Managing in the 21st century: not just about the kids.

About a month ago, management guru Gary Hamel posted “a list of 12 work-relevant characteristics of online life” that he felt that tomorrow’s employees would use as benchmarks to judge which companies “got it”. It’s a great list but I would go further and say that it’s not just about attracting the Digital Generation (or the Facebook Generation or Generation Y or M or whatever else you want to call today’s teens and twenty-somethings), it’s about attracting smart, connected, ambitious and energetic professionals of any age, but especially thirty and forty-somethings that are old and wise enough to have no illusions about the reality of working in a typical Fortune 500 company and have valuable “last century” skills but young enough to be able to want to reinvent their relationship to work and their employer.

1. All ideas compete on an equal footing.
On the Web, every idea has the chance to gain a following—or not, and no one has the power to kill off a subversive idea or squelch an embarrassing debate. Ideas gain traction based on their perceived merits, rather than on the political power of their sponsors.

2. Contribution counts for more than credentials.
When you post a video to YouTube, no one asks you if you went to film school. When you write a blog, no one cares whether you have a journalism degree. Position, title, and academic degrees—none of the usual status differentiators carry much weight online. On the Web, what counts is not your resume, but what you can contribute.

3. Hierarchies are natural, not prescribed.
In any Web forum there are some individuals who command more respect and attention than others—and have more influence as a consequence. Critically, though, these individuals haven’t been appointed by some superior authority. Instead, their clout reflects the freely given approbation of their peers. On the Web, authority trickles up, not down.

4. Leaders serve rather than preside.
On the Web, every leader is a servant leader; no one has the power to command or sanction. Credible arguments, demonstrated expertise and selfless behavior are the only levers for getting things done through other people. Forget this online, and your followers will soon abandon you.

5. Tasks are chosen, not assigned.
The Web is an opt-in economy. Whether contributing to a blog, working on an open source project, or sharing advice in a forum, people choose to work on the things that interest them. Everyone is an independent contractor, and everyone scratches their own itch.

6. Groups are self-defining and -organizing.
On the Web, you get to choose your compatriots. In any online community, you have the freedom to link up with some individuals and ignore the rest, to share deeply with some folks and not at all with others. Just as no one can assign you a boring task, no can force you to work with dim-witted colleagues.

7. Resources get attracted, not allocated.
In large organizations, resources get allocated top-down, in a politicized, Soviet-style budget wrangle. On the Web, human effort flows towards ideas and projects that are attractive (and fun), and away from those that aren’t. In this sense, the Web is a market economy where millions of individuals get to decide, moment by moment, how to spend the precious currency of their time and attention.

8. Power comes from sharing information, not hoarding it.
The Web is also a gift economy. To gain influence and status, you have to give away your expertise and content. And you must do it quickly; if you don’t, someone else will beat you to the punch—and garner the credit that might have been yours. Online, there are a lot of incentives to share, and few incentives to hoard.

9. Opinions compound and decisions are peer-reviewed.
On the Internet, truly smart ideas rapidly gain a following no matter how disruptive they may be. The Web is a near-perfect medium for aggregating the wisdom of the crowd—whether in formally organized opinion markets or in casual discussion groups. And once aggregated, the voice of the masses can be used as a battering ram to challenge the entrenched interests of institutions in the offline world.

10. Users can veto most policy decisions.
As many Internet moguls have learned to their sorrow, online users are opinionated and vociferous—and will quickly attack any decision or policy change that seems contrary to the community’s interests. The only way to keep users loyal is to give them a substantial say in key decisions. You may have built the community, but the users really own it.

11. Intrinsic rewards matter most.
The web is a testament to the power of intrinsic rewards. Think of all the articles contributed to Wikipedia, all the open source software created, all the advice freely given—add up the hours of volunteer time and it’s obvious that human beings will give generously of themselves when they’re given the chance to contribute to something they actually care about. Money’s great, but so is recognition and the joy of accomplishment.

12. Hackers are heroes.
Large organizations tend to make life uncomfortable for activists and rabble-rousers—however constructive they may be. In contrast, online communities frequently embrace those with strong anti-authoritarian views. On the Web, muckraking malcontents are frequently celebrated as champions of the Internet’s democratic values—particularly if they’ve managed to hack a piece of code that has been interfering with what others regard as their inalienable digital rights.

My first job (way back when) was as an analyst in an M&A department. But before a year was up and at the suggestion of the senior partner I was working for I applied for a job on the trading floor (as a bond trader.) The point my partner made was that in corporate finance, it mattered how old you were, who you knew and how much grey hair you had. (All things I was short of at the time!) On the trading floor however, not so much. There results and ideas mattered. In fact, the best thing about being a trader in the early nineties was well that many of the 12 items on the list above applied. At least for awhile.

If you work for a big bank or financial institution, score your employer – do they get more than 8/12? More than 4/12? Do they tick any of the boxes above? Answers in the comments please.

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Weatherbill inside.

Intel changed the paradigm of how microprocessors were sold with their 1991 “Intel Inside” campaign:

A second issue was that the processor, although a key component of personal computers, was only a component. To effectively market this component to the PC buyer it was important to work with the manufacturer of computers. After all, the processor was buried deep inside the computer and despite its significance it was hard to tell which processor the PC contained before it was purchased.

Carter and his team studied successful consumer marketing techniques and examined tactics used by well-known companies supplying a component or ingredient of a finished product, like NutraSweet™, Teflon™ and Dolby™. They also began a variety of marketing experiments and soon began envisioning how a branded ingredient program would play out in the computer industry.

Key to this strategy was gaining consumer’s confidence in Intel as a brand and demonstrating the value of buying a microprocessor from the industry’s leading company, the pioneer of the microprocessor. At the suggestion of its advertising agency, Dahlin Smith and White, Intel adopted a new tag line for their advertising: “Intel. The computer inside.” Using this to position the important role of the processor and at the same time associating Intel with “safety,” “leading technology” and “reliability,” the company’s following-and consumer confidence-would hopefully soar. That would create a new “pull” for Intel-based PCs. Later, this tagline was shortened to “Intel Inside.”

The important role of the microprocessor was being communicated, but to be truly effective the ingredient status of the microprocessor needed to be dealt with. In 1991 Carter launched the Intel Inside® coop marketing program. The heart of the program was an incentive-based cooperative advertising program. Intel would create a co-op fund where it would take a percentage of the purchase price of processors and put it in a pool for advertising funds. Available to all computer makers, it offered to cooperatively share advertising costs for PC print ads that included the Intel logo. The benefits were clear. Adding the Intel logo not only made the OEM’s advertising dollar stretch farther, but it also conveyed an assurance that their systems were powered by the latest technology. The program launched in July 1991. By the end of that year, 300 PC OEMs had signed on to support the program.

The PC business ultimately was redefined by this – moving to a barbell of high volume commoditized assemblers/distributors (Dell) and high value specialist niche players (Alienware) and of course the fully integrated hardware/software approach of Apple. The same thing will happen in financial services over the next 10-20 years. Only the ‘Intel inside’ isn’t hardware (except maybe for some high end high frequency trading applications where I think you’ll see people starting to design and sell custom chipsets…) but financial widget providers. FaaS or Haas or RMaaS. (For the few remaining bankers that read my blog and are scratching their heads, these are not tickers or Bloomberg functions – or if they are that’s not what I’m referring to – but acronyms for Finance or Hedging or Risk Management ‘as a Service’…) These will in turn get mashed up by enterprising distributors and channel managers to offer all sort of customer (from the head to the tail) the package of financial services and products that is right for them. This is what the mega-fauna of global finance (retail, commercial and investment banks in particular but also life and property insurance companies, brokers, asset managers, etc.) do now, in house, although the concept of “open architecture” on a fund management platform for example is a sort of distant evolutionary predecessor.

A more apt existing business model along these lines – that practitioners in the retail trading and FX markets will be particularly familiar with – is white labeling. Indeed companies like Saxo Bank have done extremely well with very sophisticated and industrialized white label partnership programs. You want to offer your customers trading on FX, FX Options, Forwards, Spot Gold & Silver, CFDs, Stocks, Futures, etc? Just plug into their machine and you’ve got yourself a trading engine and infrastructure. You want to offer your customers weather insurance? No problem – just grab Weatherbill’s new white label solution:

The WeatherBill White Label platform enables any third party to offer weather coverage to their clients, written on their paper, and using their distribution channels. It is an innovative end-to-end technology platform for pricing, transacting, settling, and managing weather risk. WeatherBill White Label creates new revenue streams and growth opportunities for insurance companies and weather derivative dealers, allowing them to leverage WeatherBill’s technology to offer fully automated, customizable weather coverage to their clients.

For any company who has customers that could use weather insurance in the context of their relationship with this company, this would seem to be a no-brainer; you don’t need to re-invent the wheel, weather algorithms and derivatives processing are probably not your core business and/or is not where you want to deploy resources. Outsource it. Add a plug-in. Did you write your own mapping software to show where your offices are on your ‘Contact Us’ page? No, you used Google or Multimap etc. and integrated it into your site and/or your service. It’s as simple as that, and makes just as much sense.

Financial mash-ups and FaaS. It’s just the start…

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I wonder what Mr. Frank (Wolf) thinks of Mr. (Barney) Frank

A few years ago Congressman Frank Wolf ranted in Congress that if UIGEA was not passed, people would be gambling in … (wait for it…) THEIR BATHROBES!!! Shocking I know. So many lives ruined. If they had only pulled on a t-shirt and a pair of jeans…

Anyhow, he voted for it:

In 2006, the Unlawful Internet Gambling Enforcement Act (UIGEA) was signed into law. This landmark legislation helps to cut off the flow of revenue to unlawful Internet gambling businesses. It outlaws receipt of checks, credit card charges, electronic funds transfers, and the like by such businesses. To do this, it enlists the assistance of banks, credit card issuers and other payment system participants to help stem the flow of gambling dollars.

This is about knowing all of the hard evidence about the byproducts of gambling – crime, corruption, family breakdown, suicide, bankruptcy – and not hearing our country’s leaders speaking out.

Where are the political leaders from both sides of the aisle? Religious leaders? Advocates for children, the poor and the elderly? Their silence is deafening.

It is time for Americans leaders to step forward and address the proliferation of gambling.

(Now replace gambling with banking and maybe we’re talking…UIBEA anyone? LOL)

Anyhow, as widely reported about a month ago, it now seems that the tide is turning, lead by Financial Services Committee Chairman Barney Frank – although I’m not really 100% why other than perhaps that the government needs the money more than it needs to pander to the anti-gambling minority? Or perhaps the gambling oligopolists have decided now they are ready to compete in this market? No idea. Or maybe the message on the absurdity of prohibition coming from the Park Paradigm has worked its magic! (Sure, it could happen…ok probably not.)

I was also pleasantly surprised to learn from (an excellent and newly discovered blog) Zerobeta, that Delaware was thinking about legalizing sports gambling (picking up on an ESPN article):

The newly elected Markell, who has spent the past several weeks listening to proponents of gambling as well its opponents, is much more of a pragmatist than a betting revolutionary. He hasn’t been to Vegas in nearly 15 years and almost never hits the race track/casinos (called racinos) in his home state. But the way he sees it is this: Delaware already allows horse racing and slots. And with the state currently $700M in the hole, offering the Pats minus-six over the Jets when bettors come by to drop a nickel in the slots isn’t amoral. As he told me a couple months ago, “you can’t really be half-pregnant.”

How refreshing. Legalize. Regulate. Tax. The best way to address Mr. Wolf’s concerns, not prohibition. And for those of you who want to trade the probability of this outcome, head over here to InTrade (HT to Chuck for the pointer.)

(Disclaimer: As some of you may know, I am an investor in Betfair and so have an interest in a free and regulated US market (given the current legislation Betfair does not trade in the US in compliance with all federal and state regulations.) However I would hope that those who know me and even regular readers know that my views on the subject are not driven by this investment. Indeed I would say this investment was driven by my views.)

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First financial gaming app for iPhone

As some of you may know, I am very interested in how the advent of mobile computing (or as Gilder would say – teleputers) and in particular believe that the iPhone is the first device to really take us past the inflection point and has started to give us a good sense of what the future will look like.

Financial services and mobile computing are a match made in heaven, and the only thing that is surprising about the flurry of activity in this sector over the past 12-24 months is that it took so long. The fact that some of the earliest and most ambitious ventures in this area emerged in developing countries speaks volumes to the fundamental inertia and resistance to change and innovation in large corporations (in particular financial services firms and US/European telecom operators in this case.) People may laugh at the hysterical self-immolating attitude of the traditional media and entertainment industry, but well…you know – ‘glass houses’ and all that…

But things are starting to move. I wrote about BoA’s iPhone offering 18 months ago – the first banking app – and was impressed this week when I saw Nokia invest $70 million in Obopay. (Although I have to admit feeling a tinge of regret, as Obopay has been on our investment radar screen about a year or so now, but we just didn’t yet have the capital to pursue this (and other promising deals.) Like in most walks of life, many potential investors prefer the psychological safety of buying a big brand – whether directly (think of the billions pissed away buying banking stakes waaay too soon) or with the giant private equity or hedge fund groups; as the saying goes, “no one ever got fired for buying IBM’) Anyhow, I’m pleased to announce that one of the companies we have invested in, GnuTrade, has recently announced the first financial gaming app for the iPhone:

The innovative web app, which is featured on the Apple website, gives iPhone users an instant view of how financial markets are performing, and lets them place simple bets on whether prices will rise or fall. The app complements gnuTrade’s acclaimed web-based trading platform (www.gnuTrade.com), using its signature graphics to show live market price action, but via a handy touch-screen device.

Why are we excited about this? Well it brings together three big things: increased consumer interest and awareness of financial markets, mobile computing and mobile/p2p gaming. And all of this in a simple-to-understand, easy-to-use, oh-so-not-wall-street/city kind of way. GnuTrade is definitely not your father’s Oldsmobile so to speak. It’s social. It’s fun. It’s about not looking down your nose at people who are interested but are intimidated by traditional banks and brokers and spread ‘trading’ firms. It’s about prizes and play money or real money (only if you live where this is allowed of course.) GnuTrade is a digitally native markets company: they were early on Facebook (become a fan here), they are the UK’s most prolific twitterer (62,000 updates! follow them @gnutrade), and they have a pretty neat set of widgets if you are interested in adding some markets info to your blog or website – basically they ‘get it.’

Now the iPhone app is definitely not perfect. First of all it is a web app (runs in Safari) as Apple does not (yet?) allow ‘betting’ applications in the AppStore (to get the app for free on your iPhone, simply enter http://iphone.gnutrade.com on your iPhone’s Safari browser, and add the app to your homescreen.) Secondly, it’s beta so it has bugs (feedback and constructive criticism welcomed – send to @gnutrade for example) and thirdly – unless you have a blisteringly fast 3G connection – I would stick to wifi only for now.

They also have a very cool and fun beta application called NewsPools (similar to HubDub for example) that I for one would love to see on the iPhone (are you listening Lieven? ) And while you are at it, let’s see a market on when (what year say) the US will wake up and legalize, regulate and tax online gambling!

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Somethings change everything

Carlota Perez is one of my heroes. Her fantastic articulation (in Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages) of how technological revolutions mark turning points in long economic cycles, building on the work of Schumpeter and Hayek, is in my opinion an incredible lens through which to understand long term economic growth and its effect on financial markets. Her approach is a key foundational pillar for our investment thesis, and is why we feel confident that it is possible to generate excess returns by catching the long term secular economic waves that ultimately govern capital markets. (Think of it as the polar opposite of day trading.)

In her thesis, each successive long wave of the economic cycle is initially catalyzed by a technological revolution, usually only visible in hindsight:

My suspicion is that we are living through a “phase change” now (be careful, “now” in this context means a period of a few years, not “today” or “this quarter”…) – and so I’ve been wondering what will come to be seen as the foundational technological revolution of the sixth paradigm. The previous five, as defined by Perez, are below:

There are many possibilities, but I’m starting to think that the transition to cloud computing (enhanced by ubiquitous wireless connectivity) just might be it. And for the sake of taking a punt on what might be a good symbolic starting point for this revolution, how about the launch of Amazon‘s S3 and EC2 in 2006?

And it just keeps getting better (via GigaOm):

Amazon today said it would bring web-scale computing power for use in workloads such as web indexing and data mining to just about anyone. The bookseller now offers MapReduce (a programming model created by Google to help deal with incredibly large data sets) using Hadoop on Amazon’s Elastic Compute Cloud and Simple Storage Service. This allows AWS customers to access the power of a Google- or Yahoo-style server and programming infrastructure to model business decisions and analyze huges sets of customer or corporate data without having to invest in thousands of servers (as well as dozens of programmers). Dana Gardner over at ZDNet says one could think of it as having access to a personal supercomputer.

Just as Intel’s 4004 microprocessor was the catalyst for a wave of creative destruction in the 70s and 80s, will AWS prove the same for the 00s and 10s? Probably. We’re seeing it already. And it’s going to disrupt the hell out of the mastodons of industry across most sectors of the economy. Why? Because their cultures and leaders are entirely ill-equipped to face such a fundamental paradigm shift. They know how to play by the old rules. The strategic competitive advantages they built up over decades risk suddenly – poof! – to become obsolete. (from Dan Gardner:)

Think of it as having your own tuned supercomputer that you can plug gigantic data sets into and ask questions that will determine the course of your businesses for the next decade. Oh, and you can pay for the pleasure on a credit card.

This high-end BI value has pretty much been the sole purview of large, skilled and deep-pocketed enterprises. But there are plenty of people, researchers, government agencies, academics, small to medium enterprises, venture capitalists and the like that would hugely benefit from sussing out important trends and findings from the growing reams of raw data generated by modern businesses and societies. Talk about metadata on steroids!

“This high-end BI value has pretty much been the sole purview of large, skilled and deep-pocketed enterprises.” Not anymore… Think about that for a moment.

Size used to be an advantage in almost any industry…now? Not so much. New rules, new winners.

Thought experiment: Let’s take, oh say…banking. Which would you rather run (if say your life depended on success, which I know these days is a bit far-fetched but humor me…)?

• A greenfield start-from-scratch-bank (assuming you had access to sufficient capital to get started, say $100 million or so)? Or,
• [insert favorite megabank here] (assuming you had access to sufficient capital to not be immediately insolvent, say $100 billion or so)?

Well unless you are a sociopath as per Hugh and see the key metric of success being how many people report to you and whether or not global political leaders will take your call, I think the answer is pretty bloody obvious.

So what does all this mean? Well, for us it means investing in companies that are positioned to ride this wave (not build a levee against it, hoping it won’t break.) Some – like cohesiveFT are right in the heart of the technology facilitating this new paradigm. Others, like our most recent investments Zoopla and FX Capital Group, are building new business models adapted to the new technological landscape that will allow them to disrupt and extend existing markets. But it also means remembering that you can be right (about the future) but still not come out on top:

The network is the computer. - Sun Microsystems (1982-2009)

These really are incredibly exciting times.

UPDATE (apr2011): Nice summary of recent MSFT white paper on the (overwhelming) economic advantages of cloud computing.

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Calling London Entrepreneurs

The deadline (midnight, 6th April) for applying to Mini Seedcamp London is rushing up quickly (where does time go?) and for any budding entrepreneurs out there with a company up their sleeve or in their garage, I can think of no better place to start ‘growing innovation’ than in the seedcamp community.

Mini Seedcamp London aims to connect the UK and Ireland’s thriving startup community, but the buck doesn’t stop there. If you are a startup team that is ready to wow us and you hail from anywhere in the EMEA, don’t hesitate to apply.

Mini Seedcamp London will be bringing together 20 of the best seed stage web tech startups with experienced entrepreneurs, investors, and developers from the UK and all over Europe to participate in a day of intense mentoring, panel discussions and presentations at NESTA’s HQ in central London.

London is increasingly becoming the hub of the European entrepreneurial ecosystem, with a high concentration of investors, startups and talent and we’re exciting to see what teams and ideas emerge on 20th April!

Of course as founding investors in seedcamp we have a particular interest to encourage the best and brightest and most energetic entrepreneurs and engineers to join the community but I think you’ll find that it is worth it. We’d especially like to see more companies focused on disrupting financial services and markets. Media and consumer internet are fascinating sectors but there is more to life and if an industry ever screamed out to be disrupted, it’s finance in 2009…So what are you waiting for? Apply now!

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