Rethinking Capitalism With the Blockchain


It’s easy to think of capitalism as being an ever-present cultural artifact since most of us have grown up in countries where capitalism is the leading political and economic template. But capitalism as an ideology, and as a cultural manifestation, is a relatively recent phenomenon whose origins were violent and turbulent.

We are a trading species and haggling and opportunity seeking is part of the definition of being human. Almost every society has engaged in this form of activity from time immemorial. But in the late 17th century, and especially in England, something occurred which resulted in a departure from the norms that had prevailed for governing society for close to four thousand years.

Previously, religion provided the roadmap for morality, and hard work was promoted as the pathway to virtue. Royalty ruled over countries and provided order to their territories, which were constantly under threat. So remaining in power also meant engaging in war.

When taxes failed to meet the costs of war, King James the First, being the largest landowner in England, decided to increase his revenue by giving exclusive licenses for the production of a product, a trade or even a government service. This led to the construction of monopolies and in 17th century England, there were monopolies for almost everything from coal, bricks, food, and even belts and buttons.

But what King James, and monarchs after him, had not bothered to consider was the effect this was going to have on the culture of their society. As an increasing number of people tried to compete for these monopolies, the competition began to challenge submission. A growing number of new landlords, members of trading companies and cloth manufacturers began to gain a voice in the way the country was being run.

Juxtaposed with this transition was the English Civil War. Following the execution of King Charles the First, the monarchy was replaced by the Commonwealth. In a short span of 30 years, merchants and manufacturers went from being subjects to public personages with political power. Economic grievances thus became political issues and competition was seen as the sister of innovation. Gradually, the established hierarchy started to crack as new entrepreneurs began to emerge making society more fluid in the process.

The result was a departure from the old ways of thinking which ignited commentary, debate and explanations. As the traditional order was overturned, people began to change their ideas about fundamental values. Previously, change to the order was regarded as blasphemy. But the growing prosperity offered by capitalism encouraged individuals to take risks, question the status quo, challenge authority, and be less fearful of innovation and novelty.

Today, this might seem almost like common sense. But this mode of thinking was the result of the birth of capitalism. It was a renegade mode of thought that gave an attitude to the way men and women thought, and challenged the values, habits and modes of reasoning of the past. It was fraught with opposition, was the bedrock of revolutions in almost every developed country, including the Industrial revolution, and has defeated Socialism, Marxism, Communism or any other kind of ideological ‘ism’ till date.

As the centuries rolled on, capitalism spread like a prosperity juggernaut and in doing so, changed our mindsets and ingrained the concept of free markets and profit maximization as natural law. We believed the economists who preached it from their podiums and policy makers who used it as a yardstick for policy construction.

But just as King James, blind sighted by short-term gain, failed to see the cultural ramifications of capitalism, we too as a society have been oblivious to the cultural impacts of capitalism as we pursued our hedonistic objectives – both as individuals and societies, especially in the past few decades.

Capitalism’s Waltz With Debt

Following the second world war, advanced economies in the West installed a ‘state-administered’ version of capitalism where economic growth coexisted with social and political stability. For almost three decades, this version of capitalism became the gold standard of government and remains the nostalgic fodder for politicians’ campaigns.

But by the end of 1970’s, this formula for success began to crumble with the outbreak of the oil embargo and the Iraq-Iran war. As oil prices began to soar, industries began to suffer and the newly elected governments in the US and the UK realized that they needed to find radical new ways to create economic growth to stay in power.

One of the ways they responded to this crisis was by privatizing industries, a move that is now referred to as Reagan-Thatcherism. The strategy was simple – If companies and households could not earn their revenue as they did before, they could lend their way to it. As public services were privatized, economic decision making was taken from government and handed to Wall Street.

As time went on, this process was amplified. When globalization began to take manufacturing jobs, high-paid skilled jobs were replaced by low-wage jobs in the service industries. Wages stagnated and people began to earn less than they did before.

In the process of finding a solution, governments once again turned to the commercial banks and relaxed lending restrictions. Even if wages were static, people could borrow money and maintain a certain lifestyle. As a result, the ability to manage society and economics slid gently from the control of the state to the commercial banks and financial markets.

The cultural ramifications were that debt-based capitalism became a norm and an increasing amount of importance was given to growth and consumerism. We went from being ‘citizens’ to ‘consumers’. Free market policies and regulations that would aid in providing more debt (see the repeal of the Glass-Stegall Act) were one of the main tenets of macroeconomic policy.

The result is something we all know too well and which we are still recovering from – In 2008, our debt-based capitalistic system collapsed under the weight of unsustainable loans, as our hedonistic pursuits become collectively unsustainable.

How did we get into this mess? How did we go from using capitalism as a way of escaping dictatorial doctrines to a society that was wasteful, indifferent and voracious? How did we not see this cultural change in which having more and consuming became paramount to anything else? The more money, freedom, leisure and luxury we got, the more we wanted.

One of the main reasons for this was the overall acceptance of contemporary free market capitalistic theories and the policies and models that were based on these theories. Free market economic models (and the policies that are based on it) are based on two main theories – the Rational Expectations Theory (RET) and the Efficient Markets Hypothesis (EMH).

These two theories work in conjunction. The RET states that the expectations of players in a market are formed on the basis of the information that they have and their past experiences. According to this theory, stock prices reflect all the information regarding a stock. Thus, by using the stock price as a proxy, we have access to all the information regarding a stock on the market, and can make rational decisions based on our expectations.

If someone makes a bad decision, then it is offset by someone who makes a good decision. The market is thus in a constant state of efficiency where the price of a share intrinsically incorporates all the relevant information. As a consequence, markets are in a state of equilibrium (EMH). We might have a shock now and then but the market always goes back to its natural state, which is that of equilibrium.

Our faith in these theories has resulted in accepting that the bad actions of one economic agent would be offset by the good actions of another. As more debt was offered to us, we accepted it as it was now the norm. In the process of handing over responsibility to the ‘other’, we believed in the banks, bought their complex debt-based financial instruments (CDOs, CDSs, etc.) and listened to the bastions of the system as they preached about its benefits from their pulpits.

These increasingly complex financial instruments have contributed to the development of a far more flexible, efficient, and hence resilient financial system than the one that existed just a quarter-century ago. After the bursting of the stock market bubble in 2000, unlike previous periods following large financial shocks, no major financial institution defaulted, and the economy held up far better than many had anticipated” – Alan Greenspan, the Chairman of the Federal Reserve, (2005).

Those who challenged the status quo were ostracized from academia and markets, while the players in the economy were happy to go on taking debt and serendipitously advance towards a false sense of prosperity, leaving the hard business of understanding the macroeconomics of the system to people who were elected to do so.

But following the crisis, we need to take a step back and question this reality and the abilities of these economic bastions. We need to ask ourselves if the entire structure of analysis and the level of understanding of the experts needs to be questioned. This statement was best summarized by the Queen of England when she visited the LSE in 2007 and asked the economists in the room a very simple question,

“Why did no one see this coming?”

Thus, conducting a review of economic dogmas necessitates a review of the very basics, i.e., RET & EMH. More importantly, it requires a change in mindset and asking the right questions. Consider this – If our economy is supposed to be based on patterns of equilibrium, how does it explain a capitalistic system’s obsession with constant growth? Think about it – If you work in a company or are creating one, then the primary objective is to grow. Every company is constantly trying to expand, or buy out or merge with another company. It seems that it is never happy where it is and even if a company wishes to remain constant, its competitors will force it to move.

So if this state of entropy is the natural state of affairs, then why do we use equilibrium-based economic models to witness economics and pass public policies (monetary and fiscal)? We can extend that line of questioning and even challenge the RET – If all decisions are rational, then why do people engage in philanthropy? From a personal objective perspective, it would seem to be the most irrational thing to do.

In spite of these abhorrent divergences from reality, we continue to pass policies and enact measures based on analyses done using DSGE (Dynamic Stochastic General Equilibrium) models. It’s like the equivalent of bringing a turtle to a rabbit race.

Not questioning these fundamentals has been one of the primary causes of our addiction to debt and our laissez-faire attitude that has allowed banks to get bigger and more entrenched in every aspect of policy making. Therefore, what is required is a revisit to the very fundamentals on which we base our understanding of the economy.

We need to move from equilibrium-based models to entropy-based ones. Equilibrium can exist in an economy, but it is a temporary state. The natural state of an economy is entropic due to the constant exchanges and decisions being made by agents and actors in the economy. In short, we need to move towards complexity economics.

Complexity economics was devised based on this understanding of entropy and is a field that is gaining increasing prominence today. In a recent speech, Andy Haldane, the Chief Economist of Bank of England stated it is necessary for the bank to base its models on complexity science as it allows us to integrate complex, adaptive networks. Using these kinds of models, economic policy would be based on dynamic complex network analysis and behavioral modeling, thus giving us a template that is more suited to modeling reality.

The blockchain’s role in all of this

In the past few years, commercial and central banks have been toying with the blockchain owing to its operational efficiencies. In a recent report, the Centre for International Governance Innovation (CIGI) stated that G20 countries should create a central bank blockchain consortium, a la R3CEV.

The blockchain is many things to many people. But at its heart, it is an engine of transparency. While it is irrational to think of the blockchain as some kind of panacea that will be the solution to our current economic malaises, it is nevertheless a useful tool that can be used with other financial technologies to offer us more clarity of our capitalistic system. And this clarity is required today if we are to use capitalism to escape from a coterie of rulers, as we did in the 17th century.

This issue needs to be discussed today as enter an era where banks, academics and public institutions push us towards a cashless economy. Becoming a digital economy comes with benefits, but also comes with increased risk, owing to the speed, size and interconnectedness of the financial system. And one of the ways we can ignite this conversation is by leveraging the transparency that is provided by new financial technologies, especially the blockchain.

Transparency is a lop-sided issue in today’s financial markets, for as we transition to a cashless economy transparency seems to be a one-way street. As customers and citizens become digital avatars, banks and government institutions now have greater amounts of highly granular data with stark levels of detail.

But peculiarly, consumers, on the other hand, are not privy to the same amounts of transparency when it comes to the financial operations of banks and public governing bodies. A review of some of the scandals that have unfolded in the past three months highlights the need for two-way transparency:

It is, therefore, urgent that we ascertain what kind of an economic reality we are headed towards before any infrastructural changes are put in place. Or else, the spread of a crisis in a hyper-connected digital economy will be faster and more violent than before.

The blockchain’s transparency is however only part of the equation. Transparency can be illuminating, but to transform transparency to clarity still requires effort. While the blockchain allows us to see what is going on, it would make no sense to use this information as an input to models based on equilibrium. If we are to truly leverage the potential of the blockchain and use it to define macroeconomic policies that are more representative of reality, it has to work in conjunction with complexity economics:

(Blockchain’s Transparency) + (Economic models based on Comp. Economics) = Clarity of Capitalistic system.

As we move into a more digital world with faster technological evolution providing strong headwinds of change, it is important to realize that adapting to this change will not simply be a case of investing in the new tool or updating one’s skillset. Capitalism has always been a renegade, whose greatest impacts have been born out of conflict and change. At every turn, this has required that tough questions be asked, and our notions and conceptions be rewritten.

If we are to continue growing with hedonistic sustainability, we need to better understand capitalism. The unison of complexity economics and the blockchain is a step in that direction and will entail the creation of new cultural forms, institutions and a new vocabulary for education. But with a better understanding of capitalism, people in democracies can play a much more positive and vigorous role in shaping their economic institutions.

There would be no capitalism without a culture of capitalism and there would be no culture if the existing ideologies were not challenged and overcome. At a time when information is so abundant that we can get the answer to any question, the real responsibility becomes asking the right question. If we fail to ask these questions and leverage the power of decentralization and transparency, we risk starting a conversation with the next generation by beginning with an apology.

Disclaimer: This article contains extracts from the author’s new book, ‘The Blockchain Alternative‘ (2017)

Kary Bheemaiah is the author of ‘The Blockchain Alternative: Rethinking Macroeconomic Policy and Economic Theory’ (2017).

References:

  • Complexity and the Economy, W. Brain Arthur (2014)
  • Rethinking Economics Using Complexity Theory, Kirman, D. H. (2014)
  • Reconstructing economics: Agent-based models and complexity. Kirman, M. G. (2013).
  • Complexity Modelling in Economics: the State of the Art. Economic Thought, Vol 5, Number 2, 29-43. Bruno et al. (2016).
  • Why Information Grows, Hidalgo, C. A. (2015).

Blockchain


Blockchain is a distributed database that maintains a continually growing list of records that can be verified using hashing techniques.

Blockchain implementations have a handful of defining characteristics, it’s:

  • write-once;
  • append-only system (meaning records in the database cannot be changed, records can only be added to the ledger);
  • distributed;
  • replicated in multiple locations;
  • crypto-secured through a public or private key infrastructure;
  • uses hashes.

The hash functionality is particularly important as each individual transaction is hashed into the chain, and each block, which contains a bunch of transactions, is also hashed, which links it to the previous block. The moment anyone tries to change a transaction, everyone who has access to the chain would know immediately that it’s been tampered with because the hash wouldn’t match.

This creates a platform where multiple parties can share data, but all have proof that past records have not been changed. It’s quite a remarkable platform, but it’s in the very, very early stages of maturity.

Italy’s Future And The Future Of The European Union: Is The U.S. Watching?


Summary

  • Italy seems to be growing more and more disenchanted with the eurozone and this is reflected in the rise of political discontent and social unrest.
  • Italy, with its history of weak central government since the Second World War and with its emphasis on regional and local politics, is having trouble swallowing strong EU oversight.
  • The US needs to keep an eye on what is going on in Italy because of the possibility that Italy might elect a populist government, one that would “leave” eurozone.

Italy has the third largest economy in the European Union. Italy has been a part of the European unity movement since its very start. Yet, Italy itself may represent the very contradiction that might ultimately bring the EU to its knees.

And, this is something we, in the United States, should be very interested in and be watching closely.

A breaking apart of the European Union would have very serious consequences for the health of the US economy. It is definitely in the best interests of the United States to have a well-working, well-functioning European Union. The United States stands to lose a lot if the EU fails, even partially.

The European Union is a federation of many separate, independent nations. This has always been one of the major concerns about the future of the community. Experts, right from the start, argued that for the EU to have a common currency, it also needed a common government. Yet, a common government was never formed and, in its current state, it would appear that the European Union forming a common government is even more of a dream than ever before.

One of the biggest political movements in the EU today is that of nationalization, the idea that the focus of a nation should be on its own issues and worries and that country’s need to return its efforts to resolving internal problems. And, with all the elections taking place in the EU this year, the idea of national focus has grown in attention and popularity.

The major proponent of this is the Netherlands did not win the election, but the person who did take up the strategy of taking over some of the “populist” strains of the Mr. Wilders, the right-wing candidate, in order to hold off voter surge in this direction.

Now, there is an election going on in France, and the right-wing leader Marine Le Pen is causing a lot of people to lose sleep over the possibility that France could possibly move in this direction.

Then, there is a German election in the early fall of this year and the candidate focusing upon national sovereignty has been getting a lot of attention although it appears as if his chances of winning are quite low. The point is, however, that even Germany is not immune to this move.

Then, there is Italy. Italy must have an election before February 2018. And, right now, the person leading all the candidates is Beppe Grillo, the comedian leading the Five Star Movement, an organization that wants to leave the Euro and the European Union.

But, Italy, internally, is a representation of what the European Union faces. It is a very regionalized country with a very decentralized national government. A lot of its political strength lies in regional or local governing bodies. People in Italy get phrenic when there is a discussion about a strong central government.

The Italians had their strong central government under Mussolini in the 1930s and 1940s, and built their post-World War II governmental structure on the basis of making the central government as weak as they could. This regionalization has dominated Italian politics ever since.

And, this fear of centralized government is still permeating the country and dominating what is going on there.

This fear of a strong central government resulted in the resignation of former Prime Minister Matteo Renzi and, among other things, is causing divisions within his own party that is blocking the way to his return to power.

It would not be unusual for Mr. Renzi to return to power. Italy is notorious for having many governments, with many of the same leaders going in and out of power. For example, just since November 2011, there have been four prime ministers, not because of popular elections, but because of financial emergencies, factional squabbles, party coups, and failed constitutional reform.

This is not unusual despite having one of the most vibrant economies in Europe in the late 1950s and 1960s, from June 1945 through December 1970, there were 28 governments formed in Italy with an average life of 11 months. The general reason for changes was that party factions were discontented, disappointed that they did not get what they wanted, and so pulled out of the coalition.

Italy is in the midst of troubles right now with problems that are being attributed to the fact that Italy cannot respond to its own needs because of having to adhere to the strictures of the European Union. Tony Barber writes in the Financial Times that “Italy is Falling Out of Love with Europe.”

The most disturbing thing that Italians are facing right now is that its economy is the slowest growing economy in the eurozone. “Public debt is more than 132 percent of gross domestic product, unemployment is almost 12 percent, and the youth jobless rate is over 37 percent.”

The banking system is in dire straits as are many local governing bodies throughout Italy.

Many Italians associate this dilemma along with an even longer-term stagnation with its membership in the EU. Mr. Barber writes “many Italians see the Euro as a straitjacket.”

“As a consequence, even more Italian politicians question the merits of eurozone membership. So do Italian voters. In a Eurobarometer poll published in December, 47 percent called the Euro ‘a bad thing’ for their country and only 41 percent ‘a good thing.'”

This is why Mr. Grillo and the Five Star Movement seem to be doing so well these days. They are tapping into the basic Italian discontent with centralized government. Historically, the Italians seem to like smaller, more independent governmental bodies that can reflect and deal with local problems. This is why they constantly seem to vote against reform.

But, Italy is a part of the European Union and what it decides to do can have major repercussions not only on the eurozone itself but on the rest of the world, especially on the United States that is closely integrated with the EU.

Also, Italy is a prime example of what can happen when regional and local issues can override national, or larger, governing bodies. The United States has shown how regional and local issues can be incorporated within a larger, federal body of states, and still produce exceptional outcomes. Regional and local issues still can be problematic, but, ultimately, the benefits from union can overcome the loss of independent control.

Europe is not there, yet. It does not have a central, federal government and hence has problems in achieving the scale of operations that are necessary to be competitive in today’s world. And, it seems as if it is a long way from getting there.

That is a long-run issue for now. The current problem is keeping the European Union together and avoiding an Italian withdrawal. In spite of everything else going on in the United States, businesses and investors need to keep watching what is going on in Europe because if some state, like Italy, leaves the community, global markets will suffer.

(article by John M. Mason)

The quintessential business startup strategy


What is a business plan? Do you need a plan before you start a business? How do you prepare yourself to enter a marketplace and compete? I will show you the importance of planning your startup strategy and how to prepare it effectively. Once you have a reliable plan you can execute your startup strategy with confidence.

Planning is certainly necessary to achieve success, regardless of what you do in life. You want your decisions to be calculated… they should only be made after performing proper due-diligence to know exactly what you are getting into ahead of time. You must avoid being blind-sided by the unexpected.

Risk, hazards, and many pitfalls exist on the path to business ownership.

What does plan really mean? It is defined as a scheme or method of acting, doing, proceeding, making, etc., developed in advance. If you are a military General, will you go to battle without a plan? Of course not! So why would you go into business without one? The marketplace is quite a battle-field out there with many foes who are ready to fight (compete) with you.

Knowledge and experience are your weapons, and if they are sharp, you will compete well. The problem is strategy. Knowing where to start and how to proceed. Eight-out-of-ten businesses fail after 18 months, statistically. The primary reason for failure by the intelligent entrepreneurs is lack of proper planning. You can overcome just about any obstacle in life if you fully understand it, and then devise an effective strategy to overcome it. Be a calculated decision-maker and your chances of success will be high.

You have a good business idea and you wish to find investors, open a location, develop a product, or market a service. Stop and prepare a good plan of action first. It does not need to be extensive or formal, but it certainly needs to be comprehensive. Put in the effort and cover all of the angles. Consider this action-plan your battle-plan, since you will need it to compete.

All of this may sound quite involved, and even discouraging since you just want to get out there and do business, BUT… you won’t be out there long if you get squashed by your competition. The businesses that belong to the 20% club… those two-out-of-ten companies that survive beyond 18 months, most certainly involve themselves with this kind of research and planning. You WILL need to compete with them.

Pre-plan preparation

Fully educate yourself regarding your industry, your target audience (demographics), your competition and the economic conditions. Anticipate how your customer base will react to your idea, and how your competition will make their moves when you enter the market. Document the weaknesses of your competitors and target them. The knowledge you gain from this research will be used to form an effective tactical plan which will allow you to anticipate outcomes and to be prepared for pitfalls.

All of this preparation will be used to define your business model. That is, the purpose and process of your new venture. Your business model will also include customer base definition and distribution-channel identification… how you will receive goods and how you will deliver products to your customers.

Study your industry

Who are the suppliers and vendors you will use and what kind of bargaining power can you bring to the table? You always need to keep costs as low as possible to improve profit margin, so arm yourself with an understanding of how well you can negotiate deals. If you understand the potential market-share you can achieve, and you can back that up with tangible fact and figures, you may be able to convince them to sweeten the deal in your favor.

How competitive is your industry? Analyze what makes the successful businesses tick and understand exactly what the poor performers are doing wrong. Really dive into expected profit margins in your market since tough competition tends to drive those margins down. Learn how profitable your competition really is.

What is the market structure of your industry? Determine the number of firms that exist in your industry and how large they are. The market entry conditions must be fully understood. That is where and how companies typically do business (meet and connect) with their customers.

Determine the product or service differentiation in your field. Know how many types of products or services there are and what kind of differences exist. Understanding and defining your market structure will prepare you to operate tactfully in your industry.

Challenge the status quo…the existing state of affairs. Maybe you can come up with a new way to do business in your industry. But be careful and cautious since mindsets are difficult to change. You will need some good vision to pull this off. The rewards can be exponentially higher, but there is much more risk.

Understand your target audience

What are the demographics… what makes them tick? To start, the SBA (Small Business Administration) provides many such market research tools. Local economic indicators are available for your geographic area of interest which includes income and employment statistics along with others. Visit the Bureau of Economic Analysis to find a barrage of economic indicators that will provide key data about the region you wish to do business in. Or you can use this to find a good target region. There is a wealth of other tools and resources there including business training, financial support, and a broad network of affiliates ready to help.

You will need to know how your target audience reacts to your idea. Perform Qualitative research using focus groups and Quantitative research using surveys and questionnaires to perform effective market studies.

After you have collected the market study data, it’s time to really get to work preparing and interpreting the data. Put all of the right KPIs (Key Performance Indicators) into your market research outline. Then, evaluate and prioritize the KPIs that you used in the market research data collection stage. Be objective in your approach to interpreting the data.  You need to avoid statistical bias as you proceed with this process.

Now that you understand what the public thinks about your company, product or service, you need to make any necessary adjustments for marketability. Make your idea marketable, and then your advertising will have the potential to be very effective.

For an in-depth explanation showing how to perform all of this market research, please read Effective Marketing Strategies. There is much more to this than I will detail here, and a deep understanding of marketing will really make the difference

Identify and evaluate your competition

Investigate them. Discover who and how loyal their customers are. Determine the yearly sales volumes of your competitors. Detail their strategies. Read customer feedback and gain insight from resources like Better Business Bureau about your competition. Study indicators like longevity so you can determine how long each competitor has been in business. Review their history to understand what changes they have undergone over the years and why.

That was quite a list! Knowing who your competitors are and what makes them tick will allow you to survive as you compete with them. I will compare your competitors to sharks. If you dive with sharks, you need to have a properly designed cage to ensure they can’t bite through it. Also, you need to understand sharks and fear them without being afraid, if you wish to swim with them not using a cage. Same with business. You can swim with your competition if you understand and have a healthy fear of what they are capable of. A nice thought may be… we are much smarter than sharks!

I will soon publish a blog post detailing how to Identify and evaluate your competition, so stay tuned, there is more to come! For a short but informative post that will help with this topic right now, read: Competitive Analysis from Entrepreneur

Product or service differentiation

How are your products or services different from the competition? What makes them better?  If you plan to enter the market with another version of an existing product, there needs to be an advantage to yours. Quality, functionality, price, or appearance, just to name a few factors that can vary. First you need to identify the existing differentiation among what is already in the market. Then you need to perform a good comparative analysis to provide confidence there is ample differences or advantages.

Pre-plan-prep is all about becoming an expert in each of these areas, and the level of difficulty should not be very high… it just takes some research and study. Keep good notes for reference, and update them regularly as changes occur. The insight you gain from all of this will provide good visibility into what kind of strategic moves you can make to gain market-share.

Put your strategies into your startup plan

Now you are ready to start creating your winning plan. Having performed all of the due-diligence you should now be an expert in your industry. An effective tactical strategy to start a business will be vital to the success of your startup. Do this part correctly, and you will ensure your position in the 20% club!

Creating a formal business plan, which is also important, will not be the focus here. That is an important process in itself and will be covered soon in another post. It is the strategy in the plan, the meat and potatoes of the plan, that I will be covering here. The actual action you will take to start a business, laid out informally, as a guide for you to follow as you execute.

Keep it cheap

Set rules to follow when you execute your startup plan in order to keep costs down. Use low-cost or free resources throughout your operation like free trial software versions which you can evaluate while starting your business. Utilize your home office and garage vs. renting a space. Identify every area of spending required during your startup venture and document it.

When your plan is complete, list everything you will need to buy. Brainstorm each item to come up with ways to save money. Take your list, which is basically a shopping list, to second-hand stores and start saving. Be frugal in all you do. The good stuff can come later when the profits roll in.

Position your product

Establish the positioning statement about your product or service.  This statement is of the utmost importance and should shed light on the unique value your product or service offers. What benefits will you bring your customers? Also, it will define the target demographic which will focus the advertising specifically on them.  The product or service category must be clearly defined by this statement, and that will prevent any confusion about what you are selling.  In this positioning statement, you must prove to your audience that they can trust you and what you have to offer them.  The final statement you develop must be short, concise, and deliver impact in each of these areas.

There is one key difference between a positioning statement and a tagline. Taglines are outward facing. They are simple, compelling statements viewed by the customer. The positioning statement is internal, and will be used to define all advertising and even internal operations. You can use the position statement to test all new ideas, to ensure they match up with what you are really going for.  A fun example is from Harley Davidson:

The only motorcycle manufacturer that makes big, loud motorcycles for macho guys (and “macho wannabes”) mostly in the United States who want to join a gang of cowboys in an era of decreasing personal freedom.

That is a clearly defined identity for sure!

Their tagline:

American by birth. Rebel by choice.

This fits well and sounds compelling to their target demographic, right?

Here is a simple template you can use to set up your own positioning statement:

  • For (target customer)
  • Who (statement of need or opportunity)
  • (Product name) is a (product category)
  • That (statement of key benefit)
  • Unlike (competing alternative)
  • (Product name)(statement of primary differentiation)

Once you have this statement completed, allow it to fully sink in, so it becomes instinct.  That way, you’ll always be able to answer correctly when you question any idea, to see whether it seems to fit into the identity of your company or product line.

Build a winning brand

Having a consistent company theme throughout your organization causes customers to become accustomed to the environment that is conveyed to them from all of the points of contact at your company. This called cross-channel customer experience. Familiarity can be achieved from your customers and that is very powerful. It will heavily contribute to brand recognition and appreciation.

Keep your staff excited about your products and services. Be a motivational speaker for your company!  Your staff will be more responsive to you and your customers.  When your customer gets the feeling that you and your staff are excited about what your company has to offer, that excitement can spill over… especially when it’s consistent across all points of contact with your company.

Brand building is the process of creating deep connections and forming an emotional relationship with your customers. This is not easy and it takes much time. Read Gaining Customer Loyalty for an in-depth dive into what it really takes to make customers stick with you.

Use charitable causes and missions to your advantage

By aligning with one or more, you will start to establish brand recognition and trust in the marketplace. Be authentic and truly care about the community. The public will call you out on it if you are not genuine, and that will destroy all that you have created. When you show that you care by contributing to a charitable cause, public support for your brand will grow nicely.

Targeting specific demographics

Never target the general population, that is a recipe for failure. Narrow your focus on who will actually pay for your products or services, your target audience. You already identified them in the pre-plan-prep, so now put this into your plan of action.

Advertising

There is no need to discuss all of the many, many forms of advertising out there. You see it all around you, on the streets, on television, online, and you hear it on the radio. The forms of advertising you chose will be based on your industry and what you can afford. More than that, which form of advertising will be most effective for your business. Choose the variety that provides the best bang-for-the-buck. Be sure to start small, so you can optimize your ads affordably.

One defining factor used to determine your advertising budget is the cost of customer acquisition. This number is derived from a simple equation:  Money spent to bring them in divided by the number of customers you receive. The equation gets more complex when you add customer loyalty and repeat business, but those factors lower the cost of customer acquisition.

Before you advertise, you must first be fully prepared to sell. You and your sales staff must truly understand your product or service, and be ready to deal with the public when they inquire about it. Ineffective answers to inquiries after advertising simply wastes the time, effort, and money that went into finding customers in the first place. After you have sales people in place that can really sell and close deals effectively, you will be ready to advertise your products or services.

A successful advertisement will compel your target audience by creating a desire and revealing a nice way to satisfy that desire. Appeal is very important but can be very difficult to determine. Usually, ads, after much evaluation and improvement, need to be tested.  Good statistics must be kept with every ad design iteration and then compared to the previous version. This is a very involved process but will allow you to tailor your advertisements for your target audience to maximize their appeal. Set a tone which caters to your customer’s wants and needs, and helps shape their associations, feelings, perceptions and attitudes to your brand when they think of products or services related to your industry.

One rule to consider for any advertising campaign, if your small business is unknown, is to be seen multiple times in order to gain trust from the public. It is human nature for people to slowly gain trust in something or someone simply by having reoccurring contact. The first time they see an ad from your company, they will probably disregard it. They don’t know who you are.  But after seeing an ad from you multiple times, if they have an interest in your product, their confidence will begin to build and they may finally inquire about your product. Knowing this,  just be patient. Repeat your ad campaign over and over until you really start seeing results.  After that, like magic, your phone may really start ringing off-the-hook, or your in-box will start to fill with inquiries.

As I stated before, there are many, many forms of advertising out there. Find the one that will be most effective for each dollar you spend on it.

Plan your market entry

Now that you fully understand your target audience, your negotiating power with suppliers and vendors, your competition, and you are an industry expert based on your research, put a plan together for how you will enter the marketplace. Just detail all of this out, and thoughtfully plan how you will execute in each area. This thought process is of the most important, now that you have a differentiated product that is ready for market. Document it well and commit it to memory. You don’t want to be caught off-guard.

Remember… challenge the status quo. The rewards you will receive if you can change the way business is done in your industry will be wonderful if you can mitigate the risk. Put it into your plan and test it!

Customer service strategy

To the customer, your company will only be as good as the last time they had contact with you. Small businesses, not having universal brand recognition, must provide stellar customer service along with a stellar product in order to stay on top of the customers mind. Good memories don’t stick in the mind of your customers as well as bad ones do.  This provides an on-going challenge… keep the good memories flowing to your customers!

There is a strong bond that can be achieved with your customers when you provide them with repeated good memories… customer loyalty.  Customer confidence comes from the trust you establish with them, but customer loyalty is the bond that keeps them coming back. Use the examples below to provide the kind of customer service that demands loyalty from every customer.

For a great level of detail on how to provide the best customer experience, and what type of actions to avoid to prevent those bad memories, read Gaining Customer Loyalty.

Exit strategy

Sometimes major setbacks occur that may put you out of business, like the death of a key stakeholder, or your own illness. Be sure to start and then contribute to a retirement fund. Purchase some of the many types of insurance. To list a few: Employee liability, commercial auto, general liability, property, worker’s compensation, professional liability and data breach.

There are many types of insurance that an agent would love to sell you, so get the information about what is available, and what each one covers, but then be shrewd. Insurance is a service, even if much of it is mandatory, so treat is as a product and weight the cost vs. value for each type. Don’t over-insure. First, comply with what is required by law, and then go with your instinct, based on research and shopping around.

If you plan on selling your company after reaching a certain mile-stone, like gaining a specific amount of market-share, put that into your plan so you know when and how to start advertising your business.

Select a team (staff)

You will have to wear many hats… perform many jobs as a startup business owner. But you can’t do everything. Plan to hire key staff members that can help you get to then next level, time and time again. Lay out the details for this in your plan so you can anticipate what kind of help you will need based on your own talents and short-comings. Think through and document what stage you expect to need this help and write up your plan to convince them to join you, since you probably won’t be able to provide a competitive wage at first.

Monitor changes in the market (customer needs, new competitors, and new technology)

This is something that should never ever stop. Changes occur often, in every industry, so stay on top of them and make adjustments to stay competitive. Anticipate changes before they occur and you will be able to change course on a dime, out-witting your competition.

Line up customers before you open your business

Getting your products out to your market ahead of time will allow you to get feedback and testimonials that you can use in your advertising when you open your business. Provide free samples of your products in a creative, promotional way.

Set new trends with your idea

Following market trends is safe but strategically setting new market trends will truly make you stand out. Put your vision to the test with this one!

Manage your strategic action business startup plan like a project which has timeframes, milestones, commitments and good communication and understanding. Use good resource allocation so key players get their piece of the project and assign key deliverables. Project management is key to successful execution of a business startup plan. Be calculating and tactical every step of the way.

(article by G.Hixon)

Mentors: The good, the bad and the ugly


I have mentored hundreds of entrepreneurs from dozens of countries.

Pretty much every flavour, from MBA graduates or successful professionals that discovered they want to suffer the freedom to start from scratch, to young developers in accelerator programs across Europe.

The lost causes, the predictable success stories and everything in between – half probably don’t remember me, a few hate me, too many take my advice too seriously.

I’ve managed dozens of mentors that gave up the time they didn’t have for their families to help the next generation in many of these programs. They obviously also had an opinion on how to manage a business to support entrepreneurs launching businesses.

As a consequence of launching my first FinTech startup 3 years ago, with both the benefits and challenges of having never worked in financial services, I’ve dealt with both people who wasted my energy as well as geniuses that we couldn’t have survived without. And, truth be told, geniuses that could have ended us and other people who we owe being alive to.

I’ve experienced from both sides of the table how mentoring can make or break a startup: in many ways mentoring will shape your startup more than the little cash you’ve got left in the bank. Cash is probably a more urgent issue, but that merits another post.

Like a cult movie, mentors play three roles. It obviously helps if you figure out what shapes potential mentors before they become your companion.

The Good

Good mentors are the worst. The best startups navigate uncharted waters by definition, normally working on a problem no one has solved that way (if at all) before.

Domain experts will view everything from the lense of their (corporate) successes and failures. They are likely to answer the questions from the startup instead of helping them identify the right hypothesis to work on testing.

Serial entrepreneurs will rarely be transparent about the endless times they almost gave up, and rarely realise how much things have changed since they last spent time in a basement. Yet many can boost morale, share great ideas and introduce you to powerful friends. Handle with care.

The Bad

Bad mentors are relatively easy to spot. Conflicts of interest. Lack of hobbies. Ego driven. Trying too hard or not listening at all.

They might to be able to provide marginal value, but they are guaranteed to distract you as long as you allow them to.

Run as fast as you can unless you are out of ideas – in which case you should probably try to get a job.

The Ugly

Ugly mentors are the ones that hurt repeatedly, but that can gauge the urgency of the long list of unsolved problems that can make your startup fail, and help you identify options to continue your quest.

They are the ones that let you know when you are wrong, trying different angles to make you aware of risks you are oblivious to.

They are also the ones that provide data driven emotional support in times of need, the ones that understand that as a CEO one of your toughest challenges is managing your own psychology.

Always keep a few on speed dial. If you can’t find one, try talking to a stranger whose life could be better thanks to what you are up to and learn why he doesn’t care.

Worth it?

So is mentorship worth it? Most definitely.

You have to push your limits and try your luck. Learn and share. Share and learn because at the end of the day, beyond the human need to help others develop by looking at their problems from your perspective, enjoying the intellectual freedom of thinking about challenges that you are not committed to, or the comforting feeling of your opinion having a positive impact on projects that might change the world, the best thing about being a mentor is that it helps you realise whether you are ready to launch another startup or if you’d rather watch from the sideline.

(article by Luis Rivera)

What is the sharing economy?


An introduction to the difference between Couchsurfing, Uber, Airbnb, DoorDash, and Etsy

The sharing economy: We all have an understanding of it, but describing it is still a challenge.

We’ve also heard it called many things: “sharing economy”, “collaborative consumption”, “peer economy”, “on-demand”, and even “peer-to-peer marketplaces”.

All the companies placed in these categories have similar attributes: they wed supply and demand. Too often, however, we use the phrases interchangeably when there are actually key differences that should be considered in order to understand how these new categories shape our economy.

The phrase “sharing economy”, most similar to “collaborative consumption” and “peer economy”, suggests an economy based on resources, and not on any abstract system of money. For example, one of the most pure representations of the sharing economy would have to be Couchsurfing, which was founded over a decade ago.

As a host on Couchsurfing, you offer a spare bedroom in your home (or even just a couch) to “surfers”, usually foreigners travelling through the area who need a place to crash. In this case, there’s no exchange of money whatsoever, reflecting a true sharing model.

Yet Uber and Airbnb, not Couchsurfing, are considered the biggest “sharing economy” companies out there, most likely because Airbnb and Uber are valued at $25.5 billion and $62.5 billion, respectively. So where’s the sharing? Someone is either hiring an Uber or renting an Airbnb unit. The only “sharing” piece of the resources used is that the cars and the spaces are owned by individuals and are often underused assets, such as a car, space, and in some cases, a person’s time.

But there’s still money being exchanged. Uber and Airbnb would better be described as “peer economy” companies, because “peer-to-peer” is a decentralized system versus a more traditional capitalist system, where a business owner owns the production and hires the labor. In either case, however, money changes hands.

Further discrepancies arise when you take a closer look at these two peer economy companies. Most obviously, Uber is an “on-demand” service powered by “peer-to-peer labor”, whereas Airbnb is more of a marketplace. One can get a room on-demand, but that’s not a core part of the platform. And there’s no labor component at all.

This differs from Uber, when every Uber call is immediate. It’s an action that demands immediate action.

So what are the other on-demand startups out there that also aggregate labor? Dozens of food delivery companies (e.g. DoorDash and Instacart), household errands and services (e.g. Handy, TaskRabbit), and many others (e.g. Postmates, YourMechanic, Staffly)—these are less “sharing” economy companies, and more “excess labor” companies. In the case of these companies, there are no assets being shared, but services are being provided by a person.

Companies like Breather, WeWork, and Rover, on the other hand, are more like Airbnb, in that they’re marketplaces, with an on-demand component, but not an excess “labor” component.

Finally, there are the peer-to-peer models that are pure marketplaces, including Etsy, Shapeways, Vinted, and Wallapop. For example,  Vinted has no “on-demand” component, but it is a flavor of the peer-to-peer model since individuals are buying, selling, and swapping each other’s clothes. It’s basically Amazon for secondhand clothing.

But across all these companies, consumers are still paying, which is why the Harvard Business Review argues we should be calling Airbnb and all its peers (Uber, Lyft, WeWork, Instacart, Handy, etc.) part of an “access economy”, not a sharing economy:

Sharing is a form of social exchange that takes place among people known to each other, without any profit. Sharing is an established practice, and dominates particular aspects of our life, such as within the family. By sharing and collectively consuming the household space of the home, family members establish a communal identity. When “sharing” is market-mediated — when a company is an intermediary between consumers who don’t know each other — it is no longer sharing at all. Rather, consumers are paying to access someone else’s goods or services for a particular period of time. It is an economic exchange, and consumers are after utilitarian, rather than social, value.

While HBR makes a solid point, however, it doesn’t look like their article (published a little over a year ago) will make any inroads in changing how we speak about this new generation of companies. As a phrase and category, the “sharing economy” is here to stay, and it will continue to be used to describe services as wildly different as Couchsurfing (a website where people host strangers in their home for free), Uber and Lyft (apps where you press a button to hail a ride from a company contractor), and Vinted (an online marketplace where people buy, sell, and swap clothing).

My next pieces will expand on the sharing economy divisions introduced above, and will reveal how even “peer-to-peer” and “on-demand” are broad umbrella categories that don’t always mean the same thing in every case.

The shifting web behaviors across Desktop and Mobile

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The psychology of web design – How to make websites & influence people

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IT and the Internet: the last 30 years

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Le 5 tecnologie per migliorare la customer experience nel 2016 [Gartner]


Quali tecnologie avranno un impatto sul tuo business a partire dal 2016?

Guardare al futuro per rintracciare i trend tecnologici che definiranno i confini del business nei prossimi anni. Tecnologie molto diverse tra loro, ma con un tratto comune: l’impatto sui programmi a lungo termine delle aziende, sulle customer experience e sulle strategie di marketing.

Di tutte le evoluzioni previste da Gartner, in questo articolo abbiamo selezionato i 5 trend che faranno sentire maggiormente il loro peso sulla customer experience partire dal 2016.

RETE DI DEVICE

La diffusione dei dispositivi mobile ha creato una rete intorno agli esseri umani e alle aziende, moltiplicando i punti di contatto e di accesso alle informazioni. La tua strategia dovrà tenere conto di questa rete, e comunicare attraverso essa.

AMBIENT USER EXPERIENCE

La tecnologia digitale abbatte le barriere tra mondo fisico e virtuale. Compito di un brand è realizzare un’esperienza che sia davvero univoca, in grado di fluire attraverso i diversi canali senza interruzioni.

STAMPA 3D

Dal 2016 la stampa 3D potrà trovare nuova linfa vitale grazie allo sviluppo di materiali diversi e più economici da utilizzare. Questo renderà la tecnologia molto più pervasiva e gli sviluppi più interessanti a livello di business.

ADVANCED MACHINE LEARNING

Il futuro del business è nell’adozione di tecnologie intelligenti e interconnesse, in grado di imparare e – in un’ottica di vendita – predire il comportamento dei clienti.

PIATTAFORME DI INTERNET OF THINGS

Gli oggetti intelligenti rendono superfluo l’intervento umano. La IoT rappresenta la frontiera finale nel connettere l’intera esistenza del cliente al mondo digitale, il passo ultimo in quel percorso iniziato con i dispositivi mobile.

Saper leggere e adattare alla propria realtà questi trend evolutivi rappresenta – e in futuro ancora di più – l’elemento decisivo per trasformare una strategia tradizionale in una strategia vincente e tarata su misura per un mondo digitale e iper-connesso.

(articolo di D.Melpignano – dcx | Digital Experience)