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.

The luxurious life of a consultant

The first clue that my mental picture of consulting was off came with “training” in Munich. I expected instruction in Excel programming, data analysis, and business theory. Instead, Munich turned out to be little more than a week long social outing with other recently matriculated consultants and analysts within the BCG’s European branches. We donned name tags, shook hands, and drank often. Classes were fluffy, and mostly consisted of discussion of high-level, almost philosophical topics. I got along well — as both an American and a member of the Dubai office, I was doubly foreign and therefore double the curiosity.

After a pleasant week of pseudo-partying, I returned to Dubai and was assigned to writing case proposals. In the consulting business, it is standard practice for clients to write requests for proposals, describing the question they would like answered. The consulting firm in turn writes a case proposal: We will answer A by having Consultant B do X, Y, and Z. A well written case proposal promises much, but is deliberately vague about what concrete things the consultants will produce.

Case proposals were despised by the rank and file — one had a dozen bosses, unclear objectives, and virtually no coordination with co-workers. But in one sense, the proposals were good practice for real case work. Both involved stretching reality to fit whatever was assumed the client desired.

Despite having no work or research experience outside of MIT, I was regularly advertised to clients as an expert with seemingly years of topical experience relevant to the case. We were so good at rephrasing our credentials that even I was surprised to find in each of my cases, even my very first case, that I was the most senior consultant on the team.

I quickly found out why so little had been invested in developing my Excel-craft. Analytical skills were overrated, for the simple reason that clients usually didn’t know why they had hired us. They sent us vague requests for proposal, we returned vague case proposals, and by the time we were hired, no one was the wiser as to why exactly we were there.

I got the feeling that our clients were simply trying to mimic successful businesses, and that as consultants, our earnings came from having the luck of being included in an elaborate cargo-cult ritual. In any case it fell to us to decide for ourselves what question we had been hired to answer, and as a matter of convenience, we elected to answer questions that we had already answered in the course of previous cases — no sense in doing new work when old work will do. The toolkit I brought with me from MIT was absolute overkill in this environment. Most of my day was spent thinking up and writing PowerPoint slides. Sometimes, I didn’t even need to write them — we had a service in India that could put together pretty good copy if you provided them with a sketch and some instructions.

Kevin Kelly on the The Shirky Principle

“Institutions will try to preserve the problem to which they are the solution.” — Clay Shirky

Kevin Kelly says:

In a strong sense we are defined by the problems we are solving.

This reminds me of what Thomas Kuhn said about science: we adapt new paradigms in science, not because one is more accurate than the last, but because we find the new paradigm more useful, and its usefulness has to be defined entirely in terms of the problems we would like to solve.

Shirky himself says:

In 1988, Joseph Tainter wrote a chilling book called The Collapse of Complex Societies. Tainter looked at several societies that gradually arrived at a level of remarkable sophistication then suddenly collapsed: the Romans, the Lowlands Maya, the inhabitants of Chaco canyon. Every one of those groups had rich traditions, complex social structures, advanced technology, but despite their sophistication, they collapsed, impoverishing and scattering their citizens and leaving little but future archeological sites as evidence of previous greatness. Tainter asked himself whether there was some explanation common to these sudden dissolutions.

The answer he arrived at was that they hadn’t collapsed despite their cultural sophistication, they’d collapsed because of it. Subject to violent compression, Tainter’s story goes like this: a group of people, through a combination of social organization and environmental luck, finds itself with a surplus of resources. Managing this surplus makes society more complex—agriculture rewards mathematical skill, granaries require new forms of construction, and so on.

Early on, the marginal value of this complexity is positive—each additional bit of complexity more than pays for itself in improved output—but over time, the law of diminishing returns reduces the marginal value, until it disappears completely. At this point, any additional complexity is pure cost.

Tainter’s thesis is that when society’s elite members add one layer of bureaucracy or demand one tribute too many, they end up extracting all the value from their environment it is possible to extract and then some.

The ‘and them some’ is what causes the trouble. Complex societies collapse because, when some stress comes, those societies have become too inflexible to respond. In retrospect, this can seem mystifying. Why didn’t these societies just re-tool in less complex ways? The answer Tainter gives is the simplest one: When societies fail to respond to reduced circumstances through orderly downsizing, it isn’t because they don’t want to, it’s because they can’t.

In such systems, there is no way to make things a little bit simpler – the whole edifice becomes a huge, interlocking system not readily amenable to change. Tainter doesn’t regard the sudden decoherence of these societies as either a tragedy or a mistake—”[U]nder a situation of declining marginal returns collapse may be the most appropriate response”, to use his pitiless phrase. Furthermore, even when moderate adjustments could be made, they tend to be resisted, because any simplification discomfits elites.

This is very true:

Indian and Pakistani firms are almost universal in their awfulness- horror stories abound. Part of this is a cultural mismatch- it’s tougher to work with an Indian firm than a European or American firm, simply because the cultures are different. People are less willing to tell you when something is going wrong, far less likely to give reasonable estimates, and generally less competent. India has had wages go up quite a bit, so the people you can get for $10/hour today are not the people you could get for $10 fifteen years ago.

China may pay a price for its heavy handed tactics. Frankly, I’m surprised that India hasn’t already pulled way ahead of China. India offers a legal environment that is familiar to Western multi-national corporations.

According to the Indian Financial Chronicle, Dell told prime minister Manmohan Singh as much in person, with Singh revealing details of the meeting after speaking to the country’s planning commission about spurring the “development of hardware and parts of the computer industry”.

“This morning I met the chairman of Dell Corporation,” Singh reportedly told the commission. “He informed me that it is buying equipment and parts worth $25 billion from China. It would like to shift to [a] safer environment with [a] climate conducive to enterprise, with [the] security of [a] legal system.”

To my surprise, I’ve found that clients who truly want to make money are the best clients. I guess at some point I might have worried that such people would be ruthless, but I have not found it so. Clients who want to make money accept my best ideas. Clients who want to make money tend to be honest about what they want. Clients who want to make money tend to stay calm when things are bad – they are less emotional. Clients who want to make money do not sabotage their most successful projects.

However, clients who want to make money are rare. Sad to say, most of the clients I’ve had have been interested in acclaim. Most of my clients have been born into wealth. They grew up rich, so money is not much of a draw for them. What does appeal to them is becoming a little bit famous. During this last decade a certain amount of glamor attached to web startups, so they were drawn in – not so much to get rich, but to become famous. I found that these people lie about their motives – they will hire you and they will tell you they want to make money, but they will focus on areas, like music, which are glamorous but which get way too much investment. They avoid boring industries that might be highly profitable. They stifle money making ideas, and they never give an honest reason for doing so.

For all these reasons, I found this bit interesting:

You see, there are three types of people who want to make money:

- Those who want to be looked up to

These are the people who talk about having expensive cars, living in a big house, or having a hot model girlfriend. I will never do business with these type of people, because they don’t really want money. They are insecure and unsure of themselves and they think that having money is going to change this. The problem is that these people, once they get into a position of power, they will lose their hunger for money. Once they are being looked up to, they will lose their interest in the money and they will fail you.

You can see these people in that they want people to recognize them, they want people to ask their advice, they want people to pay attention to them. Fame and popularity will always be first for these people, and money will take a secondary role.

- Those who want to be comfortable

These people are even more dangerous because there are so many of them. They are poor, they are broke, and all they want is not to be broke. They say that they want to be rich, but once they start making $6000 a month and they can buy all the toys they want, and can have a kid comfortably, they are going to get incredibly lazy. These people are employees masquerading as entreprenuers. They don’t want to be rich, they just don’t want to be poor.

You can recognize these people in that they dream of getting rich and then retiring to some beach to drink cocktails and doing nothing. They work so that they don’t have to work, but that doesn’t work.

- Those who want to have more money

These are the people who see making money as a game, and can’t ever stop. All they want to do is make more and more money, and the toys and the fame are completely incidental to this. Do business with these people, partner with them, because when there is an opportunity, they will go along with it. They will not drop out of the game because they have got enough, and they will not drop out once they make a certain amount.

These are the people who don’t care about their dress or about what car they drive or that people know their name. And these are the people that you do business partnerships with.”

Create a culture of openness and welcome dissent:

Internal constructive critics are your best friends — too often, founders are blinded by their own enthusiasm for their creative vision and then are surrounded by sycophants, kissing up. Founders who fall out of touch rapidly lose their ethical bearings. At Intel, founder Robert Noyce and Gordon Moore did not look for sycophantic followers in selecting the brilliant, contentious, but relentlessly honest Andy Grove as their colleague and successor. Similarly, Craig Barrett and Paul Otellini have consistently fought for different points of view internally — without undermining the enterprise, and always reinforcing Intel’s self-critical core ethic.

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.

Marco Arment says software patents are bad for the economy:

I’ve considered the arguments by Stallman, John Gruber, and Tim Bray on software patents, and I side with Stallman in that software patents are inherently problematic and are a net loss for society.

The major difference in their arguments is that, while all three mention the realities and dysfunctions of the patent system, Stallman focuses strongly on the difference between what it’s intended to do and what actually happens. He also illustrates the reality of trying to develop any nontrivial software in a patent-filled landscape.

Many argue that inventors should be protected and incentivized by patents, otherwise they would stop inventing. It’s a nice theory, but it doesn’t hold up for software.1

We can argue about what the system should do, or what it theoretically does, or what it ideally does, but that’s an academic exercise at best. To evaluate whether software patents are a net gain for society, we need to evaluate their reality, which differs quite a bit from most arguments for why patents are necessary.

I’d go further. Most patents are bad most of the time. They are dangerous and need to be limited, no matter what industry we are talking about.

Patent is a government monopoly. In a liberal society, monopolies are usually seen as bad things. Monopolies, in general, can lead to non-optimal allocations of resources, and when the monopoly is defended by the government there is no way for any entreprenuer, no matter how talented, to offer a competitive alternative. Monopolies encourage rent-maximazation rather than innovation (in other words, the owner of the monopoly simply sucks up as much money as possible, and feels little need to innovate or reinvest their profits).

The Founding Fathers of America were on intimate terms with the harm that arose from government granted monopolies. At a stretch, we could interpret the whole American Revolution as a patent dispute, for it was when the British government granted a monopoly on trade to British merchants that the Americans were first moved to revolt. One of the first and largest American protests was the Boston Tea Party of 1773, during which the British East India Company, a large multi-national corporation that, at that time, had dealings in almost every nation on Earth, had its Boston inventories of tea destroyed. (In this case, the East India Company had a monopoly on “tax free” trade, whereas all American merchants had to pay an import tax, and therefore were at a competitive disadvantage. For instance, in 1768, John Hancock’s ship ‘Liberty’ was seized by customs officials and he was charged with smuggling.)

Because the Americans had suffered so much at the hands of government granted monopolies, they were commited to placing extremely careful limits on their newly independent government’s ability to grant monopolies. Thus in Article 1 of the Constitution, Section 8, they wrote:

“To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries”

The purpose of this section was likely meant to be two-fold: to allow government granted monopolies in one, limited, case, and to ban them in all other cases. Although the monopoly abuses of the Stuart Kings are now forgotten, they were vivid for the Founding Fathers In fact, in 1774, when the government of Virginia asked Thomas Jefferson to write up its formal letter of complaint to the British King, Jefferson starts off with the early history of Virginia and the Stuart Kings: “A family of princes was then on the British throne, whose treasonable crimes against their people brought on them afterwards the exertion of those sacred and sovereign rights of punishment reserved in the hands of the people for cases of extreme necessity.” That is to say, the King had to be killed because he commited great crimes against the people and oppressed them politically and economically. Among those crimes was an extreme abuse of the government’s ability to sell monopolies to the hightest bidder, as described in this passage from Christopher Hill’s book Century of Revolution:

It is difficult for us to picture for ourselves the life of a man living in a house built with monopoly bricks, with windows of monopoly glass; heated with monopoly coal, burning in a grate made of monopoly iron. His walls were lined with monopoly tapestries. He slept on monopoly feathers, did his hair with monopoly brushes. He washed his face with monopoly soap, his clothes in monopoly starch. He dressed in monopoly lace, monopoly linen, monopoly belts, and monopoly gold thread. His hat was monopoly beaver, with a monopoly band. His clothes were held up with monopoly belts, monopoly buttons, and monopoly pins. They were dyed with monopoly dyes. He ate monopoly butter, monopoly currants, monopoly red herrings, monopoly salmon, and monopoly lobsters. His food was seasoned with monopoly salt, monopoly pepper, and monopoly vinegar. Out of monopoly glasses he drank monopoly wines and monopoly spirits; our of pewter mugs made from monopoly tin he drank monopoly beer made from monopoly hops, kept in monopoly barrels or monopoly bottles, sold in monopoly-licensed ale-houses. He smoked monopoly tobacco in monopoly pipes, played with monopoly dice or monopoly cards, or on monopoly lute strings. He wrote with monopoly pens, on monopoly paper; read (possibly through monopoly reading glasses by the light of monopoly candles) monopoly printed books, including monopoly Bibles, printed on paper made from monopoly collected rags, bound in sheepskin dressed with monopoly alum. He exercised himself with monopoly golf balls and in monopoly licensed bowling alleys. Mice were caught in monopoly mousetraps.

…Monopolies interfered with the normal channels of trade. By the late 1630s, the economy was suffering. “If such a system had been maintained,” Mr Unwin wrote of Stuart economic regulations in general, “the Industrial Revolution would never have happened.”

Against this the citizens of the British Empire revolted, killed their King, and, after an interlude, passed the English Bill of Rights. Jefferson’s point was that the rights described in the Bill Of Rights applied to the colonists as much as to the citizens in the home country, but the British Parliment disagreed. Therefore when the colonists won their independence and set up their own government, they were keen on ensuring for themsevles certain rights, and protecting themselves from certain abuses, among them the abuses of monopoly.

Article 1, Section 8 of the Constitution makes clear that the American Federal government will not be handing out monoplies on tin, rags, golf balls and butter. Monopolies will be reserved for one limited case: “securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries”. The Founding Father’s knew that government granted monopolies were dangerous, and needed to be carefully limited. This is a bit of wisdom that the US government has largely forgotten in recent decades. Patents are dangerous, and need to be carefully limited. For many industries, they should never be allowed.

How to lose, in this case, Sun losing out to Linux:

Linux the operating system project completely confused Sun, even the Sun engineers, who you would have thought at least understood what Linux was trying to do. The best example of this is the wonderful email exchange between Linux kernel hacker David Miller, who at the time was one of the Linux Sparc maintainers, and Bryan Cantrill, a Solaris engineer. It’s worth quoting:

David Miller wrote (at the end of a long email explaining how Sparc Linux used cache optimizations to beat Solaris on performance):

“One final note. When you have to deal with SunSOFT to report a bug, how “important” do you have (ie. Fortune 500?) to be and how big of a customer do you have to be (multi million dollar purchases?) to get direct access to Sun’s Engineers at Sun Quentin?  With Linux, all you have to do is send me or one of the other SparcLinux hackers an email and we will attend to your bug in due time.  We have too much pride in our system to ignore you and not fix the bug.”

To which Bryan Cantrill replied with this amazing retort:

“Have you ever kissed a girl?”

Talk about missing the point and underestimating the competition. You can read the entire exchange.

Bryan Cantrill gets to sound macho by implying he spends more time with women than Miller, but Cantrill’s company has ceased to exist. Hubris leads to defeat.

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.

Bruce Eckel on the myth of management as a science:

He intersperses the history of management with the story of his own experience in a consulting firm, and both come out looking pretty bad. Indeed, it appears that management “science,” starting with Frederick Winslow Taylor (the “time and motion studies” guy) up to and including all the “gurus” like Peter Drucker, Tom Peters and the like, is stock full of charlatans who are happy to cherry-pick data (or just as often, make it up) and present it as science. What’s dismaying is that the original business schools (Harvard and Yale) were founded, apparently, in response to Taylor’s work and upon his principles — virtually all of which have been since discredited and discovered to be based on sham data.

What all of the later “pioneers” of management learned from Taylor was not the “science” part of his feeble attempts to turn management into science, but rather his ability to manipulate his listeners into belief by telling a good story. All of the successors who have made their fortunes by “advancing” management have done so by telling good stories. With his philosophical discipline, Stewart produces hundreds of references to support his virtually complete destruction of business schools and management gurus.

For me, however, one of the most deeply disturbing passages came in the last chapter: “A recent study by the Aspen Institute appears to confirm that business school is, in fact, damaging to the moral fiber of students. Upon entering business school, the researchers found, students cherished noble ambitions to serve customers, create quality products, and otherwise contribute to the progress of humankind. By the time of their graduation, however, students were convinced that the only thing that matters is increasing shareholder value.” Stewart suggests that many of our current problems may come from this corrupting influence of business schools.

The formula appears to be this: find out what people want to believe, then concoct a story and discover (or just make up) some data that supports that belief (Egads. This applies to far more than just management). They’ll welcome you with open arms and pocketbooks. In Taylor’s time, it was much easier to access this wealth where it was concentrated, and top-level business managers were ripe for the picking. Tom Peters discovered that, through mass media, he could reach the mass of middle managers and reap even greater rewards, producing “In Search of Excellence,” his multi-million copy breakthrough book (a number of years later, most of the companies he put forward as “excellent” were in disarray, and one study showed that doing the opposite of his excellence principles produced better results. In a later book, Peters himself denigrates the idea of excellence. None of this has stopped him from writing books, nor people buying them).

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?

Fanfic is already a huge phenomena in the US. Fans write stories about their favorite characters from TV shows. For instance, on Fan Fiction Net, there are currently over 10,000 stories posted by fans about Hannah Montana. These remixes tend to explore either romances that the fans want to see in the main series, or various plot twists that are perhaps too daring, in some ways, for the actual TV series.

In the US, fanfic is something of a hidden niche. The largest media companies are wary of fanfic, but so long as fanfic remains a tiny niche, few legal cases are brought.

The situation is different in Japan, where fanfic is out in public and on a huge scale, sold as comics at conventions that attract 10,000s of people. Here the manga companies are trying to work out a new relationship with their fans by allowing the fanfic to thrive.

In anmoku no ryokai, manga publishers might have found a tentative, imperfect, but ultimately more promising answer — a business model that could help media companies in both Japan and the US begin to navigate these potentially treacherous new waters. Instead of rewriting a national statute or hashing out separate individual contracts or crafting special licenses, it leaves everything unsaid in order to simply give the new arrangement a test drive. It takes the situation out of the realm of law and plops it into the realm of economics and game theory. It places the established publishers and the dojinshi creators in something resembling the prisoners’ dilemma: If they cooperate — that is, if they honor the terms of anmoku no ryokai — they both gain. But if one overreaches — if publishers crack down aggressively or if dojinshi creators go too far — they both suffer.

Instead of negotiating a formal pact, both parties can advance their interests through the deterrent of mutually assured destruction. What that accommodation lacks in legal clarity, it makes up for in commercial pragmatism. If the experiment fails, then everyone reverts back to the legal status quo. But if it endures, and if everyone comes to realize that the interests of the copyright holders and the fans are aligned, it could become the prelude to wider adoption of Creative Commonsstyle licenses and a more coherent set of rules for a remix culture around the world.

One afternoon in May, I walked into K-Books, a third-floor bookshop in Akihabara, a neighborhood of flashing lights and moving bodies that is the epicenter of Tokyo’s otaku culture. In one section of the store, I found graphic novels by Clamp, that circle of women who went from amateurs to best-selling pros. I bought a copy of Chobits, their series about a young man who has a friendly female android assistant; a volume of xxxHolic, about a high school student who works for a witch (despite the trio of x’s in the title, it’s not porn); and a hardcover edition of Card Captor Sakura, about a girl with magical powers. And in a nearby section of the store, I bought dojinshi versions of those same titles. For 210 yen ($1.80), I picked up Hacker Chobits, in which the female android expands the frontiers of “friendliness.” For 630 yen ($5.40) I bought a yuri, or lesbian, version of xxxHolic featuring the two main female characters of that series. And for another 630 yen, I purchased the 70-page, sprightly illustrated Sakura Remix, wherein the heroine encounters a strangely amorous frog and later discovers a hidden video camera in her classroom at an especially inopportune moment.

The official versions and the remixed versions weren’t side by side. But they were for sale perhaps 10 yards away from each other. In the same store. Think about that in a US context. You walk in to Barnes & Noble and walk out with a copy of Harry Potter and the Deathly Hallows — as well as an unauthorized remix of a May-December romance between Hermione Granger and Professor Minerva McGonagall. Our American IP lawyer is starting to get woozy…

Ken Rau argues that innovation comes from government funded research and from big business. He seems to be talking only about technological innovation, not process innovation. Peter Drucker, in his 1985 book Innovation and Entrepreneurship lists a number of different types of innovation. Process innovation is likely to come from a veteran of an industry who realizes something can be done a better way, and then strikes out on his or her own to build a company around that business. It seems to me that process innovation may or may not fit the model that Rau is describing here.

In my experience (and everything that follows here should be prefaced with that caveat), the source of most meaningful innovation that gets translated into jobs comes from either University research (through funding by government or sometimes private sector grants) or R&D efforts by large corporations. It’s just that, in most cases, neither of these sources, because of policies or politics, is able or interested in pursuing the most promising of the innovations they try so hard to identify. Instead, it is up to an entrepreneur working in that environment to recognize the true potential of an innovation, leave the environment where it was created, and strike out on his or her own to pursue the innovation. The entrepreneur recognizes the worth of the innovation and, because of frustration with the bureaucracy, politics or getting cross-wise with management of the organization, decides to take the plunge and pursue the innovation on his/her own. Credit cards are maxed out, second mortgages taken, and sometimes, in the case of the experienced entrepreneur (more on this later), venture capital obtained. The innovation is adapted, applied, engineered and pursued. In so doing, jobs are created, revenue is generated, and, sometimes, even profits are made.

Note however, this scenario describes the application of an innovation, not its creation. A technicality? I don’t think so. Innovation is the product of universities and large corporations, not small businesses. Small businesses generate jobs based most often on the innovations they liberate from other sources.

And what of the jobs they create? Are they real, permanent and enduring or just transitional? First of all, the job of the entrepreneur and the cronies he takes with him from the source of the innovation are a job loss to the source and a job gain to small business. This on its own does not represent a net gain in jobs for the economy. Second, those people hired by the small business from the ranks of the unemployed can be tabulated as job gains to the economy, but for how long? The fate, or maybe even the purpose of most small business startups, is to prove an innovation’s merit and then, if successful, be acquired so the entrepreneur(s) become wealthy and can say, “I told you so.” (If the venture is unsuccessful, all jobs are lost.) Once the value of the innovation is proven, a feeding frenzy among large corporations ensues in an attempt to acquire the small business. The entrepreneur and most of the employees of the small business are amply rewarded for the risk they have taken, but at whose expense? Entrepreneur and employees are absorbed by the acquiring corporation who then most often proceed to squander the value of the innovation that has been acquired. Costs are cut, layoffs ensue, and often the quality of the acquired product diminished under the guise of improving efficiency. Discouraged and unable to fit into the inherited corporate culture, most of the remaining acquired employees who have not been laid off as part of the acquisition leave and appear as a net loss of jobs by the corporation.

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.

Obviously I’m biased, since I’m trying to do a start-up in New York, but everything about this rings true:

Tumblr and Posterous are the two most prominent “tumblogging” sites, i.e. sites that make blogging more straightforward by making it easier to post media. Both were launched within six months. (Actually, Posterous was started later than Tumblr.)

But now Tumblr has been an Alexa Top 100 site for a while and is still growing strong. Meanwhile Posterous has about 4 times less uniques. Yet Posterous has everything to win: it’s a Y Combinator company with top-tier investors like Chris Sacca and Mitch Kapor. Its founders are experienced software engineers with computer science degrees from Stanford. How come it’s eating dust from a small startup started by a high school dropout?

The answer is as easy as it is counter-intuitive: Tumblr is a New York company and Posterous is a Silicon Valley company.

Or, to put it another way: Posterous is an engineered product, while Tumblr is a designed product.

Posterous is extremely well engineered. There’s nothing wrong with it. Every single thing about it is well thought out. But it’s not just that it’s less pretty (though it is). It’s just not designed as well as Tumblr is.

…In fact, everything about Posterous is nice. It’s very nice. I’m not here to bash Posterous, I think it’s a tremendous product and I wish them the best of luck.

But everything about Tumblr is better designed. I used the landing page as one example, but there are tons of features where Tumblr shines by its gorgeous design.

Meanwhile Posterous is typical of the Silicon Valley engineering mindset where everything is measured, ranked, weighted. It’s like Google. And having terrible design like Google is great if you have a technology edge. But if you’re in a market where what matters is design edge, that’s not enough. There needs to be great design, by which I don’t mean looks (though they’re important), but how it works for the end user.

…The first is that New York has truly come of age as a startup hub, with its own “style”, its own way of doing things, its own mindset, which can sometimes — not always, but sometimes — kick Silicon Valley’s ass.

I admire Jeff Bezos more than any other business leader today. Most business leaders talk about innovation, but Bezos really does it, over and over again. Amazon is releasing a developer kit, so 3rd party developers can develop for the Kindle.

A simple spelling error leads to a dramatic increase in sales:

I successfully used this technique for a while. When I sent the follow up, I had a reply rate of about 40%. Then I discovered a simple trick that drastically improved my reply rate and increased my income to about $1500 a month.

Previously I had

—-

Subject: About your pricelist request for Klein SDK

Body: Dear John Doe, I saw that you…

—-

I changed it to

—–

Subject: Re: Klein SDK pricelist request

Body: Hey John Doe, I saw taht you…

—–

The idea behind it was to let the people know that I actually wrote the email to them, and this was not a form email or a machine sending it to them. Adding only the “Re:” gave me about a 60% conversion rate. Adding the “Re:” and the “taht” increased my reply rate to close to 75%. And made me $600 more a month every month after that.

This reminds of a story from GE. By the late 80s email had replaced paper memos, but the upper level executives were spending a lot of time crafting perfect emails. Just as they had once put great effort into writing the perfect memo, they were now putting great effort into well-researched, well written emails. By the 90s, Jack Welch (the CEO) felt a potential breakthrough was being wasted – the advantage that email offered was that it was quick and spontaneous. He insisted that his executives should start writing in a more informal manner. The goal was more creativity and brain storming and fast communication. Welch wanted to see spelling errors, damn it!

In response, the upper level executives at GE continued writing well-researched, well written emails, but then, before they hit the Send button, they would go through and strategically place some spelling errors, to give their email the look of something written in haste and casually tossed off.

I used to laugh at that behavior and think it was stupid. Now I realize that, in terms of marketing, it might be brilliant.

Just had another call from a head hunter. They’ve lined up a gig they say will last “3 to 6 months”. For some reason this makes me recall being in college in the late 1980s, and some of the professors trying to give us students some career advice:

Whatever you do, never a quit a job unless you’ve been there at least 2 years. 5 years is better but 2 is the minimum. Even if you hate your boss, try to stick it out. If you quit before 2 years, then you’ll get a reputation as a job hopper. No one will ever hire you again. No one wants to hire a job hopper.

Hilarious, compared to nowadays. Things have changed 180 degrees.

For the most part I like the change, though I realize some important things have been lost. Back in the 40s and 50s and 60s (the New Deal era) the ideal was big, safe corporations that gave you life time employment. America had a secure middle class. People worked less, and people in the poorest 40% were better paid then than they are now. But, god, how boring to stay with one corporation for your whole life. That’s the stifling conformism that Kerouac and Ginsberg were rebelling against. It is tragic that we have lost the security offered by those years, but I can not regret the loss of the enforced homogeneity of life goals. The end of the office, and the future of work sums up the changes:

The middle of the 20th century was the age of the great employer: Mainstream success was a stable job at a single company, steadily ascending from middle to upper management. That began to change in the 1970s and 1980s, for reasons that were social as well as economic: American conglomerates began to face stiff foreign competition, and the country accustomed itself to – and even began to celebrate – a more mercurial, less cosseted brand of capitalism. The Organization Man was replaced by the worker as free agent, one who might with little regret leave a job when a competitor gave a better offer, or who might be left jobless when his company merged with another. The arc of the average career trajectory grew more fractured.

What we’re seeing today, says Thomas Malone, a professor at the MIT Sloan School of Management and the author of the 2004 book “The Future of Work,” is a further shift. The growing freelance workforce, he argues, is made up of people who see themselves not as having a single job so much as having several at once. To describe the current change, Malone borrows an image that the sociologist Alvin Toffler used to describe the earlier one.

“One of the things [Toffler] said was that we should move from the idea of a career as a linear progression up the ranks in a single organization to that of a career as a portfolio of jobs that you hold over time in a series of different organizations,” says Malone. “What I’m just now realizing is that many people today see their career portfolio including a combination of jobs at the same time.”

Malone believes that new forms of freelancing will help drive this change. Companies like iStockphoto (a stock photograph and image site containing the work of over 70,000 artists), Threadless (a T-shirt design company where anyone can submit designs and evaluate others), and Elance (an online source of skilled freelance labor) are models of companies where not just secondary jobs but the core function of the business is outsourced to a diffuse online workforce. All are helping connect client companies and freelance laborers to each other easily, without a traditional intermediary and with stricter standards than online marketplaces like Craigslist.

These sites allow freelancers to field and respond to far more offers than they would previously have been able to, and to create a far larger and more diverse slate of jobs at any one time. Successful Elance workers often have nine or ten projects going at any one time.

I grew up close to this future. My dad was a freelance stock photographer from 1950 to 2007. He made a fantastic living at it, at least till the Internet hit the industry in the late 90s. For all of my childhood, he loved his work and enjoyed a very flexible lifestyle. From a very young age, I knew I wanted to grow up and enjoy a lifestyle similar to his.

To some extent, the change strikes me as a continuation of the movement from status to contract. When everyone is their own freelance agent, then the last vestige of status will fade from this world.

Building a diverse team is important, but most of the advice that I see completely misses the point:

Ever notice that IT teams are kind of homogeneous? You’re not the only one. According to ComputerWorld, “Over the past few years, the number of women and underrepresented minorities in IT has been dropping steadily.” The article, “Recruiting for a More Diverse IT Staff,” offers 7 tips on how to do so:

• Adjust the language in your job description.

• Recruit at women’s and minority-serving institutions.

• Reach out through professional groups and attend job fairs for minorities and women in IT.

• Promote work/life balance and a flexible workplace.

• Focus on service delivery and IT’s role in the big picture.

• Make time for training and skills advancement during the workday.

• Set up mentoring programs, affinity groups, and communities for women and underrepresented minorities.

I’ll focus on the issue of gender. The above advice would make sense if the situation was something like “Women have never expressed interest in tech, so they must be encouraged.” But that is not the situation we face in the United States. Women earning advanced degrees in computer science peaked in 1989 and has since steadily declined. So the situation we face in the United States is “Women thought the tech industry was an attractive career path 20 years ago but they no longer see it that way”. The next question is, what changed? The above advice does not seem to address the fundamental issues.

It’s important to note that the tech industry is going against the current of history. In every other profession, women have made advances over the last 20 years. In the medical field, 50% of new doctors are female. Why is the tech industry the only industry where women are in retreat?

Tim Bray:

What I’m writing here is the single most important take-away from my Sun years, and it fits in a sentence: The community of developers whose work you see on the Web, who probably don’t know what ADO or UML or JPA even stand for, deploy better systems at less cost in less time at lower risk than we see in the Enterprise. This is true even when you factor in the greater flexibility and velocity of startups. This is unacceptable. The Fortune 1,000 are bleeding money and missing huge opportunities to excel and compete.

The word “agile” is overloaded with multiple meanings, but long before it became a fad in the software world, it was a subject of study for academics who were trying to improve the efficiency of supply-chains at large firms. And that is basically what Tim Bray is talking about: the efficiency of supply-chains at large firms.

Regarding software development, I wrote about agile practices in Geography still matters: physical proximity is essential to agile practices.

Using agile practices in large organizations is a tough issue and it always has been. Large firms must, by their very nature, be about hierarchy, whereas agile practices depend on trust, and in some respect trust and hierarchy are opposites. For someone at the top of a large hierarchy to send an order down to the bottom, they are implicitly overriding whatever the lower level employees might think best – therefore, a lack of trust is implied in every order.

In the 1990s, DARPA invested some money in agile research, which lead to such books as that by Goranson: Agile Virtual Enterprises. Goranson looks back at the whaling industry of the mid-1800s and examines how 2 small towns in Massachusetts were able to capture 90% of the whaling industry, when most of the actual hunting was done in the South Pacific. He found that the patterns of hiring and team building had much in common with what start-ups aspire to nowadays – a tight-knit, fast-forming team of highly competent professionals held together by a commonly understood body of professional ethics and expectations. That environment sounds a lot like the startup scene that now generates new web companies.

The curious thing is how little has changed: small firms arising from a tight-knit, high trust culture continue to lead the way in innovation, whereas large firms continue to lag behind. But large firms can possibly afford to lag behind, they have other strengths, including the capital that they are charging monopoly rents on.

I think Tim Bray is terribly wrong when he suggests that the way forward is, basically, to just do stuff better:

Here’s a thought experiment: Suppose you asked one of the blue-suit solution providers to quote you on building Ravelry or Twitter or Basecamp. What would the costs be like? And how much confidence would you have in a good result? Consider the same questions for a new mobile-network billing system. ¶

The point is that that kind of thing simply cannot be built if you start with large formal specifications and fixed-price contracts and change-control procedures and so on. So if your enterprise wants the sort of outcomes we’re seeing on the Web (and a lot more should), you’re going to have to adopt some of the cultures and technologies that got them built.

It’s not going to be easy; Enterprise IT has spent decades growing a defensive culture based on the premise that you only get noticed when you screw up, so that must be avoided at all costs.

I’m not the only one thinking about how we can get Enterprise Systems unjammed and make them once again part of the solution, not part of the problem. It’s a good thing to be thinking about.

In my opinion, there are certain problems that come up at large scales that will never get fixed, because they are fundamental to that scale. Scale determines the context. Consider mass: I am not pulled toward an ant, a house or a mountain, but I am pulled toward planet Earth, because once you get enough mass in one place, you start to notice its gravity. I do not think that the gravity of planet Earth will ever be “fixed”, I think it is normal that the amount of mass that makes up the Earth should have the Earth’s gravity. Likewise, I do not think hierarchy (and its attendant risk avoidance) will ever be fixed in large organizations, because I think hierarchy is natural to large organizations.

However, things will get smaller. And that is the real solution. And it has been going on for a long time now. Since the recession of 1991, the Fortune 500 have shrunk significantly, both as a percentage of the GDP, and as a percentage of total workforce employed. And there are more small firms.

That is the fix that I see: we will not fix large organizations, but we will have less of them.

Avedon Carol on customers who sass cashiers:

We are now at the point where merely expressing annoyance at anyone in authority makes you a terrorist. And when I say “authority”, they don’t have to have much authority. As with the case of the shopper who said something sassy to a cashier and got tased by – who was it, cops, or just security? – the issue isn’t whether you’re involved in any kind of crime or violence, it’s whether you know your place. You are just acting as a private citizen, and you have to recognize that as such, those who are acting as servants of those in power have greater authority than you. As a mere American citizen, you are not the equal of anyone who is acting for Big Property. And, while it’s true that the cops might beat you up whether you sass them or not, they pretty much will subject you to violence if you suggest, in any way, that they may possibly be overstepping, making a mountain out of a molehill, or simply incorrect in their assumptions. This gets amped up well beyond the Kafkaesque when there is any possibility of employing use of the utterly vague and horrifically overbroad term “terrorism”. In these cases, you don’t even have to express that you are annoyed or upset at them to earn a conviction – you merely have to show some sign that you are concerned with anything other than showing them their due deference.

[What follows is a comment I posted over at Hacker News.]

My impression is that there was a stretch when some combination of the public mood and the government’s emphasis conspired to encourage small startups. The 1980s and 1990s were clearly good in this respect. The mood of the last decade has been increasingly punitive. Sarbanes-Oxley is the most clear example of this. What once would have been treated as a civil matter is now treated as a criminal matter. Entrepreneurs are now faced with jail time instead of lawsuits. This can only have a chilling effect on innovation. I think it is urgent that everyone who cares about entrepreneurial culture in America to make the argument that innovation in business depends in part on tolerance, and that, in practical terms, this means most matters of conflict should be treated as civil rather than criminal cases.

A comparison might be made to the evolution of bankruptcy law. Before the mid 1800s, most Western countries treated bankruptcy as a criminal matter, rather than a civil one. The liberalization of bankruptcy law was one of the factors that allowed our modern economies to gain the dynamic nature they now enjoy. The public’s mood changed during the 1800s as it became more obvious that many times entrepreneurs failed with their first venture. They needed a second chance, when they were often more successful. John Bayer, who created what became Bayer aspirin, is an outstanding example of this – at first he tried to build a liquor business, but it failed. His father-in-law was suffering arthritis, and therefore drinking large amounts of willow bark tea – the only known source acetylsalicylic acid. John Bayer then put the willow bark tea through the distillery equipment he’d bought for his liquor business – and thus asprin was created. The point is, he needed a second chance to become successful. Many entrepreneurs are in this category.

Since this is Hacker News, I would guess that most of us know someone who has tried to do a startup, and failed on their first attempt. Many of us also know entrepreneurs who tried again, and met with greater success on successive tries. Tolerance of failure is the first pre-requisite of a dynamic economy.

More so, if you have any friends who have attempted to launch a startup, ask yourself under what circumstances you think your friends should go to jail.

I posted a similar comment some months ago, and I mentioned how many lives might be saved by the next wave of medically-focused startups. Someone responded:

“When you cross the line into experimenting with medical treatments, you’re not gambling with other people’s money, you’re gambling with lives. You can’t just equate it to any other kind of start up, it has to be held to a higher standard.”

I want to repeat, many, many industries can lead to people’s deaths. There is nothing unique about medical innovation. If you build a new kind of jet engine, which gets through testing but which then is responsible for a spectacular crash, then your product has killed a few hundred people. And yet, unless there was fraud in the documentation of the tests, there have not been criminal cases in the past. Right from its creation, decades ago, the FAA has taken a strong line against criminal – the feeling has always been that criminal prosecutions would stifle the free flow of information, and the only way to save lives over the long-term is through the free flow of information.

Many other fields can cause people to die – industrial automation, the transport and disposal of toxic chemicals, the construction of buildings (which could then fail and kill people). All industries are in need of innovation all of the time, yet innovation brings with it risk, including the risk of death. How much innovation will we get if we make these matters criminal?

I should emphasize, just in case people forget, that fraud has always been criminal. It has been criminal for centuries. So the move to criminalize more aspects of business is not a move to make fraud criminal. If you think that the Sarbanes-Oxley Act made fraud criminal, then you are mistaken. Fraud has always been criminal.

Sarbanes-Oxley is representative of the new trend. The overall goal was to encourage greater accuracy in the reporting of a company’s financial health. This goal could have been reached through a variety of methods, including both the carrot (rewards) and the stick (punishments). Rewards could have included tax breaks for meeting some additional level of compliance. Punishments could have included fines levied against companies that failed to meet a higher level of compliance. These approaches would not have raised the risk of jail time for CEO’s. Instead, Sarbanes-Oxley decided to go with the heaviest kind of punishment of all – to treat infractions as criminal offenses, potentially meriting jail time.

This punitive attitude is going to have a chilling effect on the amount of innovation we can expect in any field.

Chris Dixon notes a revival of the startup scene in New York City:

But the question that has puzzled me is: why did New York City lag behind the West Coast this decade so much more than last decade? Especially since the internet in the 2000’s has been more than ever about consumers, media, and advertising – traditional New York City strengths?

I think the only explanation is that the finance bubble of 2003-2008 was a giant talent suck on the East Coast. The people I knew graduating out of top engineering or business programs on the East Cast were all trying to work at hedge funds or big banks or else felt like fish out of water and moved west. Money was flowing so freely in the finance world that there was no way the risk/reward trade off of startups could compete. Eventually it just became downright idiosyncratic to be a startup person on the East Coast. The Larry and Sergey of the East Coast were probably inventing high frequency trading algorithms at Goldman Sachs.

But this is why New York City now seems poised for a technology startup boom. The finance bubble has burst and the industry will hopefully return to its historical norm, about half its bubble size. The traditional advertising and media businesses are in disarray. The people who work in them will no doubt find new applications for their talents.

There is also a nice ecosystem developing in New York City. Union Square Ventures is one of the best VC’s in the country, with early stage investments in companies like Twitter and Etsy (that were followed on by top West Coast VCs at significant markups). Bessemer is an old firm that has a managed to stay relevant with investments in Yelp, Skype, and LinkedIn among others. There is also a new wave of scrappy Boston firms spending a lot of time in New York City – specifically Spark, General Catalyst, Flybridge, and Bain Ventures. First Round Capital out of Philadelphia is extremely active in early stage investing in New York. There are a bunch of veteran entrepreneurs actively investing in and mentoring seed stage startups. Google has a big office here and many people seem to be leaving to go start companies.

A fascinating look at some of the startups based in New York City.

One thing I’ve noticed over the past year is that NYC’s version of Silicon Valley will be Soho, which has been primarily associated with the fashion industry. The combination of the falling price of leases stemming from the 2008 financial collapse, and the dropping rent (all the bankers moved out of Manhattan); there have been dozens of creative startups opening up office in Soho. I’ve listed the ones I know in the list below.

1. 20×200 sells art for everyone at ridiculously affordable prices (Soho).

2. Aviary makes creation accessible to artists of all genres.

3. Behance organizes the creative world to make their ideas happen (Soho).

4. Betaworks is an internet media company.

5. Blip.tv is the next generation television network (Soho).

6. By/Association is a private service for new introductions to remarkable people (Soho).

7. Bug Labs is a modular, open source system for building devices.

8. Boxee is the best way to enjoy entertainment from the Internet and computer on your TV.

9. Carbonmade helps you build and manage an online portfolio website (Soho).

10. ChallengePost is a marketplace for challenges.

11. Clickable is an online solution that makes creating and managing online advertising simple and effective.

12. College Humor is the best humor site on the internet.

13. Designer Pages is a free social application for finding products in architecture and interior design.

14. Drop.io allows simple real-time sharing, collaboration, and presentation.

15. Etsy is the world’s most vibrant handmade marketplace.

16. Foursquare gives you and your friends new ways of exploring the city (Soho).

17. gdgt is the new consumer electronics site by the guys behind Engadget and Gizmodo.

18. Harvest allows simple online time tracking, timesheet, and reporting (Soho).

19. Hello Health helps doctors communicate, document, and transact with their patients in person and online.

20. Hot Potato allows you to find events, join the crowd, and share the experience.

21. Hunch helps you make decisions and gets smarter the more you use it.

22. Kickstarter is a funding platform for artists, designers, filmmakers, musicians, journalists, investors, and explorers.

23. Livestream is the most powerful live broadcast platform on the internet.

24. Meetup helps groups of people with shared interests plan meetings and form offline clubs in local communities around the world.

25. OMGPOP is the #1 place to play free multiplayer games with your friends.

26. Parachutes aims to reinvent how people teach and learn.

27. Quirky is a social product development company.

28. SeamlessWeb is the fastest, easiest, and smartest way to order food delivery online.

29. Squarespace is a fully hosted, completely managed environment for creating and maintaining a website, blog or portfolio (Soho).

30. Tumblr is the easiest way to blog.

31. Vimeo is a respectful community of creative people who are passionate about sharing the videos they make.

PUBLISHING/EMAIL COMPANIES
New York City has always been the epicenter of the publishing and advertising industries. And that hasn’t changed with this list of innovative companies changing the publishing and email businesses.

1. Daily Candy is a handpicked selection of all that’s fun, fashionable, food related, and culturally stimulating in the city you’re fixated on.

2. Flavorpill is a daily guide to quality cultural events in New York City, Los Angeles, San Francisco, Chicago, Miami and London.

3. Gawker is an online media company (Soho).

4. Gilt Groupe offers luxury designers and fashion brands at prices up to 70% off retail.

5. Huffington Post offers syndicated columnists, blogs and new stories with moderated comments.

6. One King’s Lane offers exclusive sales on designer home accessories.

7. Tasting Table is a free daily email about the best of eating and drinking culture.

8. TBD is a free email newsletter that delivers one world-changing idea and one collective action to improve our future.

9. Thrillist’s daily emails sift through the crap to find the newest and best the Nation is hiding (Soho).

10. Urbandaddy brings you the single thing you need to know every day about your city.

11. Very Short List is a collection of distinct, free, daily e-mails that each recommend one must-see gem a day.

Sarah Lacy writes about an interesting startup that is building farm machinery in rural Argentina:

The idea was born back in the late 1990s. Argentina offered a tax benefit to encourage the planting of some 70,000 hectares of olive trees in poor areas of the country. Argentina had less than 20,000 hectares before the change. The catch was these groves had to be high density, a minimum of 300 trees per hectare. The incentives have worked well enough that Argentina’s Ministry of Economy and Production estimates that the country could be a top ten producer of the world’s olive oil supply within the next decade.

Olive groves take about three years to mature and Bonadeo—a self-proclaimed “soybean man” and long-time farmer—noticed a problem before a lot of other people: Who was going to harvest all these olives? Harvesting olives is expensive and time-consuming and has to be done in a 70-day window. There just wasn’t the labor in Argentina, especially given the high-density plots. It would take 800 people to harvest 1,200 hectares. “That’s more like a military operation than agriculture,” Mourelle says.

So began years of trial and error building the Colossus, a huge machine that, crassly put, looks like it’s having its way with an olive tree. The machine straddles a row of trees and rubber tentacles gently swat off the olives at rapid speed. The arms can move in and out to hug the canopy of the tree—all controlled by a joystick in the air-conditioned, comfortable cab. The company is doing roughly $4 million a year in revenues and sells the machines in six countries. The Colossus increases productivity ten-fold and cuts harvesting costs by a third once the cost of the machine is paid back.

It was a humble beginning. Bonadeo barely had a working prototype and no customers. There’s no such thing as venture capital in Argentine farm country. Without money, he couldn’t build more machines. Bonadeo used to befriend olive farm managers to find out when the owners would be in town. He and his team would crowd into a van and tow the Colossus over for cold calls. Sometimes he was laughed at, sometimes the owner wouldn’t be there after all. “There’s no way you guys can build this business from here,” potential buyers said, even when they saw the machine working. It was disheartening.

The only reason the first Colossus was sold was luck. Two farms were close to signing, but not quite ready to commit to the pricey $500,000 sticker price. So the smaller one called up the larger one and offered to split it with him and share the machine. Simply out of Argentine machismo the owner of the larger farm decided he wasn’t going halfsies on any farm equipment, called Bonadeo into his office and said he had five minutes to make a sale.

“What’d you say?” I asked.

“Hamana…hamana…hamana…” he joked.

It didn’t matter what he said, the man bought one anyway. Soon after that an Australian company placed and order for three machines. Three! “Not bad, fat boy,” Bonadeo said to himself. MaqTec was in business.

It will be fascinating to see if this company survives. It has everything going against it – distance from centers of innovation, lack of capital, limited domestic markets, a nation with a historically broken political system, a culture that till recently valued conservative social traditions over innovation, etc. 100 years ago Argentina was the 12th wealthiest nation on Earth, per capita. Its decline was due to several factors, though the biggest of all was probably the lack of education of its citizens, which fed a series of social pathologies that lead to a broken political system and then dictatorship. I would love to see Argentina revive. I don’t doubt that innovators like Bonadeo will play a crucial role in any revival that happens. But, wow, talk about an uphill fight.

On a different topic, I’m glad to see TechCrunch escape from the suffocating provincialism of most American business news. It is appropriate that a weblog devoted to cutting edge subjects should show leadership in recognizing the amount of innovation going on in the developing countries.

I am concerned about that provincialism. It is an ominous sign of where America’s thinking is at. With the economy in a coma, and competent economists suggesting the coma will last another 5 years, it is clear a lot of the most important innovation of the next decade will be happening elsewhere. So why is Sarah Lacy such a relatively rare figure? Why aren’t there a 100 Sarah Lacys, or a 1,000 Sarah Lacys? Why aren’t more writers going overseas to tell the American public what is going on over there?

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.

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.