# articles

## count the cost

[Owning a business is not the solution to depression: Entrepreneur](https://www.reddit.com/r/Entrepreneur/comments/11vaxuh/owning_a_business_is_not_the_solution_to)

[When your family doesn't understand entrepreneurship : Entrepreneur](https://old.reddit.com/r/Entrepreneur/comments/116747o/when_your_family_doesnt_understand)

[The complicated reality of doing what you love | Hacker News](https://news.ycombinator.com/item?id=28345821)
[When you monetize your hobby, it looks a lot like a job - Vox](https://www.vox.com/the-highlight/22620178/hobby-job-leisure-labor)

[Working at a startup is overrated, both financially and emotionally | Hacker News](https://news.ycombinator.com/item?id=27245090)
[You Probably Shouldn't Work at a Startup](https://every.to/napkin-math/you-probably-shouldn-t-work-at-a-startup-9387b632-345c-4a22-bac0-3cb92f0eecf1##)

[Why to Start a Startup in a Bad Economy](https://paulgraham.com/badeconomy.html)

[Why to Not Not Start a Startup](https://paulgraham.com/notnot.html)

[On the Use of a Life | Hacker News](https://news.ycombinator.com/item?id=24537865)
[On the use of a life](https://www.daemonology.net/blog/2020-09-20-On-the-use-of-a-life.html)

["Here's the number I used to win the lottery" -Entrepreneurs giving advice | Hacker News](https://news.ycombinator.com/item?id=35024191)
[Andrew Wilkinson on X: ""Here's the number I used to win the lottery" -Entrepreneurs giving advice" / X](https://twitter.com/awilkinson/status/1575941514567774208)

[Want to found a startup? Work at one first | Hacker News](https://news.ycombinator.com/item?id=32660443)
[Want to found a start-up? Work at one first! | Lawrence Jones](https://blog.lawrencejones.dev/learn-at-scale-up/)

[Porter's five forces analysis - Wikipedia](https://en.wikipedia.org/wiki/Porter's_five_forces_analysis)

[Yevgeniy Brikman](https://www.ybrikman.com/writing/2017/05/05/the-truth-about-startups/)
(2017) The Truth About Startups

## defying convention

[22-year-old builds chips in his parents' garage (2022) | Hacker News](https://news.ycombinator.com/item?id=37954017)
[22-year-old builds chips in his parents' garage | Hacker News](https://news.ycombinator.com/item?id=30043719)
[This 22-Year-Old Builds Chips in His Parents' Garage | WIRED](https://www.wired.com/story/22-year-old-builds-chips-parents-garage/)

[Tell HN: A disabled 40-year-old person founded a startup and makes a living | Hacker News](https://news.ycombinator.com/item?id=33062606)

[I tried starting a manufacturing unit in India (2020) | Hacker News](https://news.ycombinator.com/item?id=33368104)
[I tried starting a manufacturing unit in India… - Superr India](https://superr.in/i-tried-starting-a-manufacturing-unit-in-india/)

[How to Start Google | Hacker News](https://news.ycombinator.com/item?id=39756865)
[How to Start Google](https://paulgraham.com/google.html)

[The Reddits | Hacker News](https://news.ycombinator.com/item?id=39778590)
[The Reddits | Y Combinator](https://www.ycombinator.com/blog/the-reddits)

## getting a name

[amitmerchant1990/how-products-got-their-name: Collection of products/projects and the stories of how they got their name](https://github.com/amitmerchant1990/how-products-got-their-name)

## how much time it'll take

[Fast · Patrick Collison](https://patrickcollison.com/fast)
- the time it takes to build something is often absurdly less than anyone realizes

## ideas that haven't been explored

[Ask HN: What are you surprised isn't being worked on more? | Hacker News](https://news.ycombinator.com/item?id=25559571)

[Products I Wish Existed | Hacker News](https://news.ycombinator.com/item?id=21969774)
[Products I Wish Existed, 2020 Edition - by Elad Gil](https://blog.eladgil.com/p/products-i-wish-existed-2020-edition)

[SAMBA Blog: Hamster Burial Kits & 998 Other Business Ideas](https://web.archive.org/web/20090227083110/http://www.sixmonthmba.com/2009/02/999ideas.html)

## note the trends - fading trends

[Biden's 'Buy American' Rules Are Getting in the Way of His Rural Broadband Push](https://reason.com/2023/04/07/bidens-buy-american-rules-are-getting-in-the-way-of-bidens-rural-broadband-push)

[The golden era of being an open startup is gone | Hacker News](https://news.ycombinator.com/item?id=34645035)
[The golden era of being an open startup is gone](https://testimonial.to/resources/the-golden-era-of-being-an-open-startup-is-gone)

[Where did the long tail go? | Hacker News](https://news.ycombinator.com/item?id=31883206)
[Where Did the Long Tail Go? - by Ted Gioia](https://www.honest-broker.com/p/where-did-the-long-tail-go)

[Thousands of small businesses are struggling because of R&D amortization | Hacker News](https://news.ycombinator.com/item?id=39066724)
[Michele Hansen on X: "The bipartisan Tax Deal that @repjasonsmith and @ronwyden struck would help thousands of small businesses that are struggling because of R&D amortization. I've talked to hundreds of my fellow small business owners about this over the past year. Most of them have software…" / X](https://twitter.com/mjwhansen/status/1748345492998696961)

## note the trends

[The Future of Web Startups](https://paulgraham.com/webstartups.html)

[Why Startups Condense in America](https://paulgraham.com/america.html)

[SpaceX alums are branching out and shaping the startup economy | Hacker News](https://news.ycombinator.com/item?id=35404823)
[April 2023 - How SpaceX Alums Are Branching Out and Shaping the Startup Economy | Via Satellite](https://interactive.satellitetoday.com/via/april-2023/how-spacex-alums-are-branching-out-and-shaping-the-startup-economy/)

[Pay attention to deviations from mainstream incentives | Hacker News](https://news.ycombinator.com/item?id=32847192)
[Pay Attention to Deviations from Mainstream Incentives - Commoncog](https://commoncog.com/pay-attention-to-deviations-from-mainstream-incentives/)

## proven ideas

[Top entrepreneurs are shameless about stealing good ideas (Here's 5 examples) : Entrepreneur](https://old.reddit.com/r/Entrepreneur/comments/10y3hgv/top_entrepreneurs_are_shameless_about_stealing/)

[From idea to paying customer | Hacker News](https://news.ycombinator.com/item?id=32104669)
[From idea to paying customer Intro Linen is a tool to sync linen-community #blog](https://www.linen.dev/s/linen-community/t/545988/from-idea-to-paying-customers)

[Practical Home Business Ideas](https://web.archive.org/web/20050120025825/http://www.ahbbo.com/ideas.html)

[Cool Business Ideas to Start in 2024: Best Top Small Business Ideas - New small business ideas to make money for entrepreneurs. Best top business ideas!](https://www.coolbusinessideas.com/)

[Ask HN: PG's 'Do Things That Don't Scale' manual examples? | Hacker News](https://news.ycombinator.com/item?id=38010992)

[SEO'Brien](https://seobrien.com/startups-work-silicon-valley)
Why Do Startups Work in Silicon Valley?

[Morgan Housel](http://www.collaborativefund.com/blog/great-products-vs-great-businesses/)
(2017) Great Products vs. Great Businesses

## researching and present realities

[The afterlife of used hotel soap | Hacker News](https://news.ycombinator.com/item?id=31142959)
[The surprising afterlife of used hotel soap - The Hustle](https://thehustle.co/the-surprising-afterlife-of-used-hotel-soap)

[Ask HN: How to validate a startup idea whilst employed? | Hacker News](https://news.ycombinator.com/item?id=32875224)

['just STFU' - why are you should never tell anyone about your project : Entrepreneur](https://old.reddit.com/r/Entrepreneur/comments/147rwvu/just_stfu_why_are_you_should_never_tell_anyone/)

## selling an idea

[People had to be convinced of the usefulness of electricity | Hacker News](https://news.ycombinator.com/item?id=35219812)
[People Had To Be Convinced of the Usefulness of Electricity | Smart News| Smithsonian Magazine](https://www.smithsonianmag.com/smart-news/people-had-to-be-convinced-of-the-usefulness-of-electricity-21221094/)

[Airbnb's design to live and work anywhere | Hacker News](https://news.ycombinator.com/item?id=31200650)
[Airbnb's design for employees to live and work anywhere](https://news.airbnb.com/airbnbs-design-to-live-and-work-anywhere/)

[How a janitor at Frito-Lay invented Flamin' Hot Cheetos (2017) | Hacker News](https://news.ycombinator.com/item?id=25510351)
[How a janitor at Frito-Lay 'invented' Flamin' Hot Cheetos - The Hustle](https://thehustle.co/hot-cheetos-inventor)

[There's no such thing as "a startup within a big company" | Hacker News](https://news.ycombinator.com/item?id=26178518)
[Why There's No Such Thing as a 'Startup Within a Big Company' | by Hunter Walk | Marker](https://marker.medium.com/why-theres-no-such-thing-as-a-startup-within-a-big-company-c3003615f3bc)

## specific ideas worth pursuing

[Start Your Own ISP | Hacker News](https://news.ycombinator.com/item?id=20726906)
[Start Your Own ISP | Hacker News](https://news.ycombinator.com/item?id=27539165)
[Start Your Own ISP | Hacker News](https://news.ycombinator.com/item?id=40161697)
[Start Your Own ISP](https://startyourownisp.com/)
Start your own ISP, lists tools which you need and lots of background information.

[Man who built ISP instead of paying Comcast $50K expands to hundreds of homes | Hacker News](https://news.ycombinator.com/item?id=32411493)
[Man who built ISP instead of paying Comcast $50K expands to hundreds of homes | Ars Technica](https://arstechnica.com/tech-policy/2022/08/man-who-built-isp-instead-of-paying-comcast-50k-expands-to-hundreds-of-homes/)

[Hard Startups | Hacker News](https://news.ycombinator.com/item?id=22425745)
[Hard Startups - Sam Altman](https://blog.samaltman.com/hard-startups)

[Ask HN: What startup/technology is on your 'to watch' list? | Hacker News](https://news.ycombinator.com/item?id=23276456)

[Evaluating Modest SaaS Business Ideas | Hacker News](https://news.ycombinator.com/item?id=26763521)
[Evaluating Modest SaaS Business Ideas](https://greaterdanorequalto.com/evaluating-modest-saas-business-ideas/)
good questions in the comment by swyx

# guides

## big ideas

[Frighteningly Ambitious Startup Ideas](https://paulgraham.com/ambitious.html)

[How to build great products | defmacro](https://www.defmacro.org/2013/09/26/products.html)

[Beyond Smart](http://www.paulgraham.com/smart.html)

## brainstorming techniques

[Extreme questions to trigger new, better ideas | Hacker News](https://news.ycombinator.com/item?id=34305972)
[Extreme brainstorming questions to trigger new, better ideas](https://longform.asmartbear.com/extreme-questions/)

[How to Get Startup Ideas](https://paulgraham.com/startupideas.html)

[Organic Startup Ideas](https://paulgraham.com/organic.html)

[Ideas for Startups](https://paulgraham.com/ideas.html)

[GitHub - gamwe6/12-startups-in-12-months: List of 12 startups in 12 months challenges](https://github.com/gamwe6/12-startups-in-12-months)

[How to brainstorm great business ideas | Hacker News](https://news.ycombinator.com/item?id=22446148)
[How to brainstorm great business ideas](https://www.indiehackers.com/post/how-to-brainstorm-great-business-ideas-ab51c3d51c)

[Startup idea checklist | defmacro](https://www.defmacro.org/2019/03/26/startup-checklist.html)

[How to Get New Ideas](http://www.paulgraham.com/getideas.html)

[The Need to Read](http://www.paulgraham.com/read.html)

## ideas that work

[Why Startup Hubs Work](https://paulgraham.com/hubs.html)

[Crazy New Ideas | Hacker News](https://news.ycombinator.com/item?id=27061789)
[Crazy New Ideas](https://paulgraham.com/newideas.html)

[Before the Startup](https://paulgraham.com/before.html)

[Startups in 13 Sentences](https://paulgraham.com/13sentences.html)

# text

## accepting uncertainty

You can expect the future to take a definite form or you can treat it as hazily uncertain. If you treat the future as something definite, it makes sense to understand it in advance and to work to shape it. But if you expect an indefinite future ruled by randomness, you'll give up on trying to master it.

You can also expect the future to be either better or worse than the present. Optimists welcome the future; pessimists fear it. Combining these possibilities yields four views:
INDEFINITE PESSIMISM
This describes Europe. An indefinite pessimist looks out onto a bleak future, but he has no idea what to do about it. All he can do is wait for it to happen, so he might as well eat, drink, and be merry in the meantime: hence Europe's famous vacation mania.
DEFINITE PESSIMISM
A definite pessimist believes the future can be known, but since it will be bleak, he must prepare for it. Chinese leadership is obsessed with the way in which things threaten to get worse. Every class of people in China takes the future deadly seriously.
DEFINITE OPTIMISM
To a definite optimist, the future will be better than the present if he plans and works to make it better.
INDEFINITE OPTIMISM
To an indefinite optimist, the future will be better, but he doesn't know how exactly, so he won't make any specific plans. Baby Boom produced a generation of indefinite optimists so used to effortless progress that they feel entitled to it.

While a DEFINITELY OPTIMISTIC future would need engineers to design underwater cities and settlements in space, an INDEFINITELY OPTIMISTIC future calls for more bankers and lawyers. Finance epitomizes indefinite thinking because it's the only way to make money when you have no idea how to create wealth.

DEFINITE OPTIMISM works when you build the future you envision.
DEFINITE PESSIMISM works by building what can be copied without expecting anything new.
INDEFINITE PESSIMISM works because it's self-fulfilling: if you're a slacker with low expectations, they'll probably be met.
But INDEFINITE OPTIMISM seems inherently unsustainable: how can the future get better if no one plans for it? Evolution.

Would-be entrepreneurs are told that nothing can be known in advance: we're supposed to listen to what customers say they want, make nothing more than a "minimum viable product," and iterate our way to success. But leanness is a methodology, not a goal.

We have to find our way back to a definite future.

A startup is the largest endeavor over which you can have definite mastery. You can have agency not just over your own life, but over a small and important part of the world.

Once you think that you're playing the lottery, you've already psychologically prepared yourself to lose.

## already-explored ideas

Pick a boring business. Everyone is always on the lookout for "the next
big thing." Just do the old, old thing slightly better than everyone else.

## believing in it

Ask, "Would anyone cry if I went out of business?" If the answer is no,
you're on the wrong path.

When you attempt to satisfy your personal values without providing any
real social value, you get the starving-artist syndrome : you may be
inspired by work you love doing, but it won't pay the bills.

The solution is to work within the area of overlap between your personal
values and social values. This will enable you to do what you love while
creating something that others treasure as well. Don't force yourself to
choose between your integrity and your income - demand that both be
satisfied.

Often the simplest way to create value for others is by sharing what you
love to do.

## checking if there's a void

We carefully research the Achilles heels of different global industries, and only when we feel we can potentially turn an industry on its head, and fulfil our key role as the consumer's champion, do we move in on it.

PaulGraham - Here is why I received so much criticism: I like to find (a) simple solutions (b) to overlooked problems (c) that actually need to be solved, and (d) deliver them as informally as possible, (e) starting with a very crude version 1, then (f) iterating rapidly.

The marketplace is theoretically the best mechanism for matching supply with demand, establishing prices, and extracting maximum utility from finite resources. So why don't all individuals act as individual buyers and sellers, rather than gather in companies with tens of thousands of coworkers?

Compelling high resolution images have become ubiquitous, yet professional photo agencies treat them like a scarce resource. (iStockPhoto changes that equation)

"To build a new system, you don't compete with the old one, you build a new system that makes the old one obsolete" - Buckminster Fuller

What valuable company is nobody building?

Our contrarian question: what important truth do very few people agree with you on?

Contrarian thinking doesn't make any sense unless the world still has secrets left to give up.

The business version of our contrarian question: What valuable company is nobody building? Every correct answer is necessarily a secret.

Something important and unknown, something hard to do but doable.

Are there any fields that matter but haven't been standardized and institutionalized?

The best projects are likely to be overlooked, not trumpeted by a crowd; the best problems to work on are often the ones nobody else even tries to solve.

Rigorous creativity to reach the silent needs.

Business book publishers, for example, must understand booksellers, and corporations that buy books, and the individual readers within those companies.
Hotel managers must understand travel agents, and corporations that have offsite meetings, and the human resources people who organize the corporate offsites, and the people at the company that will be attending the offsite.
Expanding the customer field of vision is critical.

Given three or four potential customers, who is the mose important?
On whom should a business design be most sharply focused?

A startup is a small company that takes on a hard technical problem.

Keep asking yourself these two questions:
How can I create and deliver more value?
How can I increase my capacity for value creation?

Learning how to focus on my customers' tastes rather than my own was an important, early business lesson that has served me well. Any successful businessperson knows you have to do whatever it takes to get objective market research. Just spouting off about what you think the market wants or needs isn't good enough.

Find the answers to these six critical questions:
1. Who are my competitors? Identify both the major players and the smaller players.
2. How does my idea compare and contrast with other products in the market?
3. What value does it offer that the other products do not?
4. How large is the market?
5. Who are my primary customers?
6. What are my potential sales?

Most people innovate backward. They develop a product to solve a problem that bothers them personally without first confirming that it bothers the market universally.

Instead of creating a new market for your idea, create an idea for an existing market.

It's one thing to create a product you like. It's quite another to design a product that consumers like and will buy.

Update or spruce up something that has been around, relatively unchanged, for a long time.

Five simple strategies to product-scouting success:
1. Become a licensing expert.
2. Find your niche.
3. Study the market.
4. Focus on ideas you can sell.
5. Cut a win-win agreement.

It's not about how big or small, how complex or simple, or how unique or clever your idea is. It's about which idea is going to take the least amount of work and has the highest probability of success.

Whenever I come up with an idea I'm interested in, I give it this four-step litmus test to see if it's a potential winner worth pursuing further:
1. Does it solve a common problem?
2. Does it have a wow factor?
3. Does it have a large market?
4. Does it use common production methods and materials?

Companies don't want to educate the market about a product or create a new market for a product. They're like me: they like ideas that are simple to explain and easy to show its unique value. They want ideas that consumers will take one look at and say, "I get it. I love it! I see how it benefits me. I want it."

Whatever you do in life, find someone who has already done it, get as close as you can, and learn as much as you can.

Sometimes, because you're not an expert in a field, you can look at things differently and see simple ideas with mega marketing potential that the "experts" might overlook. But once you get an idea that fires you up, you need to gain some expertise in that field so you can make good decisions about whether and how to move forward with it.

If people are listening to or watching or buying something and you don't get it, inquire as to why. Learn to see through their eyes.

## count the cost

Note: this is essentially a base rate estimation model for companies in an industry.

Initiative is scarce. Hence: valuable.

The single greatest danger for a founder is to become so certain of his own myth that he loses his mind. But an equally insidious danger for every business is to lose all sense of myth and mistake disenchantment for wisdom.

The stories in the magazines are lies: hard work and perseverance don't lead to success.

It's the boring stuff that matters the most.

If your business plan depends on suddenly being "discovered" by some
big shot, your plan will probably fail.

Keep your day job.

## creative work

The entire experience of actually making it in a creative endeavor, though, is a matter of developing entrepreneurship skills.

## crowdsourcing

Crowdsourcing has the capacity to form a sort of perfect meritocracy. The quality of work takes precedence over pedigree, race, gender, age and qualification.

Crowdsourcing has revealed that, contrary to conventional wisdom, humans do not always behave in predictably self-interested patterns.

People are driven to contribute for a complex web of motivations, including a desire to create something from which the larger community would benefit as well as the sheer joy of practicing a craft at which they excel. People are inspired to contribute to crowdsourcing endeavors for similar motivations, though financial incentives also play a role, especially when the contributors hail from developing countries.

What unites all successful crowdsourcing efforts is a deep commitment to the community.

Two shared attributes among almost all crowdsourcing projects:
- Participants are not primarily motivated by Money
- They are donating their leisure hours to the cause.

In this environment, the "professional" has never been more widely distrusted and the "amateur" more cheerfully embraced.

Crowdsourcing has no more regard for professional qualifications than it has for nationality. Companies like InnoCentive and iStock are meritocracies; all that matters is the final product. This is one of its greatest strengths.

The untrained eye is also untainted. Their (InnoCentive's) greatest asset is a fresh pair of eyes, which is simply a restatement of the truism that with many eyes, all flaws become evident, and easily corrected.

What makes the online community a more efficient workforce than one managed by a firm? The short answer is that communities are better at both identifying talented people and evaluating their output.

The types of crowdsourcing that traffic in collective intelligence take three primary forms.
- The first category is the prediction market, or the information market, in which investors purchase "futures" pegged to some expected outcome, such as the winner of the Oscar for Best Picture, or the Presidential election.
- The second form is the problem solving, or crowdcasting, network, in which someone with a problem broadcasts it to a large, undefined network of potential solvers.
- The third category is the "idea jam" which is essentially just a massive online brainstorming session that takes place over the course of weeks instead of hours.

Crowdsourcing is rooted in a fundamentally egalitarian principle: every individual possesses some knowledge or talent tat some other individual will find valuable. In the broadest terms, crowdsourcing involves making a connection between the two.

The brown socks beat Mensa!

Dell's IdeaStorm employs another crucial element of crowdsourcing - the crowd's collective opinion.

Microsoft, Eli Lilly, Goldman Sachs, and Deustche Bank have all used prediction markets to help determine corporate strategy.

The reason diversity trumps ability in a problem - solving scenario is because you can always throw the idiots off the bus.

Before the rise of mass reproduction - there was far less of a distinction between audience and creator. New musical compositions were distributed as sheet music, which could then be interpreted according to regional preference and individual whim. Entertainment was a private affair composed of people entertaining one another. There were very few cultural products that we would describe as "hits" by today's standards. This changed quickly and dramatically with the rise of modern technologies. The mass production and distribution of culture required a more passive form of consumption.

Crowdsourcing depends on the exceptions - Hand a camera to one hundred people and you'll get 99 blurry snapshots and one indelible or salable image. The essence of crowdsourcing such creative work lies in culling the brilliant from the banal.

Crowdsourcing creative work involves cultivating a robust community composed of people with a deep and ongoing commitment to their craft and to one another.

Crowdsourcing the stuff people make - as opposed to the stuff they already know - threatens to disrupt and ultimately displace established companies.

iStocker (Stock photography portal) - developed a credit system - a user could download one image for every image of theirs that had been downloaded by someone else.

People react with great hostility to the idea that crowdsourcing equals cost savings. No one wants to feel exploited.

If you are inviting the crowd to the party, you might as well ask them to help with the planning and cleanup. The crowd likes to be involved.

It is not so much about giving the crowd easier tasks, as it is about building a strategy around the fact that different people are good at different things, have different amounts of time to commit, or simply have different interests.

We had far more guests than anticipated and we didn't have anyone to greet them when they showed up. It was a fateful mistake. (Context - AssignmentZero, a collaboration between Wired and NewAssignment.net started a community portal but launched without having someone upfront who would manage the community.)

Don't try to control the discussion, just provide the room in which it takes place.

AssignmentZero's community of journalists ensured that the interviewer was well informed, asked challenging questions, and managed to elicit interesting commentary.

Most participants will have very little to contribute - tasks have to be constructed to accommodate a range of commitment levels.

American Idol heralded the dawn of a new era. Voting was no longer something you did every couple of years; it was something you did every few days over your cellphone. Voting became part of the culture. Today, people have the opportunity to vote for everything.

The contributions generated by the crowd are far too numerous for anyone but the crowd itself to filter.

Only the collective attention of the crowd, and its enthusiastic embrace of the five-star system, has the manpower - to create an effective filter.

Collective decisions made by millions of Internet users is being used to create a comprehensive classification system where users vote on which news stories of the day deserve attention. (Context - Digg.com)

Threadless (T-shirt makers) - All products sold by Threadless are inspected and approved by user consensus before any larger investment is made into a new product. Users also have the ability to check the 'I'd buy it!' box next to the scale.- a strategy called "collective customer commitment". The dual benefits of giving your customers a vote is you have their commitment and the company knows how much demand exists for every shirt it produces. Small wonder then that every shirt sells out.

Crowdfunding - Directly connecting the people who have money to the people who need it.

Who better to decide what should be created than the person who will ultimately consume the product?

Ten Rules of Crowdsourcing
- Pick the Right Model (successful crowdsourcing projects use a combination of these approaches)
- Collective intelligence or crowd wisdom
- Crowd Creation
- Crowd Voting
- Crowd Funding
- Pick the Right Crowd
- Offer the right incentives
Attracting a crowd is much easier than keeping them. The most important component to a successful crowdsourcing effort is a vibrant, committed community and understanding what motivates people to contribute in the first place. People ned to feel rewarded for their efforts.
- Keep the pink slips in the drawer.
An editor's role will be to lead a conversation, not to deliver a monologue.
- The dumbness of crowds, or the Benevolent Dictator Principle
People might be enthusiastic and capable of some level of self organization but they also require directions and guidance and someone to answer their questions. Most successful crowdsourcing efforts are products of a robust collaboration between the crowd and the individuals guiding them. These people focussed the collective and corrected for some of the common hive mind failure modes.
- Keep it simple and break it down
Modules that can be independently produced before they are assembled into a whole.
- Remember Sturgeon's Law
- Real talent will remain a rare commodity.
- Remember the 10%, the Antidote to Sturgeon's law.
If you find yourself inundated with submissions, don't bother sifting through them yourself. Allowing the crowd to find the best and brightest diamonds in the rough.
- The community is always right
Communities need a decider (as well as a helping hand, a shoulder to cry on, and occasional dean of discipline. You can try to guide the community, but ultimately, wind up following them.
- Ask not what the crowd can do for you, but what you can do for the crowd.
Crowdsourcing works best when an individual or company gives the crowd something it wants. People are drawn to participate because some psychological, social or emotional need is being met. And the need isn't met, they don't participate. 

## doing what you love - paul graham

Paul Graham - One has to make a living, and it's hard to get paid for doing work you love. There are two routes to that destination:

- The organic route: as you become more eminent, gradually to increase the parts of your job that you like at the expense of those you don't.
- The two-job route: to work at things you don't like to get money to work on things you do.
- The organic route is more common. It happens naturally to anyone who does good work. A young architect has to take whatever work he can get, but if he does well he'll gradually be in a position to pick and choose among projects. The disadvantage of this route is that it's slow and uncertain. Even tenure is not real freedom.
- The two-job route has several variants depending on how long you work for money at a time. At one extreme is the "day job," where you work regular hours at one job to make money, and work on what you love in your spare time. At the other extreme you work at something till you make enough not to have to work for money again.
- The two-job route is less common than the organic route, because it requires a deliberate choice. It's also more dangerous. Life tends to get more expensive as you get older, so it's easy to get sucked into working longer than you expected at the money job. Worse still, anything you work on changes you. If you work too long on tedious stuff, it will rot your brain. And the best paying jobs are most dangerous, because they require your full attention.
- The advantage of the two-job route is that it lets you jump over obstacles. The landscape of possible jobs isn't flat; there are walls of varying heights between different kinds of work. The trick of maximizing the parts of your job that you like can get you from architecture to product design, but not, probably, to music. If you make money doing one thing and then work on another, you have more freedom of choice.
- Which route should you take? That depends on how sure you are of what you want to do, how good you are at taking orders, how much risk you can stand, and the odds that anyone will pay (in your lifetime) for what you want to do. If you're sure of the general area you want to work in and it's something people are likely to pay you for, then you should probably take the organic route. But if you don't know what you want to work on, or don't like to take orders, you may want to take the two-job route, if you can stand the risk.
- Don't decide too soon. Kids who know early what they want to do seem impressive, as if they got the answer to some math question before the other kids. They have an answer, certainly, but odds are it's wrong.
- A friend of mine who is a quite successful doctor complains constantly about her job. When people applying to medical school ask her for advice, she wants to shake them and yell "Don't do it!" (But she never does.) How did she get into this fix? In high school she already wanted to be a doctor. And she is so ambitious and determined that she overcame every obstacle along the way-including, unfortunately, not liking it.
- Now she has a life chosen for her by a high-school kid.
- When you're young, you're given the impression that you'll get enough information to make each choice before you need to make it. But this is certainly not so with work. When you're deciding what to do, you have to operate on ridiculously incomplete information. Even in college you get little idea what various types of work are like. At best you may have a couple internships, but not all jobs offer internships, and those that do don't teach you much more about the work than being a batboy teaches you about playing baseball.
- In the design of lives, as in the design of most other things, you get better results if you use flexible media. So unless you're fairly sure what you want to do, your best bet may be to choose a type of work that could turn into either an organic or two-job career. That was probably part of the reason I chose computers. You can be a professor, or make a lot of money, or morph it into any number of other kinds of work.
- It's also wise, early on, to seek jobs that let you do many different things, so you can learn faster what various kinds of work are like. Conversely, the extreme version of the two-job route is dangerous because it teaches you so little about what you like. If you work hard at being a bond trader for ten years, thinking that you'll quit and write novels when you have enough money, what happens when you quit and then discover that you don't actually like writing novels?
- Most people would say, I'd take that problem. Give me a million dollars and I'll figure out what to do. But it's harder than it looks. Constraints give your life shape. Remove them and most people have no idea what to do: look at what happens to those who win lotteries or inherit money. Much as everyone thinks they want financial security, the happiest people are not those who have it, but those who like what they do. So a plan that promises freedom at the expense of knowing what to do with it may not be as good as it seems.
- Whichever route you take, expect a struggle. Finding work you love is very difficult. Most people fail. Even if you succeed, it's rare to be free to work on what you want till your thirties or forties. But if you have the destination in sight you'll be more likely to arrive at it. If you know you can love work, you're in the home stretch, and if you know what work you love, you're practically there.

## don't give it away

The market pushes creators to give away their work.
Too often, we come to believe that giving it away, removing money from
the interaction, is the most generous thing we can do.
But that's not the case.
Money supports our commitment to the practice.
Money permits us to turn professional, to focus our energy and our time
on the work, creating more impact and more connection, not less.
Money is how our society signifies enrollment.
The person who has paid for your scarce time and scarce output is more
likely to value it, to share it, and to take it seriously.

A startup should give its competitors as little information as possible.

If you give more value than you receive while ensuring you're being
treated fairly, and not falling into a pattern of self-sacrifice, the
excess value you provide will overflow into public goodwill.

## finding a niche market

The genius of niches is they are too small for large competitors, allowing a nimble entrepreneur the breathing room to focus on an under-served audience.

Choose a niche market and focus so tightly that your product becomes the best in class, members of that niche will have no choice but to use your product.

The best niches are under the radar, and you have to get out and do something before you will find them.

As a self-funded startup you want a market that is already looking for your product, even if it doesn't exist. This is because creating demand is very, very expensive while filling existing demand is, by comparison, cheap.

A vertical market as a single industry or hobby. Examples of vertical markets include pool cleaners, dry cleaners, web designers, wine collectors and punk rock enthusiasts.

When consumers want something, they want it now, not years from now. Consumers in the commercial, government, and scientific sectors are no more patient.

Open innovation - licensing ideas from the outside - enables them to be first to market and to fill their shelf space with products consumers want.

## finding ideas

when struggling for idea topics, search Twitter for phrases like:
"I wish I had"
"I just paid someone to"
"is the worst product"
"is a horrible company"
"has a terrible website"
"is my favorite website"
"does anyone know how"

Companies that use Groupons are struggling for customers and need
creative ideas. Come up with other ways to promote the company or make
their product better.

We love to point out how broken things are, but we rarely look at merely
mediocre products and wonder why they aren't great. Why is this mediocre?

Being a musician and making a living as one are two different things. If you want to earn a living, you must get paid by someone who values your services. The question entertainers need to ask themselves is not, Are we talented? but, Do we have drawing power?

It is often much faster and more economical for a company to bring to market a licensed product based on a simple idea - an improvement or enhancement to an existing product - than it is to start at square one in R&D and go through the whole long, complicated, and expensive process of coming up with and developing an idea themselves. So licensing our ideas is really just good business for companies. It reduces their R&D costs. It accelerates their product development time. And it creates a multiplying effect: essentially getting other people to develop ideas for them for free.

A simple improvement or a small incremental change to an existing product is often the easiest, fastest, most cost-effective, and most profitable way for companies to bring a new product to market.

It's hard for them to think outside the box or even right beside the box, which is where many of the most doable and profitable ideas are situated.

Very few, if any, companies and investors go searching the Internet and "tweeting" for ideas to license or fund. Nor do they routinely (if ever) scout social media or any other media for ideas to bring to market. Nor do they frequent (if they visit at all) inventor and product developer forums in search of the next big idea, which in reality is usually a simple idea with big market potential. These services and media channels may serve a good purpose, but it is not to bring a licensee to your door, despite innumerable claims to the contrary.

It is far more effective to go out there and find a licensee for your idea. Doing your homework to identify and qualify potential licensees

## finding ways to market it

When creating a new business, design it to attract publicity from the beginning. Think about your business idea from a public relations standpoint. Can the business get good press? Is there a story? Is it topical? Is the business something people will want to read about? One of the most important PR decisions is your business's name and tagline. Before christening your business, ask yourself, Does the name get people's attention? Does it have positive associations? Does it sound authentic? Can the name help get us good press? Don't be afraid to choose a name that some people hate. You want something a little edgy because people respect a businessperson who takes risks.

## focusing on profit

One of the ugliest moments in business is when the customer changes, the profit model changes, so the business design has to change. It's horrible. You don't want to move mentally because you've been so successful, yet you must move or you'll stagnate or go bankrupt. The more deeply you're enmeshed in yesterday's success system, the more impossible it is for you to imagine what tomorrow's success system will be.

Innumeracy lesson: you can figure out all the answers with some basic information, calculations, and common sense.
How many people really ask the right questions about a business plan, a new product launch, a major investment, a marketing campaign, an HR program?
Many people in business aren't used to thinking this way. You can usually work out less than 7 calculations that will blow up an impressive but fatally-flawed business plan.
Being able to take measure of the world is one of the most crucial skills we can develop.
Always do the arithmetic. It's the strongest ally, truth detector, opportunity detector.
- DO THE MATH!

Make notes on implications for your organization. Some questions to get you started:
* - Which of these profit models are at work in my business? Can I identify others?
* - How does profit happen in my competitors' businesses?
* - What can I do in the next 90 days to intensify my organization's focus on profitability?
* - Which profit models would enable us to maximize profit this year?
* - Is my organization aligned to capitalize on the profit models in my business?

## forms of profit - 0other forms of profit

[Book Summary: The Art of Profitability by Adrian Slywotzky](https://jamesclear.com/book-summaries/the-art-of-profitability)

from http://www.wjones.com/profit/profit/profit_forms.html :

*** Flawless Transaction Profit
Design expectation exceeding efficiency and elegance into each stage of the service transaction. Fosters a strong, passionate bond between customer and brand.
Examples: Apple, Dell, Ritz Carlton

*** Intellectual Property Profit
Similar to Time Profit with government protected competitive advantage expiring with patent or copyright.
Examples: Drug Makers, 3M (Post-It)

*** Big Bang Profit
Drive sales with a clear, strongly advertised message that has high market recall.
Examples: Afflak (supplementary insurance, advertising duck), IBM e-Business

*** Buzz Play Profit:
Invest in Public Relations to generate industry and customer chatter to drive sales. Often requires secrecy and controlled leaks to information hubs.
Examples: George Lucas (Star Wars), Apple (Macworld Conference), Harry Potter publishing franchise

*** Focus Profit:
Define limited, high value service priorities. Reduce costs in areas not associated with priorities. Focus brand, service development, customer support, investment on priorities.
Examples: IBM e-Business

*** Build-to-Order Profit:
Services are purchased before construction costs are incurred.

*** Geopolitical Profit:
Services are produced to maximize value of government factors in competition and costs of taxes, levies and business processes required by regulation.

*** Global Sourcing Profit:
The company selects operating locations for design, materials, construction and distribution to take advantage of better quality, lower cost natural resources, human resources, infrastructure and markets.

*** Governance Profit:
Policies and procedures are structured to identify and mitigate risks early in service development process. For companies with typically high costs due to liability.

*** Automation Profit:
Company achieves greater cost efficiencies over competitors via better use of technology in materials, construction or delivery.

*** Liquidation Profit:
Company sells non-core assets to reduce costs and increase short term profits.

*** Process Improvement Profit:
Company reduces manufacturing costs by reducing rework and improving plant output via techniques such as Six Sigma and Total Quality Management.

*** Price Cut Profit:
Trim prices to grow revenue In a price sensitive Market. In industries where the unit margin (difference between sale price and cost for a unit sold) is high, then month over month revenue growth will likely be more important to growing profit.

*** Global Expansion Profit:
Take existing products and expand into new international markets. Requires development of low cost distribution channels, localized marketing expertise, and localized legal and geopolitical expertise to minimize risks that could eliminate profitability. 

## forms of profit - after-sale profit

Price sensitivity changes for different purchase occasions. Low sensitivity on coffee is what made Starbucks ($2-$3 for a 10-cent cup). For a TV it's high: people price-shop relentlessly. Airfare and cars: the highest.
But people will pay top dollar for a car in big demand.
Price sensitivity is lowest when ticket price is low and there are few options.
The action starts with the high-visibility big-ticket sale. Computers, cars, equipment. Buyers go to the wall to get the lowest price. Their zeal drives the profit out.
But the initial transaction creates a new situation: a need for follow-up stuff that did not exist before. You didn't need the service contract before you bought the elevator, PC, pickup truck. Didn't need the replacement parts or accessories. A whole new minimarket created by the initial sale. Ticket prices are tiny. Frequency of purchase is greater.
Similarities to Installed Base model, except in this one, lots of different companies can benefit.
Big-ticket companies should customize the after-sale stuff to the original sale product, so the customer has a compelling reason to buy the after-sale items and services from them.
Work hard to turn the after-sale profit model into the installed base profit model.
But selling this after-sale stuff is so unglamorous that many less are shooting for it : you can quietly sell service contracts and insurance for a lot of profit. Needs a very different organization focused only on that.
Company sells financing and services to support equipment and goods originally purchased from other suppliers.
Example: General Electric (nuclear power plant services, auto loans, insurance)

## forms of profit - blockbuster profit

Similar to Time Profit with Revenue realized is so powerful and fast that in a quick swoop the model pays for often high service development and marketing costs.
Projects in R&D that have trivial value are left to die. Big winners get tremendous amount of workover, discussion, debate, attention.
Get everyone focused on new key questions: How can we increase the feasibility level of the big projects? Can we parallel-process? can we get more studies done to improve their positioning? What will it take to hit a home run? Get everyone developing it as excited as possible. Go into total risk-management mode to remove as much uncertainty as possible.
Develop an imaginary portfolio of the top 15 blockbuster opportunities in your market, whether or not you have a corresponding product.
Search for all you're not doing: assign at least one research molecule directed at each of the 15.
In "A Technique for Producing Ideas", study front-end loading: putting the cramming in the beginning. Total immersion, early. Read as much as you can as fast as you can all at the beginning. You get a structure of knowledge that's incomplete but powerful because every new fact or idea you run into later gets integrated into an evolving structure that keps getting stronger over time.
Examples: Movie Studios, Book Publishers, Drug Makers

############# BLOCKBUSTER PROFIT

Essential for pharmaceutical companies, publishers, film studios, music companies, and software firms, which have large R&D and launch costs, and finite product cycles.
When the cost to develop a new product is fixed (and, usually, high) and marginal costs of manufacturing after development are low, the best way to maximize profits is to improve the chances that the product will achieve very high volume levels.
With these economics, it is better to be the dominant leader in a few products than to support average positions in many products.

## forms of profit - brand profit

The company expends significant marketing investment in order to build awareness and is reinforced by customer experience. You know Brand is working when a consumer says, "I only drink Coke" even-though blind tests show consumers are often unable to distinguish the difference between Coke and its competitors.
Examples: Coke, Crest, Singapore Airlines, Acura

## forms of profit - customer solution profit

Study customers, create a custom solution set with multiple services. Develop the relationship.
Invest time and energy in learning all there is to know about your customers. Then use that knowledge to create specific solutions for them. Lose money for a short time. Make money for a long time.
Once Factset identified a company as a potential customer, they'd send a team of 2-3 people to work there for a few months, learning everything they could about the customer, how their systems worked (& didn't work), what they really cared about. Based on this genuine knowledge, they'd develop customized products and services tailored to the specific characteristics and economics of the account. Once they landed the account, they spent a ton of time integrating their product into the customer's systems. During this process, revenues were tiny and costs were huge. But after 3-4 months, they were woven into the daily flow of customer's operations. Software debugged and working fine. Now one person could maintain account, part-time. More people in company use it. Costs fall, revenues grow.
Potential applications: Anything, except where there is no relationship-building.
Where does it NOT work?

############# CUSTOMER DEVELOPMENT/ CUSTOMER SOLUTIONS PROFIT

Invest heavily to understand their customers' economics and find ways to make them more favorable.
Reach the profit zone by first probing how their customers buy and use their products and then finding ways - beyond merely selling the products - to help the customers in the difficult, expensive, or time-consuming areas of their process.
Customer selection and front-end-loaded customer investment were the means of creating customer continuity, which was the key driver of profit.
Other successful firms that have applied the discipline of the customer development model include Nordstrom, the United States Auto Association (USAA), Intuit, Northwestern Life, and Leo Burnett, all of which have achieved significantly higher customer continuity than their competitors

## forms of profit - cycle profit

Industries characterized by distinct and powerful cycle. The company can not control the cycle, but it works to maximize its position within the cycles grip. As capacity tightens the companies lead price increases, as capacity loosens, its lag price declines.
Drive down the breakeven point. Reduce fixed costs. When others lose money, they break even. When others break even, they profit. Permanently ahead.
Example: Travel industry (adjust rates seasonally)

## forms of profit - de facto standard profit

The more players who buy that enter in the system, the more valuable the network.
Being the standards gets you plannability - less surprise. (Surprises cost money by causing you to react, respond, scramble.)
Your customers do your marketing for you.
Examples: Microsoft, Apache, SAP, and eBay

## forms of profit - digital profit

Transactions made via digital computers.

## forms of profit - entrepreneurial profit

Totally aligns an organization behind rational, common sense, profit-seeking activity, rather than all the extraneous nonsense that only large organizations can afford or tolerate. A simple mindset that says, "We can't afford to operate any other way.".
Jack is cheap, precise. More detailed knowledge of where all his nickels are than most people have of their $20 bills. Preaches frugality with passion. A psychology of saving. Challenges necessities. Does meetings by phone instead of in-person. Gets rock-bottom prices from suppliers, making them understand how they'll benefit if Jack can keep growing twice as fast as the rest of his industry. Plans in advance, hyperorganized.
Creativity and new ideas for better ways of doing things.
Delays expenses. Asks hard and well-informed questions about every expense. Copies shamelessly from competitors. Holds contests among employees to test frontiers of great performance. Throws parties to celebrate star performers.
Experiments a lot. When it fails, he cuts back quickly. When it works, he pours it on.
Some employees can't handle the pressure. The ones who stay are excited and engaged.
Hierarchical design with multiple subsidiaries to maintain startup-like customer responsiveness, energy and efficiency.

############# ENTREPRENEURIAL PROFIT

Many determinants of profitability are economic. Some are organizational.

Customer relevance declines, and the expense structure grows.
The company is vulnerable to entrepreneurs who are in direct contact with customers or proactively solicit feedback, and who remain frugal because they have no cushion of affordability to support unnecessary expenses.
These twin forces of direct customer contact and extreme frugality create the potential for enormous profitability.

ABB has broken itself down into 5,000 profit centers that have direct customer contact and direct profit responsibility.
Softbank has divided itself into profit centers of as few as ten people, again with direct customer contact, and with a five-day cash flow metric.

Upside motivation. The managers of the spin-outs own stock in the spin-out company.

Entrepreneurs hate to compete against Thermo Electron. They'd much rather compete against a larger, slower, more insulated player. It is easier to compete against employees than against owners.

## forms of profit - experience curve profit

Experience in serving the market and strong financial management drives down the transactional cost. (Basically just continuing to optimize?)
Danger is focusing on this too much and losing peripheral vision. (Focus + Peripheral Vision = 100%. The less you have of one, the more you have of the other.) Microscope versus radar screen. Can't be looking at both at the same time.
At the edge of the radar screen is where new things come to make you irrelevant, or the invention of a new model that delivers the same thing at a 20-30% lower cost, like Southwest Airlines, Dell Computer, Nucor steel, Wal-Mart, Geico, Home Depot. Incumbents are busy managing costs, and someone comes along to introduce the next system. See next point...

## forms of profit - installed base profit

Initial product sales or profits are slim and profit is realized on follow-up products and services.
Two buckets:
(1) hardware. 2-5% profit. new demand. bigger price sensitivity. customer has power.
(2) consumables. 10-15% profit. continuing demand. less price sensitivity. seller has power.
Seller can fuck up by making price too high so customer switches brands.
Or if sellers doesn't work to make it easy for customer to buy: early notice, reminders, multiple units per follow-up sale, turning passive receipt into stimulating usage and growth.
Take some aspect of your business where customers are returning naturally and stimulate it more - market aggressively.
Let customers guide you : they're the ones who decide what they're willing to pay for, and how much.
Examples: All suppliers of laser printers and video game players. Sony (Playstation), Hewlett Packard (printers, cameras), Canon (printers, cameras), Gillette (razors)

############# INSTALLED BASE PROFIT

Supplier creates an extensive installed base of users, who then buy the supplier's brand of consumables or follow-on products.

Microsoft's strategy was to price low, set the standard, achieve ubiquity, and then harvest the profits from upgrade/revision revenue.

## forms of profit - local leadership profit

Many businesses and their company economies are totally local. Risk occurs when these companies fail to recognize they are a local business model.
Purchasing costs are lower, capture most better traffic locations, recruiting and advertising work better. Every store is like a billboard. Slightly higher pricing. Fill a county.
Read Sam Walton Made In America and Shultz' Pour Your Heart Into it for examples of local leadership.
Examples: Walmart, Starbucks

################# LOCAL LEADERSHIP PROFIT
Starbuck's conquered Seattle first, then Chicago, then Vancouver.
Starbuck's understood that its economics were local - logistics, word of mouth, recruiting.
It exploited those economies to grow profitably, not just grow.

## forms of profit - low-cost business design profit

The company thrives on reducing the cost per unit through cumulative experience.
You might need two organizations: the experience-curve incumbent and the blank-sheet-of-paper gang. Maximizing your current hand while simultaneously buying a big insurance policy on the future.
The low-cost business design doesn't need huge market share to be hugely profitable. It is hugely profitable as long as it continues to be dramatically lower-cost.
Value Migration (book): how you have to change your business design every 5 years. (Though it takes 2-3 years to change!) So you need to see it coming, start preparing for it. Give yourself a 2-year runway to get the new business design off the ground. Start sooner. Move faster. Anticipate.

############# LOW COST BY DESIGN

You can trump cumulative experience with a low-cost business design, which makes the incumbent's cumulative experience irrelevant.
Nucor did this in steel (the minimill model trumped the integrated mill)
Southwest Air, in air travel (the point-to-point model trumped hub-and-spoke)
Dell, in computing (direct marketing trumped a feet-on-the-street sales force and multilevel distribution channels).
The player focused on building cumulative experience to gain lowest cost is always vulnerable to the player who creates a low-cost position through design.

## forms of profit - multi-component profit

Same product, several businesses.
Offer a range of services that includes higher margin specialty items and loss leading, high demand services. Caters to customers that consolidate on fewer suppliers.
Multiple products and/or sales channels, and only some of these represent the bulk of profitability. To maximize sales in the high-profitability components, it's necessary to have full presence in the less-profitable components as well.
Different parts of a business can have wildly different profitability.
The customer behaves very differently on different purchase occasions. Different degrees of price sensitivity.
Coke per ounce: .02 in grocery store, .06 in vending machine, .12 in restaurant
Hotel: single room for 1 night, one-day meeting for 20 people, three-day convention for 3000 people.
Bookstore: foot-traffic component, ecommerce component, book-club component, corporate-purchasing component.
Story of guy who saw bookstore could be a base for building several new high-profit components: corporate business, book-group business, personal service business. Dramatically intensify outbound selling activities. Have a couple account managers call on corporate libraries and HR depts to promote latest business books. Services to local book groups. Promoting sales to high-purchase individuals. (Their best customers bought $500/year, but never realized these people represented a separate component of their business that they could consciously deliberately target and grow.)
With little increase in labor (+ 2 account managers) and no increase in assets, bookstores that were barely surviving turned into obscsenely profitable businesses.
Developed 200 company accounts (corps, law firms, accountants), 200 book groups, 500 high-purchase individuals. Increased not just sales but customer satisfaction, flow of info as to what customers wanted.
(in $M) trad-only trad+outbound
revenue 10 12
cost 9.9 11
profit 0.1 1.0
salesreturn 1% 8%
assets 3 3
assetreturn 3% 33%

############# MULTICOMPONENT SYSTEM PROFIT

Failure to maximize participation in the highest-profit components depresses the profitability of the entire system. On the other hand, full participation in the less profitable components is required to win the market for the most profitable components.

Grocery, 2 cents per ounce; fountain, 4 cents per ounce; vending, 6 cents

In coffee, the components are grocery, cafés, and kiosks.
Grocery is low margin, cafés are high margin, and kiosks are even higher still
Procter & Gamble, Nestlé, and General Foods play against each other in grocery and break even.
Starbuck's plays in cafés and kiosks and enjoys extraordinary returns.

Multicomponent profit models apply to industries as diverse as
beverages (the profit is in fountain and vending)
hotels (the base business has low margins, the corporate meeting business is highly profitable)
bookstores (the bookstore itself is asset-intensive, low margin; the institutional business from corporations, book clubs, and other sources is high profit, low asset intensity).

## forms of profit - new product profit

Profit explosion happens at the beginning, during the gold-rush days. Margins are fat and volume is skyrocketing. Multiply these two and you get a growing ocean of profitability.
The Profit Parabola |_/\_ "The total profit earned by all players in a market goes up, peaks, and comes back down to zero."
Theory supported by: radios, tvs, vcrs, walkmans, desktops, laptops, servers, sedans, minivans, suvs, faxes, fax-printers, fax-printer-copiers.
Starts with Gold Rush, goes to Pike's Peak, then No Profit Zone.
Problem is: during the Gold Rush, swept into the psychology, into the zone where even weak producers make money because demand is so strong. You can't think clearly about how to manage strategically.
Step #1: admit this is all true. (It's like a 22-year-old admitting he'll get old and impotent.)
Step #2: manage Parabola strategically: Overinvest by a factor of 3 on the left-hand side, and underinvest by a factor of 3 on the right-hand side. On the left-hand side fight for mindshare, be seen as the leader. Be everywhere.
Start measuring things that will give you clues you're at Pike's Peak. Growth rates. Customer excitement or boredom.
Then reverse the investment ratio a year before hitting the peak. Not getting out of the market, just managing the business to maximize cash flow and minimize the risk profile on the other side. Start building flexible plants instead of dedicated ones. Look for opportunities to sell dedicated plants to inevitable latecomers who still wanted to get into the game.
Be in a great position when things start getting ugly. Pull back on advertising, since everyone knows you from early mindshare grab. Serve the good customers & drop some bad ones.
Then be looking for the next wave. Spend a tremendous amount of time scouting the lanscape, looking for early signals of the inflection.
Time Profit: 2-year cycle, speed, race car, "when you see #2 in the rear-view mirror, step on the gas". Chips, electronics.
New Profit Product: 4-year cycle, shift resources, surfing, "get off the last wave first, get on the new wave first". Cars, copiers.
Specialty Product Profit: 10-year cycle, select, seismography, "find the richest fields: the place where customer need, technical feasibility, and lack of competition intersect"

## forms of profit - profit multiplier model

Taking one skill and making money from it 5 or 6 times. Take any asset, iterate it, reuse it, give it a different form.
Better profit from lower development cost. Don't have to reinvent the wheel every time you use it.
Improves the odds of success for the development you've already done.
Different from the Multi-Component profit because it's not the same product : it's different products from the same original asset.
Leverage brand to multiply the value of one service by selling loosely related services under the same branding.
Example: Disney sells one service (movies) and then leverages brand to sell toys, clothing, dvds, theme park attractions, etc.

############# PROFIT MULTIPLIER MODEL

Reaps gains, over and over again, from the same product, character, trademark, capability, or service.
The best example of a profit multiplier model is Disney. Think about how many different ways Disney packages the same characters. Mickey, Minnie, Hercules, et al. appear in movies, videos, and books; on clothes, watches, and lunch boxes; at theme parks.
Once the investment (often, huge) in creating a brand has been made, the creator may give the brand license across a broad array of products.

## forms of profit - pyramid profit

Company caters to different levels of price sensitivity. Offer a range of services from low price / high volume to higher price and lower volume.
The base of the pyramid consists of low-priced high-volume products, while the apex is made up of high-priced low-volume products. The bulk of profitability is concentrated at the top of the product pyramid, but the base plays a strategic role -- often through a "firewall" brand -- in protecting the profitability at the top.
At Mattel: Barbie = $20-$30. But imitators can come in below you, so you build a firewall, a $10 Barbie. Barely profitable but prevents other companies from establishing a connection with your customers. And even girls who start with the $10 Barbie move on to buy accessories. Then made a $100-$200 Barbie for nostalgic collectors.
Can't build a pyramid without understanding all of the customers: current and potential.
Has to be more than just a collection of products at different price points.
A true pyramid is a system in which the lower-priced products are manufactured and sold with so much efficiency that it's virtually impossible for a competitor to steal market share by underpricing you. A firewall.
Premium gas = bad pyramid because there's no reason to buy the top one. American Express Platinum card = so-so pyramid for same reason.
Can only be applied in a few situations: 1 out of 50.
The customers themselves form a heirarchy, with different expectations and attitudes towards price. The pyramid is made to capture them all.
Other examples: Nokia phones, Swatch, GM cars. Think of 10 more?

############# PRODUCT PYRAMID PROFIT

Customer preferences of style, color, price, and so on, are of utmost importance.
The variations in customer income and preferences make it possible to build product pyramids.
They exist in markets as diverse as watchmaking, automotive sales, and credit cards.

The profit is concentrated at the top of the product pyramid.

Build a "firewall" brand at the bottom of the pyramid: a strong, low-priced brand that is produced at a profit, however slim.
The purpose of this brand is to deter competitor entry, thereby protecting the enormous profit margins at the top of the pyramid.

When a firewall brand isn't built, competitors have the opportunity to come in at the bottom and then work their way toward the top, where the profits are.
Witness the history of the U.S. automotive market from 1965 to 1995. Japanese competitors first occupied the base with cars designed to be profitable, even at low price levels. They then moved up (Honda's Acura, Toyota's Lexus, Nissan's Infiniti) to where the higher profits were.

## forms of profit - relative market share profit

Companies with high market share tend to be more profitable. Large companies have price advantages due to manufacturing experiences and volume economies from better supplier relationships.
Invest to win. Build a bigger lead. If you try and fail, cut your losses or get out completely. (Jack Welch was its most thoughtful practitioner.)
Economics of scale. Purchasing advantage. Marketing & advertising. Because lowest overhead per-unit, spread costs over greater volumes than any other competitor. Attract the best talent in the industry. Biggest cash flow, so can outspend rivals. Leader has least volatility, lowest risk. Controlled initiative while others react.
Used to think profit was just Relative Market Share, but it's function of many things: time, location, offering, local Relative Market Share.

## forms of profit - specialist profit

Specialists are several times more profitable than the generalist. Characterized by lower cost, higher quality, stronger reputation, shorter selling cycles, and better price realization.
Lower cost through better knowledge. Better price through reputation or unique design of offering. Shorter selling cycle. More rapid & universal penetration because of wired effect. Windfall profits because of high-value high-margin answers throughout the marketplace. The difference in profitability between generalist and specialist will be 10-15 points of margin. When generalists break even, specialists make 15%. When generalists make 10%, specialists make 25%.
Example: Southwest (one jet type)

############# SPECIALIZATION PROFIT

Sequenced specialization can be extraordinarily profitable.
Electronic Data Systems (EDS), for example, grew through sequenced specialization:
Mastering the intricacies and economics of computer solutions for many vertical segments (health care, insurance, manufacturing, banking), but doing so sequentially, not simultaneously.
In each vertical segment, EDS establishes expertise that is unmatched.

## forms of profit - specialty product profit

Similar to brand profit but companies use above standard materials and design to generate higher margins until competitors start to imitate.
The dyestuff business had been a specialty product business like big pharma. Lots of little unique patented products with huge margins. 10 years ago, 80% of profits came from those. Now 80% of profits are from commodity stuff. The profit model shifted from specialty product to cost-and-cycle management.
Key is to develop new niche products.
Difference from Blockbuster is that this is niche: specialty foods, specialty papers, etc. Finding a legitimate need or variation and addressing it.
Examples: Apple (computers), Ben and Jerry's (ice cream), Prada (shoes), Tumi (bags)

## forms of profit - switchboard profit

Multiple sellers communicating with multiple buyers via a power broker associated with the service provider. The more buyers and sellers that join the switchboard, the larger the margin commanded by the service provider.
Ovitz put most of entire movie needs together: representing writer, actors, director.
Can't do it with a small niche: once you have 15-20% of market, an upward spiral kicks in. Perceived probabilities go way up, and all deals start flowing your direction.
More profitable because agent's cut of so many players in one deal. Also, by representing a team rather than individual, far better bargaining power. Probability of striking a deal goes way way up. Studio has to deal with you.
Profitability per unit of effort and unit of time is probably 7-10 times greater than in the traditional model.
Examples: EBAY, Wilson & Sonsini (Silicon Valley startups), Michael Ovits (Hollywood deals)

############# SWITCHBOARD PROFIT

Multiple sellers communicating to multiple buyers.
High transaction costs are incurred by both.
Often, there is an opportunity to create a high-value intermediary that concentrates these multiple communication pathways through one point, or one channel, by creating a "switchboard."
The switchboard reduces the costs (both financial expenditures and personal aggravation) of both buyers and sellers, in exchange for a fee to the switchboard operator.
Examples include Schwab's OneSource, Softbank's combination of trade publications and trade shows, and Auto-by-Tel.
It builds on itself.

## forms of profit - time profit

Takes advantage of innovation, newness, uniqueness, to gain time limited competitive advantage. Requires strong early sales effort to maximize high margin revenue. Profit margins quickly erode as competition catches-up.
When a product is new, it earns premium profits. Then, when a competitor copies the innovation, price competition drives profits to zero. Companies relying on this model make continuous innovation the modus operandi.
Invent. Then make a ton of money before the imitation starts.
Needs instant diffusion: a faster way to squeeze out the juice before everyone else learns the secret. Systemize: 2 weeks before announcing a new product, email 200 clients letting them know it's on the way, a week in advance call them to tell them again, a few days before launch train all employees covering every detail of it until everyone is ready to cover every detail of it in their sleep. Launch Monday and sign up a ton of people immediately.
What separates winners and losers in innovation is who masters the drudgery. The creative process usually starts with a brilliant idea. Next you determine whether, if the brilliant idea worked, it would be worth doing from a business standpoint. That's exhilarating and most stimulating part, but it's also the easiest. Then comes the real work: reducing the idea to practice. That's the drudgery part, and the part where people need the most pressure and encouragement. People go into pits as they try to turn that idea into products that can be manufactured.
Examples: Intel (CPUs), Apple (iPod)

############# TIME PROFIT

Innovator to generate excess returns before imitators begin to erode margins.

## forms of profit - transaction scale profit

Real estate woman who only sells $1M+ houses. Paid attention only to that market. What kind of people. Studied for 7 years. You get to the big transactions through great relationships.
NOT: "You take whatever business you can get." (that's what every salesman says about every customer. got to get the revenue, no matter how unprofitable it might be.)
But you can't get to the big transactions just by wanting to : you have to take risks to bias yourself toward the big business. Turn small business away to concentrate on the big accounts.
Needs skill, persistence, reference development. How many doors did you refuse to enter? Drawn to the shiny lure of the next thing that came up. Losing sense of long-term self-interest, strategy, the smart thing to do.
Revenue increases proportionately with transaction volume but materials, construction, and or distribution costs do not.
Examples: Microsoft (Office software), Morgan Stanley (finance deals), Yahoo (website hosting)

################# TRANSACTION SCALE PROFIT

Transaction scale businesses reward those who control the largest transactions.
Customer selection - investing in those customers with the largest deals - is key.
In these businesses - typified by investment banking, real estate, commercial lending, long-distance haulage, long-distance travel, etc. - costs do not rise as rapidly as fees as a function of transaction size.
Two equal market shares - one composed of a hundred small deals, the other of five or six big ones - will not produce equivalent levels of profitability. The latter will be several times more profitable than the former.
The costs incurred by Morgan Stanley to manage a $100 million financing were not dramatically greater than the costs of a $5 million financing.

## forms of profit - value chain position profit

"He who occupies the mountain pass can easily battle a thousand." What's true in geography is true in business. There are places in the value chain that are 10 times more valuable than others in terms of profit, power, control. When earthquakes or floods happen, the location of these special places changes, making some vulnerable and others blessed.
Intel and Microsoft as suppliers to the industry.
Would you rather be Wal-Mart or a supplier to Wal-Mart? (Wal-Mart)
Would you rather be Tom Clancy or his publisher? (Tom Clancy)
Note pre-existing control points. (There are none: they're conditional depending on the circumstances: relative value added, trajectory. MS + Intel vs PC makers. Wal-Mart vs suppliers. Creation of scarcity. Capturing bottleneck. Connection to the customer: a better connection than the other value-chain players have. Profit from predictability. The company that owns the control point sets the pace. Its business plan defines the future. The others react, always a step behind.)
Note radical shifts in control points. 3 shifts from integrated system to specialists who control the action: computing, athletic shoes, Hollywood.
Note new control points that will arise in the next 2 years.
Partner with other members of the value chain (suppliers) to provide a more complete customer oriented service.
Example: Cingular (partners with Motorola, Sony, insurer to sell Walkman mobile phone)

## ideas that haven't been explored

We are going to need miracles. We call these miracles technology.

It allows us to do more with less, find value in unexpected places.

The future will be a time when the world looks different from today.

A startup is the largest group of people you can convince of a plan to build a different future. A new company's most important strength is new thinking.

What a startup has to do: question received ideas and rethink business from scratch.

If something is "socially good," is it good for society, or merely seen as good by society? Whatever is good enough to receive applause from all audiences can only be conventional.

Doing something different is what's truly good for society.

## innovation

Startups use many kinds of innovation: novel scientific discoveries, repurposing an existing technology for a new use, devising a new business model that unlocks value that was hidden, or simply bringing a product or service to a new location or a previously underserved set of customers.

Innovation is at the heart of the company's success.

## looking long-term

First mover advantage? It's much better to be the last mover. Make the last great development in a specific market and enjoy years of monopoly profits.

Study the endgame before everything else.

Whether success comes from luck or skill: Is there a way to settle this debate objectively? Unfortunately not, because statistics doesn't work when the sample size is one.

Too many people are starting their own companies today. People who understand the power law will hesitate more than others when it comes to founding a new venture: they know how tremendously successful they could become by joining the very best company while it's growing fast.

Indefinite fears about the far future shouldn't stop us from making definite plans today.

I wanted to be involved in the meetings. I wanted everyone to see that I
was working very hard to create a return on the studio's investment.
- any art-based creativity-based career, such as writing or design or acting (or even programming), is essentially more a "business" than it really is an "art", because you're trying to render a service that people pay money for (even a book or a movie is a type of copy-pasted service)

Optimize for long-term value creation instead of short-term profit.
Bypass the low-hanging fruit and go after the big opportunities, the
ones that inspire and challenge you to grow.

## making sure it's viable

Creating value is not enough - you also need to capture some of the value you create.

When you hear that most new restaurants fail within one or two years, your instinct will be to come up with a story about how yours is different. You'll spend time trying to convince people that you are exceptional instead of seriously considering whether that's true.

In business, money is either an important thing or it is everything. Monopolists can afford to think about things other than making money; non-monopolists can't.

Only monopoly profits allow a business to transcend the daily brute struggle for survival.

Unless you have perfectly conventional beliefs, it's rarely a good idea to tell everybody everything that you know.
- EXPECT YOUR IDEA, UPON BEING SHARED, TO HAVE A TIMER START SOMEWHERE IN THE WORLD UNTIL IT ACTUALIZES
- IT MAY NOT BE IMMEDIATELY PRESENT, BUT YOUR IDEA, IF NEW, BECOMES THE START OF A [TREND]

So who do you tell? Whoever you need to, and no more. In practice, there's always a golden mean between telling nobody and telling everybody - and that's a company. The best entrepreneurs know this: every great business is built around a secret that's hidden from the outside. A great company is a conspiracy to change the world; when you share your secret, the recipient becomes a fellow conspirator.

Franchising is risky
- You must consider the [contract] carefully: they might make money when you don't, or may charge you to keep going.
- Careful with competition: you're ALSO competing with the other franchisees.

Pay very VERY close attention to risk vectors
- narrow your scope of operations to avoid exposing yourself to too many competitive elements at once
- in a globalized, interdependent society, rando foreigners who can work for a fraction of your wage have an edge on you

The greatest rewards come from working on something that nobody has a name for. If you possibly can, work where there are no words for what you do.

If we do not know who the customer is, we do not know what quality is.

The one thing that matters most in determining whether your business succeeds or fails miserably is sales. The ultimate success of a product or service is 10 percent product quality and 90 percent sales.

Project/Product confusion:
A project is a software application that you build as a fun side project. The end result is a neat little application that likely isn't of use to many people.
A product is a project that people will pay money for.

The single most important factor to a product's success is not the founders, not the marketing effort, and certainly not the product. It's whether there's a group of people willing to pay for it.

Building something no one wants is the most common source of failure for entrepreneurs.

## making sure it's viable - know the industry

Sara had never done anything in fashion before. So she spent every day
at the library and the hosiery stores. She had a full-time job but at
night she researched every patent. She bought every type of panty hose.
She knew the entire industry. To succeed at something: Know every
product in the industry Know every patent Try out all the products
Understand how the products are made Make a product that YOU would use
every single day. You can't sell it if you personally don't LOVE it

When I was building a trading business, I must've read more than two
hundred books on trading and talked to another two hundred traders.

I felt like I knew more about trading and the top investors out there
than anyone else in the world.

When I was building websites, I knew everything about programming for
the web. There was nothing I couldn't do. And the competition, usually
run by businessmen and not programmers, knew that about me.

## motivation to do the idea

My driving force was finding new ways to give people a good time - ideally, in places where they were least expecting it.

The Virgin brand is about irreverence and cheek. It values plain speaking. It is not miserly, or mercenary. It has a newcomer's voice - and in a world of constant technical innovation, the voice of a company that's coming fresh to things is a voice people find oddly reassuring. It's a brand that says, 'We're in this together.'

People will work late into the night on one creative endeavor or another in the hope that their community - be it fellow designers, scientists, or computer hackers - acknowledge their contribution in the form of kudos and, just maybe, some measure of fame.

Threadless (Community driven T-shirt portal) isn't really in the T-shirt business. It sells community.
Ross Zeitz, a 27 year old Threadless designer was hired to help run the community after his designs won a record breaking eight times on the community portal.

## no going back

The first law of entrepreneurial business: there is no reverse gear.
No one in business can unmake anything, any more than a band can unmake a song.

## note the trends

Every moment in business happens only once. The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won't make a search engine. And the next Mark Zuckerberg won't create a social network.

Four big lessons from the dot-com crash that still guide business thinking today:
1. Make incremental advances
2. Stay lean and flexible
3. Improve on the competition
4. Focus on product, not sales

Yet the opposite principles are probably more correct:
1. It is better to risk boldness than triviality.
2. A bad plan is better than no plan.
3. Competitive markets destroy profits.
4. Sales matters just as much as product.

How much of what you know about business is shaped by mistaken reactions to past mistakes?

Consider the urban hipsterdom: the handlebar mustache, and vinyl record players all hark back to an earlier time when people were still optimistic about the future. If everything worth doing has already been done, you may as well feign an allergy to achievement and become a barista.

What are people not allowed to talk about? What is forbidden or taboo?

Ask: what are people running companies not allowed to say?

Where is the profit?
In yesterday's world, the answer was: with the player who has the highest market share.
In today's world, the answer is: with the player who has the best business model, a model designed for customer relevance and high profitability.
- THIS MAY MOVE AROUND AGAIN SOON
- OR MAYBE IT NEVER MOVES AROUND? HAVE TO THINK ON THIS!

To create a strategic and dynamic perspective on the customer, one must have a clear and compelling point of view on one question:
Exactly how is the customer changing?
Write this question down. It is your single most powerful management weapon.

What if you had to start something? What would it be?
You don't need a good idea to start a business - you can steal one.
Find someone in another town or industry and do what they're doing.
Once you get started, your original idea is going to be replaced anyway.
Smart entrepreneurs don't stick to the original business plan.
You'll realize that every day is another day closer to success, and changing the plan is part of the plan.

The best odds of becoming a billionaire, in summary, exist in industries
that ride the key trends of economic development. This suggests that in
newly industrializing countries, great opportunities may remain in
infrastructure and basic industries. In the world's most developed
economies, however, the cream of tomorrow's billionaires probably will
emerge from communications, services, and technology.

High-growth industries that most often spawn vast personal fortunes tend
to be characterized by fierce struggles for survival. No one islikely to
emerge from such battles without a willingness to push the envelope.

How is it possible for three cowboys to herd a thousand cattle?
Easy. They don't. They herd ten cattle, and those cattle influence fifty
cattle and those cattle influence the rest.
That's the way every single widespread movement/product/service has
changed the world.
Find ten people who care enough about your work to enroll.

Trevor Blackwell presents the following recipe for a startup: "Watch people who have money to spend, see what they're wasting their time on, cook up a solution, and try selling it to them. It's surprising how small a problem can be and still provide a profitable market for a solution."

Paul Graham, how to make a business work - make something people want

Early adopters: we often talked to them and asked for their feedback. But we emphatically did not do what they said. We viewed their input as only one source of information about our product and overall vision. In fact, we were much more likely to run experiments on our customers than we were to cater to their whims.

Early adopters are suspicious of something that is too polished: if it's ready for everyone to adopt, how much advantage can one get by being early? As a result, additional features or polish beyond what early adopters demand is a form of wasted resources and time.
- THE TREND WILL SHIFT AROUND YOU, AND YOU NEED TO BE READY FOR THAT SHIFT

Early adopters use their imagination to fill in what a product is missing. They prefer that state of affairs, because what they care about above all is being the first

What if there are no businesses to study? Say you've done your homework, canvassed the landscape, and no one is doing what you're proposing. Usually that's bad news, which means you should take a step back. There are millions of smart people in the world. We all have access to the same information and therefore all hatch similar ideas. Most likely, there are reasons that someone has not already capitalized on your idea. Figureout what the roadblocks are before you get started.

Enter an established field. If your business idea is 100 percent original, there is a reason that no one else is doing it. Look around at what other businesspeople are doing. What works for them, and what doesn't? Both mistakes and innovations are best learned by watching others make them first.

if an idea is obvious but nobody else has tried it, there is probably a good reason.

Make sure people want what you're building before you build it.

Take the rifle approach and focus on an industry you're familiar with.

Stay plugged into new and emerging trends.

## promoting others' innovation

Customer tool kits and context orchestration: Forget about static, immovable products. If your customers are going to treat products as platforms anyway, then you may as well get ahead of the game. Make your products modular, reconfigurable, and editable. Set the context for customer innovation and collaboration. Provide venues. Build user-friendly customer tool kits. Supply the raw materials that customers need to add value to your product. Make it easy to remix and share.

Your real business is not creating finished products but innovating ecosystems.

Customers will expect to share in the ownership and fruits of their creations. If you make it profitable for customers to get involved, you will always be able to count on a dynamic and fertile ecosystem for growth and innovation.

Customers won't care whether their activities make you more money (that's your job) - they'll just want a superior product and experience, and perhaps even a cut of the revenue.

The best examples are the developer communities that have built up around eBay, Google, Amazon. External partners can build tools to leverage the database information, invent new kinds of stores or applications, and generally integrate their business processes. 40% of goods on eBay are now uploaded automatically from the inventory systems of 3rd-party stores that use eBay as an alternative sales channel.

Open up your platforms to increase the speed, scope, and success of innovation.

How do I make my organization a platform for participation?

How, when, and where do I open up my business?

How do I attract an energetic group of people to share the innovation load?

Om Malik blog post : "I wonder if this culture of participation was helping build businesses on our collective backs. If we tag, bookmark, or share and help del.icio.us or Technorati or Yahoo become better commerical entities, aren't we commoditizing our most valuable asset: time? We become the outsourced workforce, though it is still unclear what is the payoff. While we may gain something from the collective efforts, the odds are whatever the collective efforts are, they are going to boost the economic value of those entities. Will we share in the upside? Not likely!"

Most of the free electrons will gravitate towards the biggest centers of gravity. Companies with the most dynamic platforms - with great opportunities for partners to establish a synergistic business - will have the best chance of harnessing the enormous wealth of talent that all those free agents can offer.

The bigger the ecosystem, the better, because bigger ecosystems support more raw intelligence and more requisite variety. Becoming a pervasive and continually innovative presence means becoming a magnet for innovation that attracts lots of partners, suppliers, developers, customers, and other interested participants who are willing to build on your organization's platform.

We are shifting from closed and hierarchical workplaces with rigid employment relationships to increasingly self-organized, distributed, and collaborative human capital networks that draw knowledge and resources from inside and outside the firm.

Goldcorp story : couldn't find any more gold in their mines, though geologists said it was there somewhere, so as a last-ditch effort they put up all data since 1948 free online, and launched the "Goldcorp Challenge", paying $500k in prizes to participants with the best methods and estimates.

"You simply don't give away proprietary data. It's so fundamental that no one had ever challenged it."

If a small underperforming company in one of the world's oldest industries (Goldcorp) can achieve greatness by opening its doors to external input and innovation, what would happen if more organizations followed the same strategy?

Marketocracy: 70,000 traders to manage virtual stock portfolios in a competition to become the best investors. Marketocracy indexes the top 100 performers, and their trading strategies are emulated in a mutual fund that consistently outperforms the S&P 500.

Winning organizations will be those that tap the torrent of human knowledge and translate it into new and useful applications.

This utterly decentralized and amorphous force increasingly self-organizes to provide its own news, entertainment, and services.

Losers innovated internally. Winners innovated with their users. Losers jealously guarded their data and software interfaces. Winners shared them with everyone.

Couldn't just about any social or economic challenge be solved with a critical mass of self-organized contributors seeking an answer to the problem?

Wouldn't businesses be more productive if they could reach outside their walls to harness the insights and energies of a vast network of peers that converge around shared interests and goals?

If so, how would the traditional corporation change? What new business models could be built on this new collaborative approach to producing goods and services?

Jim Griffin on music biz : "Tarzan economics : we cling to the vine that holds us off the jungle floor, and we can't let go of the one we've got until we've got the next vine firmly in our hand."

Firms threatened by self-organizing prosumer communities face the innovator's dilemma.

The innovator taps a low-cost or no-cost volunteer production resource.

Move early to participate in building a brand-new business. By joining the community of new innovators, you might even position yourself at the front of the parade.

A new kind of business is emerging: one that
- opens its doors to the world
- co-innovates with everyone, especially customers
- shares resources that were previously closely guarded
- harnesses the power of mass collaboration
- behaves not as a multinational, but as a truly global firm

Make a comprehensive map of your innovation eco system that positions your value creation and aasses the interdependencies that will determine the flow of benefits and your ability to capture a share of them. This is not a traditional competitive analysis or value-chain analysis, but an analysis of the participants creating knowledge pertinent to your existing and future business. While this includes business partners and competitors, it extends to academia, public research institutes, think tanks, creative communities, or communities of practice, and contract research organizations. The map needs to be global and cover all relevant disciplines that intersect with your strategy.

You're taking down your borders and opening up for no tariffs, no tax competition. You need to know that your core assets and your skill sets allow you to continue to innovate fast enough as a corporation.

Openness does up the ante - it drives real value to the fore and forces every company to compete on a level playing field.
- IT ALSO GUARANTEES MORE [INFLUENCE] THAN KEEPING IT TO YOURSELF

Loose, voluntary communities of producers can self-organize to do just about anything:
- design goods or services
- create knowledge
- assemble physical things
- produce dynamic shared experiences
but don't overlook the fact that these communities operate according to well-defined norms, and have internal processes to guide the group's activities.

Debates remain on the public archive.

Sharing is about lowering costs, building community, accelerating discovery.

The growth of increasingly valuable online resources as a natural by-product of their use by self-regarding individuals. (No altrusitic sharing motives need be present, especially since sharing is the default in most online communities, including Flickr, Napster, and YouTube.)

If you ask 100 people to run a 100-meter race, the average time will not be better than the time of the fastest runners. It will be worse - a mediocre time. But ask 100 people to answer a question or solve a problem, and the average number will often be as least as good as the answer of the smartest member. With most things, the average is mediocrity. With decision making, it's often excellence.

(About product innovation or small companies:) What makes a system successful is its ability to generate lots of losers and then to recognize them as such and kill them off. Sometimes the messiest approach is the wisest.

Generating a diverse set of possible solutions isn't enough. The crowd also has to be able to distinguish the good solutions from the bad.

The simple fact of making a group diverse makes it better at problem solving.

Grouping only smart people together doesn't work that well, because the smart people tend to resemble each other in what they can do. The group knows less than it otherwise might. Adding in a few people who know less, but have different skills, actually improves the group's performance.

Encouraging people to make incorrect guesses actually made the group as a whole smarter.

In the 50 years since Vernon Smith did his first experiment in [wisdom of crowds] and published the results, they have been replicated thousands of times in ever more complex variations. But the essential conclusion of those early tests has not been challenged : that, under the right conditions, imperfect humans can produce near-perfect results.

To solve cooperation problems - like keeping the sidewalk free of snow, paying taxes, and curbing pollution - the members of a society need to do more. They need to adopt a broader definition of self-interest than the myopic one that maximizing profits in the short-term demands. And they need to trust those around them, because in the absense of trust the pursuit of myopic self-interest is the only strategy that makes sense.

Hawthorne Heights (Indie Band) - Each musician would spend four to five hours online everyday, engaging their fans in banter and generally making themselves accessible. The fans loved it! The fans couldn't believe they were actually getting a response, they had a fan for life because of that! By frequently updating their blog and swapping in new songs on their MySpace profile, Hawthorne Heights was able to give fans a reason to return.

Paid employees can be told what to do, online communities do what they want - Its often a price well worth paying.

Linda Parker ("Online communities editor", for the Cincinati Post) - "It used to read, 'Be a Citizen Journalist' and no one ever clicked on it, then we said, "Tell us your story" and still nothing. For some reason, 'Get Published' were the magic words."

Von Hippel (Head of the Innovation and Entrepreneurship Group at MIT's Sloan School of Management) demonstrated that in fields as wide ranging as scientific instruments and mountain bikes and computer chips, the task of innovation was passing from the manufacturer to the user, who has both a greater need and a greater ability to improve a product's performance. Companies that embraced this change entered into a creative relationship with their customers, even going so far as to provide them with tools to help design the end products.

The ultimate success of one solution is not diminished by the number of unsuccessful solutions. As more people apply more diverse sets of problem solving methods, the odds that someone will crack the nut can't help but go up. And if they're wrong, you can just ignore them. But this truth only applies to crowdcasting projects like the Netflix Prize and InnoCentive. When we're using the crowd to predict the future, every response counts in the final tally. In these cases, the role of diversity is far more complex.

The best ideas result in enhanced status for their authors. Others naturally strive to meet or exceed the standard set by most talented of their peers, a tendency that effectively increases the overall quality of the work produced by the community. Much of the interaction between community members revolves around improving their skills. People like to learn and they like to teach. The community has an unerring ability to identify its most talented members and highlight their work.

Many designers think they can simply list their ideas on a website and it will somehow sell itself. Companies simply do not search these sites for ideas. But you can, and you know how to evaluate an idea. These designers are likely to be desperate for some help licensing their ideas. Try typing these keywords into your browser and then bookmark any sites that you like:
• "Invention for sale" or "inventions for sale"
• "Patent for sale" or "patents for sale"
• "Invention listing sites"

Visit inventor forums. Do an Internet search for "inventors forums" or "inventors discussion groups" to find forums where you can go check out what's on the minds and drawing boards of designers.

Mine the talent at art and design schools
- THIS CAN BE UNETHICAL, SO MAKE SURE THAT YOU ASK PERMISSION FIRST!!!

Publicize constantly.

## researching

For new ideas, the spirit is willing, but the implementation is weak

the more research, the more prepared
- at the same time, you'll NEVER get it fully researched out right

rule of thumb: do the most risky thing in the safest possible way

The uniquely qualified minds to make new discoveries were outside the boundaries of his organization.

Harness the new collaboration or perish. Those who fail to grasp this will find themselves ever more isolated: cut off from networks sharing, adapting, and updating knowledge to create value.

How most businesses operate: When releasing a new product, a company
will spend months, sometimes years, fine-tuning, building up to one
critical moment: the launch. Then on launch day the product either is a
success or a failure. People buy it and the company makes a profit, or
they don't and the product fails.

Upworthy sent the same video with a handful of different headlines to
different subscribers. Upworthy wrote alternate versions of the winning
headline and sent it out to several other groups. It repeated the
process a ruthless 18 times, for a total of 75 variations in all.

DHH: "If I can put in 5 percent of the effort of somebody getting an A,
and I can get a C minus, that's amazing. It's certainly good enough,
right? [Then] I can take the other 95 percent of the time and invest it
in something I really care about."

An entrepreneur learns two things from failure: First he learns directly
how to overcome that particular failure. He's highly motivated to not
repeat the same mistakes. Second, he learns how to deal with the
psychology of failure.
- THIS IS WHY IT'S IMPORTANT TO FAIL FAST

(from God's Gold) Rockefeller's life was utterly free of accident because he calculated EVERYTHING pristinely
- In a way, the best way to be prepared is to steadily and obsessively overthink ALL possible things, then make the wisest decision after researching the heck out of something
- Also, acting slower in a season of endless churn is crucial: save money, prepare for an undeterrable strike at what you want

The goal of a startup is to figure out the right thing to build - the thing customers want and will pay for - as quickly as possible.

The point is not to find the average customer but to find early adopters: the customers who feel the need for the product most acutely. Those customers tend to be more forgiving of mistakes and are especially eager to give feedback.

This specification will be rooted in feedback on what is working today rather than in anticipation of what might work tomorrow.

To study successful businesses you have to visit their stores, factories, offices - try their products, test their services, spend time at their websites. Most important you've got to talk with their customers, live with them, get to know their needs, wants, problems by spending time with them, seeing what they do, what works for them & what doesn't. What annoys them & what makes their lives easy or productive or fun. You'll learn more from 1 hour with a customer then 50 research studies.

No book, blog or conference could ever teach you more about your customers than you learn from watching them use your software.

I just went to Toys "R" Us and walked the aisles. I looked at what was on the shelves and tried to imagine ways to make a small change that would have a big impact.

My shopping excursions only planted the seed of an idea. I had to do more market research to germinate that idea: to figure out how to design it, how much it should cost, who might license it, and so on.

Discover hot markets and emerging trends. Check out websites such as Trendsetter.com and MindBranch.com

Look at new products, and ask store managers which items are hot.

There are usually three or four big companies that produce most of the products in a given market. Review their product pages or online catalogs. Go to their media page and read any new product releases.

Innovation through observation is observing how people use products at home, at work, or at play to identify their wants, needs, and desires.

Paul came up with ideas by looking at how kids play traditional childhood games and then updating them. One day he decided to take a look at a game kids have been playing forever: tag. "What can we do to update tag?" he asked himself and his team of engineers. "Is there any technology we can apply to tag?" Sure enough, they came up with Lazer Tag, using infrared technology.

I went into the Disney store at my local mall and asked the manager what their most popular product was. He said it was their cups. I saw that some of the plastic cups had a double-layer outer wall. The back layer was a color (red, blue, yellow, etc.), the front layer was clear plastic, and there were sparkles between the two layers. I immediately thought of other images and games you could put between the two layers of plastic, which kids could play by rotating the cup.

I looked on the bottom of the cups in the Disney store and saw the manufacturer's name, Trudeau. They licensed the idea from me, and for five years my rotating character cups were sold in every Disney store and theme park worldwide.

"What if a combination lock had letters, instead of numbers, so you could spell out your secret code?" He now has a successful product, Wordlock, which is sold in tens of thousands of stores around the world.

Many companies don't know how or don't have a system in place to go find those ideas. Likewise, many independent product developers don't know how to license their ideas, and some simply prefer hiring someone to "rep" their ideas to licensees for them. This scenario creates a huge opportunity for you to profit from connecting innovators with manufacturers. As a product scout, you find great ideas and then find the right companies to license them. In return for your services, the product designer splits the licensing royalty with you.

Become a licensing expert: a master at finding marketable ideas and getting them into the marketplace.

At inventRight we offer courses with CDs and workbooks as well as online classes and other tools for learning how to find, develop, and license great ideas.

Another great resource is Ideapow: an "online learning lab" for "entrepreneurial-minded people" who want to learn how to license ideas.

Far too many inventors and independent product developers overlook this step. They design with no knowledge of, and with no regard to, manufacturing.

## selling ideas

The only opinions that really matter are the opinions of potential licensees.

Companies are only interested in licensing ideas they can:
• Put on their existing production lines quickly and easily, with little or no modification to their manufacturing processes
• Distribute through existing channels in which they already operate or that are closely related to the channels in which they operate
• Produce at a cost and sell at a price that is profitable

Call the manufacturer and ask for someone in sales. I would say something like, "I'm Stephen Key with Stephen Key Design. I'm working on a special project for a client, and I'd like to send over some drawings and get a price quote." The sales rep is going to fall all over him- or herself trying to help you and supply you with what you need. Just make sure to send over a nondisclosure agreement (NDA), and make sure you've already filed a provisional patent application on your idea.

Send over a drawing, and I make sure to include "Patent Pending" on the drawing so they know some intellectual property protection has been filed.

Ask for a price quote on 10,000, 100,000, and 1,000,000 units. The sales rep will go to work for you and come back with a price quote and all this other information to help you because the sales rep wants to get an order! It's brilliant.

Occasionally, I will call contract manufacturers and ask to speak to engineers. If I ask a few basic manufacturing questions and don't ask them to divulge any trade secrets, they're usually very helpful. Sometimes, you can't get them to shut up, because they're so happy to have someone interested in what they're doing.

If the sales rep or the engineer tells you that the company can't manufacture your idea, ask him or her why. This way you can understand the manufacturing process, then redesign if necessary.

To successfully bring an idea to market, you must control every step of the process - from developing your idea to protecting and licensing it. Throughout the process, you must also control who knows about your idea, what they know about it, how you tell them about it, and when. So protect your idea with a PPA and an NDA before showing it to anybody.

## start it small

Successful network businesses rarely get started by MBA types: the initial markets are so small that they often don't even appear to be business opportunities at all.

Every startup should start with a very small market. Reach a few thousand people who really needed your product.

The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors.

It's always a red flag when entrepreneurs talk about getting 1% of a $100 billion market.

An entrepreneur can't benefit from macro-scale insight unless his own plans begin at the micro-scale.

Focus on short-term goals. Don't get ahead of yourself. Forget about designing a business for the next decade; instead, design it for the next year.

## there are best practices

Startup success is not a consequence of good genes or being in the right place at the right time. Startup success can be engineered by following the right process, which means it can be learned, which means it can be taught.

## watching the market

The secret to success in any new sector is watchfulness, usually over a period of many years.

No sector will ever be so important that merely participating in it will be enough to build a great company.

The scope of a business' viability:
#1 = Market
#2 = Marketing
#3 = Aesthetic
#4 = Functionality

The product with a sizeable market and low competition wins even with bad marketing, a bad aesthetic, and poor functionality.
In the same market, the product with better marketing wins.
In the same market with equal marketing, the product with the better design aesthetic wins.
Functionality, code quality, and documentation are all a distant fourth.