The Efficiency of the Dissemination of Information

I had an extremely interesting class today in Management Statistics, an elective course I’m taking. Our class was focused around “models” and “model based learning”. My professor referred to models being a framework for the spread of knowledge and information and I found this extremely profound. He compared our western culture to inefficient societies such as India or China. His examples included The Great Wall of China and the Taj Mahal. You see these magnificent examples of engineering and artisitic brilliance, yet the majority of Chinese or Indians living around these wonders will typically live below the poverty line. Why is this? Is it a result of a lack of model based learning, leading to an inefficiency in the spread of information and knowledge? Or is it simply a result of a lack of distribution of wealth? Or even more importantly, is one a result of the other?

I have studied in India and found it extremely disappointing. I did my first half of High School there, and left after. The way education is structured in India is through memorization, rather than concept based learning. This is inherently flawed. If the objective of education is to enable students to apply that education in their future careers, memorization type learning fails to meet it’s objective. Students memorize, forget and move on. Concept based learning is much more effective in solidifying ideas in student’s minds, allowing them to apply their education in life. What’s interesting to note is that this is not even a general application of the spread of knowledge, but rather an example of where the dissemination of education is supposedly the prime concern.

But what my professor was speaking about was the spread of information on a more general scale. If we look beyond education systems, and we look beyond what we take for granted, we can see how accessible information is to us. Regardless of the internet, but in the western culture, information and statistics is extremely well documented. What this allows for is it gives any individual the ability to access knowledge on demand. This efficient distribution of knowledge is quite possibly the biggest reason for efficient markets and societies. In a place like India there is absolutely no way to access a statistic that may be relevant to you. For example, say you’re planning to be a street vendor but want to know the amount of customers that are interested in buying a certain widget in that locality. You would have no way of accessing that information. It’s simply not documented. In a place the US, it’s probably the other extreme where you could find ten reports of the same statistic, arguing with each other. But conceptually, the fact that you can at least access that information brings an extraordinarily amount of value.

I think we underestimate the value of how easily information is accessible to us. With the internet, information has become much more transparent and accessible to those in places like India, but it’s still much less efficient than our society. Ultimately, inefficient markets and societies will be exploited until the society and technology will stabilize the system and those within the system will move towards efficiency. I just hope that places like India will see the internet and current technologies as huge boons to them and see the value of information.

Do you need a marketing budget these days?

Back not too long ago, startups had million dollar marketing budgets. Five page marketing plans, a huge PR team, and numerous press events. Who does that these days? No one. Well maybe Pay Per Post, but we all know they don’t really know how to run a company anyways. The current “web 2.0″ boom (I do hate using that term), has enabled startups to have a marketing budget that is virtually zero. Users are easier to reach, communication is much more efficient, and information is much easier to sift through.

Marketing today can be as easy as calling up a well known blogger and asking him to write about you. Let them know what you’re building, why the world needs it (the “proxy for demand”), and what’s good about it. Typically, even the A-List bloggers will listen to everyone that comes their way. If experience has taught them anything, it’s that anyone can build the next Google. Good review, or bad, the press is out there and you will get a huge influx of traffic. While this may not be your key demographic of users, it will help tremendously in securing early adopters.

Social networks are quite possibly the biggest boon to startups. Harnessing the communication potential of a social network is invaluable, and free. Two words that typically don’t go together. One of the most recent, and most talked about, examples is iLike. While they had grown to a reasonable size, with the introduction of their Facebook Application, they have grown exponentially. You may ask then, how are any of the current Facebook applications, or even MySpace widgets planning to make any money? Well, smart companies are using social networks as a distribution portal, rather than a platform to build their company on, reducing dependency completely.

In my opinion, the greatest way of marketing, is in creating virality. That is, will the product user base grow, as a result of using it? As Marc Andreessen once noted, the difference between 3000 users and 300MM users for Hotmail was the little link at the bottom of every email that said “Would you like to join Hotmail?”. The internet is marvelous at the dissemination of information and if you build this into your product, the word will get out there. Word of mouth marketing, and viral, organic growth, and extremely interlinked. While you shouldn’t depend on WOMM, you can expect it as a natural result of a viral feature within your product.

As noted by Aniq Rahman, in my previous post, building a good product is the greatest form of marketing. Build it and they will come. This is true, and while I think product development should be your number one priority within a startup, making sure you don’t detract resources into marketing is crucial. It’s just unnecessary. Take that money and hire a few good developers or designers. They’re worth their weight in gold.

“Greed is good”

“Greed is good”. We all know who said it. If you don’t, go watch the movie “Wall Street”. Your life will change. Mine did. Gordon Gekko had it right. Greed is good. And while greed has a negative connotation, the concept behind greed, or the pursuit of wealth is a positive one.

Greed drives productivity. It’s a fact. The cycle goes as follows: Greed/Motivation—–>Innovation——>Productivity. Productivity is the driver behind any capitalistic society. It creates efficiency and leads to even more innovation. When people ask me why do rich people work, I laugh. The standard answer to a question like that is that they are working for the love of work, and not for the pursuit of wealth. I find that to be a load of crap. While they may not be truly working to acquire more wealth, they understand this cycle. If we all became millionaires, and decided that was “enough”, where does innovation come from? Why would we be motivated to create? Innovation comes to a standstill, productivity drops, and society fails.

I won’t deny that greed can lead to unethical decisions. This is inevitable for both weak and corrupt individuals. But if we assume that the majority of the world is not weak or corrupt, then greed, motivation, and the desire to succeed will only lead to the structuring of a more efficient society. And those who are smart enough to see the unethical decisions will ultimately lead to failure will only do the opposite anyways.

When it comes down to it, you have to decide what is important to you in life. If it’s family, do the family thing. If it’s music, do the music thing. But if it’s money, or the desire to create wealth, you better be greedy. And while I suggest you don’t follow Gordon Gekko’s exact footsteps (he ended up in jail), I’d say you should put yourself in situations that allow you to stay hungry. Because otherwise someone hungrier than you will do it better.

Been away for a few days

I wasn’t sure how often I was going to write when I started this last week, and then within two days I had four articles up.  But I haven’t posted for the past two days either.  I’ll most likely get around to one or two articles during the weekend, and try to get two a day the rest of the week for you guys.   

Is the Venture Capital industry and Record industry that different?

These two industries are tanking. The facts speak for themselves. Starting a company has never been cheaper, and record sales have never been lower. You could wrap up a MySpace clone in a weekend, or find the whole Beatles discography on Limewire. At what point do these industries need to step aside and decide whether the outdated paradigms that made them their wealth, need to change? To continue to provide yourself, or your industry, value, you need to stay relevant and innovative. That may mean, in the case of the music industry, more so than the investment industry, that you have to completely revolutionize your model. Complaining never got anyone anywhere and pointing fingers didn’t either.

What’s interesting to note is that while there has never been a cheaper time to start a company (web based at least), there hasn’t been more venture capital flowing into companies since 2000. Ironically, this may be a result of the ease of entry, and to set themselves apart, companies may feel it necessary to secure an influx of cash, not only to distinguish themselves but also for credibility. Saying you got funded by Sequoia will elevate you to the top tier in the valley. But doing so also involves taking on a huge obligation. And I say obligation and not responsibility because you’re suddenly required to move towards a much larger liquidity event than you may have otherwise planned. You lose control of your company, and may not be able to scale as quickly as the investors would like. You inevitebly change direction and potentially lose focus. Taking on capital may prove to be counter productive in and of itself. Granted, there are companies that truly do need the working capital to be sustainable and in such cases, you will need an influx. But I’d strive to say the majority don’t, and staying small and agile is an enormous competitive advantage you can have.

So how do VC’s continue to provide companies value? If you don’t need their cash, why would you need them at all? Well there are a few things they can provide. For one, the connections a reputable firm has is invaluable. Providing you with human resources is another asset the VC’s can provide. Ultimately, it’s direction, advice and guidance that they can provide young companies. Intangible resources that can prove to be invaluable. There are already companies that have seen this trend. Y Combinator provides companies an environment where they can passionately pursue their startup, while guiding them and helping them scale. (Disclaimer: I have submitted an application to YC for an investment opportunity). It’s only a matter of time before young companies realize they really don’t need much capital at all, and VC’s will have to adapt to stay in business.

Similarly, the record labels provide no value whatsoever to established artists. If you’re an established artist, you can, for almost no cost at all, sell your music to your fans. The value of distribution has gone out the window with the internet. Radiohead has already proved this by literally giving away their music and still make money. But where labels still provide value to artists is in marketing and promotion. Small upcoming bands, whether they may like what I say or not, want to get onto MTV. MTV sells records, and promotes bands, it’s that simple. Whether it may be the bane of the independent music culture, it’s inevitable to promote yourself on a large scale. But record labels don’t see this. They think that by suing their customers and complaining about downloads, they’re going to get somewhere. No. Let established artists take the risk of how to distribute music. You clearly cannot come up with an innovative way of doing so, so lose that liability. But make money where you can. Promote young artists and help them grow. Figure out a way to make money from that. I’m waiting for the first person to develop a music store that allows any artist to do what Radiohead has done on a large scale. Now that would be cool.

Can pioneers ever make money?

Innovate or imitate? Probably one of the most overused phrases in the web space these days, but understandably so. There are so many “Me too” companies in the cloud that it’s impossible to keep up withe very startup these days, half of them offering the same service, with a different name. Innovation drives this industry though, that’s a fact. The bottom line is that unless you stay innovative, someone else will and take over. It’s been done before and it will continue to happen. But can true pioneers really make money? At what point are we all just imitators of a former technology? How much value should we give to the evolution of ideas? Also, what truly is responsible for the success of a startup, is it management, innovation, technology, or brute work?

If we look at the internet specifically, we can see the trend of successful companies innovating existing products. Rarely does a company come along with a completely novel idea and grab the market. User’s don’t catch on quick enough to keep up with truly innovating ideas. Altavista, Friendster, and Slashdot are all examples of relatively novel and remarkably innovative ideas, but none of them are still around (yes I know, they are still around, but they’re really not making much/any money). But with these innovations, Google, MySpace and Digg have come along and killed their respective competition. Why? Well they didn’t imitate the existing technology and model but rather built on it. Innovated while imitating. Filling gaps in existing models is what these companies have done. Building upon products, and providing the customer with a truly better (and not marginally better) service and platform.

That doesn’t mean that if you start a company that’s a YouTube + (x feature), you will have a successful project. Typically you will not. The “x feature” has to be revolutionary in itself, or at least provide enough value to have users switch platforms. This industry is still extremely hit driven, and to produce a hit, you need to have a catch. For Google it was their unique voting system. For MySpace it was the ability to completely customize your profile. For Digg it was the transparency of the system. I find many entrepreneurs caught up trying to think of the next million dollar idea. And I see them wasting hours and days racking their brain for the next completely innovative model or platform. This is not only inherently a waste of time, but as I’ve said above, is not even the way to go about it. Find a product you like, and find what it’s doing wrong. Or rather what it’s not doing. Think about what you have to do because it’s not providing that feature(s). And build your heart out. And while you may think you’re lacking in innovation, by noticing discrepancies in existing models you are ironically enough being innovative. Don’t copy, but create. Steal if you must, but build on top. I think Picasso said it best, “Good artists copy. Great artists steal.”

Is Microsoft the Big Brother watching you now?

I’ve always loved Microsoft. Primarily because I love Bill Gates. In a day and age where business is run by corporate moguls who care for little other than their bottom line, and who ultimately know little outside of their bottom line, it is fascinating to see an intellectual rise to the top. Watching Bill Gates give an interview is truly inspired. You can see the levels and depth of his intelligence in his speech. But beyond their founder and former CEO, I’ve loved the company and it’s underlying vision of putting a computer on everyone’s desk; a PC on everyone’s desk to be specific. And to some extent they’ve done that.

The issue lies in growing as they have, and staying current. Arguably, they’re the most powerful technology company in the world right now, spanning over 100 countries, with over 70,000 employees. But, as a consequence of growing, one becomes much more averse to change. An 800 lb gorilla takes much longer to walk a mile (assuming it can), than a mouse. Staying small and dynamic is a huge competitive advantage that many small startups have. As they grow, it’s inevitable that this advantage drops. But there have been a few companies, Google namely, that have managed to stay both current and grow to scale. Microsoft has not been able to do so.

Back in 1984, during the Superbowl, Apple, the young dynamic company of it’s time, launched an advertisement named “Big Brother is Watching You”. Who was this Big Brother they were referring to? It was none other than IBM, the giant corporate technology identity, that no one would ever think of overcoming. But, similar to Microsoft, they were large, slow, and averse to change. Has Microsoft become the new IBM? That’s probably not giving them enough credit, but looking at their product development and the lack of innovation that they have in the cloud these days, the argument is not too far off. Recently they launched an online version of Microsoft Office to compete with Google Docs, Thinkfree and Zoho. But all of these services are free, and Microsoft decides to allow only Microsoft Office owners to use it! The irony of the situation is that while trying to stay current and market to the consumers who have decided to use free software, they’re asking you to buy their product to use their free one!

Now Microsoft does have enough cash to buy up any industry, and they have much more cash than IBM ever did, so they’re probably not going anywhere soon. But if they continue to decide to go against innovation, and fail to notice changes within their own industry, well then I’d say with no hesitation, that they will have a tough time holding onto all that cash.

FIRST!

Ok, I guess First! for my first post is somewhat corny, but I should preface by referring you guys to the following video. Haha, I freakin love that video.

Anyways, my name’s Ashok Nayar and this is my personal blog. I’ll be updating with things regarding my startup (campusBloc), my life, and any cool news I come across. I’m sure most of you guys who are reading this are just friends of mine, but I imagine over time I’ll have some random cool people too (no stalkers please, check out this site if you want a cool guy to stalk). Haha I kid, Mike’s a [insert face-saving adjective] guy. Anyways, stay in touch, and I’ll do the same.

Peace.