The Dragonfly Effect

Find the ignition point of a chain reaction, and go ignite it.

Stanford GSB professor Jennifer Aaker gave a great lecture at the Entrepreneurial Thought Leaders seminar: Creating Ideas that Build Momentum.

The middle third of Jennifer’s talk told the story of Samir and Vinay: Harnessing Social Media to Make a Difference:

In three months a group trying to save a friend’s life used social networking tools to get over 24,000 South Asians to register for the National Marrow Donor Program. Their effort inspired Professor Jennifer Aaker to develop a course at the Stanford Graduate School of Business, The Power of Social Technology, which is supported by a set of social technology cases written with Victoria Chang, Alice LaPlante, and Sara Gaviser Leslie.

(…) Tapping the power of both the internet and a closely integrated South Asian community, they emailed 100 of Sameer’s close friends. Within 48 hours, the forwarded message had touched 35,000 people. They reached an even broader audience by partnering with Team Vinay, a group that had formed a few weeks earlier on a similar quest to save the life of Boston-based Vinay Chakravarthy, a 28-year-old South Asian physician who had also been recently diagnosed with acute myelogenous leukemia (AML). With focus, efficiency, and hyper-utilization of social media, Team Sameer and Team Vinay used web 2.0 services like Facebook, Google Docs, and YouTube to mobilize and empower others to organize bone marrow drives all over the country.

In 11 weeks, Sameer and Vinay’s supporters registered 24,611 South Asians into the bone marrow registry and found a match for both. And the 7,500 people they registered in the San Francisco Bay Area, where Sameer lived, yielded 80 matches for other leukemia patients — an unintended but celebrated consequence.

To make it super easy for people to be part of the marrow registration project, the team developed web 2.0 tools — these are explained in prof. Aaker’s presentation slides: “Power of Social Technology – Using Social Media to Save Lives“. Here are the Help Sameer site, the Help Vinay site, and the registration site. There are a number of YouTube videos (we don’t have enough bandwidth to sample them).

What the team learned is summarized by “The 8 Lessons” (page 79 of the PDF):

1.Develop a clear goal.

2.Tell your story.

3.Act, then think (big).

4.Design for collaboration.

5.Empowerment marketing.

6.Measure one metric.

7.Try, fail, succeed.

8.Don’t ask for help. Require it.

I think these techniques are applicable to a wide range of projects. If I’m correct that means that ordinary citizens could make big change without a big budget. E.g., how about igniting a viral campaign demanding conversion from coal to nuclear power?

Telecom Business Makes Money, Brings Peace

Starting up a new enterprise in New York City is generally harder than in Silicon Valley where the venturing infrastructure is so well-developed. But how challenging is a startup in Somalia? There are little details like 50% of your employees may need to be security people. And how do you budget for paying off warlord extortion?

Nasra Malin:

I was one of six entrepreneurs who, in 1997, founded NationLink Telecom in Mogadishu, the capital of Somalia… and the center of violence in our country. We were not sure if we would survive, first because there were three established telecom companies and, second, because the security challenge was tremendous.

But we invested in the business hoping to make profits and bring stability to our country.

NationLink has become a major telecom operator in Somalia, offering wireless and fixed-line services to 300,000 customers. It employs 1,500 people. With two other companies, we formed Global Internet Company, to provide Internet access.

Still, the fast-growing telecom industry in Somalia is fiercely competitive — competitors are hostile at times. Also, in a country with no strong central authority, we must protect our business. We have more than 600 security people, which is not the ideal solution. We know that someone somewhere will try to extort money if we need work done. We usually pay, because if we fight them, someone may get killed and, at the end of the day, the work may still not be done.

Please continue reading…

Want to start a startup?

Paul Graham’s short essay is dead right:

The best way to come up with startup ideas is to ask yourself the question: what do you wish someone would make for you?

There are two types of startup ideas: those that grow organically out of your own life, and those that you decide, from afar, are going to be necessary to some class of users other than you. Apple was the first type. Apple happened because Steve Wozniak wanted a computer. Unlike most people who wanted computers, he could design one, so he did. And since lots of other people wanted the same thing, Apple was able to sell enough of them to get the company rolling. They still rely on this principle today, incidentally. The iPhone is the phone Steve Jobs wants. [1]

Our own startup, Viaweb, was of the second type. We made software for building online stores. We didn’t need this software ourselves. We weren’t direct marketers. We didn’t even know when we started that our users were called “direct marketers.” But we were comparatively old when we started the company (I was 30 and Robert Morris was 29), so we’d seen enough to know users would need this type of software. [2]

There is no sharp line between the two types of ideas, but the most successful startups seem to be closer to the Apple type than the Viaweb type. When he was writing that first Basic interpreter for the Altair, Bill Gates was writing something he would use, as were Larry and Sergey when they wrote the first versions of Google.

Organic ideas are generally preferable to the made up kind, but particularly so when the founders are young. It takes experience to predict what other people will want. The worst ideas we see at Y Combinator are from young founders making things they think other people will want.

So if you want to start a startup and don’t know yet what you’re going to do, I’d encourage you to focus initially on organic ideas. What’s missing or broken in your daily life? Sometimes if you just ask that question you’ll get immediate answers. It must have seemed obviously broken to Bill Gates that you could only program the Altair in machine language.

Please continue reading…

Patient capital: Acumen Fund

Thanks to Alex Tabarrok for this lead — very interesting:

Novogratz’s experiences eventually developed into the Acumen Fund, a venture capital firm for aid. The idea is to invest patient capital in scalable, for-profit businesses that deliver services to the poor. The fund, for example, has invested in a firm producing drip irrigation systems in Pakistan, a Tanzanian firm that produces mosquito nets and an Indian firm producing internet-telephone kiosks in small villages.

The fact that the businesses have been for-profit has been critical. In selling bed nets for example the Tanzanian firm learned that talking about malaria doesn’t sell. What sells, in the words of one of their top salespersons is, “The color is beautiful, and you can hang the nets in your windows so that your neighbors know how much you care about your family.” As Novogratz puts it:

Beauty, vanity, status and comfort….The rich hold no monopoly on any of it. But we’re a long way from integrating the way people actually make decisions into public policy instead of how we think they should make them.

Patient capital is no panacea–what is?–but by investing in entrepreneurs who must listen to their customers a charitable venture-capital firm can multiply the effectiveness of its philanthropy.

There is a powerful role both for the market and for philanthropy…Philanthropy alone lacks the feedback mechanism of markets, which are the best listening devices we have; and yet markets alone too easily leave the most vulnerable behind. [From Aid Realism for the Idealist]

The Young Entrepreneur Myth

Excellent – thanks to Paul Kedrosky

My colleagues at the Kauffman Foundation are on a roll. Following up fast on the heels of a paper last week on Fortune 500 companies, recessions, and startups, Dane Stangler at Kauffman is releasing a new paper today on entrepreneurs and age.

As we all, ahem, know, entrepreneurs are callow twenty-somethings. Except, as Dane shows, that isn’t true. Building, in part, on some research by another Kauffman colleague, Vivek Wadhwa, he shows that entrepreneurs’ average age skew considerably older than is accepted wisdom. (I made a similar point last week at a conference in New York, cheerfully lifting Vivek’s and Dane’s work to support my point.)


You can find the press release and full study here.

[From The Young Entrepreneur Myth]

Rosy Scenario, or the Audacity of Hope?

There is wide recognition of the unrealistic assumptions of the Obama budget (attempting to conceal the staggering size of the Democratic takeover). I think Greg Mankiw offers a good introduction:

Here (in red) are the growth forecasts used to put out the new Obama administration budget, followed by the consensus forecast of a panel of “Blue Chip” private forecasters (in blue, naturally). (Source. Go to Table 3.)

2009: -1.2% -1.9%

2010: +3.2% +2.1%

2011: +4.0% +2.9%

2012: +4.6% +2.9%

2013: +4.2% +2.8%

Accumulating the difference, you find that Team Obama projects about 6 percent higher GDP in 2013 than do private forecasters.


The actual highest ranking woman on the economic team is named Christy, not Rosy, and here is what she had to say:

Speaking to reporters Thursday, White House economist Christina Romer called the projections an “honest forecast” by the administration’s professional forecasters. “I’d reject the premise that we’re noticeably rosier,” she said. “We certainly are somewhat more optimistic, but certainly nothing out of the ballpark.”

Why do professors deplore enterprise?

From an open letter to students who want to go into business:

I experience the hunger in the world for the privilege of creating jobs through entrepreneurship, and then I return to the United States, where I see something that troubles me.

Some students and professors reject business as a morally responsible way to spend one’s life. The issue I have is not that some people would rather work in the public sector (government) or the social sector (nonprofit work), but that they assign a higher moral calling to these two sectors than to the private sector (business).

As a college student, you are attempting to gain the knowledge, skills, networks, and inspiration to live a happy, productive, and meaningful life. I like to think of each of you as one unit of creative potential. Looking at it this way means that faculty members are more than dispensers of knowledge. They are guides along your journey, teaching the subjects, passing along beliefs and biases, hopefully inspiring you, and challenging you, to consider the types of people you will become.

Some professors attempt to influence you toward those biases. Some think dismissively of business, for instance, as if society would be better off without it, or they assign pernicious motivations to those who lead businesses. Throughout history, social experiments to this end have failed. Every day, these professors use and benefit from the products and services of business: Google, bookstores, clothing, transportation, and the local coffee shop. They fail to differentiate between business leaders and dismiss the whole sector as greedy, uncaring, and destructive. Yet, even with much evidence of greed and wrongdoing in the public and social sectors, that same categorical condemnation is not present.

In fact, you can make a vital contribution in any of the three sectors, because all three are needed for a society to function well. (If just one sector is weak or absent, the result is usually a failed state. Think of the former communist states that tried doing away with private business, or the chaotic warlord states without effective government.)


That open letter was written by Judith Cone, Vice President, Emerging Strategies at the Ewing Marion Kauffman Foundation, a wonderful foundation dedicated to the development of entrepreneurship. The head of the foundation is Carl Schramm — I highly recommend his talk at the Stanford Entrepreneurial Thought Leaders series.

Washington Is Killing Silicon Valley: Entrepreneurship was taken for granted. Now we're seeing a lot less of it

Even as economic losses and unemployment levels mount, America’s most effective engine for wealth and job creation is being dangerously — perhaps fatally — compromised.

For more than 30 years the entrepreneurship-venture capital-IPO cycle centered in Silicon Valley has generated new wealth, commercialized innovation, and created new companies and industries. It’s also spun off millions of new jobs. The great companies created by this process — Intel, Apple, Google, eBay, Microsoft, Cisco, to name just a few — have propelled most of the growth in the U.S. economy in the last two decades. And what began as a process almost exclusively available to scientists and engineering Ph.D.s became open to just about anyone with a good business plan and a healthy dose of entrepreneurial drive.

At its best, the cycle is self-perpetuating. Entrepreneurs come up with a new idea, form a team, write a business plan, and then pitch their idea to venture capitalists. If they’re persuaded, the VCs invest, typically through several rounds during which the start-up company must meet performance benchmarks. Should the company succeed, it then makes an initial public offering of stock.

The IPO can reward the founders and venture-capital investors, and enables the general public to participate in the company’s success. Thousands of secretaries, clerks and technicians at these companies also have come away from the IPO richer than they ever dreamed. Meanwhile, some of those gains are invested in new venture funds, and the cycle begins again.

It has been a system of amazing efficiency, its biggest past weakness being that it sometimes (as in the dot-com “bubble”) creates too many companies of dubious viability. Now, this very efficiency may be proving to be its downfall.

From the beginning of this decade, the process of new company creation has been under assault by legislators and regulators. They treat it as if it is a natural phenomenon that can be manipulated and exploited, rather than the fragile creation of several generations of hard work, risk-taking and inventiveness. In the name of “fairness,” preventing future Enrons, and increased oversight, Congress, the SEC and the Financial Accounting Standards Board (FASB) have piled burdens onto the economy that put entrepreneurship at risk.

The new laws and regulations have neither prevented frauds nor instituted fairness. But they have managed to kill the creation of new public companies in the U.S., cripple the venture capital business, and damage entrepreneurship. According to the National Venture Capital Association, in all of 2008 there have been just six companies that have gone public. Compare that with 269 IPOs in 1999, 272 in 1996, and 365 in 1986.

Faced with crushing reporting costs if they go public, new companies are instead selling themselves to big, existing corporations. For the last four years it has seemed that every new business plan in Silicon Valley has ended with the statement “And then we sell to Google.” The venture capital industry is now underwater, paying out less than it is taking in. Small potential shareholders are denied access to future gains. Power is being ever more centralized in big, established companies.

For all of this, we can first thank Sarbanes-Oxley. Cooked up in the wake of accounting scandals earlier this decade, it has essentially killed the creation of new public companies in America, hamstrung the NYSE and Nasdaq (while making the London Stock Exchange rich), and cost U.S. industry more than $200 billion by some estimates.

Meanwhile, FASB has fiddled with the accounting rules so much that, as one of America’s most dynamic business executives, T.J. Rodgers of Cypress Semiconductor, recently blogged: “My financial statements are a mystery, even to me.” FASB’s “mark-to-market” accounting rules helped drive AIG and Bear Stearns into bankruptcy, even though they were cash-positive.

But FASB’s biggest crime against the economy and the American people came when it decided to measure the impossible: options expensing. Given that most stock options in new start-up companies are never worth anything, this would seem a fool’s errand. But FASB went ahead — thereby drying up options as an incentive for people to take the risk of joining a young company and guaranteeing that the legendary millionaire secretaries would never be seen again.

More bad news follows…