Closer To The Ideal

I just stumbled across Freelancer. It seems to be a lot like eLance. I wasn’t clear what the differences were.

Erowid.org is a site where people write about their experiences using drugs. However, every post is moderated and edited. This leads to a very serious backlog, with the editorial staff falling far behind, in terms of editing:

Unfortunately, the level of care our review crew strives for makes it difficult for us to keep up with the number of incoming reports–currently a steady 25 per day–so we are constantly falling behind. Early in 2002, Sophie lead a charge to clear out pending reports more than a year old, and succeeded. But even weeks of nothing but experience reviewing only caught us up to last year’s submissions. There are thousands of reports which have never been read. When people inquire why their report hasn’t been posted to the site, we sheepishly have to respond that we are doing the best we can to work through the submitted reports, but that the project is critically understaffed and underfunded.

The solution to the problem may seem to be simple: finding more people to do the reviewing work. But people who volunteer to review reports often imagine the process to be much more fun than it is. Unfortunately this leads to most volunteers quitting before they begin. Even with a rigorous application process to weed out those who aren’t serious, along with a request that people commit to reviewing at least 40 reports before giving up, less than half who agree actually complete 40 reports. Since it takes more than an hour to train someone in on the interface and then another few hours of oversight by a second-tier reviewer, finding committed reviewers can be a burden on the busiest of the crew.

A cautionary tale about relying on volunteer help. It works for Wikipedia, but I suspect it won’t work for most sites.

Launching a startup takes 5 years:

Launching a startup doesn’t have to take that long. Still, many entrepreneurs are too focused on the next milestone. They don’t see the full distance.

“If we can only get this release out the door, we’re safe.”

“If we can only close this round of funding, we’re home.”

“If we can only add this missing feature, we’re OK.”

This makes failures much harder to cope with. “We missed the deadline – we’re DOOMED!” No, you’re not – or, you don’t have to be. Because just like the path to expert-hood is long and filled with obstacles, the road to startup success is paved with failures and misfortunes – and that’s how it’s supposed to be because that is how you learn.

Cramster looks like an impressive resource for students looking for help. I am especially impressed with the number of textbooks that they are able to help with, for every subject, such math. Things like this make me think I should stay out of the education market, though it is a field I’ve thought of getting into.

The advantage of focusing on a niche.

In fact, you might be better off in a tiny niche that seems like it’s too small to be viable, because it’s likely under the radar for almost everyone else, except your audience. So the next time you find yourself thinking about how much you love polka-dotted socks made in Middle-Eastern countries, or Middle-Eastern country music singers who wear polka-dotted socks, think about starting a blog on the topic. You never know where it might go.

I have fantasies of building a business where my main focus is simply putting together a great team. Never mind marketing or products, I’m interested in having a great team. The team can figure out the other stuff. Bruce Eckel is focused on the people issues:

One way to look at the problem of company-building is that it should focus on creating great teams. I’ve heard numerous people say that the company could be in various kinds of bad shape but they could be happy in it as long as they were on a great team. If the team is indeed the fundamental component of the company, then it would be interesting to make an environment whose primary focus is to be a culture medium for great teams.

One of the biggest problems in team building can be thought of as a version of the “sunk cost” issue. Although it’s better to think of lost investment as just that — lost — when making decisions, our brains tend to think in terms of what we’ve already invested. So if you’ve invested a lot of time and money in hiring someone, you’ll tend to hang on to that person until the pain of doing so exceeds your imagination of what it took to get them in that position. This means that a poisonous person can easily be in a team long enough to destroy it before finally being ejected, at which point it’s too late. You’ve thrown a bass into your team of goldfish, and while the bass is eating up your team, you’re thinking “maybe he’ll get full.”

The other big factor is legal. Some people sued companies for wrongful termination, so every company adapted practices to prevent it. You can’t just fire someone anymore, you have to give them a couple of 6-month evaluations to show due diligence.

37 Signals says that Stack Overflow doesn’t need VC money:

1. The Answers market is in a land grab mode

Unlike eBay, where there’s a general market for goods and you get huge network effects from having a critical mass of buyers and sellers, StackOverflow is all about niches. People who are searching for “how to make sql server not go slow?” aren’t likely to bleed over to “how to make swedish meatballs?”.

This means that you’ll have to fight for every niche. Similar to how general forums would have to fight for every niche. Just because you have a forum site that’s big for gamers, you won’t have much of an edge attracting foodies.

Finally, it’s not like this is a new idea with no other entrants. Look at Yahoo Answers for a site that’s still up with a similar model and look at Google Answers for another that couldn’t be turned into a worthwhile business and closed.

Land grab mode? I worry that we lack the resources we need to expand WP Questions. The next year will be exciting – who knows how this race will play out?

Over on LinkedIn, someone asked how long it should take to write a 30 page business plan.

My response:

I’ve seen 3 major efforts at writing a business plan. All plans were being used to pitch to venture capitalists. One entrepreneur was asking for $100,000, another was asking for $500,000, and another was asking for $50,000.

The first effort I saw took 6 months. This was for a web startup. The process was drawn out because the entrepreneur was facing a fluid situation. New information was coming in on an almost daily basis. The competitive landscape was changing quickly. And also, the entrepreneur was learning a lot about how to run a startup, how to pitch to VCs, and how much money would be needed.

Really, for web startups, or any startup facing a fluid situation, I think it is normal to always be working on the business plan. You re-write it every week. You re-write it after every pitch, based on the feedback you got from the last VCs, and then you re-write it again when you are about to do a new pitch, as you want to spin it in a way that you know the next VCs are going to like. If you know the next VC you are going to meet with is more interested in iPhone/smart-phone apps than in web apps, then you emphasize all the ways that your idea has smart-phone potential. You de-emphasize the web app potential.

I did see one business plan put together by a very experienced consultant, a veteran of the tech industry. He was writing it for his client, who was a younger and less experienced entrepreneur. The industry veteran took 3 weeks to write it and included multiple scenarios, detailed in various Excel spreadsheets. It was an impressive effort. It almost sounded believable, despite the large number of guesses that needed to be made about how web usage would evolve.

The last startup I worked on, the “project manager” worked on the business plan almost full time. Raising money was his main job. He faced a profound, fundamental problem, in that he did not really believe in the project. He fell into a bi-polar cycle of sometimes being optimistic and other times being pessimistic. During each pessimistic trough, he would re-write the plan considerably, or at least come up with entirely new slogans to pitch it with. This went on for over 6 months.

Small Potato started a good conversation over on WP Tavern, about using free themes as a method of getting more business.

Pretend selling themes is short-term moola and long-term moola lies in the benefits of free themes.

How do you make money from releasing free WordPress themes?

Obviously, if your plan is sustainable, the theme community would benefit more from your free themes than from commercial themes.

Carl Hancock then argues that this doesn’t scale:

The problem with giving away free themes with the hopes of a percentage of those customers like your theme and come to you for consulting, customizations, etc. is simple… it doesn’t scale.

Consulting doesn’t scale. Selling a product scales.

You can sell that same product over and over again. You can’t do that with consulting and customization services. Consulting can also be feast or famine when it comes to income, if you have a solid product it can continue to sell 24/7.

Would you rather work on your own product or work on one offs for customers and be severely limited in how much work you can take on without overloading yourself?

If you want to monetize free themes you would want to do what Jestro is doing by using the free theme to up sell them on a “pro” version of the theme.

The next bit seems relevant to what Darren Hoyt and I are trying to do with WP Questions.

developdaly said:

What I don’t see as a “real” option is just selling themes. I totally agree that the “big theme shops” are viable businesses because their main asset is support. All I was saying was that if they didn’t offer support their business would likely disappear after the themes were distributed for free by someone else.

To which Andrea_r responded:

Totally in agreement there, I think we’re coming at it from two ends to the same conclusion. There’s absolutely no point in *just* selling a theme. Because the code can & will be redistributed, GPL or not.

This suggests that WP Questions, to the extent that it soaks up support dollars, is either in alliance with the plugin and theme developers or it is in direct competition with them. And we do not want to be in direct competition with them.

Rich Hickey offers a great write up of the problems facing the funding of open source software:

There *are* companies that make software themselves, whose consumers
see a value in it and willingly pay to obtain that value. The money
produced by this process pays the salaries of the people who are
dedicated to making it, and some profit besides. It’s called
“proprietary software”. People pay for proprietary software because
they have to, but otherwise the scenario is very similar to open
source – people make software, consumers get value from it. In fact,
we often get a lot less with proprietary software – vendor lock-in, no
source etc. Most alarmingly, this is the only model that associates
value with software itself, and therefore with the people who make it. …

As should be obvious, Clojure is a labor of love on my part. Started
as a self-funded sabbatical project, Clojure has come to occupy me far
more than full-time. However, Clojure does not have institutional or
corporate sponsorship, and was not, and is not, the by-product of
another profitable endeavor. I have borne the costs of developing
Clojure myself, but 2009 is the last year I, or my family, can bear
that.

Many generous people have made donations (thanks all!), but many more
have not, and, unfortunately, donations are not adding up to enough
money to pay the bills. So far, less than 1% of the time I’ve spent on
Clojure has been compensated.

Right now, it is economically irrational for me to work on Clojure,
yet, I want to continue working on Clojure, and people are clearly
deriving benefit from my work. How can we rectify this? Barring the
arrival of some white knight, I’m asking the users of Clojure to fund
its core development (i.e. my effort) directly, and without being
forced to do so.

Jarred Myers dreams up a micro consulting scenario:

Let me indulge you with a role play, factory owner Jimmy is debating replacing his aging machinery, he has 4 options, rent, buy, finance or push it till it breaks, what does he do? This may look like an exam question, which it indeed could be, but it’s a real problem that a competent management accountant has the tools to address.

Jimmy posts his dilemma with a list of documentation available for decision making, he states the price range he’s prepared to pay for the service and awaits proposals.

Young smart underemployed management accountant Andrew, looks at this post and says “hey, I can do that, and I could use the cash” Andrew submits his proposal, Jimmy likes his approach, they agree on payment terms and deliverables and a management tool is born.

Jimmy benefits by not needing to employ a full time management accountant but still has the expertise available and Andrew spent a few nights after work earning some extra cash for his weekend getaway.

…so is this a potential new management tool? Could businesses outsource operational decisions? There’s a long list of advantages and disadvantages to a model like this but I believe the niche exists, at the risk of bastardizing another prefix; we could be looking at a new field called micro-consulting or for those who prefer processing information graphically, the long tail of management accounting.

This is the direction I’d like to go with what we started over at WP Questions. If that site does well, I’d like to do other, similar sites, expanding into every niche where small scale, remote consulting can work. However, Myers seems to think this is a species of crowd sourcing. I do not. Either a site focuses on the power of crowds, or it focuses on the power of experts. I do not think it can do both. I realize the difference is subtle, and in some cases there is no practical difference, but over the long term, I imagine these will be seen as distinct categories. The thing about consulting and experts is the degree of trust. Our very understanding of expertise is bound up with a sense of trust. Experts have reputations. Experts are mini-celebrities. A site trying to facilitate the skills, and the wisdom, of experts needs to proceed along different lines than a crowd sourcing site.

This summer I was part of a project that, in my opinion, made many mistakes. The entrepreneur and his project manager felt they could build web software even though they had no programmer as part of their core team. They felt the technical work could be handled by a team in India. The 2 of them spent most of their time trying to raise venture money. They spent a lot of time honing their VC pitch – many hours were spent polishing the slides they used in their PowerPoint presentation.

Last time I checked in with them, they project had fallen several months late, they had mostly used up their initial money, and they were having trouble fundraising.

My own theory of the right way to go is “Form an awesome founding team and get your product out the door ASAP. Then, forget everything else, VCs included, and just build.”

So I was really glad to see Meebo CEO Seth Sternberg giving exactly that advice.

These 2 paragraphs, in particular, speak to the mistakes that I just saw on that last project:

At the exact moment you had your idea, ten other people had the exact same idea. There was just something in the environment that made it the right time for folks to think that one up. The race has already begun! Who’s going to execute first? Who’s going to execute best? If you want to waste nine months trying to raise VC money for that idea, great. But six months in, you’re gonna cry when you see someone else put out that same product you’re pitching me right now. Like I said, forget everything else and just get your product out the door. Now.

…First and foremost, find a great founding team. One person is almost never enough. You just can’t do it all. Rather, team up with one or two other people who have skills synergistic – not overlapping – with your own, but with similar goals and passions. I can’t tell you how frequently teams of three business school students tell me they’re going to start the next great consumer Internet company. When I point out that they’re all business people, and wonder who’s going to build the product, they almost always fall back on “we’ll get a couple of undergrads to do it,” or, “we’ll outsource it.” If I hear either one of those, I know the startup’s already dead. Sorry, folks. Harsh, but probably true.

Cringley predicts the world of higher education is facing a revolution:

There is enough good material available for free online right now that it would be easy to create a virtual university (WikiVersity?) with the only thing missing being the granting of degrees. It’s that whole “degree from MIT” thing that allows that school not to worry about sharing its lecture bounty, because in the education system lectures are viewed as worthless unless they lead to a degree.

Why is that?

My friend Richard Miller (he designed the Atari Jaguar video game console eons ago) is one of the smartest engineers I’ve ever met yet he doesn’t have a degree in engineering. Apple II designer Steve Wozniak got his degree from UC Berkeley only after leaving Apple in the early 1980s. In both cases their employers couldn’t have cared less.
What drives the education industry is producing degrees while what drives the computer industry is producing products and services.

When was the last time any employer asked to see your academic transcript? Have they ever?

What’s missing here is the higher education equivalent of a GED. Someone will come up with one, or they should, because all the other parts of the system are ready to go.
Cushing Academy, a tony prep school in western Massachusetts, is right now replacing its 20,000-volume library with a “learning center” containing 18 eBook readers, three giant TV screens, and a $12,000 espresso machine. I wonder why they need a building or even a room at all; wouldn’t it be cheaper just to give each kid an eBook reader and a Starbuck’s gift card?

Sounds appealing, doesn’t it? I, for one, always hated school. Always. And I have long wondered why people put up with the current structure of education. But I would not be the entrepreneur that Cringley wants. I would not invest in this particular revolution, for 3 reasons:

1.) Never underestimate the shocking conservatism of the American people, and their general unwillingness to change.

2.) People who go to college are trying to reduce their risks – they want a guarantee that they will be allowed into the middle class (their parents also want that guarantee). The market for safety is not going away any time soon.

3.) The people who are willing to take risks, the true entrepreneurs, are few and far between. (And many of these people don’t bother going to college.)

In other words, so long as the universities can claim that they are reducing risk, they are immune to any challenge from the Internet. So far the Internet has proven itself capable of setting up radical challenges to existing institutions, but it hasn’t replaced any institutions and become the new status quo. The revolutionaries are not yet the new conservatives. We are at least 20 years away from the day when those of us who believe in the Internet can say “4 legs good, 2 legs better.”

The venture capital model is broken:

Within the past 3 years I’m seeing a huge tsunami of innovation that has nothing to do with technology advantage (a cornerstone of the venture capital market) but instead business model or market demand oriented solutions – technology is become less of a core driver. This is turning the venture playbook upside down.

The article mentioned above talks about what I call “market factors” from a venture perspective- the liquidity market (and regulation mainly liquidity). Because of the breakdown in liquidity there are just to many company that is causing a “backup” in the system. The venture capitalists depend on liquidity to exit out the companies in their portfolio. So if the venture capitalists don’t change their model the trickle-down effect hurts entrepreneurship.

I would like to see new funding models. It would help if the various state governments (in the US) offered standard models for incorporation other than the C-form. I started a company in 2003 where we used the flexibility of the law, in regards to LLCs, to mimic certificates for my tiny company. Then I got all my friends to buy a share for $100. So that company was an LLC that in many ways imitated a C-form corporation. But myself and my business partners burned through $5,000 of legal fees to get the right agreement. I would love to see the government offer that model as a standard, a sort of hybird of C-form and LLC. The goal would be to make it easier for entrepreneurs to raise money from strangers, without having to look toward Wall Street. I realize some people will respond with concerns about fraud – those concerns are valid, but they can be gotten around by other aspects of the LLC model, especially the understanding that everyone has some of the old rights that a partner would have had in a partnership – in particular, the ability to examine the corporate accounts. We now know, from examples such as Enron and more recently with GE, that big companies, even with formal audits, can lie about their finances. The best protection against fraud is transparency.

I wouldn’t say that the model I worked out in 2003 is necessarily the one that the whole world should follow, but I do strongly believe that there are C-form/LLC hybirds out there that can facilitate early stage funding while also lowering the risk of fraud.

I’ve been reading John C. Bogle’s book, Enough. He makes the argument that we live in an era where our business leaders have forgotten what enough is. However much they have, they need more: more cars, more jets, more yachts, more homes, more money. Bogle feels that the ethical lapses we’ve seen in recent years were facilitated by the loss of the concept of enough. It is a good book. People who are interested in questions of business ethics should read it.

On a related note, today the news page over at YCombinator pointed to this old article “How Much Scratch is Enough?” written by Ryan D’Agostino.

Okay, let’s see. Say I give myself eight years—no, better make it ten. Just to be safe. I figure I’ll definitely want a great apartment in Manhattan. Near Central Park. Plus a summer house in, say, the Carolinas. Nothing too big, but nice. Also, enough to put a couple of kids through college. Prep school too. Oh, and Colorado. A condo, on the slopes. Gotta have a nice set of wheels—Beemer—and an SUV (to get around Colorado). Then maybe I’ll open up a little cafe somewhere, or get a boat. Yeah, a boat would be cool. Ten years. Figure $15 million. I think I can do it. But then I’m out. Definitely. Out for good. Just sailing around on my boat.

This is how it starts: with a pledge. A promise to yourself that you will make a certain amount of money—that you will hit your number—by a certain age, and that you will, upon reaching that carefully calculated goal, get out. Go sail your boat. Or open your bookstore or your bed and breakfast, or be a philanthropist or whatever. You won’t have to worry about money. You’ll invest a big, juicy nugget and live off the interest, which will be more than enough.

For some people, though, that word becomes a stumbling block: enough. It makes the calculations tricky, and sometimes, it changes the plan. Enough creeps slowly but steadily upward, like ivy spreading imperceptibly over an entire side of a house, and once it does you can’t picture what the house looked like before. At first, you aim high—way into the millions—and while part of you knows that chances are you won’t really end up with that much, part of you knows there’s a chance you will. You see the number in big, block numerals in your mind, and the corners of your mouth curl up into a little smile, just for a second, when you picture yourself hitting the mark.

Bogle and D’Agostino are both criticizing consumption (cars, houses, jets, etc). I’ve no problem with that. I’m critical of consumption too. But I think it is odd that they both write as if consumption is the only thing that a person might want money for.

For my part, I will never have enough money.

I have in my head an unlimited number of ideas for new businesses. Some are web-based, and of these, some are content sites and some offer a software service. But also, some of the businesses I’d like to pursue have nothing to do with the web. I’ve some software ideas to help biologists and, in particular, to help people learn biology (I’ve just been studying biology myself, so I’m aware of things that could help me learn it better). Some of these ideas are simple, such as a calculator that allows certain kinds of very easy programming (easier than Matlab). And having only recently started studying advanced math, I’m aware that people who take up math as adults, and who are self-taught, may have a set of questions that are different than what high school students ask. And I’ve various creative endeavors I’d like pursue. For instance, I’ve been writing a screenplay for a movie loosely based on the events that occurred at Enron.

The various ideas I’ve got in my head right now could keep me busy for 40 years, and I could easily burn through $200 million pursing them all. I really doubt that I’m going to succeed at all of these endeavors, and I seriously doubt I’ll ever have anything like that kind of money, but I figure I might as well just give it a try and see how far I get. And if a miracle happens, and I end up with $200 million, I’m very certain that by that time my overall goals will have expanded to the point that I’ll need a billion to fund my further ambitions.

I will never have enough money.

D’Agostino suggests that when you finally get the millions of dollars that you’ve been aiming for, you smile: “You see the number in big, block numerals in your mind, and the corners of your mouth curl up into a little smile, just for a second, when you picture yourself hitting the mark.”

I think the opposite is true: the most exciting part of launching a new business is the first dollar that you get. The first few dollars bring a huge thrill, even though the numbers are trivial:

“Our first $100 dollars!”

And then:

“Out first $1,000 dollars!”

And then:

“OMIGOD! Our first $10,000 dollars!”

After awhile the thrill starts to fade. No one celebrates when a new business reaches the $30,000 mark. I assume there is some satisfaction to reaching a $1,000,000 (never been there myself) but I have trouble imagining it is as exciting as the first few dollars that come in, those early dollars that give you your first clue that maybe you’ve a product or service that people will actually want to give you money for.

I do not need multiple cars, houses, jets or yatchs. 10 years from now, I’ll be happy if I have a small apartment in New York City, my current Volvo, which I hope to keep going despite some body rust, and $100,000,000 of software projects that are all going well.

In his fictional scenario (I assume it is fictional) D’Agostino says: “But then I’m out. Definitely. Out for good. Just sailing around on my boat.”

I can’t imagine ever wanting to get out. The thrill of launching and running a business is the most fun thing I’ve yet discovered. If I got out, what would I do? I’d simply get back in.

I’ve worked with entrepreneurs who are obsessed with secrecy about their idea. Some of them ask me to sign non-disclosure agreements, just for hearing the basic idea of their business. This kind of secrecy is always a mistake. If you’ve got an idea for a business, you should talk about that idea with everyone.

A frequent question entrepreneurs have when they are just starting their company is: how secretive should I be about my idea? My answer: you should talk about it to almost anyone who will listen. This includes investors, entrepreneurs, people who work in similar areas, friends, people on the street, the bartender, etc.

There are lots of benefits to talking to people. You’ll get suggestions for improvements. You’ll discover flaws and hopefully correct them. You’ll learn a lot more about the sector/industry. You’ll learn about competitive products that exist or are being built. You’ll gauge people’s excitement level for the product and for various features. You’ll refine your sales and investor pitch. You might even discover your idea is a bad idea and save yourself years of hitting your head against the wall.

Dan Bezdek posted on LinkedIn, suggesting that it was impossible to launch an online business nowadays due to the hyper-competition on the web. He wrote:

I still think there is a huge difference between an online business and a traditional business. We have this grocery store in the neighborhood which is right next to Safeway. Now, you’d imagine there is no hope for this store; however, not only it is surviving, but in fact has so many customers.

He also wrote:

The main problem is that the culture of internet is free service, and this problem will remain with Internet forever. You might spend a couple of years in development, and provide a great service; but you can’t charge users even a $1 except in very few niche sections.

I wrote a response, but LinkedIn limited me to 4,000 characters, so I was not able to post my whole response. I post it here, instead.

- – - – - – - – - – - – - – -

Dan Bezdek, I’m afraid I’m unable to understand your reasoning. I’m going to try to paraphrase what I think you are saying.

You write “It is so easy for anyone in the world to compete with you even in places that $100 is a week pay.”

I think you are trying to say that because computer programmers can be hired cheaply, it is more difficult for you to build a business? But the opposite is true: cheap computer programmers make it easier to launch a new business. I can not think of a single case in economic history where the falling price of a supply factor made it more difficult to launch a new business. A few examples:

1.) During the late 1600s, in Europe, the dramatic fall in the price of paper allowed for the creation of the first modern newspapers. The Spectator launched on March 4, 1712.

2.) During the mid 1700s, in Europe, the dramatic fall in the price of coffee beans allowed for the first coffee houses to open. Paris had hundreds of small coffee stands at the outbreak of the Revolution.

3.) During the late the 1800s, in America, the dramatic fall in the price of communications (the telegraph and the telephone) allowed for the organization of businesses over a distance, and at a scale, never before seen.

4.) During the late 1900s, all over the world, the dramatic fall in the price of computing power brought several new technologies into the mass market, including cell phones, personal computers, and personal (non-business) software.

As a general rule, the cheaper supplies get, the easier it is to start a business.

You also wrote this:

“In any case, the point of all this is to say that developing even a barely successful online business is probably 10 times more difficult than setting up a grocery shop.”

You didn’t mention which country you are in. If you are in the United States, then your statement is incorrect. The retail sector in the US is overbuilt and is expected to consolidate over the next 10 years. Many grocery chains are expected to go bankrupt. Meanwhile, the Commerce Department projects that the software industry will continue to grow, and much of that growth will be happening on the web.

If you do not live in the US, then I’d have to know what country you are in, to know if there is any truth to what you are saying. Some countries, such as France and Italy, offer strong legal protections to small firms. In those countries, small groceries have some hope of surviving, but that is because of government protection, not economic fundamentals.

I think the concept that you are trying to get at is what economists would call “barriers to entry”. That is, what barriers keep competitors from entering your market and competing with you? And I think what you are thinking is that a local grocery store, because it is grounded in a specific geographical space, has some immunity from competition, whereas a web site has to compete with every other web site on the web.

Again, if you are speaking about the US, you are plainly wrong. The history of post-war economic development in the US is the history of retail consolidation. Mom-n-Pop stores have been relentlessly replaced by big chains such as Wal-Mart. Massive numbers of bankruptcies have happened in every state. The small-scale grocery was once common, and now is nearly extinct. They’ve been hunted to extinction through the relentless competitive pressures of market consolidation.

Consider the graph that the US government has posted here:

In the late 1990s, a number of leading grocery retailers went on a buying spree. Between 1997 and 2000, more than 4,100 stores were acquired, amounting to almost a fifth of all U.S. supermarkets. Mergers and acquisitions by large grocery retailers, including Kroger, Albertson’s, Ahold USA, and Safeway, produced a significant increase in the share of grocery store sales by the largest firms. By 2005, the 20 largest retailers accounted for 61.6 percent of total U.S. grocery store sales, up from 40.6 percent in 1995.

If you look at the facts, you’ll admit that small-scale groceries have mostly been wiped out. And this happened during some of the same decades that saw the explosive growth of the US software market.

Clearly, it is possible to make a lot of money on the web. 37 Signals makes millions of dollars in sales, and Amazon makes billions of dollars in sales. AOL is making a shockingly large gamble on weblogs.

You include this surprising comparison:

Now, compare this store to many 2-3 men operations online trying to make it online offerring some service; there are thousands of such operations which wish they were making as much as that grocery store.

I assume you meant “people” where you wrote “men”. A 3 person web start-up will cost less than running a grocery store. Even a small grocery store is going to have more than $50,000 worth of inventory in it, then it will have labor costs, rent or real estate taxes plus land cost, licenses for health, fire, safety, etc. If you are going to compare businesses that have different capital requirements, then you might as well write “I tried to run a lemonade stand, but it never made as much money as Toyota.” The comparison is absurd.

Of course, as segments of the web mature, the capital requirements for starting a web site go up for that particular segment. Once upon a time, a long time ago, you could start a successful weblog for free. Nowadays, if you are starting a weblog which you hope will develop a mass audience, then you should probably have $100,000 for marketing and writers. Likewise, if for some crazy reason you decide to launch a competitor to YouTube, you should start with $100 million in the bank. In the future, you may need millions of dollars to get into any established segment. But some segments will remain open to the sudden hit that comes form nowhere. Weblogs, for instance, began to consolidate some time ago, yet new weblogs still occasionally burst forth and become large-scale hits. And one of the great things about the web (so far) has been the speed with which new segments emerge.

I’ve already written extensively about the costs of building a web site. And I’ve helped launched a number of successful sites that cost less than $100,000 to get going. And I continue to work with start-ups that have budgets under $100,000, and I’ve great faith that a number of these will become successful.

If you are thinking of starting a new business, you’d be wise to start it online.

Someone I’m working with asked me to look at SlideRocket, to see if we should be using it. SlideRocket describes themselves like this:

SlideRocket is online presentation software that provides for every part of the presentation lifecycle. SlideRocket integrates flexible authoring, intelligent asset management, secure delivery and analytics tools in a single on demand application. SlideRocket allows you to quickly create stunning presentations, store, organize, tag and search your assets, collaborate with your colleagues, securely share your presentations in person or online and measure the results, all in one integrated environment.

If you listen to their video, they talk about how great it is to have all of your assets on the web (or the “cloud”, as they prefer to say), so you’ll never run the risk of forgetting it at home.

One thing that occurs to me is how similar this is to what Phillip Greenspun was describing in 1999:

Interesting things can happen when you do something as simple as move an application from the desktop to a server. For example, at a small company once we had the idea of building a server-based replacement for PowerPoint. We wanted something simpler that we could edit from any Web browser. Once the slides were in the database, however, we realized that this could be used for collaboration. User A could authorize User B to edit a presentation and the two of them could authorize User C to give that presentation at a remote site.

Only after talking to people from PowerPoint-oriented organizations did we realize how revolutionary the system, which we called “WimpyPoint”, could be. Suppose Jane Executive went on vacation for three weeks. Upon her return she wouldn’t have to start calling colleagues to find out what had been going on; she could look at the WimpyPoint server and ask to see all presentations created within the last three weeks. When all the work of an organization is presented within PowerPoint it is a terrible waste to have that work locked up in monolithic files.

Once again, I am impressed with how clearly Phillip Greenspun understood the Internet, earlier than most other people did. He foresaw the declining importance of desktop apps:

What people need and, with the ubiquitous Internet, can finally get, are collaborative Web-based applications. Web-based apps let people use computers without becoming mired in system administration. Web-based apps help people collaborate. Web-based apps can weave an individual’s contribution into a larger work produced by many people over the decades.

The future is WimpyPoint, not PowerPoint.

If Web-based apps are so great, why aren’t we all using them now? Desktop apps serve one user at a time and tend to be copies of systems from the ’60s and ’70s. Web-based apps serve thousands of users simultaneously and oftentimes are based on completely new service ideas. Thus Web-based apps require programmers with great skill, imagination, and taste.

If Greenspun’s thinking has a fatal flaw, it is the relentless way he discounts the importance of visual information. He is one of those people who has a strong preference for text. There is nothing wrong with that, of course, but he consistently mistakes his personal preference for some kind of universal truth about communicating information:

You’re building a database. You’re modelling data from the real world. You’re going to have to write computer programs in a formal language. You have to design a user interface for that computer program. If you had an MBA then your natural first step would be . . . hire a graphic designer. After all, this computer stuff is confusing. Databases frighten you. What you really need is something that will look good at your next meeting. Graphic designers make pages that look good. You can always hire a programmer later to actually make the forms work.

…If you despair of learning how to do anything productive, what you might have learned from this chapter is that you should work with the programmer and user interface designer to build the site that fits your publishing model before bringing in a graphic designer to make it pretty.

This particular joke (that all graphic designers are stupid) pervades Greenspun’s work. I find it about as funny as I find “All women are dumb” or “All blacks are lazy” type of jokes. The history of innovation reveals this as a reliable pattern: those who understand the importance of a new technology often have some blindspot that keeps them from being the one who fulfills the potential of the new invention.

What Greenspun offered is an example of extreme minimalist design. It is functional, but confusing. He seems to have thought that if a page was minimalist enough then its purpose would automatically be clear. Any talented designer can explain the problems with that kind of reasoning.

SlideRocket offers some things that were less practical back in the 90s. The spread of broadband Internet connections allows people nowadays to expect video and other rich media. This could be described as the Web 2.0 version of WimpyPoint, but I assume Greenspun would disagree with the comparison. SlideRocket is built using Flash/Flex/Air. Greenspun was extremely critical of Flash. I assume he has been surprised (as I was) to see Flash evolve into Flex, which is, after all, a reasonably solid programming environment.

Still, SlideRocket strikes me as the modern version of what Greenspun had begun to see 10 years ago: the movement of presentation software to the web. I think it is curious how certain ideas (forums, email, chat) keep getting re-invented, over and over again, every few years, and yet, these re-inventions keep offering some real (if incremental) innovation, something that updates the basic idea and brings it into conformance with all that is now known, all the best practices that our growing experience with this new medium allows us to understand.

David Simon writes the single most ludicrous, misguided, uninformed post about the future of the newspapers that I’ve yet seen:

The true audience for this essay narrows necessarily to a pair of notables who have it in their power to save high-end journalism—two newspaper executives who can rescue an imploding industry and thereby achieve an essential civic good for the nation. It’s down to them. The rest of the print journalism world is in slash-and-burn mode, cutting product and then wondering why the product won’t sell, rushing to give away what remains online and wondering further why that content is held by advertisers to be valueless. The mode is full-bore panic. And yet these two individuals, representing as they do the two fundamental institutions that sit astride the profession, still have a card to play, and here’s a shard of good news: it’s the only card that ever really mattered. Arthur Sulzberger Jr. and Katharine Weymouth, publishers of The New York Times and The Washington Post, are at the helms of two organizations trying to find some separate peace with the digital revolution…

Melodramatic. Two brave souls have the power to save the noblest industry on Earth, the 4th estate, they can perform “an essential civic good for the nation”, but only if they act bravely and wisely. It is a good setup for a movie. How is it that Simon got so far out of touch with reality that he doesn’t understand how sentimental and over-heated this is?

Simon is so desperate to save the newspapers, that he wishes they could break the law:

Most of all, I know that here you are being individually asked to consider taking a bold, risk-laden stand for content—that antitrust considerations prohibit the Times and The Post, not to mention Rupert Murdoch or the other owners, from talking this through and acting in concert. Would that every U.S. newspaper publisher could meet in a bathroom somewhere and talk bluntly for fifteen minutes, this would be a hell of a lot easier.

This by itself says a lot about how doomed the newspapers are – that their supporters think the only way to save them is by breaking the law. Having written this paragraph, Simon should then draw the obvious conclusion – that there is no legal way to save the newspapers. But he is deep in denial. He has a strong emotional attachment to the newspapers, so contemplating their demise causes him too much pain – so he escapes into fantasy:

You must act. Together. On a specific date in the near future—let’s say September 1 for the sheer immediacy of it—both news organizations must inform readers that their Web sites will be free to subscribers only, and that while subscription fees can be a fraction of the price of having wood pulp flung on doorsteps, it is nonetheless a requirement for acquiring the contents of the news organizations that spend millions to properly acquire, edit, and present that work.

No half-measures, either. No TimesSelect program that charges for a handful of items and offers the rest for free, no limited availability of certain teaser articles, no bartering with aggregators for a few more crumbs of revenue through microbilling or pennies-on-the-dollar fees.

I’m familiar with “a miracle might happen” reasoning. I went through a lot of this when my father died: “The doctor says there is no hope, but a miracle might happen.” Of course, now, looking back, I can clearly see I was deluding myself. Simon is at an earlier stage. He has not yet started mourning because he believes the thing he loves can still be saved.

He then indulges a fantasy in which he is someday regarded as a hero (I assume he will someday be embarrassed that he wrote this):

And when the Justice Department lawyers arrive, briefcases in hand, to ask why America’s two national newspapers did these things in concert—resulting in a sea change within newspapering as one regional newspaper after another followed suit in pursuit of fresh, lifesaving revenue—you can answer directly: We never talked. Not a word. We read some rant in the Columbia Journalism Review that made the paywall argument. Blame the messenger.

Especially stupid is his dismissal of the idea that online ad revenue will someday be greater than what it is now:

Clearly, the product still moves. But to what purpose, when more and more readers rightly identify the immediate digitized version as superior, yet pay nothing for that version, and online advertising simply doesn’t deliver enough revenue?

He then makes a ludicrous comparison:

For the first thirty years of its existence as America’s primary entertainment medium, television was—after the initial purchase of the set itself—provided at no cost to viewers, instead subsidized by lucrative ad revenues. The notion of Americans in 1975 being asked to pay a monthly bill for their television consumption would have seemed farcical. Yet in the ensuing thirty years, we have become a nation that shells out $60, $70, or $120 in monthly cable fees; indeed, whole vistas of programming exist free of advertising revenue, subsidized entirely by subscriptions.

So, somehow the fact that Americans are willing to pay money to get more content proves that they are willing to pay money to get less content.

Maybe the most funny thing in his whole essay is where he compares the brave, visionary geniuses who run the television industry with the stupid, crass, profit-obessessed buffoons who run the newspaper industry:

But unlike television, in which industry leaders were constantly reinvesting profits in research and development, where a new technology like cable reception would be contemplated for all its potential and opportunity, the newspapering world was content to send its treasure to Wall Street, appeasing analysts and big-ticket shareholders. There was no reinvestment in programming, no intelligent contemplation of new and transformational circulation models, no thought beyond maximized short-term profit.

Oh, those damn newspaper publishers! Always obsessed with short-term profit! Why can’t they be more like the noble, far-seeing statesmen who run the television industry?

But here is the saddest paragraph of all, the one that truly shows how much Simon is gripped by the past, rather than what is to come:

In the newspaper industry, however, the fledgling efforts of new media to replicate the scope, competence, and consistency of a healthy daily paper have so far yielded little in the way of genuine competition. A blog here, a citizen journalist there, a news Web site getting under way in places where the newspaper is diminished—some of it is quite good, but none of it so far begins to achieve consistently what a vibrant newspaper, staffed with competent, paid beat reporters and editors, once offered. New-media entities are not yet able to truly cover—day after day—the society, culture, and politics of cities, states, and nations. And until new models emerge that are capable of paying reporters and editors to do such work—in effect becoming online newspapers with all the gravitas this implies—they are not going to get us anywhere close to professional journalism’s potential.

David Simon will only respect New Media once New Media is able to replicate what Old Media gives us everyday. And here, possibly, is the one and only thing that Simon and I agree on: New Media will never replicate what Old Media gave us.

This is reality: the newspapers will largely die, and nothing is going to take their place. There will be other forms of media in the future, but they won’t look or act like what the newspapers did.

Here is the only passage in the essay where he correctly notes that the newspapers have been dying for a long time, and the Internet is only speeding a long-term, secular trend:

Last, and perhaps most disastrous, the rot began at the bottom and it didn’t reach the highest rungs of the profession until far too much damage had been done. As early as the mid-1980s, the civic indifference and contempt of product inherent in chain ownership was apparent in many smaller American markets. While this was discussed in some circles, usually as a matter of mild rumination, little was done by the industry to address a dynamic by which men in Los Angeles or Chicago or New York, at the behest of Wall Street, determined what sort of journalism would be practiced in Baltimore, Denver, Hartford, or Dallas. If you happened to labor at a newspaper that was ceding its editorial ambition to the price-per-share, it may have been agony, but if you were at the Times, the Post, The Wall Street Journal, or the Los Angeles Times, you were insulated.

I’ve rarely read an essay where the author’s fear of change was so near the surface, so present in every sentence.

There are at least 2 ways to attack Simon’s ideas. One is offered by Brad Delong, who makes the case that the newspapers are often full of lies and misrepresentation, and so he generally finds his favorite blogs more interesting:

I am 6.5 times as likely to be happy that I have spent my time reading one of the top stories in my RSS reader as I am to be happy that I have spent my time reading one of the top stories printed by the New York Times and the Washington Post.

To some degree this is the “Daily Me” phenomenon: my RSS reader is now tuned to bring me things written by people I learn from, while the editors of the Washington Post and the New York Times select stories on the basis of… bizarre and incomprehensible algorithms. To some degree this is because this is because the WP and the NYT are pitched at a level far below the one I want to read at, in part because they think their audience is less clued-in than I am (Peter Baker and Helene Cooper; Dan Balz) and in part because their reporters are out of their depth (i.e., Tobin Harshaw). In part this is because they are unprofessional (i.e., Mark Mazzetti and David Johnston not situating their article in its proper context in the journalistic enterprise begun by The One-Percent Doctrine). To some degree this is because their reporters know nothing about how representative their anecdotes are and so have absolutely nothing interesting to say (Michael Wilson and Solomon Moore; Michael Rosenwald)….

But there is a bigger problem: the army of small start-ups that want a piece of the New York Times’s market. Last year I spent $30,000 to start a new political web site. That is, I spent a small sum, and attracted a small audience. But there are thousands of entrepreneurs like me. Collectively, we spend millions each year, trying to establish sites that can take market share from existing newspapers. And every dollar we spend is a torpedo aimed at the old institutions of media.

In the old days, it took millions of dollars to set up a new newspaper. USA Today took 15 years just to break even. The large scale of the needed capital acted as a barrier to entry, and protected the newspapers from competition. Now a new web site can get going for just $100,000 (I’ve previously written about the costs of websites). Nothing can bring back the old days, when the newspapers could generate high margins, safe behind the barriers that kept competition limited. But David Simon doesn’t see this. Consider the static, unchanging nature of the world in which he thinks he’s living in:

Antitrust considerations prohibit the Times and The Post, not to mention Rupert Murdoch or the other owners, from talking this through and acting in concert

See, in Simon’s world, all of the owners of all of the media companies are known, and could be called together to meet, if only it weren’t for antitrust considerations. What Simon doesn’t see is the vast army of entrepreneurs who are just off-stage, waiting for the right conditions, ready to strike.

My world is very different from Simon’s world. Here’s the world that I live in:

1.) Consumers do not want to pay for online content, so if the newspapers put up pay walls, then entrepreneurs like myself will jump up and down with pure joy, and call in all our favors, to put together the funding for new companies to replace the old newspapers.

2.) However, if a miracle happens, and suddenly consumers are willing to pay for online content, then entrepreneurs like myself will jump up and down with pure joy, and call in all our favors, to put together the funding for new companies to replace the old newspapers.

Either way, more funding will continue to be invested in online media ventures, and the endlessly growing supply will drive down everyone’s margins. More so, we are in for a prolonged period of over-supply, which will drive down everyone’s margins very low, so those businesses that were built around the assumption of healthy margins (and that would include the major newspapers) are going to go bankrupt. A prolonged period of very low margins will mean that only those ventures that are built to survive very low margins will, in fact, survive. And, obviously, the web-based ventures, free of the costs of printing plants and distribution networks, sometimes even free of having an office, can get by on some extremely narrow margins.

There are no scenarios in which the newspapers survive.

Jory Des Jardins writes with nostalgia about what print media used to be like:

I’m sure if I had stuck it out a bit more and not taken a new media job five years in I might have made more of a go of it. But things discouraged me about traditional media. It had an established power structure that made it nearly impossible to get noticed. I wrote things I was proud of on the side, while editing more established writers in the waking hours and writing uninspired copy as a freelancer. But I hadn’t really established a voice that was worthy of cashing in favors from editor friends of mine.

…I’d only hoped I would be able to pursue this growing interest in a model counter intuitive to the people I used to work for. A model that democratized media, to a large extent, and made possible a notion terrifying to most people like me who hinged their self-worth on “making it” in traditional media: that there’s a whole helluva lot of talent out there and it ain’t all on the Hearst, Conde Nast, or Time Warner payrolls. Traditional media just took in whom they could fit, who matched the pedigree, or who had an uncle who could introduce you to the editor, or who had this random bit of luck and was seen for what she could produce, and sometimes bonafide talent. But so may others could not even make it to the filter, let alone make a living at it.

Back in my print days, there was something so alluring about being one of a few selected, whose name would be committed to print. And there’s a whole community of folks, I’m sure, who still hold print sacred. I’m one of them, even as someone whose name has only made it via her work in new media. I fretted so long about being a part of it that even while it’s suffering I promise to someday return — if it will have me. Many bloggers who are doing just fine building platforms online still look at the book deal as the summit of success. I’ll know I’m fully evolved when I couldn’t care less about hardcover, softcover, or any cover.

Traditional media was hierarchical and often unfair. One’s actual talent was often overlooked due to the personal politics inside each organization. It is hard for me to feel nostalgia for the old model, though possibly I feel a slight nostalgia for the great era of photojournalism, when people like Henri Cartier-Bresson were at work, an era which was funded by the mass circulation magazines.

But all business models die, eventually. In the modern era, we’ve achieved the freedom to constantly re-invent ourselves. While this is occasionally stressful, it is a freedom that people have spent centuries fighting to establish. And this freedom is one of the most exciting aspects of being alive during this era. Karl Marx has a reputation for being critical of market based economies, but few people described our era as perfectly as he did:

Constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation distinguish the bourgeois epoch from all earlier ones. All fixed, fast frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into the air, all that is holy is profaned, and man is at last compelled to face with sober senses his real condition of life and his relations with his kind.

If one’s intelligent and thoughtful analysis of a situation has determined that there is an opportunity worth pursuing, then I think the best strategy is to start the pursuit and figure out things as one goes. Each problem domain has a thousand issues that are specific to it, and one has to become the expert of those thousand issues if one is to do well, but there is no way to become expert until one is focused on that domain and working with it everyday. I’m pleased to see 37 Signals says the same thing:

Why don’t we just call plans what they really are: guesses. Unless you’re a fortune teller, long-term business planning is a fantasy. There are just too many factors that are out of your hands: market conditions, competitors, customers, the economy, etc. Writing a plan makes you feel in control of things you can’t actually control.

In fact, you might as well change the name of your business plans to business guesses, your financial plans to financial guesses, and your strategic planning to strategic guesses. Do that and you’ll probably start putting a lot less weight into those things.

Ian MacMillan, Wharton professor of innovation and entrepreneurship, and Rita Gunther McGrath, a professor at Columbia Business School, believe “the only plan is to learn as you go.” They say 1) conventional approaches and planning don’t work when you’re trying to get into new spaces, 2) assumptions are what get most companies into trouble, and 3) it’s not failure that companies need to avoid, but rather “failing expensively.”

Keith Casey writes a brilliant post about the need for technology experience on a team launching a firm that involves technology. This is a post that I wish I’d written, because it says a lot of things I’ve been thinking for the last year or two:

If you’re selling the best hamburger ever or making signs or running a franchise, most of the time, your technology can be an afterthought.

But if you’re building a social network, creating a new ad network, building a mobile phone platform or any number of other things, the technology is the core to what you’re doing.

That has some major implications. It means:

• First, you have to consider it from day one. You have to know how it fits with what you’re doing. What goes into it, what doesn’t, and get an idea of your budget (time, $’s, etc).
• Next, you need a technologist in the mix to figure out the boundaries. You need to know what is and isn’t possible and how to approach the process… more importantly, you need to know how to approach things, schedule things, and what “It’s 90% done!” really means. ;)
• Next, you need a technologist in the mix to filter the candidates. When you don’t know what you’re doing (fact, not judgement), you need someone who does to find the right people to hire and filter out the posers.
• Finaly, you don’t outsource it. I don’t mean offshoring, but that could be included. I mean the people who know your product – because they’re building it! – should be part of your organization.

Failure to have a serious tech person involved causes some terrible decisions.

For example, I recently tracked the progress of an angel-funded startup:

• First, since they lacked any technical background, the sole developer-turned-investor promptly developed the entire application… in ColdFusion.
• After that caught on fire and sunk into the swamp, they decided to rebuild it in .net… er… Rails… er… PHP. Their “technologist” didn’t have any experience in any of them and was therefore open to anything.
• Next, since they developed their “architecture” (aka PHP), they began recruit for PHP-types. Since none of them had any experience whatsoever in PHP, they hired the first PHP’ers that could pass the single-round phone screen.
• Finally, they called the ColdFusion version of the application a “reference implementation except for the wrong parts” and didn’t bother writing the spec as a result.

Fast forward a few months and inside reports say the team is in shambles, the project is months late, and major portions of it are being rebuilt from the ground up.

This strikes me as obvious, so I’m astonished when I run into a differing attitude. Yet just in the last year, I’ve had 3 different clients or potential clients who wanted to build online social networks and who thought they could leave the details of building the website to an outside team.

Sarah Lacy points out that risk aversion and short term thinking are overwhelming the tech industry:

I think there’s also a mindset problem when it comes to venture capital. Investors and many entrepreneurs are no longer focused on building companies and taking real risk. Paul and I did another clip yesterday about Facebook, where he argued it doesn’t make sense for Facebook to stay a stand alone company anymore because the ad markets are going to be locked up for 24 months.

I love P-Ked, but what the hell does a 24 month contraction have to do with building a company? Especially a company that’s still private, growing like mad, has loads of money in the bank and is essentially break even? We’ve got to break ourselves from this quick-fix, quarter-to-quarter mentality of Wall Street– and increasingly Silicon Valley– if any next great tech companies are going to be formed. The very reason great companies are typically started during downturns is they’re started by people who aren’t obsessed with timing a market. They’re started by real entrepreneurs.

In her BusinessWeek column, she also points out that it’s been a bad decade for tech focused venture capital:

But check your calendar. We’re closing in on 2009. And even if the financial system on which VCs depend for returns averts collapse, it’s still in for a few years of serious wound-licking and stepped-up government regulation. Ask anyone in Silicon Valley whether Sarbanes-Oxley had a chill on IPOs.

This realization hit me like a ton of bricks during a recent trip to Boston, coincidentally the same day Lehman Brothers (LEHMQ) filed for Chapter 11. I was sitting down with Tom Crotty, of the venerable Battery Ventures, which had a unique approach to the tech meltdown. Battery, full as it is with more financial gurus than Valley-style engineers, responded by diversifying from traditional startup investments into so-called Private Investments in Public Stocks (PIPEs). Battery also capitalized on the consolidation of cash-rich but fragmented industries.

Crotty hopes the atypical investment approach will insulate Battery, but he nonetheless sees a reckoning coming—specifically toward the end of 2010. He points to 2000 as the “last really good year” for venture capital. Looking back, “the one-year, three-year, and five-year indexes are all going to be terrible,” Crotty says. “And once 1999 and 2000 fall off, the 10-year will be, too. It’s going to be painful.”

But she also points out that there are new markets out there waiting for investment:

That won’t be such a bad thing. After a painful period of forced reckoning with bad past decisions, VC will emerge stronger. Entrepreneurs and the larger U.S. economy will still need venture capital. Some venture capitalists will engineer a new way to make venture-style returns, like Battery Ventures did eight years ago. Many will turn to emerging markets such as India and China. There will be even fewer Google-like (GOOG) home runs. Then again, a leaner, smarter industry may not need as many.

She puts needed qualifiers around the idea that downturns are good for innovation:

To those of you who say platitudes like: “Downturns are GREAT times for innovation!” yes, that’s true, but you are missing the point. This isn’t just the cause of a downturn. This is a structural change in the industry that needs to occur and has been building for nearly a decade. There is far too much money, tech is maturing, and clean tech isn’t mature enough.

Real innovation can not be done in 90 days. Real innovation does not conform to quarterly profit reports. Real innovation comes from those people who can see a potential business when it is still way out on the horizon, and then find ways to reduce the risk of getting from here to there:

People think entrepreneurs are risk-loving. Really what you find is successful entrepreneurs hate risk, because the founding of the enterprise is already so risky that what they do is take their early resources, the small amounts of capital that they have, whatever assets they have, and they deploy those resources systematically, eliminating the largest risk first, the second-largest risk, and so on, and so on.

Jeff Bezos

In the title of this post I used the word “coward”. That is a strong accusation. It is deserved by those who feel the normal risk minimization of entrepreneurs is no longer enough to allow a business to be trusted with money. It is deserved by those who now only place sure bets, and only short term ones, too.

The tech industry, especially the web portion of it, has been infected with speculative excess. During the South Sea Bubble of 1720 financial manipulators raised money for “a company for carrying out an undertaking of great advantage, but nobody to know what it is” and today we have similar ill dealings: “The company will ‘let its purpose and presence be known’ as soon as they reach their goal of raising a Series A capital round of $10 million”.

For the true entrepreneur, the goal is always MR4MR: minimum risk for maximum reward. But they have bold goals that demand big risks be taken — they then set out to find the least risky way of achieving that goal. This applies to many fields. Shakespeare, Napoleon, Thomas Edison and Bill Gates had this common: they were all successful at minimizing the risks they had to run to achieve their goals, yet their goals were so ambitious that even the least risky path still entailed big gambles. The NASA team that first sent men to the moon was fanatic about reducing risk, yet still the mission was among the riskiest endeavors ever undertaken by the human race.

The driving force of the digital revolution were two fold: the increasing power of computer chips, and the dramatic fall in the price of communications, due to breakthroughs in multiplexing. The pulse of change for both has grown slower. Wal-Mart, Fed-Ex, Google and Twitter were all instances of a creative soul finding that the digital revolution allowed a new way to organize human activity. Such surprising alterations to the existing scene will continue as long as there is still growth in computing power and communicative capacity, though the appearance of such novel businesses can be expected to slow as innovation in the underlying technology does.

We should not allow the term “innovation” to be killed by its over-association with the industries that grew during the last few booms. There are other fields desperate for the intervention of  the entrepreneur: green energy, green transport, recycling, lower impact production methods, the education of adults, the teaching of children, child care, environmental clean up. We will soon see a new wave of change in the oldest industry, I mentioned community supported agriculture in the post where I made predictions, in some sense no economic activity is more important than how the human race feeds itself. And at some point in the next 50 years we will see considerable breakthroughs in the way the human race relates to living things on earth, as our understanding of the underlying rules of DNA come into focus.

Downturns are a great time for innovation, but the invitation is only there for those who are thinking long term.

Almost every complaint that Frank Sommers has with JavaFX is something that I am pleased about. Apparently he wants Sun to focus on its current customers, rather than on its future customers. To me, that attitude is what often leads to bankruptcy. Smart, well manage companies often manage themselves rationally to bankruptcy. To my mind, JavaFX is Sun’s attempt to break out of that death spiral, to do something new. I am hoping this will prove as much of a new and positive direction for Sun as the iPod proved for Apple.

Frank Sommers writes:

In spite of a thriving Swing community, and despite Swing’s large user base, Sun has re-focused its efforts around JavaFX over the past year-and-a-half, at the expense of Swing development. The most visible aspects of that change in focus is that many of the most experienced Swing developers left the company, such as Chet Haase (see Artima’s interview with Chet Haase), Hans Muller, or Scott Violet. The important Swing-related JSRs have also been stale for a long time now: the latest JSR 295 and 296 updates occurred in June, 2006, according to the JCP’s Web site.

Most recently, SwingX contributor Jeanette Winzenburg wrote on the project’s online forum that Sun all but abandoned its support for SwingX, because its engineers are busy working on JavaFX:

… the official terminus is “frozen” – but as that happened already in July and everybody in the core team is well over their ears into FX it looks rather permanent to me…

I think it quite funny that [Sun engineer Richard Bair argues] in favour of that support/evolution mainly by stating that nobody (definitely not the experienced engineers/architects) at Sun has any time for it – because you all are wasting it it on FX (biased me again ) Fancy demos – especially in a language unrelated to the project at the center of this forum’s topic – are just that: fancy demos. They don’t solve any real world problems. Chet’s termed the effort to produce them so cutely as CDD – Conference Driven Design.

Winzenburg’s note seems to echo the sentiment of many experienced Swing developers. JGoodies’ Karsten Lentzsch noted, for example, that:

I’m worried that Scott Violet, Chet Haase, and now Hans Muller left Sun. AFAIK Jeff Dinkins isn’t working on Swing anymore, and Amy Fowler has changed her focus too.

None of my Java customers is interested in JavaFX. They want to get their Swing UIs running. They are looking for Java desktop blueprints, for a cook book that explains how to address the everyday Swing task. My customers were excited about the JSR 296 (Swing app framework) and 295 (beans binding). But now it’s unclear what’ll happen to these projects. I don’t see Sun’s Swing strategy.

If you look at the JavaOne 2006, 2007 and now 2008 what have we got for Swing, or in other words for the Java deskop *now*? A cool demo (Aerith) in 2006, more cool demos in 2007, and JavaFX in 2008. All my customers do the “boring” stuff: editors, forms, navigation, buffering, data binding, layout. That’s how they make money. Who cares about them? They need a framework, better components, not animated 3D flipping images.

And Kirill Grouchnikov recently wrote that:

I don’t know what the future holds for JavaFX. Sun is heavily betting on it… All I know is that JavaFX has effectively halted all core Swing development. Over the last 18 months, we have seen significant architectural initiatives (JSR 295 and JSR 296) changing leads and frozen. All client-facing improvements in Java2D, AWT and Swing in Java 6 Update 10 are completely driven by the requirements of JavaFX.

…Do you agree that Sun’s recent focus on JavaFX has hurt the cause of client-side Java?

I’ve never, ever known a start-up that stuck to its business plan. Therefore, I think business plans are worthless. It’s possible that they are worse than worthless: they create a false sense of certainty and thus secretly increase risk.

From 37Signals:

It begs the question: What’s the point of a business plan if it’s obviously a fantasy that has nothing to do with reality? If these projections are just numbers pulled out of thin air, why pay any attention to them? Wishful thinking doesn’t really benefit you in any way.

It seems like most people write business plans just because they think they’re supposed to. They’ve been told a business plan is what a “real” business needs so they go ahead and start making shit up. Then reality happens and the whole thing goes out the window.

Sure, thinking about the future can help. But writing it down and thinking it’s any sort of plan is foolish. The truth is you’re not going to know what to do until you’re actually doing it.

Seems to me the only point of a business plan is to try to get money from venture capitalists. In that scenario, you lie to them and pretend to be confident about your plan, and they lie to you and pretend that they trust you. Seems to me a bad way to go, all around.  I’d like to think there is a way to build up long term relationships between innovators and funders, but, I admit, there will always be the unique, breakthrough technology that must be funded even when the VCs deeply distrust the entrepreneur.