But the real story here isn’t about Dixon; it is about the long-term systemic abandonment of public life by the American citizenry.

And I use that term loosely. Americans take a cynical eye towards civics and citizenship. Public servants are routinely portrayed as buffoons and as half-witted wards of the state. Politicians are universally derided as corrupt, megalomaniacal, and intensely self-interested. Depending on the election, Americans vote in anemic numbers. Children are no longer seriously raised with the idea that civic engagement or public service is a kind of higher calling.

We are now consumers of politics rather than participants in civic life. And the accompanying “fanboyism” that we see in consumer behavior has effectively destroyed intelligent political discourse. Presumably somewhere out there there is a sticker of Calvin Elephant pissing on a Democrat Donkey. Enough.

The Dilemma of the American City

A confluence of factors over the last 90 years has drawn people from the urban core to the suburbs: air quality, the invention of the automobile, the Great Depression, unchecked suburban planning, school policy, racial prejudice and realignment, blockbusting profiteers, the end of urban manufacturing, ineffective urban planning, drug use, tax imbalances, poor transportation infrastructure, and incompetent city governments.

This has resulted in cities that have neither the tax base nor the level of civic engagement required to operate. The politicians do not have the skill or vision to initiate meaningful change. The population wants improvement and change but is often unwilling to exchange their short term interest for any long-term good. Surrounding jurisdictions point fingers at the city, and the problems become self-reinforcing. For each day that our cities slog on in dysfunction, the more people are convinced that dysfunction is a permanent and intractable condition.

To change things in the long term, we need to attract people back into our cities. And there are workable strategic reasons why this is possible: cities provide real competitive advantage, particularly for industries based on ideas and information.

Urban Feudalism

It is not a coincidence that the graft case against Dixon was centered around her relationship with multiple developers. This 2008 City Paper article gives a good sense of the shadowy web of relationships surrounding the Mayor, her predecessor, and developers.

It requires a special kind of optimism to think that the gift cards, cash, and other baubles that Dixon received were anything other than bribes. While it is laudable to offer her the benefit of the doubt, the reality is that she did receive these gifts from developers. And developers have more impact on the design and function of our city than any other single business constituency.

While we can defend Dixon’s sincere love for her city, her ambitious agenda, her mostly-functional administration, and her political bravery, the tragic truth is that she fell victim to the inherent flaws of the very place that made her. The culture of personal gain over civic duty is pervasive and inescapable in Baltimore. And the government accurately reflects the values of its people.

Our cities plod along, hostage to the special interests and powerful “players” to whom we have consigned our urban future. We have enabled and continue to refine a new system of urban feudalism, its landscape populated by warlords each concerned with their own particular brand of self-interest. There is precious little difference between a corner drug dealer and the Mayor of Baltimore when everybody’s on the take.

A Path to Recovery

It is easy to complain about American public life and politics, and real solutions are hard to find. James Fallows argues in this Atlantic Monthly article that while the American system of government has been horribly hamstrung by special interests, the only hope we have is continued engagement. He argues that we cannot divorce public life and the private sector, as both fail when that happens.

I believe there may be yet another pathway forward, inspired by the great American thinker and architect Buckminster Fuller’s quote: “You never change things by changing the existing reality. Instead, build a new model that makes the existing reality obsolete.” If there is a way forward it is in this direction.

Public Life Without Politics

We have become accustomed to the idea that participation in public life comes only in the form of elected office or through lumbering nonprofit organizations. But there is an emergent form of public engagement centered around alignment behind ideas. The Internet has enabled likeminded people to converge both online and in the real world to achieve amazing goals, all without the burdens of machine politics and the slow-moving governance of nonprofits.

American cities offer an exceptionally strong opportunity for our country to return to competitiveness on the world stage. Compact, efficient, and diverse, our cities are platforms upon which we can design an economic life predicated on two key core values: respect for place, and respect for people and their time.

If we truly love our place and our people, competitive advantage will flow naturally from there. Embracing our cities is a pro-business agenda. It’s a future where everyone wins.

An Apolitical Future

Until recently, the flow of information to citizens has been imperfect and incomplete, and political parties have acted as proxies to enable people with similar values to coalesce.

But as information flow becomes more perfect and attitudinal alignment can occur in higher-resolution ways, political parties may no longer be effective channels for achieving important public goals.

To the extent that people can rally around goals and achieve real results using apolitical modern organizing efforts, we may find that the future of public life lies in individual action rather than in elected office or in nonprofit organizations.

Our country’s future demands that we find the answer.

I try to bike as a form of functional transportation, not just for exercise. If you start to think about biking as a way of getting around, a lot of the dysfunctional design of our cities and suburbs becomes evident.

Today our family was faced with the task of obtaining a Christmas tree, and wanting to get out for a bike ride I immediately thought this was something we could accomplish via bike. This summer when I attended TED Global in Oxford, I flew to Heathrow airport with my bike and then rode from there to Oxford (about 50 miles) with a 30 pound pack on my back. So a Christmas tree (20 pounds?) over 5 miles seemed no problem in comparison.

So this afternoon our family biked to a local produce stand and purchased a tree. We put it into a US Army standard-issue duffle and secured that to my back using cargo straps.

Here’s me in my fully mobile glory:

And here, on the Baltimore-Annapolis Trail:

This crazy getup evoked smiles all the way around. Many people said, “You’ve just made my day.” It was about a 30 minute trip home, and somehow a clichéd act of holiday duty had been transformed into something joyful.

I just wanted to take a few moments to reflect on 2009 and express my gratitude for an amazing year:

• The wonderful community we have discovered and built up at Beehive Baltimore (February-present)
• My old friends at Twitter and at AngelConf + Y Combinator, Silicon Valley (March)
• New friends + allies exploring the future of journalism in Baltimore (April)
• New friends and compatriots in Buenos Aires, Argentina (April)
• Jared Goralnick and his amazing Bootstrap Maryland event (May)
• Aaron Brazell, Jimmy Gardner and WordCamp Mid-Atlantic (May)
• Brady Forrest, Ryan Sarver, Anselm Hook, Andrew Turner at Where 2.0 and WhereCamp (May)
• Barcamp Baltimore (June)
• Micah Sifry and Andrew Raisej at Personal Democracy Forum + Transparency Camp (June)
• Dave McClure, Christine Lu, and the Geeks On a Plane #goap gang (June)
• Great new #goap Friends in Tokyo, Beijing, and Shanghai (June)
• Christine Lu, Chris Anderson, Lara Stein, Salome Heusel and the TEDx team (June)
• An Amazing experience at TED Global in Oxford (July)
• Winning Innovator of the Year Award from The Daily Record (October)
• Winning the Connector award from Greater Baltimore Tech Council (October)
• The entire TEDxMidAtlantic Team (August-November)
• An AMAZING life-changing event: TEDxMidAtlantic (November)
• New friends at Le Web in Paris (December)

It has been an incredible year. If you follow your heart, anything is possible. Don’t let anyone tell you something can’t be done. Strap a Christmas tree to your back if you want to. It’ll work.

Do good work, my friends, and get ready for an amazing 2010. We need each other.

Best wishes for a safe and happy holiday season, from my family to yours.

BYTE was produced in New Hampshire and had a scholarly tone; still, the emerging world of computing was breathlessly covered, and offered a sense of endless possibility. But it was Antic magazine (a specialty computing magazine for Atari computers), specifically the December 1983 “Buyer’s Guide” issue that really caught my eye.

The design was colorful and imaginative, with beautiful typography, and the magazine was full of amazing ideas and products which I was sure would launch me on my way to unlimited exploration. I devoured the magazine cover to cover, but I never realized just how much I was soaking up its design ethos. Colorful, playful, and bold, this was not the wry, academic BYTE. It was combining the substance of tech with the emerging design scene in San Francisco, and it resonated with me profoundly.

In 1985, I got a job at a local computer store doing what I loved: selling computers and software and, yes, copies of Antic magazine. In 1986, I started my own computer and software sales company, Toad Computers. In 1989, months after graduating from high school, I had the chance to visit Antic Magazine — this time as an advertiser.

This was my first trip to San Francisco and I visited Antic at their loft office, located at 544 Second Street, right in the heart of the city’s SOMA district. But this was SOMA before it was the SOMA we know now as the home of so many startup tech companies. Beat up and edgy, the open-air second floor office had high-beamed ceilings and gave a sense of history and limitless potential. I was smitten with the city and with valley tech culture – I also visited Atari’s headquarters in Sunnyvale that trip – and absorbed all that I saw.

Later in 1993, I was twenty-one and searching for new things to explore. Toad Computers was doing well but I knew that it would have to change and grow to survive. Atari was having tough times. Antic magazine had folded. To advertise effectively we were sending out massive catalog mailings, featuring 56 page catalogs that I personally designed – very much in the visual style of Antic magazine.

Someone had told me about a new magazine called Wired. I picked up a copy and was immediately struck with its sense of visual design and its aura of infinite possibility through the combination of design and tech. Again, I ingested every word, photo, and illustration in each issue. In early 1994, I noticed an ad that indicated that Wired – this tiny publishing startup – was looking for a circulation manager. I was entranced at the possibility. With my background in direct marketing and managing big catalog mailing lists, I thought this might be an opportunity for me.

In February 1994, I booked a trip to San Francisco to talk to my kindred spirits at Wired about the possibility of working there. I also became entranced with the Internet and its possibilities at this time, and for several days before my trip to San Francisco, I worked feverishly to write an article for Wired about how the Internet – when it became fully developed and evolved – could become a kind of real-time Jungian web of knowledge that acted like a global brain. I theorized that the Internet could become a kind of collective consciousness that enabled humanity’s genius to be available to everyone all the time. I predicted online banking, shopping, and video chat and made illustrations to show how these things would work.

Me, with long hair, at Wired HQ in February 1994

Of course, the simple things were not hard to predict at that time, though they were still a few years off. But my central thesis about Jungian synchronicity was just too wacko to print in 1994. And to be fair, I had cobbled the article together in just a couple of days, had worked in ample quotes from Marshall McLuhan and Carl Jung, and had interviewed no one. My thesis may have been strong, but the piece would have benefited from some interviews and editing. But hey, I was inspired and twenty-two.

When I went to Wired’s offices, I was stunned to learn that they were located in the same office that Antic had occupied! The same open air loft office at 544 Second Street. I met with some folks from Wired’s barebones staff. I commented on my perceived sense of Jungian synchronicity — about Antic and Wired sharing the same office space. We talked about job possibilities. I submitted my article.

I didn’t get a job, and they didn’t print my article. To be fair, I wasn’t really ready to move to San Francisco, and I am sure they sensed that. I also wasn’t sure what I wanted. I just knew that I was drawn to this hopeful admixture of design and tech that seemed to emanate, radio-like, from 544 Second St.

In March 2007, two weeks after I had built Twittervision and a week after SXSW launched Twitter onto the early adopter stage, I thought it would be fun to stop by Twitter HQ in San Francisco. I met Biz and Jack and Ev, and was once again amazed to see that something I had been drawn to had come from SOMA; just a few blocks from 544 Second St. And ironically, it is now Twitter and the “Real Time Web” that is beginning to enable the kind of global consciousness that I had predicted in 1994.

This past Thursday at TEDxMidAtlantic (of which I was the lead organizer and curator) in Baltimore, I was struck by the beautiful design of our stage set. (Thanks to Paul Wolman at Feats, Inc. for bringing it together for us!) A simple combination of bookshelves, cut lettering, books, a few objects and blue wash backlighting had combined to produce a gorgeous backdrop for the extraordinary ideas that our speakers would soon be sharing. And I felt at home. I could not go to 544 Second Street and SOMA. Instead, it was my mission to bring it here.

Thinking about Eric Ries‘ lean startup methodologies, it occurred to me that Walt Disney pioneered the form in 1955 with the creation of Disneyland. Let’s take a look.

Private Beta: July 17, 1955

Disneyland was officially launched in a private beta in July 1955 to 6,000 guests by invitation only. Unfortunately, those folks shared their invitation links and 22,000 extra guests showed up with forged tickets! Special guests Ronald Reagan and Art Linkletter helped Walt Disney put on a good show that was live-streamed on television.

But the park was anything but a success that first day. Ladies’ heels sunk into the asphalt slurry sidewalks in the hot July sun. A plumbers’ strike meant that only a few water fountains were operational. A gas leak closed several sections of the park.

These setbacks led Disney’s team to refer to this fateful day as Black Sunday. The opening day generated such negative publicity that Disney and his team took special care to invite the press back the next day and in the coming days to see “the real Disneyland” and see things as they had been intended.

But even if things had gone as planned, only 18 attractions were operational those first few days. Tomorrowland had just four attractions and was admittedly incomplete. Several other attractions would open later in 1955 and 1956.

When Disneyland opened in July 1955, it was literally the minimum viable product. With just $5 Million in financing, there was a lot that Walt wanted to put into the park, but there was only so much money and time.

They launched with what they had ready and took the hit for the stuff that was broken. Why? So they could learn from their customers.

Customer Development

Disney listened to his customers. This change log on the site Yesterland.com shows how much stuff opened in 1955 was eliminated or modified over the years.

New rides were added, old ones modified; others became simply obsolete or required updates. The awkward and failure-prone Flying Saucers ride was replaced in 1967 with the Tomorrowland Stage, which was in turn replaced in 1986 with the Magic Eye Theater. The “Rocket to the Moon” became the “Rocket to Mars.” The iconic Matterhorn Bobsleds ride didn’t open until June 1959, nearly four years after the park’s debut!

Disney’s guest relations department has had the benefit of hearing a huge volume of customer feedback – about which attractions people enjoy, which ones they hate, and which ones literally make them sick. With such a powerful mechanism for continually collecting feedback from millions of customers (who take pride in interacting with one of the world’s most prestigious brands), the Disney organization has benefited from a feedback cycle of continuous improvement.

If Disney and his team had gone into “stealth mode” for 55 years, could they ever have produced the park that we see today?

Build On One Success

After Disneyland was successful, and could benefit from a methodology of continuous improvement, they were able to obtain the financing necessary to build Disney World, Epcot, Euro Disneyland, Animal Kingdom, Disney’s California Adventure, and several other projects. You might think of each of these as several products in a portfolio, but they all flowed from the fundamental success of the original and the conviction that it was okay to launch with a halfway-there product in July 1955. They knew that customers would help them find the way forward.

Disneyland has always been the result of the interaction of management and customers to produce an experience that is valuable for its customers and profitable to operate.

Your software business should take the same approach. You don’t know what your customers are going to want. Launch with something workable, even if flawed. Then iterate with continuous improvements after that. Then, you and your customers will be building something valuable together.

Your product should never be completed, as long as there is imagination left in the world!

Mostly, it is because the various sovereign governments whose soil we inhabit have stated that they will accept payment of tax only in these currencies. So we had best have some of it. This demand creates motivation for all of us to work to get at least a minimum amount of it, and many of us would like to have more than a little.

So, we accept this “green lie” as a fact of life. Money makes the world go around, and we’re all playing this game under penalty of deprivation, or incarceration at the worst case.

Waking Up

Just like Neo, we are called to “wake up” and recognize the nature of this system. Socialist-capitalist world governments are a reality that we impose on ourselves; if we can look up and see beyond it, a whole new world opens up.

Currency Is Different from “Money”

Currency, the worthless bits of paper and metal we trade for handy things like food, beer, and fuel works pretty well and we can rest reasonably sure in our ability to use it to survive.

But what about your 401(k)? It’s an illusion. The financial system is engineered to compel you to shuffle the majority of your wealth into ledger accounts that exist only in your mind. And these “account balances” cause you to make all kinds of decisions — whether to eat out tonight, whether to buy a car or a house, whether to overthrow the government — in particular ways. Your behavior is, in a very real way, controlled by how much “money wealth” you perceive you have.

Glitches In The Matrix

When global financial bubbles jitter as they have done in the last 18 months, home values and 401(k) balances can be badly hurt. These downturns in perceived fortune, in a very real way, cause people to modify their behavior. Maybe you won’t eat out, maybe you won’t take that trip, maybe you won’t start a business. Why do you change your behavior when none of this is real?

Political Implications

Historically, governments are overthrown when unemployment reaches a sustained 15-20%. Current Keynesian fiscal policy adopted by the Fed is aimed at having a variety of control mechanisms to stimulate the economy (lower interest rates; bank lending; TARP mechanisms) when unemployment gets out of control.

But, as we have seen, these market interventions usually lead to unintended consequences. It’s been widely stated that the bank and insurance bailouts were “gifts” to firms like Goldman Sachs who disproportionately benefited from “loopholes” in the regulatory climate. You and your children will certainly pay for these mistakes in the form of devalued currency and sustained taxation.

My point here is to emphasize that monetary policy is an instrument of the state which is used to keep the populace in-line. The debates between the left and right over tax policy are pointless when fiat money allows the Federal Reserve to tweak the knobs of reality at will. And as long as you are motivated by money, you are under the control of this system — and the debates of left and right are just distractions to keep the masses busy. Bush? Obama? Who cares. It probably doesn’t matter to your bottom line. If it doesn’t matter to your personal security, why worry about it?

Finding Inherent Value

Do you ever wish you had a real skill? I don’t mean manipulating ideas or paper, but something tangible? Doctors can trade their services for food. Builders could trade their services for future return of garden produce.

What if your 401(k) was simply gone tomorrow? I don’t mean badly eroded, but gone. What would your future look like? What would be left for you if the monetary system — and all of our current economic system — went bust? What would you have left?

I’d argue you have more than you might imagine. You have family, friends, some basic skills, and an ability to trade effort for necessities. Because everyone would be in the same boat, this would be easier than you might imagine (though it would certainly be chaos).

Current social network tools allow you to start building an economy in the form of interpersonal relationships; by sorting people by shared interests and shared inherent motivations, these tools allow people who find meaning in the same things to find each other. And meaning is at the heart of interpersonal exchange.

Do Important Things

If you endeavor to do things that matter — things that help others, things that change the world, things that have meaning — you will accrue amazing awards in interpersonal relationships. People respect leaders. People respect those who make sacrifices for others. If you’re only in it for yourself and your ability to extract imaginary cash from the system, where will you be when the system fails?

“The System’s Gonna Fail”

In the 1972 film Deliverance, Lewis Medlock (Burt Reynolds) makes a case that “the system’s gonna fail.”
Burt Reynolds: “Machines are gonna fail, and the system’s gonna fail… then…”
Jon Voight: “And then what.”
Reynolds: “Then, survival — who has the ability to survive. That’s the game… survival.”
Voight: “And you can’t wait for it to happen, can ya? You can’t wait for it… Well, the system’s done all right by me.”
Reynolds: “Oh, yeah… You got a nice job, got a nice house, a nice wife, a nice kid.”
Voight: “You make that sound rather shitty, Lewis.”

He may be slightly exaggerating the situation, but when you read books like Extraordinary Popular Delusions and the Madness of Crowds (Charles Mackay, 1842 – yes, 1842!) you start to realize that the financial system we have now is only different from those in the past in that we don’t yet know how this one will fail.

That’s right: we just don’t know how this ends, but it will most assuredly end.

Cash as a Symptom of Good Work

If you spend your days creating real change, the distribution platform for your ideas and your work is larger and less expensive than ever before. Do something original and the entire world is your audience. Do something great and the world will want to reward you.

You can accrue massive “whuffie” in interpersonal relationships, but you’ll also very likely accrue a lot of cash if you do work that is both original and inherently valuable.

And since there’s no way of knowing when the system’s gonna fail, it’s best to simply do good work and build strong relationships. Then you’re covered no matter what happens.

You can only master the matrix when you stop playing by its rules. Wake up, Neo.

First, this is a fairy tale, second, this will not happen to you, and third, what you’re observing is the product of a highly evolved network of peers, of which you are likely not a part.

What Happens in Palo Alto Stays in Palo Alto

What you see taking place in Silicon Valley is the result not of people betting on “cool ideas,” but of people betting on teams and connections. Before every VC deal, there is an exit strategy in mind. Every VC-backed valley startup is an outsourced R&D play.

Ever notice that many large tech firms grow primarily by acquisition? Most have comparatively lean R&D operations; this keeps experimenting off of their balance sheet, thus improving profits and lifting stock prices. Those stock prices are what give them the fuel to make good sized acquisitions, which in turn is the incentive for startups to grow and for VC’s to fund them.

This is the capitalist cycle in its most fully evolved form. Sometimes those acquisitions work out, sometimes they don’t, but the process feeds the machine and it becomes self-perpetuating. This process is literally the grist for the innovation mill that is Silicon Valley.

Why You Should Forget About VC’s — For Now

If you’re not already plugged into this world (meaning you have a lot of contacts there and have a specific idea of a strategy to get funding and an exit before you start), you probably have no place talking about VC’s at all. So ban it from your vocabulary. They’re not interested in you and won’t be. Yet.

Instead, think about how you’re going to build value outside of that network. It is totally possible, but don’t get distracted thinking about VC’s when you should be thinking about bootstrapping and investment from friends, family, and angels.

The good news? Most software startups can be launched for $50K or less these days. Build the minimum viable product, ship it, and then follow lean startup methodologies to iterate towards something that is valuable to the market. Once you have done that, established a revenue stream and can demonstrate some reason why venture capital investment will help you grow fast and capture a market position that you couldn’t capture otherwise, you may be ready to talk to a venture capitalist.

But more likely, investors will come to talk to you! If your startup shows real promise, VC’s will likely seek you out. If you work with some angel investors, they will likely have networks that can help you secure a next round of investment. It will happen naturally. Stop thinking about VC’s. They will find you. Worry instead about building value.

Think Investors, Not VC’s

Yesterday I wrote a post that suggested that entrepreneurs should always think like investors, and always consider what an investor would think of the company. I stand by this, but I am absolutely not talking about VC’s in the early stage. You are not ready for VC’s in the early stage, especially if you are not “plugged in” to the valley culture.

So, think like an investor. Your investors are: you, your family, angels, and possibly local government business development funds. Forget about VC’s for now. If you build value for your yourself, your customers, and your first round of investors, VC’s will come knocking if they think they can help.

This false dichotomy blinds entrepreneurs to the reality that they, too, are investors and must always think like one. It deeply affects your decision-making process.

The Business Case

Why is your entrepreneurial endeavor a good idea? In a capitalist system, all entrepreneurial activity has just one purpose: to make money. Presumably, your business idea will require the investment of some of both your time and your money. Your time has opportunity cost associated with it (what you could be earning doing something else); and your money could be in the markets earning 5-7%. Over time, your business idea should return a value greater than 7-10% compounded in order to make it worth doing at all. Many businesses can yield several hundred percent returns, either in the form of free cash flow or an exit (selling that cash flow) later on.

You might argue 1) there are other reasons besides making money to start a business, 2) capitalism has flaws, 3) we don’t actually live in a capitalist system. These are fascinating, valid arguments, but let’s put them aside for now.

If you accept the idea that making money is the only reason to start a business, then why would you spend your time and invest your money in a business concept that you would not ask someone else to invest in as well?

Bad answer: Because you don’t think an investor will “get it” and you don’t want to waste your time figuring out how to convince people you don’t know that your idea and team are worthy of their cash.

Good answer: Because you don’t need additional cash and don’t want to give up equity right now. You might consider taking investment after your prototype is complete to make a couple of key hires.

This “bad answer” is a kind of exceptionalism: you think that you are special, that you have all the answers you need, that this time it will be different, and that you won’t ever need investors. But like most exceptionalist attitudes, this mindset is a self-deception.

Always Be Transactable

In economics, transactability is the degree to which something can be traded, usually for money. If you don’t think like an investor yourself, you are adopting a mindset of non-transactability early on. You’re essentially saying, “I don’t even want to think about trading equity for money because I am exceptional and I don’t care about what anyone else thinks of my business.”

The problem with adopting a non-transactable mindset is that it tends to persist and self perpetuate. When do you go from being non-transactable to transactable? When do you decide it’s okay to give up equity to key hires or partners? When do you decide it’s okay to accept a small amount of investment? What will I do when it’s time to sell the business?

Many early-stage entrepreneurs dismiss these questions, assuming that they will “figure them out when they get to them,” or they say that they’ll “never sell their business.” These are both flawed arguments: if you don’t think about how you would trade equity for cash (and vice-versa) from the start, you are likely to handle any situation that requires it poorly.

Your Business Has a Valuation From Day One

This morning, Apple has a market cap valuation of $184.64 Billion (more than Google, less than Walmart). Your business is probably worth less, but it still has a value!

The “valuation” of your business is, quite simply, what someone else would be willing to pay to own it. That is usually a combination of the depreciated value of your assets, less your liabilities, plus a multiple of whatever free cash the business might be available after operating expenses. Some businesses get really high exit multiples (product companies, 8-10X net) and others get lower exit multiples (service companies, 3-4X net). There are no “rules” for business valuation; it’s a lot like home prices. You can look at comparables and take some guesses, but it boils down to what a buyer is willing to pay. It’s nice to have a lot of buyers, too.

You should always be thinking about maximizing the value of your business. What would somebody else pay to be in your shoes? In the early stages, the answer is almost “not much” or even negative. That’s to be expected, but over time, if you succeed the answer will start to be $100K, or $1M, or $10M. You need to be thinking about that trade all the time, and at least have some sense of what your business valuation is and how you might maximize it.

Everybody Is an Investor

You may not think so at first, but you are always asking for investment. If you are hiring someone, they are evaluating your business plan, your chances of success and whether your company represents something they want to invest their time in.

Your trading partners are also evaluating you and determining if they want to enter a relationship with you. Your customers also evaluate whether they should bet on doing business with you.

By keeping transactability always in mind and caring what others think of your business, you will be more likely to appear viable to these constituencies. And being transactable helps you make better deals with partners and customers: you learn what can be traded and what can’t.

I’ll Never Sell!

Some people have no intention of ever selling their business, and instead just want to be their own boss and make some money. This is fine, and most people call this approach running a “lifestyle business.” It’s well suited for sole-proprietors and can offer great personal freedom.

But this can be a treadmill: most often, you’re trading money for your time. Even at a high hourly rate, your income is tied to how many hours you can bill. Take a month off and you lose a month’s pay.

Or, you may have built up a clientele that pays recurring subscription fees or other residual income. While this can free up your time somewhat, if those recurring revenues are not high enough to sell to an acquirer, you can still be stuck.

At some point, you will want to get off this treadmill. What then? Do you just shut down the business and throw it away? That’s a very bad idea. Ask again, what would someone else pay to be in your shoes? The answer might be $50K, or $200K, or $1M depending on your business. You can and should capture this and shop it around in the market.

Or, you might have a service company that you want to pass on to your family. What then? What’s that worth? How do you manage your estate planning effectively?

Any business where “you” are the face of the business can be tough to sell in the market. But even these kinds of businesses can be sold. I’ve seen this happen, and it’s usually for meagre amounts of money. (Think computer sales + repair, HR services, accounting.)

Precisely because of their low market valuations, I’m not big on lifestyle companies. But my point is that they too have valuations that someday need to be reckoned, and to start any company – even a lifestyle company – without thinking about business valuation, investors, and transactability is foolish.

Always Have a Pitch

The simple way to keep your head on straight is to always have a pitch. You should always think about how you would explain your business to an investor. It may well be that the only investor you are concerned about pitching early on is yourself, your partner, your friends and family, or even your spouse. But you should also be thinking about what other kinds of investors (angels and yes, even VCs, where and if applicable) might think too. Because you just might need them later.

You are your own lead investor. If you cannot articulate why you’re doing what you’re doing and why it might generate good returns in the long run, then why do it?

For a software startup, having a good idea is important, but a good team is essential.

Good ideas are easy to find; I keep a list of interesting business and tech ideas that I constantly update and probably have a couple hundred at the ready.

What’s hard to find, and is much more important for success, is a good team. What are the ingredients of a good team?

Go All In: Look for “Crazy Eyes”

It’s tough to go it alone. While you might succeed nurturing an idea as a side project, your chances of success go up dramatically when you band together with people who complement your skills and are willing to do what it takes to get something to market as quickly as possible.

I call it “crazy eyes.” You need to be able to look somebody else in the eyes and catch that wild-eyed glint of insane dedication – and truly commit to each other as collaborators. If you can’t find people to take risks with, you probably won’t be able to bring your idea to fruition.

Proper Casting

Putting together a good team is all about having the right people in the right roles. First, that means choosing the right people to collaborate with. Second, it means knowing and being honest about the strengths and weaknesses of each individual on your team.

All too often, I have seen people call themselves CEO that really ought to be “Chief Software Architect.” Or people in operational roles who clearly can’t stand being around other people. While it’s tempting to label yourself and your cofounder as COO and CEO, you need to be honest (and educated) about whether you are really right for these positions.

When you go to talk to potential investors, they will sniff out this kind of bad casting right away, and they will just assume you have bad judgment. If they think you have bad judgment about a simple thing like properly casting yourself, then they think you will have bad judgment about everything else; they certainly won’t trust you with investment funds.

Proper casting is a sign of honesty, clarity, and good judgment. It’s key to connecting with investors. Even if you don’t think you need investors, prospective partners and employees pick up on your casting judgment also. Do it right.

A Good Team Always Survives

What may seem like a great idea may turn out to be a bad one, or one that needs to be changed to be successful. Maybe it turns out that kids don’t want to play with horses in your 3D virtual world. Maybe instead, 50 year old men want to play war there. A good team figures that out and capitalizes on it. A bad team spends ever greater sums of money trying to embellish the pretty horses and advertise in kids magazines.

Even in the worst case, a good team that knows its strengths and weaknesses will know how to salvage assets and return value to investors (license the tech to others, etc). A bad team gets mired up in personality conflicts, personal crises, falls apart and becomes toxic to everyone.

This is why investors will almost always bet on a good team with an unproven idea over a sure-fire idea and a so-so team. Good teams deliver returns no matter what.

Good Teams Make Markets

I’ve seen lots of ideas that sound impossible on the surface turned into great businesses through the skills, connections, and experience of their teams. Want to sell WiFi in airports? Sounds impossible, but not if your COO spent 10 years as the director of purchasing for HMS Host. Want to sell an avionics upgrade to the Air Force? Sounds tough, but not if your CEO spent 10 years on contracts at Lockheed.

What a team brings to an idea is more important than the idea. Good ideas are a dime-a-dozen. Finding the people to make a good idea work is incredibly difficult.

Stay Calm and Open to Change

It’s easy for partner relationships to become emotional and strained. Often, partnerships form as a handshake and a promise of 50-50 equity. Operating agreements and buy-sell arrangements often come later, breed resentment, and then become set in stone as people invest increasing amounts of sweat equity.

Don’t let relationships get in the way of execution. While you may be passionate and emotional about your idea, you should be calm and cool about your relationship with your team members. Remember, it’s all about proper casting. Do whatever it takes to put people into the right roles and immediately address any questions regarding equity, hurt feelings, and the like.

There’s no better way to turn a good team bad than to let equity and casting issues fester.

Know a Lot of People

The best way to insure proper casting is to choose the right teammates to begin with. The best way to do that is to know lots of people with diverse skills. This will keep you from going into business with your college roommate and instead partner with people who have the skills that round out your team.

Just Say No

“No” is the most powerful word in business. The pressure to be “moving forward” in our society is intense. But if team is so important and you also believe in your idea, it doesn’t make sense to move forward with the wrong team or the wrong idea. Just say “no.” Instead, wait it out and find the right team, or at least part of the right team before moving forward. Or change your idea.

Every day I see smart entrepreneurs, under pressure to “move forward,” squandering their time by pursuing an idea with a “halfway there” team. I don’t mean to belittle any entrepreneur’s efforts, and I certainly wouldn’t bet against them. But there’s a difference between doing something just to be doing it (and not really believing in it) and going all-in with people who have what it takes to succeed.

And yes, many entrepreneurs don’t really believe in what they are doing: if they did, they’d quit their day jobs. Building up and then tearing down a half-baked startup takes time as well as real and emotional capital. Why waste all that? Life is short. Find the right teammates (if you need anyone beyond yourself to begin) and then go all in. Your support network will rally around you.

What Investors Look For

You may think investors read your idea first. They don’t. They look at where you live. They look at who your attorney is. They look at your background. They look at your team. Smart investors know that your network says more about you than anything else.

Once they’ve figured out “who you are,” then they consider your idea and determine if you have any hope in hell of delivering what you’re promising. Investors know ideas are cheap; they see them all the time, and usually have many ideas of their own. What they are looking for is why they should bet on you to deliver on your particular idea. And frankly, they are looking to see if you are delusional!

If you are realistic about your chances, have spent time building a good team, and have cast your team members in appropriate roles, most investors will look at any plausible idea favorably. It doesn’t hurt if you share some common acquaintances, either; shared social networks and shared values help ensure long term commitment to the investor and the community. This is why angels almost always invest close to home.

Local Is Best

It’s both tempting and possible to put together a “virtual” company with folks spread around the world. However, investors see this as a sign of team weakness. It means video conferencing instead of face-to-face meetings. It means slower response times. It means travel costs and weaker relationships. In the end, it lowers your chances of success and is just a pain in the ass.

In the context of larger established companies, having some remote workers can make lots of sense. But if you’re trying to launch a startup, do it with the people in your own backyard. Can’t find the right people? Keep digging; see below.

Build Your Network

The single best thing you can do to as an early stage startup is to build up your network of potential team members. And don’t just collect business cards at networking events. Build real relationships. Figure out what makes people tick. Spend time in environments where you take risks with people and try out new things. They will become your casting pool, now and in the future.

One of the best ways to do that is to get involved in your local tech community. Here in Baltimore, we have Beehive Baltimore, which lets freelancers and entrepreneurs spend time working together. From Beehive, TEDxMidAtlantic was born. That event brought over 100 amazing entrepreneurial thinkers together in organizing a 500 person, very complex event. Go to events like Ignite Baltimore; listen to the people around you and think about how you can collaborate with them. Grab lunch and beer with people!

These are just a few observations I have gleaned from my work with Baltimore Angels and with starting and observing many companies over the last 23 years. I welcome your comments!

I typically hate writing about topical technology subjects, because most often it’s reactive, worthless speculation.

However, the new Twitter “Lists” feature has me thinking; this is an interesting feature not because of the “tech” but because of the implications on the developing economics of social networks.

First, what it is: Twitter “Lists” allows you to create lists of Twitter users that are stored within Twitter’s servers. You can name those lists (/twitter.com/davetroy/art) and those URL’s can either be public or private.

People can then follow those lists, which really is more like “bookmarking” them, as they do not appear in your Twitter stream. Those lists in turn keep track of how many “followers” they have, and you can see how many people “follow” the lists you create.

Traditional “Follower Economics” Are Dead

Jack Dorsey and Biz Stone always said that the best way to get real value out of Twitter was to follow a small number of people; it was never their intention for people to aim to follow more than 150-200 people (the “Dunbar number,” or people we can realistically expect to maintain relationships with).

With “Lists” you can add someone to a list, but not necessarily “follow” them. So, instead of “following” Ashton Kutcher, you can put him in a list that you call “actors,” or “attention whores.”

You can even put someone in a list (cool people), have them publicize that, and then change the name of that list to something less flattering (douchebags, or worse).

The issue of derogatory lists alone is one that Twitter will need to address.

So traditional “follower counts” are going to be meaningless – instead of “followers” people are going to start talking about “direct followers,” “indirect followers,” and “being listed.” It’s all changing, and I applaud Twitter for being willing to throw the old (flawed) assumptions about follower economics entirely out the window in favor of a new approach.

Buying Influence and Reputation

Within a few hours of the introduction of “Lists” I was put onto a few:

• @danmartell/founders
• @Scobleizer/venture-capitalists
• @christinelu/vc-and-angels
• @DarrellHudson/top-500-techies
• @kim/rockin-this-twitter
• @the_api_book/twitter_history

This early “seed” of my reputation is quite flattering and arguably pretty powerful (though a fraction of what I expect my ultimate “listings” will be). It shows that I am an “investor” and a “techie,” and considered so by some pretty influential people. I did nothing to influence this and would not consider doing so.

But, I am lucky and glad to have been so-described this early on. What if I really wanted to influence what lists I was on, or to appear on as many lists as possible? I can imagine now the jockeying to get onto the lists of all the “A-List” digitalistas will be intense and powerfully ugly.

Imagine the seedy things that might go on at tradeshows in exchange for getting “listed.”

Going forward, the primary question will be which specific lists you appear on (influence of curator, quality, scarcity) and, secondarily, how many lists you appear on (reach, influence).

“1M Followers” will be replaced by “listed by over 50,000,” or even “listed by the top 10 most influential people in microfinance.” And yes, listing counts will be a fraction of follower count, as lists will necessarily divvy up the people you follow through categorization.

Scarcity: You get 20 lists

It looks like people are allowed just twenty lists right now. That’s undoubtedly a scaling and design decision by Twitter to keep things manageable.

Putting aside for a moment all the reasons why people might want more than 20 lists, let’s accept the limitation. You get 20 lists. So it’s a scarce resource. It means Scoble, Kawasaki, Gladwell, Brogan, Alyssa Milano, Oprah, Biz, etc, all each get just 20 lists.

What will someone pay to get onto one of these lists?

Do you think that an author would pay to get onto twitter.com/oprah/incredible-writers? Yeah, I do too. Now imagine that, writ large, and scummier, with people even less reputable than Oprah. Now you see what I’m talking about.

At least buying followers is a scummy behavior that’s amortized over millions of targets; buying 1/20th of one particular follower’s blessing could lead to very high prices and extremely unsavory dealings.

The Coming “Curatorial Economy”

Twitter is doing this thing, and whatever Twitter does in house trumps anything that a third party developer might do, period. So, stuff like WeFollow, etc, your brother’s cool thing he’s making, Twitter directories: they are done, people. Or these external things must at least accept the reality of Lists and what they mean to the ecosystem.

Some folks have been complaining about the user interface for list management, etc, and that’s all moot: it will be available through the API, and you should expect list cloning, lists of lists, mobile client support, etc, pretty soon.

But the genie is out of the bottle. Start managing your reputation in a way that’s authentic and ethical and stay on top of this. And be prepared for what I’m calling the “curatorial economy.” (You heard it here first.)

Everybody’s making collections, and there are certainly people who will pay and be paid for listings. Count on it.

You’re smart. You went to the right schools and got good grades, and that’s paid off with a nice job with a decent salary, a healthy upside, and some decent perks. Let’s say you make $125,000 per year.

Now let’s say you quit that job and spend three years founding a technology startup. At first it goes slowly, and things seem desperate. Then you get a break; then you hit it big. At year 5, your startup is worth $3 Million and attracts the attention of a bigger firm. They acquire your company.

So, if you stay in your job, you make $625,000 guaranteed, but you’re turning down a potential shot at a $3 Million exit. So your job is costing you $2,375,000 over the next 5 years. Worth it?

Think I’m wrong? What are you building in equity for the shareholders of the firm where you work? If it wasn’t a good deal for those shareholders, would they want you there?

Think it’s too risky? Sure, a ridiculous number of entrepreneurial enterprises fail, but failure cannot be counted strictly as downside. There is recoverable value in failure.

Too often people cite general statistics about entrepreneurial failure that include all entrepreneurs everywhere and in every sector; these metrics are all but anecdotal in nature. Be realistic in evaluating your chances. Not being stupid helps (we already established you’re smart), and your position in social networks likely has more to do with success or failure than any other factor (read this book).

And please don’t counter that I’ve inaccurately accounted for the capital required to create a startup, how “impossible” it is to get funding, and how doomed you might be for whatever reason before you start: startup capital requirements are lower than ever before – you can get started for as little as $10-$50K with a seed of an idea and the right partner.

Or is it that you’re “too big to fail?” Has your dependence on the lifestyle that The Man has meted out to you eclipsed your willingness to pursue something more valuable? Family, relationships, cars, mortgage payments, kids, restaurants, travel – call them what you will, but these responsibilities often become excuses for inaction.

Getting started young with entrepreneurial activity is a great way to avoid this trap; young people really have nothing to lose, especially teenagers, and it’s easier than ever for a teen to start something today.

While it’s perfectly possible to nurture a side project and wait for it to show signs of life before “quitting your day job,” the real opportunity for success comes in becoming a part of a network of entrepreneurs who are willing to take calculated risks together and that requires a full time commitment. Otherwise, you’re making a calculated decision to expose yourself to a much smaller chance of success. Why?

For every day that you accept payment in exchange for doing your employer’s bidding instead of something you’d rather be doing, you become less likely to take the bold steps necessary to succeed on your own.

What are you waiting for?