The 2011 Mayoral contests represent a unique opportunity to make American cities work again. Cities have already begun an inexorable return to relevance as refuges from crushing commutes, and as havens of culture and innovation. Our economy is increasingly hitched to our ability to develop and capitalize on innovative ideas, and that innovation can’t happen when folks are trapped in their cars and isolated in the matrix of suburban sprawl. Cities are the American future.

But in the early 1970′s, they were left for dead: victims of race and class warfare, they became abandoned places – a place where people work or would go to the symphony, but not places to build a life or raise children. Formerly walkable, livable cities degraded into a-la-carte destinations you could get into and out of quickly as 1950′s visions of suburbia gained dominance.

With this shift, cities’ political influence waned, and city politics evolved into a top-down enterprise. Power brokers, political clubs, and church groups conferred power on those who would play the game and wait their turn. In Baltimore, city politics became either a launching pad for state office, or a refuge of scoundrels whose city fiefdoms became ends in and of themselves. Instead of working for Baltimore, all too often our politicians have tried to enrich themselves at its expense. With minimal popular interest and the atrophy of the press, there has been increasingly less oversight. So the machine has lumbered on – unencumbered by the tempering force of investigation, new blood, or real political imagination.

In other contexts, leaders are judged on their ability to lead and deliver tangible improvements. But in our cities, it has become enough for our politicians to just not screw things up even worse than they found them. Enough. It’s time to move forward again.

In 2010 we saw some new trends: long-term incumbents who fit the old standard – of merely not being demonstrably corrupt or incompetent – were booted out. And not because of typical anti-incumbent anger, but because people saw something else: that maybe we could demand better.

In Baltimore, 27 year-old newcomer Bill Ferguson delivered a decisive blow to 27-year incumbent State Senator George Della. Gregg Bernstein defeated long-time incumbent Baltimore City States Attorney Patricia Jessamy. These races shared two things in common: no one thought they could upset the machine, and they used the Internet to organize financial and ideological support.

The simultaneous rise in the demand for urban living along with the use of the Internet for political and community organizing will usher in an era of unprecedented change in American cities. With the 2010 races, the old system was put on notice; in 2011 it will begin to be dismantled.

I support Otis Rolley in his candidacy for Mayor of Baltimore in 2011. At 36, Otis is part of the new guard. He’s qualified – he has a masters’ degree in City Planning from MIT. He has been in Baltimore since 1998. He served 10 years in the public sector and two in the private sector. As an executive, he led the Baltimore City Department of Planning and – shockingly – produced the city’s first actual master plan in 39 years.

In his time at Planning and as a Chief of Staff, Otis was struck with one question: can’t we do better than this?

Indeed we can. Leadership is about creating a culture based on shared values. We need a leader who is willing to stand up for his values and the values of people who care and work hard, and not allow entrenched career “slugs” to dilute those efforts. He proved he could do this at the Department of Planning, empowering those who had a vision for the city, pushing out those that did not.

But while Otis was able to turn around a non-performing department and produce a workable plan for the city, he ultimately realized that the only way to see its recommendations executed was as Mayor. We should give him this opportunity.

Otis can turn around our city the same way he turned around a department: by creating a new culture. Frankly, there are a lot of people in city government who should be looking for other kinds of work. We can start there.

Otis understands that we need to start allocating our resources differently. Economic development has for too long been about big projects, like the currently proposed $900 Million Baltimore Arena redevelopment. While this plan would assuredly enrich some developers and provide ample future backing for political operators looking to entrench themselves for a lifetime in Maryland politics, we should instead be thinking about new ways to capitalize on Baltimore’s biggest economic development assets: its people and its fortunate geography.

If instead we were to invest $900 Million in the infrastructure to support entrepreneurial enterprises and startups, we could potentially create tens of thousands of jobs across a wide range of income levels. A new startup-friendly Baltimore could outperform other regions in terms of standard and cost of living as well as access to a world-class workforce. A strategic focus on manufacturing, both large and small using the latest technologies, could restore what was once a thriving middle class. Arenas, convention centers, stadiums and hotel subsidies just deliver more jobs that don’t even pay a living wage. Otis knows we can do better.

In 2011, we have a choice: do we want to be a good city, or a great city? Otis has a vision that he will articulate over the coming months as part of what should be an open and healthy debate around the future of our city, and not about personal politics. As I have come to know Otis over the past 14 months, I am confident that he is the right leader for Baltimore’s future. If you give him an opportunity to serve, you will not be disappointed.

Baltimore is Otis’ first priority. He has no aspirations for higher office. He wants to work for Baltimore and for all of you. In 2011, we have the wind at our backs – cities are on the upswing, and the Internet is connecting us in unprecedented ways. It’s time to take back our cities and make them the vital, beautiful, functional, and inclusive places we all know they can be. Otis Rolley can help us do that. This is Baltimore’s moment; let’s seize it together.

Also check out Otis’ talk at TEDxMidAtlantic on November 5, 2010:

For the last year I’ve been developing an idea for a documentary film tentatively titled “Sticker Movie” about bumper stickers and how they express tribal identity and territory. Someone inquired about the status of the project and this was my response. Consider it a glimpse into the creative thought process.

“Sticker Movie is on hiatus for the moment, mostly while I seek funding and further develop the concept. However, the more I’ve meditated on the idea, the more I have come to believe that stickers indicate something very fundamental about the human psyche, specifically the amygdala and its function in society.

Humans behave differently when they feel threatened; brain function shifts from cerebral cortex to amygdala, which mediates flight/fight response. I believe stickers are associated with territorial instinct, as originated from the amygdala, and that much of the definition of “liberal” and “conservative” rests on how specifically people modulate their amygdala/cerebral functions. I believe this is partially genetic and partially environmental. People’s early experiences (bullying, racism, teasing, aggression, prison, certain sports) can definitely activate a “zero-sum” mentality which is dominated by the amygdala.

It’s been observed that siblings are more competitive but less successful than only children. Siblings fight amongst themselves for resources and attention, while only-children may have more opportunity to be creative. Zero-sum vs. positive sum thinking, IMHO.”

I’m an only-child. And I believe that if we can deactivate the amygdala in our political discourse, we can positively affect the world. What do you think about stickers, the amygdala, and zero-sum thinking?

With the release of the FCC’s National Broadband Plan, Google’s announced intention to build gigabit fiber-to-the-home networks, and Verizon’s indications that they are not likely to be expanding their FIOS service to new areas, it’s a good time to review where we really stand with fiber.

The Real Reasons You Don’t Have Fiber

What are the real economics of broadband infrastructure? It’s not so simple as market opportunity, investment, and subscribers; Verizon and Comcast have different regulatory histories and see the world differently. Google, as a potential new entrant, has completely different motivations.

Let’s take a look at the regulatory background, and then get a sense of what’s really motivating Verizon, Comcast, and Google.

Regulatory Background

We have gradually come to think of Verizon and Comcast as equals: big, for-profit telecom companies — competitors for TV, Internet, and telephone service. But they got to their current positions through very different routes. Here’s a brief (and rather incomplete) history.

In 1984, the former AT&T was busted up into seven Baby Bells: Ameritech, Bell Atlantic, BellSouth, NYNEX, Pacific Telesis, Southwestern Bell, and US West. Terminator-like, these companies have been spending the last 26 years reconstituting themselves, merging into very large firms. Bell Atlantic changed its name to Verizon in 2000 after acquiring GTE.

Telecommunications regulation in the United States has a long history and reflects theory originally applied to railroads and other public utilities. The idea was that communications was a public good and because the network had to be large and interoperable to be effective, it was best served by a natural monopoly. So, assets like public rights-of-way were made available for the monopoly to use, in exchange for an agreement to provide Universal Service, covering the entire population.

To keep the monopoly from charging unreasonable prices, regulators mandated that their services should be marketed at cost, plus a reasonable and sustaining profit margin. This means that there is no incentive for them to keep costs down; in fact, the higher their costs, the more raw dollars they make.

Verizon today operates under this kind of regulatory background, which was outlined initially in the Communications Act of 1934, and then amended by the Telecommunications Act of 1996 — which has subsequently been eroded and modified by case law and other FCC actions.

The FCC, under Bush-appointed Chairmen Michael Powell and Kevin Martin, tended towards the opinion that the best way to foster competition and innovation would be to empower a small number of well-capitalized firms and let them compete together in the marketplace.

Comcast, for its part, came together very differently. Cable TV franchises were primarily granted by local municipalities, starting in the 1950′s. Comcast acquired dozens of these small firms, each with their own regulatory agreements with cities and counties. By 2000 or so, this aggregation started to resemble the sort of “large firm” that the FCC thought could be an effective competitor to the telephone companies.

So that’s how we got here. Verizon is heir to the top-down, cost-based monopoly regulation subsidized by the Universal Service Fund, which requires that it provide telephone service even in rural areas. Comcast is the product of the roll-up of dozens (if not hundreds) of small cable TV firms. Now let’s take a look at their interests in the current landscape.

Verizon

Verizon, in many ways, is just the current-day incarnation of a big chunk of the original AT&T. It’s still the primary telephone infrastructure provider and the bulk of its physical wiring plant is copper. It operates the same switching facilities that AT&T did back in 1984. In many important ways, nothing has changed.

What about FIOS? Isn’t Verizon innovating there? Aren’t they making this investment to “make money?” It’s complicated.

Verizon made the decision to install FIOS primarily to block competition. The Telecom Act of 1996 required that telcos make copper wireline infrastructure for competitors to run alternative services. This is where alternative telcos like Cavalier, Covad, Adelphia, and many others came into the market. You’ll notice that almost all of those companies are now defunct or severely hamstrung.

This is in part because Verizon (and its peers) set out on a strategy to make a competitive business model all but impossible. FIOS was part of that strategy.

When Verizon installs FIOS, they almost always remove the copper wires that could otherwise have been used by competitors; and this has effectively shut them out.

Verizon has spent over $20 Billion to build out FIOS in its service area. Ostensibly this might look like “investment in innovation” to observers. But in fact, this spending was mostly done to block competitors and to destroy the pro-competition provisions of the Telecom Act of ’96.

It should thus come as no surprise that Verizon has recently announced that they are unlikely to expand their FIOS network further. This isn’t because they can’t get more new subscribers in new areas (like downtown Boston, which is still not served); rather, it’s because they have calculated that the costs of future expansion exceed the downside risk of lost profits caused by competitors in the areas that remain.

They have put FIOS in all the places where it was either easy to do so or where the competition was too strong to ignore. Now that the competitors are mostly defunct or severely weakened, the threat is just not there to justify expansion.

Like feudal warlords, they invested just enough in FIOS to block out competitors, rejigger the regulations, and maintain a status quo of mediocrity. And we’re supposed to think this is innovation?

Comcast

Comcast has different problems. Because all of their regulatory agreements are negotiated with individual municipalities, it’s more difficult for them to make investments across their entire footprint. This is why Comcast often rolls out new products and services in trial communities, and then rolls them out to new areas one at a time.

Comcast does have a very large television service footprint, and their acquisition of NBC and other content providers over the years, like HTS, is an attempt to establish themselves as a vertically integrated entertainment provider. They control the entire stack, from the physical cable, to the viewer, to the content itself. This means that they are protected from threats from content providers who might try to command high rates for popular content. Disney (who controls ESPN and ABC) often finds itself in battles about rates with cable providers. Acquiring NBC/Universal means one less potential threat of rate hikes for Comcast, and higher overall profits.

But Comcast’s physical plant is dominated by aging coaxial cable infrastructure. While local head-ends are fed by fiberoptic backbones, local distribution to the home is through co-axial cable, which can degrade in performance when it rains, is subject to lightning damage, and can only go so fast. Fiber-to-the-home is vastly superior, but it would cost Comcast billions to upgrade its plant. In the absence of competitive pressure (such as that which was faced by Verizon), they have no incentive to do so. Instead they are happy to push their existing plant as hard as it can go, using standards such as DOCSIS 3, and invest in fiber-to-the-home infrastructure only as necessary or convenient.

Google

Google has recently announced that they would like to spawn innovation, and potentially build out gigabit fiberoptic infrastructure in one or more communities in the United States. I helped organize Baltimore’s municipal response to Google’s Request For Information for this project.

Google’s proposing something very different from what Verizon and Comcast offer: an open-access network, over which new entrants could provide Internet or other services. This is exactly the paradigm that Verizon has fought to destroy with FIOS.

Comcast has also fought open access repeatedly; before Verizon settled on FIOS as its primary anti-competitive strategy, Verizon tried to force cable companies to become subject to the same kind of infrastructure-sharing to which it was subject under the Telecom Act of 1996.

And Comcast fought this effort mightily; in 2002, I testified before the Maryland House of Delegates in support of a bill that would force Comcast to open its network, and Comcast’s lobbyists managed to defeat it.

Also in 2002, working alongside Verizon-supplied lobbyists, I testified before the FCC with TCP/IP co-inventor Vint Cerf (now a VP at Google) arguing that cable companies should be forced to provide “open access” to their networks because it would promote competition and entrepreneurship. At that hearing, FCC Commissioner Robert Pepper made it clear that the FCC believed that Verizon and Comcast could provide all the competition we would ever need. We see how that’s turned out.

To date, there has not been any significant open access network deployment in the United States. And with the decline of competitive telco-based services, telecom innovation has now stalled entirely. It’s time for something new.

Net Neutrality

Google has a different potential problem on its radar. In the US, Comcast and Verizon control access to a large percentage of its customers. Currently, the Internet operates under a doctrine of “Net Neutrality,” which is to say that customers and Google all just pay for access to the network, and each can communicate freely with anyone else on the network.

Various telecom executives (most notably former AT&T CEO Ed Whitacre, now CEO of GM) have argued that companies like Google should no longer get free access to their customers. Folks like Whitacre believe that the natural role of a company like Verizon or Comcast is to act as a toll-gate, charging both content providers (Google) as well as customers for access to each other.

As you might imagine, Google heartily opposes this idea: it could dramatically increase their costs and would destroy the “level playing field” which has dominated the Internet from the beginning. Startups could be stifled because they might need to negotiate an agreement with broadband providers to get access to customers. This is a war that Verizon and Comcast appear ready to start, and people like News Corp’s Rupert Murdoch are fanning the flames.

Google’s Fiber Plan

Google’s announcement that it intends to build ultra-fast open access fiber networks is its declaration of war against the threatened end of net-neutrality. Further, this is a productive use of Google’s vast stockpile of cash; it’s something tangible it can do to ensure its market position.

And it’s a move that’s ideologically compatible with its mission. Google genuinely believes that the expansion of a fast, net-neutral Internet has positive effects on society, and it’s also good for its bottom-line. More people online means more ad-views which means more advertising, and more dollars for Google. There’s no downside for them; it’s an expensive proposition to be sure, but it’s less expensive than paying for access to customers in a world without net-neutrality.

By promoting itself as a good citizen, wrapped in the banner of open-access, innovation, and net-neutrality, ideologically-sympathetic regulators such as the FCC’s new Obama-appointed Chairman Julius Genachowski are likely to view Google’s approach favorably. This would allow Google to establish a vertically-integrated, long-term market position which would be hard for Verizon or Comcast to disrupt.

And the kicker? The open-access network Google’s proposing really would promote innovation and entrepreneurship. The United States is ranked 15th in broadband penetration worldwide today. This is a chance to change that.

Don’t believe that Verizon or Comcast will make these investments unless forced to do so. And while Google may also feel it has no choice but to build its own network, Google at least has a vision that goes far beyond just sustaining a mediocre status-quo; they truly believe in the level playing field that has given birth to so much innovation.

It’s time for America’s bandwidth to finally match our ambitions and our talent. Let’s go Google!

Since the industrial revolution it has been widely assumed that sustained economic production is best arranged through corporations. After all, corporations are the only entities capable of acquiring and operating the capital-intensive means of production required in an industrialized state.

Because of the reliance on the corporation, we set out to design an educational system in its mirror image. The linear journey from first to twelfth grade, then bachelor’s, master’s, and doctorate degrees systematized learning in a way that turned people into interchangeable parts and valued mobility.

Attainment of the highest grades of education confers the ability to teach within it, for anyone so dedicated to the educational treadmill is preselected to share its values.

The large scale corporation upon which our industrial educational system has been built no longer exists as it once did in the United States. However, we continue to build cogs for this machine as though nothing has changed.

Death of the Corporation

When large scale corporations first came to be, they were built around the idea that people can achieve more by investing together than they can alone. This is intuitively obvious when you consider that the endeavors they were undertaking were things like railroads and shipbuilding.

Through World War II and into the 1970′s, most large corporations had balance sheets to match: they used big iron, or made big iron. But starting particularly in the 1980′s, corporations started to be more about ideas than about capital, and the challenge turned to removing things from the balance sheet. Winning corporations maximized profit on minimal assets (and liabilities). Production (big iron) was moved to China, Mexico, and elsewhere and off of balance sheets.

The logical conclusion of a process like this is an Enron or a Goldman Sachs; one built predominantly on ideas and on trading, with almost no physical assets. The bulk of the workers we were producing with our educational system might be suited for a job at GM, while Enron needed every last PhD to keep its web of trades flowing. And it turned out that in the end neither GM or Enron was a long term proposition.

So here we sit with the same educational system we had in 1910 producing people for the economy of 2010, when the economic landscape has obviously shifted dramatically.

The Lie of Mobility

Think 1955. If your father was told, “Bill, we’re transferring you to Kansas City,” he went. And off you’d all go, uprooting children from schools, breaking apart extended family, divorcing people from a personal understanding of place. But this was all OK, and in service of a great big beautiful tomorrow! Corporations borrowed the idea of “transfer” from the military, and as much as the “transferees” might not have always enjoyed it, they endured it because they were convinced that corporations (like the military) were a kind of higher calling.

Fifth grade in Kansas City was pretty much the same as fifth grade in Boston. People adjusted. And they forgot about their previous home, or at least came to not miss it, like an animal being sent to market learns to adjust along the journey.

After graduation from high school, you’re faced with a “choice of college.” You’re asked inane questions about what you want to study (unanswerable at that age), shown some brochures, and make a fundamentally random choice about where you want to spend the next four years of your life. And you go. And you study something (probably not what you set out to study). And it’s OK. You meet people, and your life takes some path.

Regardless of the particulars of whether you get a job doing what you studied or when that actually happens (it often doesn’t), one thing is true: by this time in your life you’ve probably been uprooted once or more and had your home ties effectively severed.

Our educational system is designed to promote an ersatz fungibility of place and to denigrate people’s relationship to extended family by offering instead a false idol of corporate, industrial superiority. The fact is that place is a kind of human right, as is extended family. Any system that asks you to devalue a relationship with place or with extended family is evil.

It might be arguable that at one time, the educational system combined with its corporate industrial twin provided better overall outcomes for more people than the agrarian model that preceded it, but it does not logically follow that a new model cannot supplant the current one. This is particularly true when the corporate landscape is now more corporate than it is industrial and the emphasis has turned to creativity and ideas over machining and production.

The idea that place is fungible is one that belongs squarely in the last model and should be jettisoned going forward.

Why We Are Susceptible to Manipulation

Behavioral economist Daniel Kahneman suggests that we have two selves: an experiencing self and a remembering self. The experiencing self perceives the world in the here and now. Your experiencing self lives in the present and is happiest spending time around people you like. The surfer who just lives to be out in the waves is primarily existing through her experiencing self. The experiencing self, it turns out, can be happy just about anywhere and in any weather. Just find people you like and the rest follows.

The remembering self is another animal. The remembering self cares about story, and about appearances. According to Kahneman, your remembering self might trick you into taking a two week vacation instead of a one-week vacation because that’s a better story, but in fact you remember them pretty much the same way because there were not many “new” experiences in the additional time spent.

Your remembering self cares about money and mobility deeply. Why? No one wants to be remembered as the person who “didn’t do anything with their life.” Getting rich and moving around a lot adds dramatic, tangible plot-points to your story, which comforts your remembering self greatly. But your experiencing self can easily be less happy. What if you are unable to turn your money into people you enjoy spending time with? What if you move away from the people and places that bring you joy?

Is it so hard to see now why so many wealthy, jet-setting people are unhappy and commit suicide? Their remembering selves have spun great stories; their experiencing selves are miserable.

A Path Forward

Creativity researcher Sir Ken Robinson suggests that we need to reinvent our educational system upon a more agricultural model, rather than the industrial model. I’m not totally sure what that means yet, but I do agree that in the developed world we must adopt these values:

• Creativity is valued
• Learning is non-linear
• Gifted children have a place to excel
• Many learning styles are celebrated
• Children are not medicated for ADHD and the like
• Children have a right to fresh, whole food
• Place is valued and cherished
• Regions become self-sufficient

There is an emerging emphasis on regional innovation and regional self-sufficiency as an economic development strategy; this is a good start. But the long term task is to invent entirely new models for life-long education. What we’re doing now is building cogs with very particular defects for a machine that no longer exists.

Several months ago, this article from the Pew Research Center categorized several states as sticky, magnet, or both; sticky means that people who live there tend to stay there, while magnet means that  it attracts people. Some states (Arizona, Florida, Maryland) are High Magnet/High Sticky, while others are one or the other, and one sad batch is neither (Iowa, New York, West Virginia).

What this study doesn’t tell us is very much about what those places are actually like, only the “raw numbers” about mobility and retention. For example, my home state of Maryland is described as “magnet/sticky” (woot) but so are Arizona and Florida, and as far as I can tell, these three states share little in common. Certainly the recent real estate bust was felt worse in those places than here.

I believe that in Maryland’s case, we are both the wrong kind of magnetic and and the wrong kind of sticky, and so to describe Maryland in this way is counterproductive because it assigns a positive spin to some inherently negative patterns of movement.

For example: suppose Maryland is “high magnet” because it attracts people who want to work for federal government contractors. This increases the per-capita income but puts pressure on roads, exacerbates suburban sprawl, and adds people to the voting base who often don’t understand local issues or have personal experience with the landscape around them. I’d call this effect neutral, if not negative.

Suppose Maryland is “high sticky” because we retain 99.5% of our college graduates (a number I’ve heard tossed around). But suppose we export .5% of our very best and brightest and our natural born “effectuators?” And suppose that the smart people we do retain get sucked into government? Again, not necessarily a bad thing, but it doesn’t necessarily lead to the most creative entrepreneurial landscape sometimes.

Maryland has a great deal going for it, but articles like this are meaningless and enhance a simplistic, 19th century view of how we want to build our society. Who are we building our society and economic structures for?

If we are building them for ourselves we need to start thinking about how they serve our everyday experience as people. I have more thoughts on this. If we want to build our society for corporations and a 19th-century conception of what education, production, and economic value is then idiotic oversimplifications like “high magnet, high sticky” might be useful.

I believe we can and must move past such Orwellian, disingenuous oversimplifications.

Are entrepreneurs born risk-takers? Is there something about their personalities that predisposes them to take risks that others can’t stomach? Can entrepreneurship be taught?

According to entrepreneurship researcher Saras Sarasvathy, entrepreneurs aren’t different from anyone else; they simply adopt a different approach to problem solving.

Dr. Sarasvathy suggests that entrepreneurs actually create their own odds of success by taking incremental steps that move them closer to their goals. After being an entrepreneur for over 25 years and studying the behavior of many others, I think she’s right. She calls this incremental approach “effectuation” because it takes advantage of the compounding effects that the entrepreneur causes by their own actions.

Here are 6 key points to understand about Dr. Sarasvathy’s theory of effectuation:

1. Entrepreneurs start with what they have and who they are. What do you know a lot about? What early or deeply personal experiences have affected you? What connections do you have? Leverage these assets to do something and then see what comes of it. This first step leads to additional opportunity, and sometimes these opportunities are very big and unpredictable. Action attracts others, and those others enhance opportunity and the odds of success.




2. Entrepreneurs limit risk by understanding what they can afford to lose at each step. True entrepreneurs never take very much risk at once. Typically the calculation goes something like this, “I think it would be worth investing $50,000 in exploring this opportunity. If I lose it, I can survive. What’s the worst that can happen?” There are two likely outcomes of that reasoning: either the experiment is successful, in which case the investment is rewarded and leads to other follow-on opportunities, or the experiment is not successful, which most likely also will lead to other follow-on opportunities. Either way, new opportunities typically emerge because action attracts others.




3. Entrepreneurs create their own market opportunity. When Burt Rutan set out to build Spaceship One, it was not because he perceived that there was a  big market for expensive one-off spacecraft that was going unmet. He started with what he knew how to do and an affordable risk. When Pierre Omidyar started Ebay, he didn’t anticipate it would become a multibillion dollar company. Google’s founders Sergey Brin and Larry Page tried to sell Google for $1M, but were instead forced to see it through and become multibillionaires. The market for a company is often not clear at the moment of founding. Entrepreneurs find their way to the market by the creative, iterative leverage of what and who they know.




4. Entrepreneurs trust people. The best entrepreneurs internalize the African proverb, “If you want to go fast, go alone; if you want to go far, go together.” To uncover large opportunities, it’s often necessary to coordinate the interests of many. The best entrepreneurs involve more people in the effectuation process, because more people means more assets, which often has a non-linear impact on the eventual outcome. In fact, Sarasvathy argues that a degree of calculated “over-trust” and “intelligent altruism” is a rational strategy for uncovering large multiplayer opportunities that would otherwise be hidden or impossible to achieve.




5. Effectual thinking can be taught. Because entrepreneurship is just an application of effectual logic and not the result of innate personality traits, it can be taught. We do not accept the notion that “scientists are born, not made,” and even while we might believe that some people are more disposed to scientific work than others, we do not accept the notion that people cannot be taught to think scientifically. It is similarly possible to teach people effectual thinking. Tellingly, in communities where effectual thinking is common (Silicon Valley, for one), people who had not previously displayed effectual tendencies are often motivated to adopt the pattern once they see it can be effective at problem solving or in generating wealth. Effectual thinking may not only be teachable; it may be contagious in the right circumstances.




6. Failure increases the odds of individual success. While the success rate of a typical individual venture might be quite low, an entrepreneur that sustains a failure is more likely to succeed in later rounds. Failure teaches the entrepreneur about affordable risk, suggests boundaries for over-trust behaviors, and offers hints about how to maximize opportunity. We should never stigmatize failure, but instead understand that it is part of the effectual process.

Pop Business Books

It is fashionable to tell people stories about Purple Cows, Tipping Points, Outliers, Whuffie, Crushing It, and practicing a Four Hour Workweek. However, these books all have their roots in effectual thinking. Do something. Utilize what you really know to stand out and be different. Work with others to uncover the opportunity you want to find. If books like this can motivate people to act, they’re probably a good thing. But I find they can be crazy-making because they don’t offer the intellectual underpinnings to explain why (or how) these approaches might actually work. They’re most often shaming you into action, and in the end they’re giving you a fish, instead of teaching you how.

Effectuation and Social Networks

The internet (in general) and social networks (like Twitter and Facebook, in particular) are platforms for effectuation. They allow entrepreneurs to find the people who will, at each successive stage, help to contribute to the success of their enterprise. These could be customers, partners, or investors. Any platform that allows like-minded individuals to find each other is an accelerant to the effectuation process. In fact, the like-mindedness of these stakeholders is more important than the roles that they play. What is the difference between a company and a customer when both are stakeholders in the product? Who is paying whom for what and when is a detail that needs tended to, but without finding the people who will participate in the conversation that maximizes the utility of the product, maximizing revenue will never be a consideration.

The Myth of the Visionary Entrepreneur

We give a lot of credit to successful entrepreneurs. Warren Buffett, Bill Gates, Steve Jobs, and Richard Branson are some of the most admired people in the world. In some ways that credit is deserved (though one could argue that civil servants and humanitarians are worthy of even more praise). However, we assign them too much credit, or at the very least we assign them credit for the wrong insights.

These people did not anticipate the circumstances of their success, and did not set out to attain the particular achievements for which they are most well known. Rather, these people are all master effectuators. They took action early. They involved others. They took many successive steps that moved them closer to their passions. They suffered failures. And perhaps most importantly, they are alive to tell about it.

There are many unsung heroes and master effectuators who have had great success but whose stories have ended less well. And we don’t hear as much about them. The final outcome should not diminish their achievement.

You do not need to be the next Bill Gates or Steve Jobs, or even have an idea right now, to be an effectual entrepreneur. Start now and take the journey. You will be glad you did.

References

• Saras Sarasvathy [video] on entrepreneurship at BigThink.com
• Effectuation [book] by Saras Sarasvathy at Google Books
• Effectuation and Over-Trust [article] by Sarasvathy & Dew at Entrepreneur.com

One of the disturbing things we notice as children is that paper money has no inherent value. Why is it that green pieces of paper are accepted in exchange for all manner of goods and services? Because we have all agreed that it should be so.

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.

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.

Nearly every weekday between 4:00 and 7:00pm, eastbound US Route 50 in Annapolis, Maryland comes to a standstill. It typically happens near the westernmost edge of the city, and for a distance of roughly 7 miles, traffic inches along at a speeds often less than 10 miles per hour.

Yesterday it took me 30 minutes to cover these 7 miles (5:30 to 6:00pm).

It would be one thing if it was just me that was inconvenienced, or if this was a result of an accident or some unusual circumstance, but not so: this happens every day and there are tens of thousands of people affected by it. There is nothing unusual about it. We can only infer that this is how the road was designed to operate.

It would also be one thing if it was just this stretch of Route 50 that was affected by this kind of thing, but we all know it’s not. The Washington Beltway, to take one well known local example, is also apparently designed to fail spectacularly every morning and afternoon (and sometimes in between).

What does it say about a society that has its citizens sit in bumper-to-bumper traffic, day in and day out, spewing CO2 and other pollutants and wasting their time?

To me, it’s a sign of contempt. Anyone that would knowingly have people spend their time (and fuel) this way, day after day, must be filled with utter disdain for those so effected. Who’s to blame for these designs?

Surely there are some highway planners and road builders that could take the blame, but I have to think that any changes to the roads themselves can only yield marginal improvements — however needed those improvements may be.

The real issue boils down to us — the citizenry — and where we invest our financial and political capital. We are to blame.

We are the ones who have repeatedly failed to fund public transportation initiatives. We are the ones who have lacked the foresight to discourage long distance car commutes. Annapolis residents famously rejected the extension of the Washington DC metro along the US 50 median because it would “bring crime” from the big city. Now Annapolis is its own capital of crime, and DC is further away than ever by car. And the median strip that once could have accommodated the metro has been sacrificed to ineffective additional lanes. Opportunity lost.

So, there you have it: we’ve locked ourselves into an economic model that provides long term competitive disadvantage. While other countries make good use of public transport and respect people’s time by moving them around efficiently, lowering pollution and making people more productive in the process, we’re stuck in the 1970′s, with people killing 2-4 hours per day in their cars spewing gases. Nice.

So every day, by design, this SINGLE stretch of Route 50 causes at least $207,900.00 in lost productivity for people, costs $22,176.00 in fuel (at $1.60/gallon — try it at $3.99), and generates 152.46 TONS of CO2 output. And that’s when it’s working AS DESIGNED! This is what it’s SUPPOSED to do??!?

Go ahead and add in every other backup in Maryland — the DC Beltway, the Baltimore Beltway, I-95, I-83 for starters — and you’ll have an amazing amount of lost time, energy, and productivity! It’s staggering what a drag this is on our economy. And the first instinct we citizenry has is to expand the current roads and build new ones. And this won’t help!

The only things that will really help are to 1) work closer to where you live, 2) use public transportation or bikes to get there, 3) improve the design of the roads we have.

The inability (er, unwillingness) to make this happen in suburban America is why places that have better public transportation (and the vibrant work/residential communities that invariably build up around it) will outpace us in the long term.

We simply can’t compete in the world economy if we’re locked up in our cars.