don’t mean, “Ignore all people, at all times, forever”. No, other people’s feedback has an important role. Of course it does. It’s more like, the better the idea, the more “out there” it initially will seem to other people, even people you like and respect. So there’ll be a time when you have to press on, alone. This is normal. This is to be expected.

I highly, highly encourage reading the rest of the post and basically everything MacLeod writes.

MacLeod points out an unappetizing truth for entrepreneurs: the best ideas are likely the ones that everybody hates. Therefore, expect to hear “no” from prospective clients, customers, investors, employees; expect to hear resounding silence from the marketplace; expect even trusted advisers and friends to fail to understand your idea or grasp the opportunity.

The hardest part is knowing when the resounding “no” is just noise or a signal. And that can only come from you.

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I’m starting a series of posts on advice for entrepreneurs, aimed at people looking to make the transition from being an employee to creating their own business. There is a cacophony of advice out there, but so much of the advice is short-sighted, biased by personal experiences, or just simply wrong. I don’t have all the answers, but I can help you think through the right questions.

If you have any questions you would like answered on how to brave the entrepreneurial path and how to make the transition from an employee to an employer (of yourself), please drop a line in the comments, by email, by Twitter or by the contact form. I’d love to get your thoughts…