7 posts tagged Business

I recently finished Roger Lowenstein’s Buffett: The Making of An American Capitalist.  As far as biographies go, it’s one of the best I’ve read.  The most intriguing thing about Buffett is his business genius, and this book does a good job focusing on it.  For a more detailed story of his personal life, I hear The Snowball is the way to go.

What I find most interesting about Buffett is his ability to breakdown complex problems and explain them in simple terms.  I also found striking similarities between Buffett’s investment style and USV’s approach to venture capital, particularly slow capital.  (Granted, Buffett wouldn’t be happy with the rule of 1/3’s.)  There’s a lot of overlap in understanding businesses, the people who run them, their respective markets and competitors, and focusing on one’s area of expertise.

Here are some of Buffett’s guides to picking stock:

• Pay no attention to macroeconomic trends or forecasts, or to people’s predictions about the future course of stock prices.  Focus on long-term business value - on the size of the coupons down the road.
• Stick to stocks within one’s “circle of competence.”
• Look for managers who treated the shareholders’ capital with ownerlike care and competence.
• Study prospects - and their competitors - in great detail.  Look at raw data, not analysts’ summaries.
• When you have conviction about a stock, show courage and buy a ton of it.

A lot of these points seem intuitive.  Do your research, know your shit, trust your gut, and go for it.  The book covers a lot more minutia in his approach to investing - working with CEOs, hands-on approach, field research, relationships with business and political leaders - but these are the prevailing themes and they should be applied to more than just picking stock.

As it stands today, the music industry is fucked.  All the old business models will be obsolete within the next two years.  The record industry is dying, and all of the businesses leaching onto it are quickly running out of blood to suck.  The game is rapidly changing and it’s leaving a lot of people lost and confused.

Right now there are a handful of ways to make money off of music.  You can 1) be a musician 2) work at a record label 3) be a manager/agent 4) be a promoter and 5) do something creative.  Let’s take a quick look at the options.  (Of course these aren’t all of the ways, but they’re the most viable.)

Being a musician is cool.  If you love making music then this is the obvious choice, just don’t expect to make a killing.  You can be the most skilled guitarist in NYC and still be playing for $100 and free pizza every night.  90% of the time, musicians who “make it” owe it to dumb luck.

Working at a record label is great if you enjoy crying yourself to sleep at night.  It’s a sinking ship and life jackets are running low.  There’s a little hope for the digital marketing side, but there’s too much red tape within the big labels to navigate effectively.  iTunes isn’t going away anytime soon, and it’s taken too much power away from labels’ digital sales.

Then there’s the management/agent side - the side that Entourage’s Ari Gold glorifies.  This is all about hustle.  And even then, your success isn’t in your own hands - it’s in the hands of the latest 10 year old boy band or a delusional diva pop star.  Of course there are agents and managers everywhere in between, but the same concept applies - you are hustling, scheming, and babysitting.

You can go the promoter route, but good luck going up against the Live Nations and Ticketmasters of the world.  There’s really very little room for growth in this area.  Bowery Presents is an anomaly.  They did something right along the way that no one has been able to replicate.  Without immense amounts of luck and years of networking connections, you’ll be hustling and living show to show.

That leaves “something creative” as the last viable option.  This is a unique space and it’s moving into Web 2.0.  Music is being reduced to musicians and fans and there are seemingly limitless ways to connect them.  This is the future of the music industry.  There is so much space to discover.  There are new services creating new paradigms popping up all the time.  Spotify is changing the game of listening to music.  Last.fm and Pandora help people filter music.  SoundCloud is doing great things around moving music, and The Hype Machine is showing the world how to discover new music.  There are so many action verbs to choose from and I’m sure people will come up with ones we never thought were possible.

As the music industry treks onwards through seismic changes, it will submerge further and further into Web 2.0.  It’s an exciting time to be discovering new ideas around the area between musicians and fans.  If you’re committed to a career in music, I’d start getting creative.

I used to get a kick out of reading books on globalization.  I could eat up Bhagwati, Stiglitz, and Friedman for days.  (Disclaimer: I can no longer tolerate Friedman, mainly thanks to Matt Taibbi.)  All of these writers talked about outsourcing - specifically, the outsourcing of American labor.

In regards to globalization, the notion of outsourcing usually pertains to manual labor, low-income jobs, and non-specialized labor.  However, over the past several years, outsourcing has grown to encompass higher-level vocational work, particularly software design.  For some fields this is okay.  Outsourcing can minimize costs in standardized practices like accounting and HR.  There’s no problem here as long as the software is simple and increases efficiency.

The serious issue with this trend is that globalization has made it too easy to outsource proprietary software.  I’ve seen too many friends come up with a great ideas for businesses (software and otherwise) and then outsource the whole project.  Today, when you can hire a firm in India to produce something for a fraction of the cost you’d pay domestically, it seems like an easy, enticing, and obvious option.  However, it’s the wrong option.

Whatever interface you use and whatever software is at the core of your business needs to come from you.  By “you” I mean you or someone who works for/with you that is close to you and invested in your success.  When you outsource, you’re not just putting the development of your business in the hands of someone across the globe who doesn’t truly give a shit about you or your product, but you’re also relinquishing all control of the design.

There’s an adage that goes “Let your life proceed by its own design” (okay, it’s actually a Grateful Dead quote).  When you outsource the design of your product, then its building blocks, aesthetic, functionality, and personality are not your own, and in the end, they won’t represent what you want or intended.  So when the urge comes to take the easy road and outsource, remember that your ideas should proceed by your own design, not someone you’ve never met before.

The other day I asked the following question on Fred Wilson’s blog:

[There is a] disconnect between invention and entrepreneurship in universities. Aside from the obvious bureaucracies inherent in major institutions, how is this not a potentially valuable untapped market?

NYC has a tremendous academic force producing valuable research, a majority of which sits on the shelf and collects dust. Couldn’t this be a major source in helping to develop the NYC startup community?

Fred had a very simple answer:

All great companies start with an entrepreneur not a piece of research or technology.

His response couldn’t be any truer, but it doesn’t address an important aspect of my question: When do you invest in the entrepreneur and when do you invest in the product? (Obviously the perfect investment is a combination of the two, but you can’t get perfect all the time.)

Disruptive innovation does not have to come from the hands of an entrepreneur.  Not all products, disruptive or otherwise, are attributed to entrepreneurs.  Most academics and scientists are in their respective fields because it’s what they love.  They live to hypothesize, research, experiment, and invent.  A university researcher may create the next internet but not have the entrepreneurial drive to bring it to market.

So when do you hedge your bets on the product and not the company?  And what happens when you discover the golden product, but it doesn’t belong to an entrepreneur?  I think there’s opportunity within these scenarios (e.g. unique incubators and hands-on/managerial investments).  It may be difficult to navigate, but the returns can be very rewarding.

Last week I posed a question regarding how to leverage NYC talent in the startup community.  Initially, the most obvious pool of candidates seemed to be talented analytical brains in finance and consulting.  Although I still think their skill sets are translatable to startups, there’s another group out there with serious potential: university researchers and academics.

NYC is home to some of the world’s top scientific institutions (e.g. Columbia University and New York University).  Each year hundreds of millions of dollars are injected into the research and development of new technologies, yet only 0.1% of funded basic science research results in a commercial venture.  The remainder of these projects inspire a piece of academic literature and are subsequently shelved.

Center for an Urban Future, a NYC think tank, recently published an in-depth study on the importance of developing a more robust and entrepreneurial research community.  It calls for a public institution somewhere between the EDC and SBS:

What’s needed is an office that builds linkages and structures to grow and retain the city’s own technology businesses, and not just in the life sciences.  We need an office willing to interact intensively with the universities - to be in their face all the time - and to court the entrepreneurial community.

Successful institutions like this exist in Philadelphia and the Boston area.  Why shouldn’t one exist in NYC?  They set tangible goals: raising the number of companies emerging from research at city universities from X to Y and increasing investments towards research commercialization.

This is a good idea, but I think an even better solution exists.  Public institutions are inherently inefficient - they’re bureaucratic by nature.  Same thing goes for major universities.  The opportunity exists for a group of VCs/entrepreneurs to develop tight-knit relationships with key players at universities.  If the private sector can tap into university academics, researchers, and inventors, fund them and help them bring their inventions to market, it would be an economic boon.  Simply raising the number of commercialized research projects from 0.1% to 1% would result in exponential economic and technological growth.

In order for this to happen universities need to relax their transfer office policies, embrace the private (and public) sector, and encourage communication and joint-entrepreneurship with seasoned professionals.  The major institutions win, the academics win, the entrepreneurs win, and NYC wins.

Chris Dixon wrote a piece today asking if online business model innovation is slowing down.  In relation to social media, my take on the matter is quite simple: it cannot slow down.  This is true for multiple reasons.  Mainly, I think that “where people spend time, money will follow.”  If enough people are using the same resource to solve their problems, consume information, or entertain themselves, there is a way to monetize.  However, this doesn’t mean that it’s going to be Google-type monetization of $22B a year.

Social media business models will probably have great difficulty capitalizing on purchasing intent (where Google sees it’s highest margins).  What social media provides (Tumblr, Facebook, Twitter) is an outlet for interaction, information, and expression - or consumption intent.  Opposed to other online mediums, end users consume information from their peers and sources they selectively follow, not a source generated by an algorithm.

The benefit of the social media model is that we receive information from people we trust.  We read the articles referred to us by people we admire.  We buy the things that received glowing reviews from our peers.  We interact with people with the same interests.  And we constantly share with the desire to inform, impress, educate, and engage.  So while social media may never be able to create an AdSense equivalent, it has the advantage of user engagement - people want an answer, but the ride is just as valuable as the destination.

Social media can employ countless monetizable features - some more efficient and with higher margins than others.  The fact of the matter remains that there is no single best practice for monetizing social media right now, and that’s a very good thing.  It leaves the door open to new business models and innovation around revenue streams.  It’s an exciting time to be in this space, and even if there is no AdSense for social media, there will be a new paradigm for business on the internet - and that is equally exciting.