The Startup Bubble

There are few things any established industrial economy needs more of than new businesses, but I’m here to say that ‘startups’ might not be the answer. Firstly, there are a lot of businesses calling themselves a startups, when in reality, they’re really just new, small businesses. So, what is a startup?

Startup = A new type of business trying to uncover a business model which doesn’t exist yet. Often, they want to leverage a new technology and be a better solution to an existing problem. A startup isn’t just a small business trying to grow with an established method, like say, a café. It’s a new way of doing business in a certain arena.

This definition is why they can attract large sums of speculative investment – the prize of winning can be big.

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The amount of technological innovation is providing scope for many great startups. But business, like anything, isn’t immune to getting caught up in fashion. Yep, business is massively influenced by what is fashionable. If you run a startup – here are a few things that are highly unfashionable at the moment.

  • To be profitable
  • To self-fund
  • To want to remain small or medium-sized
  • To enter an established industry and just do it better
  • To not try and change the world

The Silicon Valley ethic now runs deep – despite the current tech-lash. There’ll be a lot of startups that realise not everyone (in fact, nearly no one) ends up with a unicorn or gets bought out by big tech. And this is where the problem lies. No one wants to simply run a business, make profit and employ people. Everyone wants to change the world instead of their suburb.

Yes, every technology revolution creates new behemoths which redefine commerce, but the probability of being one of these is extremely low. In fact, it’s a really bad bet to even try.  I’m not trying to steal anyone’s dream. I’m trying to do the opposite and actually help you achieve it. Here’s why.

There has simply never been a better time in history to start a small business, be a freelancer and earn a well above average income by staying small and not aiming for all-or-nothing. Never before have we all had such an equal playing field to start anything. Access to knowledge, finance, manufacturing, promotional tools, distribution, logistics, publishing, you name it. It’s all possible for anyone with internet access, imagination and tenacity. We can literally invent money through organising the factors of production in a new manner, and we don’t need a venture capitalist to help us do it.

What every entrepreneur should remember is that when a startup raises capital, they end up with a boss, which is exactly the thing that most entrepreneurs want to leave behind.  If I see another so-called success story of some startup founders standing in front of a brick wall at a co-working space smiling because they just raised $x million in capital I might even scream… it seems to me so many people have forgotten what should be the biggest motivation of all – independence. Isn’t that why people chase money? For the independence it buys?

So here’s the kicker with all this: more entrepreneurs should aim to run business instead of a startup, to actually make a profit and grow organically. A successful business has options, the owner can stay in control, gain financial power and some wisdom along the way. If entrepreneurs do that, then they might have a better chance to scale and actually change more than their suburb.

Thanks for reading, Steve.

Algorithmic Bias

It’s easy to think machines have some kind of impartiality to them given they are, well, machines. But anything built by humans has a human inside it. Algorithms are no different, and just like us, they are filled with bias.

Algorithm – a word once confined to University mathematics departments and computer labs – now takes pride of place in every second tech news article, determines what you see online and why you received this email at 7am Australian Eastern Standard Time. So it pays to understand what they are, the impact they have and the biases they’re so often driven by.

So let’s go back to the start – what are algorithms in simple terms?

Algorithms 101 – An algorithm is a set of step by step instructions used to do something or make a decision.

With a definition this broad you can see that we humans use them everyday. Even sorting the laundry into darks, colours and whites, and washing them each separately is technically an algorithm. The steps to cook something (a recipe) is an algorithm. Where computers come in is that they can follow a very large number of steps, on a very large data set, and make decisions quickly and precisely. (In the clothing example above – the data set is the clothes and their colours, and the steps are where to sort each piece of clothing).

Algorithmic bias occurs when a computer system reflects the implicit values of the humans who are involved in coding, selecting and collating data to execute the algorithm. The emergent problem with the algorithms in big tech is that they’re designed to achieve corporate outcomes, not societal ones. Their values are simple: to make as much money as possible.

Algorithms now run so deep and cross-reference so much data that what we input has little to do with the outputs we receive. What we now have on the web is ‘the illusion of choice‘. It isn’t just our feeds on social forums which are decided by algorithms. Even what we search for is biased towards corporate algorithmic design parameters. Just search for anything on google you want to buy, in any category and the first bias is plain to see – it assumes you are after the cheapest version possible of every item: clothing, sneakers, airline tickets, hotel rooms, you name it. Apparently we all want to cheapest version of everything no matter what it is. Even if you put the word ‘high quality‘ before the primary search term you’ll still be guided by price. It’s not before we get very specific with words like expensive or search specific brands before we can find what we might need. Another in search is recency bias. Search will always show the latest version, or story of anything and anyone unless a clear time stamp is included.

When we look at social feeds – it’s clear that their algo-game is built on emotional leverage: birthdays, parties, engagements, births, deaths, family events and of course, controversy. These stimulate engagement and keep us on the site longer. Our desire to feel loved, important and often enraged are all that matter to them.

While these examples seem innocuous enough, the proliferation of an algorithm-based society is reinforcing many social biases such as gender, race, ethnicity and economic status to name a few. The canary in the coal mine is dead, the miners are still digging, and yet Silicon Valley are still making bank unfettered. So what should we do?

Like all technology, algorithms are neither good nor bad – they’re just tools. Tools that need to be civilised with some metaphorical workplace health and safety guide rails. They are here to stay, and so our best bet is to make them better. I see two paths forward:

  1. Change – We need to push for transparency on algorithms. Know what’s in them and have to ability to turn them off on demand. I don’t care if the algorithm owners are for-profit corporations – we can and should be able to regulate their output as much as we can a box of cornflakes. No company ever made a decision which reduced its profit until society made it so. It’s time we pushed for big tech to air their dirty laundry.
  2. Opportunity – We need to remember that every flaw in an industry, every broken promise or self-serving design leaves the door ajar for a nimble entrepreneur to make a more respectful version of the product we’ve got little choice on. Algorithm-based tech is no different. Maybe it’s just me, but I think the world is waiting for a social platform we can trust that isn’t designed around extracting unlimited hours and outrage from the people it’s supposed to serve.

Above all, we should never forget that capitalism works best when it is guided by society, not the other way around.

If you like this blog post – forward to a friend who will dig it.

Finding your future

We see what we look for. When it comes to our future, we choose whether or not we see opportunity or impending economic apocalypse. It’s a lot like an old investing maxim: The investment opportunity of a lifetime comes around about once a week, but only once you start looking for it.

This week I showed my children this video from many years ago – it’s a test:

You have to count how many time the players wearing white pass the basketball >

Watch it before you read on. Click here.

Very few people pass the test. (FYI – I didn’t and I even thought it was a trick video the first time I watched it!)

Which is the same problem most people and companies face during technological disruption. Our perception of what to look for is focused on the wrong thing. The future is right in front of us, the impending changes are mostly obvious – yet we don’t see them. It’s because we’ve been indoctrinated to see yesterday. To manage the way things were, rather than where they might go. But once you start looking for what’s next, positive opportunities are everywhere, and it becomes impossible to not see them.

Imagine you’re a professional driver of some sort. Understandably, you’d be worried about autonomous cars taking away your income. But this shift, will provide more opportunities for new income and industries than it removes. Firstly, what’s stopping an uber driver buying their own fleet of driverless cars to go out and earn money for them? But outside of driving many new industries will emerge;

  • On board logistics and customer service managers of trucks.
  • Rolling Commerce (r-commerce) now that our attention can be off the road.
  • Car fit outs to make them personalised and comfy with business class style beds ‘Pimp my driverless’.
  • Driverless delivery pick up bays in supermarkets and shopping centres.
  • Child minding for rich kids being transported in their own autonomous vehicle.
  • Night time car wash services in empty car parks overnight – the car dries itself over to get a clean – forget the coffee stop car wash – stay in bed instead.
  • Data and hacking insurance broking in case autonomous cars get unexpectedly commandeered.
  • Independent blockchain powered auto-courier services via your own autonomous car.

The list is really endless. Most of these ideas aren’t about technology either – they’re about organising the new factors of production. Creating new value from the opportunities the technology itself presents.

To invent a positive future for yourself – we just need to open our minds and our eyes. Start looking for the opportunities. The questions we should be asking ourselves might include:

Where might my industry go? What skill sets might I be able to pivot off? What new opportunities will emerge from the changes?

If you want to be the architect of your own future, it’s mostly about attitude and looking on purpose.

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If you liked this post, you’ll love my latest book – check it out. 

Your data, your asset

Large corporations are currently walking over each others’ faces to gather data on us. Who can blame them – the biggest and most profitable companies in the world specialise in it. They see data as an inevitable asset class, one they can plunder. But that’s all about to change.

Personal Customer Data will very quickly move from being an asset to a liability. We haven’t seen it yet, but coming soon a courtroom nearby will be ‘data litigation’ cases. Think multi-billion dollar court settlements for lax protections and real physical consequences of data misuse. We’ll see corporations hit by both governments and citizens. The technology needed solve the data problem couldn’t come at a better time – yep, here I go again espousing the virtues of blockchain. But this thing is as real as the promise of the internet was. Just like the dot com boom, blockchain will misfire and take a little while to sort out the tech shortcomings, but it will be as big as promised. It is filled with opportunities to literally turn the data business upside down.

The problem of course has always been that while our data isn’t worth much in isolation – a few dollars per user per quarter – it is worth a lot when it gets aggregated by a single firm like Facebook. Many applications in the social media realm like steem.io are creating social platforms where we will own and control our data. Steem might end up as the Friendster or Myspace of blockchain social, but the shift is big, and it goes a little something like this:

In the future, we’ll be able to sell our data to corporations. Those who currently buy advertising, based on our data, will eventually pay us directly instead of some intermediary. Let’s take banking as an example. Currently banks invest millions per month trying to reach people who might require finance for a new home. They use services like Facebook and Google to see who’s posting about open houses, having garage sales or maybe just had babies – social triggers that locate their best potential target audience. But for every hundred or so people the reach, they do business with only one. While the cost of advertising in digital is cheaper and more targeted than TV and outdoor, the cost per acquisition of a new home loan is still very high –  few thousand dollars minimum. Imagine instead us allowing banks ‘rent a data key’ off us directly for a few hundred dollars. With all our relevant financial, employment, living expenses and other anonymised data. Banks who want our business pay us directly for the privilege of access to customers with real intent instead employing a digital dragnetCompeting banks then put an algorithm to task to come back with their best offer for a loan. We get paid via our data to choose a bank to do business with. It will be cheaper for the banks. It will be profitable and painless for us. All the while the data more accurate as it is promulgated via a blockchain. Banks would only need to pay for data sold by customers who actually take out a loan, via a time-sensitive smart contract. This way the process maintains integrity. And boom, just like that, a great data reversal has occurred.

It’s possibilities like this that get me excited about the emerging blockchain era – it seems it is possible to get the internet we always dreamed of. Now it’s time for us to get building the world we want to live in.

The UBI hoax

Have you ever noticed how those espousing the virtues of a Universal Basic Income (UBI) will never have to live on a basic income? They’re generally billionaires and academics who’ll never have to live under UBI conditions. We can add Bill Gates, Richard Branson, Mark Zuckerberg and Elon Musk to the list of those promoting the idea of a UBI. Ironic given most of them are building the technology and algorithms to replace human labour and boost their profits. What we don’t hear is any of them proposing a redistribution of income or a billionaire tax.

I’m not suggesting replacing human labour with automation is bad, it’s what we generally do as humans – aim for a more efficient method. We did it on farms, we did it in factories and we’re doing it with Artificial Intelligence. The real question is how do we structure the shift so to capture Intelligence monopolists (the tech company kind) before they pull the biggest bait and switch in human history via the UBI.

How did we get here? For the first time in history we’ve seen the true power of network effects, via near zero cost digital distribution, on a global and commercial scale. This combined with a little bit of luck and good timing has enabled the emergent technology monopolies (Amazon, Alphabet, Facebook, Apple, Microsoft) who have all grown faster than any company in history. They violate anti-trust laws with little consequence because regulators don’t understand how deep their data tentacles run. Oh, and they print money along the way.

How do they cause income inequality? To date their main strategy has been to dematerilize  physical things like stores, printing and production by removing not just the intermediaries, but the production processes that made costs higher, and incidentally, employed people. The reduced cost through digitization and network effects disrupts incumbents who can’t compete because of their high cost legacy infrastructure. As they continue to employ algorithms and robotics, their low cost advantage further ensconces their dominant position so their network spreads quicker than anyone else, creating winner take all platforms.

Why is there no ‘real’ competition in tech? Technology companies have a unique strategy when it comes to burgeoning competitors. They can see who the real threats are, before they become so. Remember, big tech companies have a rare advantage in that they can spy on emerging competitors through people’s phones and on-line activities they administer in their services. This makes it super easy to acquire a potential serious competitor long before they are a size of consequence, and without regulators realising this is actually stealthy anti-competitive behaviour.

Are they really monopolies? Well, it’s very easy for big tech to argue they are not monopolies. Google argues it’s business is advertising – where they have around a 15% share – not search, where they have a 90%+ share. Facebook can’t be a monopoly because they are a social service and they’d be less than 1% of peoples social interactions and as they say, people can always opt out! Or use Instagram and Whatsapp instead (which they of course own). But in reality, they’ve become part of the social and economic fabric, and opting out isn’t really an option. Their greatest trick of all is providing a free product which dominates married with a revenue structure which lives outside of their actual monopoly.

Why UBI is proposed as a solution:

UBI isn’t about incomes – it’s a trick to make people believe that monopoly dominance is an inevitable consequence of automation. If that were true, then the 90% of us who worked in agriculture in the pre-industrial era would not have found an alternative, which we did and we will again.

By espousing the virtues of a Universal Basic Income, it takes the attention away from the real economic problems – technology monopolies and concentration of wealth (the one percenters). The mere idea that companies can continue a profitable march ahead when 40% of their ‘former customers’ become unemployed lacks basic mathematical understanding – read: who’s going to buy their products? It just doesn’t add up economically. If 40% of people are out of work, then these big companies will have to endure a 40% decline in revenue. A basic principal of economics that most people forget is that expenditure always equals revenue. It’s the multiplier effect that helps economies grow.

The promotion of a UBI, is a classic ‘look over there!’ concocted by the wealthy to remove the focus from a long overdue wealth redistribution effort, serious tax reform against tax avoiding multinational corporations, and an anti-trust reaction to split monopolist technology firms. It’s a bit like saying; ‘sorry we got so rich, here’s some economic crumbs to keep you fed, while we sip champagne on our private jets – carry on, proletariat.’  

Now while it is true big companies with heavy automation will make more money with fewer people once AI comes online, we will simply move up the hierarchy to emotional labour – I’ve written about this here, and here. Another thing we must remember is that prices will eventually drop in automated industries – it always does. When cost comes out, competition usually forces prices down – or it does when capitalist economy Governments do their job and keep markets competitive. Hence the importance of anti-trust regulation.

Better options than UBI

The fundamental problem with a UBI is that it doesn’t address the real problem of wealth concentration (the 1%) and structural problems described above. Rather, it says let’s accept it, and instead hand out an inadequate amount of funding to those who are displaced in the short to medium term. All the while, the super rich can carry on their path of global dominance and asset accumulation and give them the license to say ‘hey what are you whinging about, you’ve got your UBI.’ 

People don’t want a handouts, they want dignity. People don’t want the basic human need to create value and to be self reliant to be stolen from them. We all want an economy where we can compete and participate, and if that means busting up a few companies and handing corporate assets to the people to make it so, then it should be done. A capitalist economy has failed if it ever needs a UBI, and communism has won.

UBI also has Orwellian level implications to make us redundant and subservient. It could put at risk the financial safety net we already give to those with physical disabilities, mental illness and various other pensions by providing a cheaper and less suitable substitute. In real terms, we already have UBIs for those who deserve it. And you know what the tax paying populace deserves? A government with the courage to push back against the one percent, to tax them properly and provide infrastructure we can build new industries upon. Even if this means re-appropriating assets from large powerful corporations.

While UBI is a terrible idea, the one thing we should be suspicious of and never forget is that the people pushing for it are also the ones causing it.

Can entrepreneurs live inside corporations?

Incentives shape behaviour – a statement to live by.  One which gives more guidance to corporate and gubernatorial behaviour than anything else. It’s the reason why the disrupted, got disrupted, and why most governments in developed economies favour industrial protection over reinvention. Whenever we think about how anyone, or any organisation might behave, the best course of action we can take is to stop, and imagine what their incentives might be.

A favoured form of reinvention for companies facing a technological disruption is the birth of the corporate accelerator program. Or smaller efforts of finding and funding internal ‘entrepreneurial’ activity – the startup inside. The concept is valid, but so often the execution fails. Over the years I’ve been involved with a number of multinational corporations who’ve sponsored such activity to try and build out internal startup firms. They rarely work for one simple reason – misaligned incentives.

If you’re really an entrepreneur, the first things you want are ownership and independence. But all too often these accelerators have majority equity stakes, or expect their newly minted internal entrepreneurs to magically stop behaving like employees. They expect an entire new perspective on risk taking inside their culture. When the mindset and rewards are so often about protection and risk mitigation.

The simplest and best way to ensure anyone truly cares about anything is via ownership. People need to have ‘skin in the game’ and own the outcome. It’s only when we wear the cost of failure and benefit directly from any success that the true entrepreneurial spirit can ever be found.

Why utilities need to be back in public hands

After 30 years of infrastructure privatisation in Australia, it’s time we put critical utilities (Energy, Water, Telecoms, Rail, et al) back in the hands of the public. While this may sound somewhat draconian and even semi-communist, right now it is the most capitalist move we could make, and our future depends on it. I spoke about it today on radio – you can listen here.

An Infrastructure Reset – Show me a rich country, and I’ll show you rich infrastructure. It’s what modern economies are built on and always will be. We are currently moving through a 200 year shift which involves an entire reset of the physical world around us. In telecoms we are rapidly moving to optic fibre and 5G. Energy is shifting away from coal to renewables (primarily solar) and we need to build out an ‘energy internet’ to replace our ageing grid. All cars will be electric in 8 years time and we’ll require highly distributed charging facilities where ever a car parks.  Every economy in the world, that wants to compete globally, must now build out, connected, post industrial infrastructure.

Natural Monopolies – There are certain things which are what economists call Natural Monopolies. These are industries where the most efficient way to serve a market is with a single operator or system. This is most often the case with large national based infrastructure. For example, it doesn’t make any sense economically to have 2 competing sets of national railways alongside each other, to have 2 sets or power lines, or wireless competitive 5g towers serving the same geography. This idea isn’t new, and goes way to back to Adam Smith and the Wealth of Nations. And while it would be dangerous to have infrastructure businesses that are privately owned not to having any competition, if they’re publicly owned, and regulated we can remove problems associated with monopoly operators.

Competing interests & political instability – When things like ‘energy‘ are owned by private firms, their imperative is maximise profits and serve their shareholders, not their customers. At a time when we should be shifting to new forms of infrastructure, privately owned utilities create misaligned incentives in the market place. This will be to our long term detriment in the Australian economy. The NBN is a classic example. At a time when NBN is being rolled out (public), it has to compete with the 5G networks of Telstra (private). If we had a single telecoms infrastructure provider, we’d have a chance to build out a singular, worlds best network. Instead, what we have is a piecemeal financial basket case. We, the tax payers, are the losers.

I  truly believe the leadership crisis we are currently facing in Australia (today and over the past decade), is partially because of the problems of vested interests trying to influence the public policy. We have a population that want to move towards renewable energy, yet factions within political parties are influenced by the coal lobby and short term financial interests. The net result is that leaders can’t make the decisions they need to for a future proof economy and we end up with a dysfunctional government.

The benefits of publicly owned utilities – Crucially, this idea isn’t something which sounds fanciful, but just isn’t possible financially. The investment markets have already priced in the truth of what I’m talking about here – that is, the cost of many infrastructure assets are at all time lows. Telstra has a yield of 7% and new coal fired power plants are literally un-investable. Hence, these infrastructure assets could be taken back into public hands at, or below the cost of capital to acquire them. If we did this, the Government would have the ability to build out what the people actually want, and what the future needs. These renewed Government owned enterprises could serve as future employment training grounds in critical skills arenas and we could re-engage our long lost technical apprenticeship model of employment. And let’s not forget that having infrastructure which is world class would facilitate startups to compete globally. This would benefit both the tax base (remember the Gov has a 30% Joint Venture with every business via tax) and open up export potential. What we learn building this out, could then be built in other countries. (software & hardware)

This program might be something we just need to do for 20 years before going private again. But what is clear that our telecoms are a mess, our energy system is a mess and we need new infrastructure quickly if we want to remain wealthy and relevant.

Just this week I was in Sri Lanka and they already have 5G well underway. Emerging economies are building out tomorrow, while wealthy countries like Australia mess around with yesterday’s technology to keep the rich and influential happy. It’s the great squander of our times. One of the reasons the government won’t serve us in Australia, is that we don’t own the assets the decisions are being made around. Maybe if we took the assets back, they’d have to make sure they run these industries properly or they wont get voted back in.

Radical times, require radical action.