Polishing my mirror

reflecting the collaborative reality of our networked world

How come we have no Inflation?

I have just watched Jerome Powell’s Congressional Testimony and the issue of inflation came up in the questions. How come the FED is going to cut rates when the economy is considered to be strong? Is this not the time to raise rates?

Well, the FED is committed to maintaining inflation at around two percent as measured by the annual change in the price index for personal consumption expenditures, or PCE. Overall economic growth as measured by GDP has been steady, however that is not translating in increases in wages. We are continuing to have employer’s market, where the employer’s have advantage over employee’s.

This answers the question, how come personal consumption expenditures are not rising. However, this begs the question how come it is employer’s market when we are in a record setting eleven year long economic expansion!?!?

This requires a more complex multivariable answare:

  1. Since 2008, general labour participation has declines, meaning we have more capable people out there who are not even looking formwork. The slight uptick in June labour participation from 68.8 to 69% is positive but does not shift the pricing power to the employees. Thus salaries are not rising as on average corporations do not have to compete for labour, labour is competing for open positions.
  2. Number of public corporations is shrinking. This has been happening slowly but steadily over time. In the mid-1990s, there were more than 8,000 of publicly traded firms. By 2016, there were only 3,627, according to data from the Center for Research in Security Prices at the University of Chicago Booth School of Business. A very troubling side effect of this is our understanding of what’s happening in corporate america is declining as a result! Due to regulatory reporting requirements we know considerably more of what’s happening in public vs private companies. The point is fewer companies means fewer jobs, no wonder the “gig” economy is rising, but that is not contributing to increases in personal consumption expenditures. PE owned and private companies have very clear focus on profits as the profits are theirs to keep. Public company exec compensation correlates with the company size thus the incentive is to grow, this has significant implications on aggregate labor force growth, and consequently on the growth of personal consumption expenditures. More private companies is not a good thing for the economy at large.
  3. Structural technology driven change reduces the number of jobs. Just looking from 40K feet, the wining new economy companies ride the wave of structural shift from legacy industrial to networked economy that favors platformization, essentially winer take all economy, google in search amazon in retail, apple in consumer devices, and facebook and google in advertising. Those technology platforms are the new engine of the economy, but they employ considerably fewer workers than did Ford, GM or GE. Those changes will accelerate as essentially anything that is not powered by software and shifting to AI will face market challenges and soon extinction. That has huge implications on jobs and our aggregate growth of our personal consumption expenditures.

Thus here it is, given the overabundance of people available for work, given the shrinking number of public companies and shift in the corporate mix to private profit focused firms, and given the tech driven platformization of the emergent network economy, short of government driven regulatory changes, I do not see risk of more money flowing to the wage earners that could possibly drive up our personal consumption. We have no risk of inflation. Thus the FED is right to worry about deflation. And, that’s why they are considering cutting the rates.

Monetary policy however will NOT solve the lack of inflation issue. We need to ask ourselves collectively, what kid of world do we want to build as we are reimagining our organizations and institutions for the networked age. But that is a bigger and ultimately political and ethical question!

The trend is clear. Pensions are increasing allocations to alternatives. What are the logical impacts of this trend?

I do not know the answer. However I do believe it is an important question to consider.

According to Willis Towers Watson, global multinational risk management, insurance brokerage and advisory company, the allocations to other (non-cash, non-stock non-bond) investments among US pensions has grown from 17% in 2006 to 27% in 2016. That is about 1% a year increase in allocations to mostly PE/Hedge Funds. The US Pensions size as of 2016 was $22.48 Trillion. Yes, Trillion!

From the PE/Hedge Fund industry perspective this is outstanding development! If we assume linear progression we are talking about $225 Billion in new AUM just last year.

If you talk to those PE/Hedge Funds you will find out that it is increasingly difficult to find “good” deals. Part of the reason for it has to do with the massive amount of money looking for those deals.

The Fed has lowered the federal funds rate to almost zero to stimulate the economy post the ’08 recession. The institutional investors that historically relied on annuities as part of their business had to adjust. Pensions are case and point. The increase in allocations to alternatives to cover the decline in returns from the bond and stock portfolio is the current drug of choice. Before it was shift to stocks from bonds.

At the macro level we are shifting the societal algorithm of capital allocation. Hence my original question. What are the logical implications of this allocation shift?

Is increased allocation to alternatives correlated with more investment dollars flowing into private vs. public companies? What does that mean?

What is the relation of the higher required returns of alternatives to the total system returns? Is the level of required return god proxy for risk in the system?

The trillion-dollar systemic question has to be if we are creating more wealth by shifting allocation to channels that requiring higher returns or are we just shifting the distribution of the aggregate wealth?

Combined with the continuing growth in indexing/ETF’s in public markets, what’s the future of private vs. public markets?

Do pension allocations even matter? As we have shifted from Defined Benefit (DB) to Defined Contribution (DC) should we be more focused on the allocations of all the Mutual Funds in all of our 401(k) plans? Or better yet, what investment system/wallet will rule the day after the 401k dies? What will be the impact on the financial services industry? What companies will be advantaged by that system yet to come into existence? Remember, the future is already here. It is just not evenly distributed.

We live in transformative times! We are moving past our industrial history into the unknown digital future. The resultant structural shifts in the economy are not very transparent. We see on the surface destruction of old industries and creation of billions in completely new fields. The last election in USA and Brexit in EU are some of the more visible testimonials that we miss the implications of it all. We miss it for the masses, for our institutions and for corporations. But the future is already here, embryos of the next BlackRock, of the next Vanguard are here! Who do you think they are?

Who will fund those new structures that will shape our financial future? Will they be shaped by the General Partners of the PE funds bolstered by the pension shifts to alternatives? Or will they fund growth by listing on public exchanges? Or via ICO?

I have no answers, though I am fascinated by the drama of it all playing out in front of us. We should ask more such questions as we are actively shaping this exciting transformation of out society and our organizations.

Small Business is a FARCE!!!

When billionaires who run global corporations wax poetically about virtues of small business you better believe that big global business is the business of our times.

In a globalized world, size matters
In 2011 Marc Andreessen famously started talking about the disruptive nature of technological innovation as “Software Eating the World”. Today, everybody, from entrepreneurs like me to VCs, along with the news media, is chasing Unicorns. And by unicorn, obviously I mean a startup with valuation above one billion dollars. Not small.

If we work backwards from this billion dollar unicorn valuation, and take the most absurd valuation of 20x revenue for a growing tech company, you would need $50M a year in revenue to support that $1B valuation. However, most small businesses are not growing tech companies and $50M is not a small amount of revenue.

Unicorns are global
It is important to note that as technology is shrinking our world, the conventional big businesses are becoming bigger and more global as they expand for growth abroad. Listed companies on average get 50% of their revenue from international sources. For tech companies that is 60% of their revenue and it’s growing. Let that sink in for a minute, 60% of US tech companies’ revenue comes from abroad. Just to be clear, that is more than half and that is not small.

The USA news tends to look on itself, but there is more to our world as the big companies found out. Unfortunately, in today’s capital-intensive world the opportunities that existed in the labor-intensive emergent industrial society in EU and US which created our middle class in the mid 20th century do NOT exist for the globalized masses in the Emerging Markets.

When people are talking about US companies holding more than $2 trillion in profits overseas, and just seven of the biggest tech companies account for a fifth of this, it is not just a result of tax shenanigans. It is where the growth opportunities are and where the business is: overseas.

The unicorns that we are all chasing are tech companies. Inherently, most tech startup’s are global from the get go. Facebook, Google, Pinterest and Uber are all global companies. We even compare our startups to countries not businesses: If Facebook were a country, it would be the most populous nation on earth. Facebook valuation at IPO was over $100 billion. That’s not small and everybody is trying to build the next Facebook-sized company: a company that has a small staff, impacts billions of people and makes billions of dollars.

What exactly is small business
The US Small Business Administration defines what constitutes small business by industry. Generally, it is a business with less than 500 employees or some annual revenue maximum. For a law office or a doctor’s office, the annual revenue maximum is $11M, for a dentist it is $7.5M, and for a construction company it is $36.5M, just to name a few. Not sure I would call 500 employees a small business. However, in comparison to McDonalds or UPS, who employ around 400,000 people each, one could draw an arbitrary line at 500 employees.

The US Small Business Administration’s definition in terms of revenue and the number of employees really does not help us to frame an image of the elusive small business. The average person on the street imagines small business not much different than what an inhabitant of Paris or London would imagine it in the mid 1800’s. Back then, almost all of the businesses were small business. The corner store, the hairdresser, the butcher, the lawyer, the seamstress, the baker, and yes, the candlestick maker. All of it.

Historical perspective
As industrialization was spreading into the world from the late 1700’s UK, railroads that connected the emergent centers of manufacturing and the steel used for the railroads and manufacturing became our first big businesses. In 1901, US Steel became the first company with valuation over a billion dollars when JP Morgan refinanced it after he purchased it from Andrew Carnegie. We only went up in scale from there.

Slowly but surely, from the mid 1800’s, technology has been improving, railroad networks continued growing, manufacturing continued expanding and people’s lives were changing for the better. Over time all the small general stores started to be displaced by new and much bigger department stores. In the developed world, the idea of having many products and services under one roof took off and permanently reshaped peoples shopping habits.

One world
The pattern of increasing size, scale and scope continues today. Have you ever shopped at eBay or Amazon.com? Every industry continues the quest for economies of scale. We have many global brands now. Coca Cola became the first global brand after WWII, but pick an industry, any industry, from manufacturing, consulting, software, banking, automotive, you name it, and you will find that today they are all completely global. I just went to a baby store in Cali Colombia to get new level 3 nipples for our Dr. Brown bottles, and a few Fisher-Price teether toys for my twins. You can buy all the same brands in Colombia and anywhere else that you find at Babies”R”Us in the US. Our twins are used to air-conditioning so we went to buy a room AC unit at a local equivalent to Home Depot. Again you can get the same brands as in the US: Whirlpool, Black&Decker, Bosh, Panasonic, Electrolux, you name it. When I needed an antibiotic, I had a choice of Pfizer or Abbot. The same story is happening in the world over. In Lagos, I was drinking Johnny Walker, blowing my nose into a Kleenex, and driving in a Toyota to the airport. The Chinese are famous for buying western brands despite the high prices, particularly, when it comes to taking care of their little emperors, their kids. You can buy Nestle products all over Latin America, including on the trail to Machu Picchu. And so forth and so on, this list could go on forever and extends into services as in Clifford Chance for legal or McKinsey for consulting.

Global mega corporation
The point is that whether you see it or not, more and more industrial and consumer goods and services are provided by global companies the world over. As a side note, executive compensation tends to be proportional to company size which explains some of the exec comp increases from the last three decades. But where are all the small companies which we started out with in the 1800’s? The Department Store displaced most of the specialty shops. Big Box retail epitomized by Wal-Mart displaced most of small city small businesses. And now Amazon goes beyond Wal-Mart. Global food franchises displace small restaurants. For example, that was very visible in NYC after the recession. The growth of Chipotle and Shake Shack epitomize that small restaurant demise. Both Chipotle and Shake Shack were listed with valuations above $1B. Not small. Just when you thought your taxi driver was local, Uber came in, a company with over $50 billion valuation. On a side note, I love having Uber in Cali Colombia as much as I love it in Brooklyn: makes life easier.

What’s left to be eaten up by software? We still have insurance agents and small wealth advisors all over the US. The robo-advisors are effectively displacing wealth managers as discount ticket agents such as Priceline displaced travel agents in the late 90’s. Insurance is not far behind and with the advent of the self-driving car, auto insurance will for a big part disappear from consumers’ lives. Healthcare, as practiced by independent doctors is still small business, however, the level of VC money going into that field makes me think that’s not for long. The classic argument for local business was that your plumber and your cleaning lady would both always need to be local. Well, there are Uber-like companies getting into this space as well, like Angie’s list and nannys.com. In Atlanta, there is HUX , however, Amazon is exploring getting into services as well. It’s the beginning of the end of local.

On the continuum from everything being a small business to everything being efficiently provided by mega corporations operating on a global platform, we are a little more than half way there. The monumental scale of the global business reality we live in is greatly misunderstood and vastly different than the romantic perception the term small business evokes in most people, even when billionaires themselves talk about small business.

The Numbers
I do not have numbers going back to the 1800’s, so I will look at the data available from the US Small Business Administration. From 1977 to 2012 the split between the number of small and big businesses has shifted marginally towards big business. The number of businesses with less than 500 employees grew at 1.5% annually, whereas the number of businesses employing more than 500 employees grew at 1.8%. The real split is at 100 employees. The number of firms with fewer than 100 employees kept track with population growth of 1% per year and the number of all bigger companies actually grew at 2% a year. That is a sustained and steady change. As of 2012 we are talking about 5.7 million small firms and 18 thousand big firms.

When we look at the employment numbers, more than half -or 52%- of the working population now works for big businesses, whereas, in 1977 more than half -or 54%- of the population worked for small businesses employing less than 500 people. On average, the big business employees make 30% more than the small business employees as of 2012. That gap was 27% in 1992. That demonstrates a steady growth and an impressive advantage of big corporations. However, that is partial information capturing only the US.

The small business numbers in US hide inside them the rise of the precariat, the increasing shift to freelance labor. Many of the freelancers operate as a small business under the US Small Business Administration, though not all. Nearly 1 in 3 working Americans is an independent worker, and that’s not explicitly captured in the numbers.

Although the number of big and small firms and the number of employees working for big and small businesses and their average salaries have shifted only marginally in favor of the bigger firms according to data available from US Small Business Administration, the big firms became massive global organizations. If we use S&P 500 as a proxy for the big firms, the market cap of the average S&P 500 company has grown at 10% a year for the past 38 years. In 1977, the average market cap of an S&P 500 company was $1.25B and today it is $40B. All the S&P 500 firms combined had a total market cap of $623 billion in 1997. Today it is $20 Trillion. Just for perspective, the total size of the US economy as measured by GDP is estimated to be $18 trillion this year. That is not small.

Technology and globalization are shrinking our world and creating unicorns in the land of ever increasing global corporations. Thus, Marc Andreessen’s statement “Software is Eating the World” has to be restated as: “Software is enabling big companies, old and new, to grow by eating small business everywhere.” This statement is perhaps not as sexy, but it is more descriptive and more accurate. Hence, small Business is a farce.

_ _ _

So it’s a farce, now what? We need to address the reality of our emergent post-industrial world and not play up the importance of small business without acknowledging the structural challenges posed by the emergent reality of our connected globalized world. Preaching the gospel of small business without understanding those forces that are driving our post-industrial society is at best a harmful red herring and detracts from addressing the rise of global corporate entities that surpass in economic scale and power many countries. We can debate whether it is a good thing or a bad thing, and that’s a separate debate, but we need to have that informed debate.

Why I believe global tech companies are a net positive
Ironically, all this globalization with the Unicorns’ and mega corporations’ growth will have a counterintuitive and positive result on the nature of business. We are actually going back to relationship based businesses and will witness the slow death of the transactional culture. The transaction culture emerged as a result of the 1970’s deregulation and ensuing market competition. The return to the relationship culture is brought by the same technology revolution that is shrinking our world and creating unicorns. I am talking about the vendor and product review process on Amazon, Airbnb, the vendor review process on eBay, and about the behavioral change among all the global hotels and restaurants as a result of our reviews on TripAdvisor. I’m talking about all the Uber drivers and clients that review each other. Yelp and so on and so forth. Welcome to the new networked reality.

The humanizing Facebook/LinkedIn effect, that is, your identity being verified and permanently out there, will have a profound impact on how big business evolves as it eats small business. This is shaping positive changes in retail and in finance and all of business. I view it as an opportunity for the consuming public to get closer to the brands and service providers, and via this new feedback loop, help businesses serve us better with more relevant products as we continuously iterate in a more dynamic connected system. Many of the feedback loops connecting consumers to brands and corporations are business opportunities yet to be realized and yet to make our lives better. My professional and personal goal is to help connect the big businesses to big numbers of people and make the world a better place for all. That’s the idea behind Stocks You Love.

Do you know a developer looking for a business partner in the Atlanta area?

I am looking for a tech partner to build a finch startup together and change the world of finance! Who’s in!?!?

Do you know someone in the Atlanta area who would be a good partner for this venture? Please put me in touch.

Over the last 7 years I have learned a LOT about financial services, global business and startups. The spread of startups and the step up in the speed of change is truly the thing that gives me most hope for our kids. Ok, that’s bull. The pace of change is so rapid that it gives me hope for ourselves!!

In March my wife gave birth to two beautiful twins. Around the same time, the earlier startup I was working on dissolved after a year of excitement. This worked out well, providing me the time for the babies and for reflection on what to do next.

A VC partner advised me to start attending Friday lunches and pitch practices that take place after lunch at the Atlanta Tech Village. I did that and discovered a wonderful community of entrepreneurs in Atlanta.

About a month ago at one of the pitch practices, I got up and pitched the idea that has bothered me for years. To my surprise people liked the idea.

Now I have no doubt what I want to do!! Check out my video from the YC Fellowship application.

I got two quotes from local developers for building the Minimum Viable Product (MVP) to go to market. One quote was $25k from an independent developer, and $36k from a company. Unfortunately, I do not have the money, if I did I would be already building it!!!!!

A VC friend advised me that there is no way I will raise this little money on power point alone. Those days are gone. This early stage is usually covered by family and friends investments. I have spent too much time fundraising in the past to take the long drown out fundraising on an idea route.

Without the access to capital, the only way to do what I have dreamed of doing forever is to look for a technical partner who could convert my product wireframes into the MVP1 and go to market that way. Next, gain traction and raise capital to grow! That is why I am now recruiting a technical partner. Please help!

To be perfectly honest, it is a very selfish idea. I want advice on managing my stock portfolio. There is plenty of advice out there, however, almost all in the wrong tenor. The washed down Wall Street advice makes me have dry-heaves. I have been working, studying, living with finance for decades now. Having lived in the devils den and having slept with the enemy, I know what I want, and its is not what’s available.

I am looking for a programmer to partner with me to democratize the world of finance. It is time to step up the good work that John Bogle did in the 70’s when he set up Vanguard. It’s time to update the concepts for our time.

If you are interested or if you know a great programmer that I should talk to, ping me!

Check out the co-founder position on Angel.co and tell your friends about the opportunity!!!


Growth of precariat is the wind beneath my wings, thoughts on replicating the Starbucks success in social finance.

Did anybody explain Starbucks success as perfect timing of product release with the tidal rise of outsourcing and emergence of Freelance labour? As I am searching for my next startup I watched Bill Gross, founder of Idealab, TED talk where he identifies timing as the biggest factor of success for a startups.

As reatail investors we are pushed towards dollar cost averaging and advised against timing the market, howaver here as entrepreneurs we are told that timing the market is the biggest success factor? What gives?

I know that Howard Schultz is from Brooklyn and Sara Horowitz runs the Freelancers Union out of Brooklyn. Do they even know each other? Regardless, I seriously doubt that in 1987 as he was taking ownership of Starbucks, Howard Schultz made a calculated analysis looking at the level of outsourcing among US business and the rising number of skilled class of career jugglers and independents who get income from contract gigs, projects, part-time jobs, temp work, moonlighting and consulting and said to himself: all those wonderful people without a stable income source will permanently need a temporary place to work from, why don’t I create Starbucks. I do not think he knew that.

The story we are told is more intuitive. “When I walked in this store for the first time—I know this sounds really hokey—I knew I was home,” Schultz remembered. “I can’t explain it. But I knew I was in a special place, and the product kind of spoke to me.” So that sounds a lot more like the follow your passion and intuition advice than a calculated planned well thought out success driving strategy is the only way to go advice.

Perhaps we can find a happy median in value investing: find what you love and wait for affordable pricing before buying to hold and cherish. Find your passion and wait for your opportunity to enter the market?

Can we really benefit from the Bill Grosse’s insight about importance of timing in the success of a startup? Or do I have to rely on my gut feeling telling me that social finance is where it’s at. This is the opportunity of our life time because it viscerally feels like home to me?

If I am looking to join a FinTech startup targeting the rise of social finance, what would be mine freelance union equivalent factor? What would be that yet unseen wind which will drive Starbucks type of success for social finance space?

If you want the answer or to discuss this further you can meet me at my office, the local Starbucks.

The time for building new marketplaces to re-invent financial services is still in front of us!!

“The link between investors and business has largely been severed, with Wall Street acting as intermediating force, collecting fees – or rent, in economic jargon – every step of the way.” – Amy Cortese, Locavesting

Re-inventing financial services is important because we need to reestablish the link between the investors or the saving and consuming public and all the companies raising debt or equity.

The World Economic Forum states that “the role of financial services in society is to facilitate efficient allocation of capital to support economic growth”. Unfortunately, the saving public delegates their capital allocation responsibility to the experts on Wall Street.

“When we hand over responsibility to the experts we cause massive problems with our food system” – Michael Polan. The same is true of the financial system. Besides loosing money to the agency cost, we are loosing the value judgment over the kind of impact we want from our investments. Luckily we live in an age where technology is available for massive collaboration that will challenge the authority of the so called investment experts. The challenge we are facing today is that the financial marketplaces which will connect social minded companies that look for social minded employees who want to do good with individual investors are not yet assembled.

The incentives however for hands-on management of our retirement savings have never been stronger. Over the last few decades public sector defined benefit pension plans have became virtually extinct. The shift toward defined contribution pension plans transfers the investment risk from the corporations to the working public. The legacy financial services industry has not and will not offer people practical tools to manage their newly acquired investment risk, and people continue to delegate their capital allocation to Wall Street. We need to re-invent financial services to help people manage their new market realities.

For companies, the post-recession credit crunch limited access to capital from banking institutions. Crowd-funding and marketplace lending is starting to bridge the funding gap and offers an opportunity to reestablish the link between companies and investing consumers. Unfortunately the peer-to-peer promise has been overflown with institutional investors, yes the professionals came in with heir money.

It is amazing that people still believe the myth that capital allocations should be delegated to the “smartest people in the room”. People are told that voting with their dollars at the cash register is the best that they can do. However, once a service or product has been created it is too late, somebody has already made the funding decision. We are all investors and we can improve that feedback loop.

The marketplace change is not happening as quickly as we would like. Even if we, the consuming investors, start thinking in terms of connecting with socially conscious companies that’s not enough. Companies, as they go about financing decisions need to start looking directly for the consuming public for hep, and with crowd funding and peer-to-peer industry moving into mainstream we will get there. Once Companies seeking funds and investors looking for investment vehicles, debt or equity, find a marketplace platforms where they can meet and support each other along the lines of affinity and value, who will need experts?

This idea though is not new. Already in the 80s Peter Lynch was ahead of his time. He taught people that it is impossible to be a credit card carrying consumer without having done the fundamental analysis on dozens of companies. Today we can top that by sharing our consumer research with each other for investment purposes. Thus we do not even need investment advisors.

This vision of new financial services powered by marketplaces connecting investing consumers with businesses will not become the mainstream reality until we stop believing the into the need for delegation to experts. But that is a chicken and egg problem. What will be first, the systems and tools for new finance or our desire for such tools. All new finance products need to converge into an ecosystem that will comfortably fit in the palm of my hand on my smart phone. Once we have access to all the crowd-funded securities in my open-source collaborative portfolio, we will have re-invented finance and disrupted the legacy financial services business model based on centralized allocation of capital by experts.

Why do I believe this will happen sooner than you think? For one there is a pot of gold at the end of this disruption rainbow. And for two we have the technology to do this!

Love Is NOT Enough: An Analysis of Failure To Launch.

This is a retrospective on my failed attempt to build a startup. I wanted to change the world of wealth management. I wanted to be the next John Bogle, and just as the founder of Vanguard, I wanted to move the needle on accessibility of wealth management to the consuming masses. As it is for many founders, my story was a passionate love affair with my business idea. For hours at a time, I contemplated the systemic problems with our pensions, 401k funds and my brilliant idea for restructuring the retirement savings industry.

My specific goal for that startup, other than to build an operating company, is not the focus of this story. What is relevant is that as happens to many first time founders, I run my startup for far too long, beyond a rational stoping point. I want to share my reflections on how that mistake happens and my take on how to avoid it.

Passion and love are great motivators. However, if you fall in love with your business idea, you are also likely to smother the very business you are trying to build, not to mention you are likely to devote too much time and energy to an increasingly losing bet.

In no particular order, the following problems may arise for you as they did for me:

I became afraid someone would steal my beloved and brilliant billion dollar idea. Trust me when I say that the fear I had was palpable. When I talk to first time entrepreneurs today, there is no mistaking the person who is talking in circles, carefully avoiding revealing any business details that would presumably allow someone to steal their precious idea. When pressed for detail, the founder will ask you to sign a NDA.

The unfortunate result of this fear based protectionism is that it takes you, as a founder, a lot more time to fully develop your idea. Serial entrepreneurs, as well as investors, know that the determination, dedication, and sacrifices it takes to actually build a business are not easily copied. As a founder you stand to gain far, far more from the feedback you get from others than any potential risk you face of someone running off with your idea. I regrettably wasted several months protecting my idea with an NDA. Just talk to everybody. Do it openly and listen.

Intuitively, as a founder you create an origin myth, the story you tell people of how you came up with the idea. As you continue telling this story, to you it becomes the story of a real company, regardless of reality. In reality at this stage we are talking purely about potential and not a business. For you, as the founder, however, the volume of visualizations you have had of your business plan renders your business idea a very vivid and very real thing. Let’s call it your alternate reality.

It does not matter if people love, understand, or even care about your idea. You yourself see the brilliance of your proposed solution. It makes sense to you. As you tell the story, you start wondering how come I am the only one seeing this outstanding solution!?! I must be brilliant!! Inside your alternate reality you are a proud founder, or worse, Mr. CEO. Don’t do this. Retain humility and ask for honest criticism. Pride in your idea is a road to a painful drawn-out failure. The idea might be in fact brilliant but not viable.

Pride locks you in on a trajectory. It may be counterintuitive, but the fact remains that the more time you spend on your idea in absence of finding a product-market fit without creating a functional feedback loop from your customers, the more proudly delusional you become about the beauty of your solution. Going out and testing your product keeps you sane and allows you to adjust your track. Go talk to people. Do it fearlessly and openly before you fall in love with your solution to the point that it narrows your peripheral vision.

Your objective should be to test your idea and start a viable business. It is not just the development of the business idea, but actually the execution: testing the concept and starting the business. In days past, VC’s used to invest in ideas. Over time investors realized that in the process of execution ideas always change. They realized the team that executes is far more important than the idea. Do not try to develop the idea or product over years and then try to build the team in a month or two.

Chances are, if you operate out of fear and with pride, you will have a hard time attracting, building and retaining a functional team. I ended up with a super thought out business plan which I discussed to death, but no one to build a product and thus no product to test. If you shift your objective to test your business idea quickly, you will learn more and go further faster.

Build a team and fail quickly as many times as needed before you develop attachment to any solution. Listen to the team. Remember the objective is not to create the perfect idea, but to test your concept and build an operational company around it. That may take much iteration. It does not mean build another PowerPoint deck! Failing is not only ok, it is a valuable lesson.Your plan did not work. Great! You get to adjust your plan. Better to test and know that now than two years from now when you run out of money. Learn together as a team and let everyone involved evolve or move on.

If you are not open to the possibility of failing quickly, as you generate more and more powerpoint presentations, you may even end up imprinting in your head a very strong brand image of your business idea before you have any product or product-market fit. In that situation, you are done. Chances are your untested idea is not the solution everyone is looking for. However, by that time you may become afraid of adopting any new feedback or any brand change that you perceive might tarnish the pristine image of your imaginary brand. Yes, this may sound funny, but it is very real.

As the proud founder/CEO with a very clear brand image even before the product is built, you identify some team members you think may be good enough to execute what you view as your brilliant, flawless, well developed idea. With high levels of fear that your idea will be stolen and tremendous pride in the thinking behind it, there is only one possible outcome. I overvalued my contribution to what it would take to execute my idea, and I undervalued the contribution of the people I tried to recruit. In that moment, as the founder, you just do not understand why the rest of the potential team do not want to be part of this immense brand and mega corp you have created!? It is quite clear in retrospect and it is rather painful when you see others sabotage themselves like that. I wish I had learned these lessons before and I wish I humbly sliced the equity more evenly among the founding team without fear, to energize all. You are splitting an imaginary pie and there is good material available on how to do this. The key take away here is that splitting equity is an emotional exercise, not an arithmetic spreadsheet exercise. Do not confuse that. Motivate all to grow the total pie, do not create competition for your share.

Since I closed my startup, Stocks You Love, I have also been involved in two other startups. This has given me ample time to observe other founders make the same mistakes I made. The biggest discovery for me was that first time founder lessons are unfortunately not transferable. It is like the first time you fall in love. Everybody needs to experience it for themselves.

In other words, starting a company is experiential learning more than intellectual. Even if you know the theory, took Steve Blank’s and Eric Ries’ classes and read their books and have the right information and advice, you have to go through the motions to sense what’s going on. Just as you cannot learn to play a sport by just reading about it, you cannot learn how to start a company without putting theory into applied practice. Those lessons have to be experienced.

Obviously, it is good to surround yourself with people who are not first time entrepreneurs, as experienced people will have a better feel for what traps to avoid. However, if you fall in love with your idea, there is no guarantee you will be taking any advice from anybody. Be humble and listen to everybody.

Solicit advice wherever you can and enjoy the learning process. After talking to number of experts in any field you will become expert yourself. You will learn more than you realize. After failing in my first startup that tried to reform retirement savings, by chance I ran into and had a few hour discussions with a senior World Bank pension expert. I was in heaven! I knew my stuff and it was a validation of my research and passion.

You certainly learn a lot. However, if you want to put your learning to use, drop the love, share the learning, share the equity, test the market, be pragmatic, fail quickly if needed and move on until you succeed. The company you end up starting might be different from your initial vision, but chances are it will also be much better. That would be my advice to my younger self.

The fact that you spent 12hrs a day on a project does not make it a business or your job. It could just be a hobby or worse, love mixed up with business. Although you will still learn a lot.

Go do it, fail before you fall in love, and enjoy the process. Do not get discouraged. Just fail quickly and move on. Failing quickly may seem very counterintuitive. As a loving parent of your startup you want to give it time to grow-up and nurture it until it is sustainable. The problem is that most of us have limited resources and time, not to mention the pitfalls of misplaced love as described above. The fail quickly model is your friend as it avoids most of the love pitfalls and it allows you to iterate and learn from the process. The ideas may die, but the lessons you learn stay with you! That is a very positive thing and may be the difference that will make your startup a huge success!!!

Happily, I now get it and I’m looking for my next venture.

Best of luck with your startup!!!

We are the new economy, we are building the new economical structures, and the we includes you!

Screaming fire in a crowded theater:

It appears that our economists, after their splendid failure in predicting our great recession, are trying to compensate for their failure by engaging in a scary competition among themselves to see who can predict the most gloomy future for us. I would characterize this as screaming “fire” in a crowded theater. Not cool! Particularly as there is no fire, other than the one they erroneously imagine in their heads.

What’s the fiery crisis du jour, you ask? Well, The robots are coming for our jobs!!! Or in the words of Jeffrey Sachs and Laurence Kotlikoff, the smart machines are coming for your children’s jobs and will bring long-term misery, I have not read such an upbeat white paper in ages.

Jeremy Rifkin is talking of a third industrial revolution where automation and robots take our jobs.

Paul Krugman is building on those fears and beyond by saying that this generation who started graduating into the great recession in ’08 and thereafter will never ever catch up with their earnings. Game over, lost generation.

The Economist is jumping on this gloom and doom band wagon as well with their Robocollegue article saying with a smile that because of automation there is going to be a lot more unskilled low pay dead end jobs filled with university graduates who implicitly defaulted on their student loans.

Most of the above economists draw very logical conclusions about need for change of our social systems which is right regardless. However, my simple point is that I am not quite ready to start worrying nor should you be worrying, just yet!! We must realize that it is the same old economists now screaming fire who failed to predict the great recession. Thus, we, the creative educated masses, should continue working on our startups and re-imagining the world and writing software that eats this world, and building our new economy.


The world it is changing:

We would be excused for thinking that all the economists got hold of the same make and model of disaster colored gloom and doom glasses. That’s not far from the truth. Their economic models which illuminate their view of reality are grounded in established yesterdays structures. Unfortunately, for the brilliantly structured economic minds, we are changing the structure of the world they are modeling, right now, in real time. We are reshaping our world.

First, their discussion was framed in terms of recovery timeframe with the predominant question being when do we get back to normal? The answer is never ever never.

Spain having financed the anglo-spanish wars with silver from Latin American colonies has forgone the emergent banking innovation happening in Antwerp and the Spanish crown ended up defaulting on its debt at least fourteen times between 1557 and 1696. Spain has never ever returned back to that normal.

London had a thriving bond market by the mid 18th century. France had no such thing as a bond market. If not for the British Empire’s ability to raise enormous debt Napoleon might not have been defeated. Thus, we speak English.

After the crisis of the US revolutionary war, cotton production moved to India. That move out of US was permanent, it never ever came back.

The economic crisis brought by the world wars in Europe eliminated the live in servant culture. That world is not coming back.

We just cannot expect things to get back to normal after our current crisis. And we don’t just have an economic crisis. We have a structural revolution.

The question is not if things will change but when will the changes go mainstream?

LinkedIn is having recruiting conferences for people who are the back bone of their revenue model!

E-bay has conferences for the people making money selling things on e-bay.

Amazon, as far as I know, has no conferences for the people they enable as sellers, but they have conferences for the masses of entrepreneurs who use the Amazon Web Services as a software platform.

Etsy is starting to have conferences discussing small business and sustainability ideas.

On a smaller scale, Estimize does not have any conferences yet for analysts estimating stock performances but they provide an incredible disruptive platform for stock analysis. I totally see a conference for all the analysts in their future!

Those are, present tense existing things, foundations of a massive new global economy.

To assume that the changes will take generations and old world economic models will persist is simply looking into slightly dated forecasting models.


RareBridge as a solution:

Collaborative cross community communication is the new paradigm! Just look at your own Facebook friends, where they come from, where they live.

All this is becoming an integral part of this new entrepreneurial culture. I am not sure when RareBridge will be hosting an entrepreneurial conference or what will be the specific themes, if you have an idea for a innovative entrepreneurial theme, let me know. But for now we have built the infrastructure to help accelerate the global emergence of startup culture. Come join us!  

We are working on this project from London, San Francisco and Bogotá, and one of our advisers lives and works in Lagos. We are united by our passion and believe that this stands in direct opposition to the latest wave of our economist gloom and doom forecasts. We have a vision and drive to support the self-starters and the self-employed of our era. Come join the movement!

Running a startup is a team building exercise, so why not share the joy and learn from each other.

The illusion:

Comfort and luxury are not drivers of innovation. How do I know you ask? Well, I feel as if all three of us here at RareBridge are running around seeking solutions as if our heads were on fire and we were looking for water! Comfort or luxury would not describe our circumstance, though at least judging by my two coworkers innovation is a necessity. Ignorant illusion at times creeps into our subconscious that if we only had more resources we could be more innovative and productive. Well, the past week I was dissuaded of that false illusion!!!


The contacts:

Working on a startup and being broke, one cannot afford many luxurious vacations. However we do have friends at global mega corporations with very deep pockets. One such friend informed me that they were planning a major corporate off-site to work on their corporate communication issues, a team building if you will. I laughed thinking of our great team of three, we could only dream of having communications issues. Though when I learned that my friends off-site was going to be held in Medellín in a posh hotel and I was welcome to crush for free, I knew my world was looking up.


The disillusion:

Little did I realize the mega corporate team building retreat is going to help me realize how lucky our startup is in terms of our scale and limited resources. The mega corp with their huge cash flows has many layers across all the continents, for them communication is not just something they do to get things done, it is an department in the organization. Learning and innovation as it turns out has to take a second seed to a lot of other organizational issues. For the team-building event they hired a professional facilitator with fancy degrees to help them figure our how to communicate. At our small startup we can only dream of access to the resources they have, but we have absolutely no problem communicating. You could say running the startup is a team building exercise, a perpetual off-site.


The pitch:

For us, the young entrepreneurs, resources of a mega corporation should not be an allure as that is a false image of prosperity. We are the foundation of the new economy. What we need the most is access to nimble starved creative open-minded over educated entrepreneurs like ourselves. Our conversations our collaboration and our ideas will help all of us succeed and come to market with the success that we are. At RareBridge we are creating a platform to make that communication and collaboration happen for all of us. Come check us out.

Problem with silos or why we should seek out opportunities to work across many communities

In the beginning:

Growing up in Poland I was aware of the existence of other countries, but because I was living in a national silo, I just did not have much interaction with them.

When I began studying finance at an US university, my school administrator was perplexed by my odd requests for permissions to take classes in other silos of the university, like mathematics, philosophy or music. Why, she asked? It is not required.

Later, I joined a global company in their finance organizational silo. My coworkers in the finance silo and I laughed at the crazy marketing people, who within their silo had no concept of the industry. We laughed at the entitled front line employees, because only we in the finance silo knew what was really going on. But even within the finance silo there were even smaller choice constraining silos. The Newly minted MBAs joining my team were complaining that we are not giving them enough work that fits into the MBA work type silo. Many were making themselves unhappy because of that silo mindset.

We all were growing up and being indoctrinated into a silo world without even realizing it. That, however, will not be the world of our kids. We are experiencing a massive structural change in our social and economic structures. And this will change everything.

Paradigm shift to networked world:

This evolution in psychology and cultural behavior of the society is not a random move but a point on a long continuum. With the onset of the scientific revolution towards the end of the Renaissance, we have systematically started discovering and classifying the world. It has benefited us greatly. By the time I was born in the 70’s, almost everything was squarely organized by the society into its proper boxes stacked up in silos. These technologies and innovations brought about change in sentiment and after the summer of love and Woodstock in the 60‘s, the social changes reverberated on into the early 1970s. However, the idea and movement of the Age of Aquarius and the associated change in values and structures was sadly premature for the world was not yet ready. That revolution is only happening now with social media and 24/7 collaborative connectivity at the forefront, blurring the lines of the tired old silos.

During my years in the university setting, I started realizing that I do not fit into the silo world. I loved architecture and finance equally but there was no choice to study both simultaneously. “You have to pick one. Why?”, I asked. I picked finance. Later at work I was advised against moving out of finance to different silos. In order not to go crazy in my silo, I channeled my creativity to studying world history and arts, traveling around the world visiting museums in my spare time.

During my MBA, I discovered that I am not the only crazy one, that there are accomplished professors who also see the silos as a problem. I will never forget when Prof. Jeffrey Sachs came to the Business school to introduce his earth institute project.

As it turns out, our world of silos is a major obstacle to problem solving. When we need to solve worlds big problems or when we need to get small companies off the ground, we need to reach out to other communities and find a way to work together. Professor Sachs was explaining that even within the same university it is a massive challenge for the business, engineering and say health sciences to find a common language to communicate across their self-contained specialized silo nomenclature. Just the communication is a challenge. That is why profesor Sachs created the earth institute.

How we are helping:

At RareBridge we agree with Professor Sachs. Collaboration across various communities of interests and specializations is what’s needed to create the innovation to solve our world’s problems. It is also needed to get many small companies off the ground. We believe that it is not only fun to go across the lines, it is the fundamental driver of innovation. That is why we are creating a platform where a cross community of enterprising experts can find a way to collaborate and find each other to solve the little and the big problems. Come check us out.