Beware software baloney

One of the things that is hard to gauge in the brave new world of web services and new social business models is whether there is any substance behind the hype in a specific concept.  The ugly downside of the 'silicon valley' hive is that a lot of VC/Entrepeneur/New Media back scratching goes on.  Evidence CrowdCloud.  CrowdCloud is billed as a tool for mobilizing large numbers of on line workers to rapidly complete tasks, paying them on a per event basis.  I got interested in the concept so I signed up to be a CrowdCloud 'employee' and completed the editing of a test website to see whether I 'had what it takes' to edit badly written english websites for them.

They came back to me and said that I wasn't 'up to their standards' which perplexed me because creating content for the web is actually an area that I am known to be very good at.  So I sent the original and my rewrite to a friend who is a professional editor for her opinion.  Sure enough after reviewing the materials she agreed with me that what I had done was certainly professional quality.

That's when it hit me:  this company has no customers.  As a result, they have no need for new people.  And rather than sign up a bunch of people who would get no work, signalling their lack of success, they chose to pretend that their standards were "too high".

Sometimes it's hard to figure out who is for real when you're out on the Openwater.

To be a Cyborg

Wired Magazine has a fascinating article about playing chess.  They point out that IBM's Deep Blue was able to beat Gary Kasparov, then the world champion by using brute force.  Not particularly interesting or relevant to the real world.  But Deep Blue's feat spawned a new hobby of using off the shelf software to compete in computer enhanced chess tournaments.

What the players found was that it wasn't the best chess players or the players with the best chess playing software that won these hybrid man-machine tournaments but the players that best integrated their chess skills with their automation.  It turns out that one has to know when to take the software's advice and when to reject it.  It was the integration between the automation and the expert that made the most powerful match.

This has profound implications for how we design software.  Quite a bit of software seeks to replace the business analyst or decision maker with codified business rules that 'always' do the right thing.  But all systems have exceptions or areas at the limit where the decision tool is not robust.  Therefore the key to competitive advantage in these highly automated decision environments may end up being in the expert human - computer interface.  In other words, in having humans with the expertise to know when the system doesn't maximize outcomes and to intervene accordingly.

Training experts to override rather than simply operate the software.  Something that knowledge based businesses need to think about while riding their cyborg hovercraft out on the Openwater.

The right way to think about money

The Artist Farm has a great post on how to think about money. You can (and should) read it here. Bottom line: if you want more money, figure out how to create more value. Focusing on 'getting more money' never works (unless you're in the weapon assisted unauthorized money transfer business). It's a great way to talk to clients, suppliers and staff: "Not happy with your rates or compensation? Lets talk about how you can create more value".

The knowledge based business corollary to this is "Lets talk about how you provide your value to many more customers" - figuring out how to leverage a company's knowledge by embedding it in staff, training, software or product is a key to making a knowledge business much more valuable.

Implementing a leverage strategy for your knowledge business - something else to think about while fishing for customers in the Openwater.

The Top Digital Deals for 2010

Kelly Porter from Woodside Capital Partners wrote a TechCrunch column that predicts what the top 10 digital deals of 2010 will be. By definition, this prediction is wrong as soon as it's made. So other than an example of hubris there's no value, right? Wrong. The reason to pay attention to PR gimmicks like this isn't to get specific picks but to get a feel for the logical thought process, the assumptions underlying the message. By exposing the logic we can gain insight into what technologically sophisticated players are thinking and worrying about.

Having this insight can be important, because a company or idea with the technorati wind at its back will have a far easier time raising money, growing and selling itself at a premium. Notice that all of the acquisition candidates in the TechCrunch list would be classified as "strategic acquisitions". Knowledge based businesses have the ability to provide enormous value leverage to the right acquirer, particularly if the market consensus supports the deal. And the difference in value creation from being a 'strategic' knowledge acquisition versus a 'financial' one can be huge.

So what does this specific list tell us about this particular group's view of the market?

First, by far the most common justification for acquisitions on this list is for existing market leaders to add capabilities that extends or strengthens their existing franchise, creating more value for existing customer segments. In other words, this market observer believes that the 2010 deal season will largely be winners consolidating their leadership positions. This makes sense to us.

The only other major conclusion that one can draw from this top ten list is that at least in the eyes of some observers, the short burst messaging platform Twitter has moved from being considered a niche concept to possibly becoming a social media platform play that acquires and integrates other solutions into its environment, like Facebook, Linked In or Google. This is an intriguing but clearly speculative prediction and I would look for much more validation before integrating this nugget into my thought process.

By paying attention to this type of industry 'fluff', you can get a sense of what "Techno-ventional" wisdom is which can help you position your company to sail with the technorati wind, not against it.

It makes sense to pay attention to the logic behind silly top ten lists when you're out on the Openwater.

The Wordperfect Axiom

Seth Godin makes an important point, using the old word processing application WordPerfect as an example:

The Wordperfect Axiom

When the platform changes, the leaders change.

Wordperfect had a virtual monopoly on word processing in big firms that used DOS. Then Windows arrived and the folks at Wordperfect didn't feel the need to hurry in porting themselves to the new platform. They had achieved lock-in after all, and why support Microsoft?

In less than a year, they were toast.

When the game machine platform of choice switches from Sony to xBox to Nintendo, etc., the list of bestelling games change and new companies become dominant.

When the platform for music shifted from record stores to iTunes, the power shifted too, and many labels were crushed.

Again and again the same rules apply. In fact, they always do. When the platform changes, the deck gets shuffled.

Think this only applies to software?

Read the rest of Seth's thought's here.

The problem is that most players have responded to these changes simply by taking whatever they've done on one platform and porting it to the new platform. That rarely works - because the new platform almost always offers new features and benefits that render old methods obsolete.

Take corporate training as an example. In the 'olden days' training was done in person by 'trainers' - and companies sent their employees to 'training weeks' or 'training days', after all, the transactions costs of assembling the trainees and trainers into one room meant you needed to get it all done in one throw. When training went on line, the one and two hour training courses were just ported to the web.

The good news was that training no longer had to be done face to face, saving money. The trainees could often choose a time convenient to them. There was a drawback: the group aspect of training - learning from each other, figuring out a tough concept together, was lost. And some of the worst aspects of in person corporate training were perpetuated: long, droning courses, done by people who weren't experts at engaging the audience, poor production values that didn't work well on line, and training that was done long before the skill being trained would be used all reduced the impact of the new tools.

However, one of our portfolio companies, EJ4 chose to take a fresh look at training, trying to leverage all of the benefits that being on line could give. This is what they came up with:

• First, they chose to specialize in video - video being the most effective medium for conveying information
• Second, they broke the training exercises into segments no more than 10 minutes in length because that's the longest someone can effectively focus on and competently absorb new material
• Third, they emphasized 'just in time' training - the concept of viewing a short training concept right before engaging in the task so that the steps are fresh and reinforced by doing
• Fourth, they used skilled training designers and professional presenters to translate expert generated content into effective skill building
• Fifth they made it all available on line via smart phone or PC so that trainees could access any material any time that it made sense for them
• Sixth, they made chat and social media tools available for specific training courses so that those taking a course could rebuild in a virtual world some of the community that they lost when moving from in person training to on line.
• They set a cost reduction objective: the new EJ4 tools and methods should reduce total corporate training costs by half.
• And finally, they set specific performance goals for training: payback within one year. If training doesn't 'move the needle' for a client, then it's free.

By thoughtfully leveraging the web training platform, by making engaging, high quality content, and by tying it to performance, they've changed the basis of competition for Corporate training. And now founder Ken Cooper is trying to take these lessons into the Education market...I'm betting he succeeds.

So has your knowledge based company taken the the shift to the web platform seriously? Have you thought through how you could innovate your current services online to get to the top of a reshuffled deck of competitors in this era? if you haven't, you might end up being the Joker.

Changing tools and platforms make things rough out there in the Openwater.

Professional service firms and the problem of tacit knowledge

Tacit knowledge is the informal knowledge that people within an organization have about how the place 'really' runs. It's knowledge of the right way to complain about your supervisor, when a relationship with a client becomes inappropriate, or the best (and worst) ways to leave the Firm. Typically this type of information is either not written down or is hidden in turgid prose on page 1132A subsection b of a policy manual. People pick up this critical organizational knowledge or what is sometimes called 'the ropes' from their more experienced peers or managers.

Professional services firms find transmitting tacit knowledge particularly daunting because they hire so many staff each year and so many of them are relatively young and inexperienced. The large numbers, client focus and often transient nature of professional careers make it hard for these firms to informally communicate 'how things are done around here'.

The Dos and Don'ts

An intriguing new approach has been taken by our portfolio company EJ4 on behalf of some of their global clients. What if a series of very short - less than two minute - videos were prepared talking about key Firm cultural norms. The videos would be designed to be sent via email and viewed on smart phones and PCs at the staff member's leisure. They would be designed to be entertaining, even funny or quirky so that staff members would be attracted to them. Topics could include:

• '3 questions to ask and 2 people to talk to before you bail'
• 'Is that P-Diddy below hip pant style appropriate for my client site?'
• '3 expense items that will defo get you fired'
• 'what to do with that cute client who won't leave you alone'
• help! my job is boring! what do I do!

By using an approach like this for critical tacit knowledge, a firm can significantly raise the firm culture IQ of new staff and reinforce key concepts to the old hands. It's also a way to introduce desired changes to behavioral norms.

An added benefit of this type of communication is that it can be shared with recruits, business partners and clients - where appropriate - to educate them on how to best work with and navigate the complexities of a firm's norms and culture. And the better outsiders know you, the more comfortable they are going to be working with you.

Improving performance by eliminating cultural confusion. Another thing to think about while you're sitting out on the Openwater.

It's what you do with the data

The Economist has a rather interesting article describing what the internet has done to the recruitment market. In the past, recruiters had proprietary databases of candidates that allowed them to charge high fees to find the right executive for their clients. Control of the data was the key to high margins. Now, with the advent of Linked In, The Ladders and other career focused sites, data on candidates is widely available.

So what are the recruiters doing? Adding more and better services around the commoditized data. For example, they are focusing on how to improve the quality of hires - reducing the number of hires that 'fail' at their new companies. They are also coming up with ways to speed up the recruitment process - making it 'just in time' so that it can support short term projects as well as long term hires. Finally, recruiters are expanding the scope of their services, helping companies come up with strategies to better manage the careers of their best talent.

All of these new approaches have one thing in common: they recognize that information is increasingly a commodity and that clients and customers will only pay for value added above and beyond the base industry data. All knowledge based service businesses face or will soon face this dilemma to one degree or another. We believe it's best to recognize it explicitly.

So, what solutions are you building to take advantage of the commoditization of your industry's information?