October 5, 2017 · 10:19 am

A Disgusted Capitalist

Let me begin by saying I’m a fan of making money. However, just as with free speech (you can’t yell “fire” in a crowded theater), I think there are some limits as to what a person can do in order to make that money. I was reminded of what those limits should be this week when I received what is not, unfortunately, an atypical letter in the mail.

I recently registered my business in a new place. I also purchased a car. In both cases, I received letters in the mail that seemed incredibly official but which were, in fact, full of deceptive language and claims. In the former case, I got a “Labor Law Compliance Notice,” that informed me I was required by Federal Law(!!) to hang a poster in my place of business. While that might be true for most businesses, because I have no employees, my business is not required to hang anything other than the 250 pictures of myself I keep around for inspiration. A little research by this company would have saved them the stamp. Still, this notice is extremely official looking, cites Federal Law, and looks like a bill for $84. Had I been required to hang these posters, there are numerous other vendors who will sell you the same thing for a quarter the price.

The same sort of deceptive crap followed the car purchase. Notices about activating my warranty came from a few sources, none of which had anything to do with the car manufacturer, and who were looking to sell me a superfluous warranty (the car will be under the manufacturer’s warranty for quite a while). Obviously, since these folks can see what year the car was made they know that, but they sent the letters anyway.

You’ve probably received phone calls from the “service department” or “IT support” telling you your computer is full of spam. While the aforementioned companies don’t fall into the outright scam category that the computer scammers do, they raise a serious issue for us all:

How far will we go to make a buck?

Charities that give tiny percentages of the money raised to the causes they serve, enriching the folks who run them instead. VW and other manufacturers rigging emission tests. Kellogg‘s claiming Rice Krispies boosted the immune system or Mini-Wheats made you smarter. It’s a long list, one to which I’m sure you could add just by opening your mail.

There are people behind these deceptions, people with minimal ethical principles. Did they at any point ask themselves how they’d feel if their elderly parent bought into a scam they were enabling?

I’m all for making a buck, lot of them in fact. But as with almost everything, there is a right way and a wrong way. You decide.

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October 2, 2017 · 11:03 am

Is Crowdfunding A Killer?

One of the ways I’ve been working with startups to raise money is through crowdfunding. You might be most familiar with Kickstarter but there are dozens of other companies that help to fund companies that are too small for VC funding but need capital to grow.

I’ve always thought that this was a good thing. Many entrepreneurs aren’t well-connected to a network of people who can afford to invest. Having entities such as Kickstarter available to raise the startups’ visibility and to grow their investor pool seems valuable. Something I read this morning, however, challenges my thinking.

Crowdsourcing initiatives like Kickstarter are hurting innovation, according to a new study from a business school, INSEAD. Researchers found that the ‘crowd’ appetite for investing in innovative products is startlingly low. Claims of novelty and usefulness are viewed unfavorably and result in lower pledge figures on crowdfunding initiatives. This is significant as the equity crowdfunding industry is set to surpass venture capital as the leading source of startup funding.

Data from Kickstarter from its inception in 2009 to 2017 was interpreted by state-of-the-art machine learning technology that incorporates speech and image recognition, seasonality, perceived risk, etc. to determine the funding success of both ‘novel’ and ‘useful’ products. This is the first time large-scale speech analysis and image recognition has been applied to the study of innovation. You can check out the full research here. What it found was that the Kickstarter community does not view claims of product novelty and product usefulness as congruent. While the total amount pledged is boosted when a product is said to be useful (or alternatively, novel), claiming that it is both reduces the total amount pledged by 26 percent.  In fact, a single claim of novelty increases project funding by about 200 percent, while a single claim of usefulness leads to an increase of about 1200 percent, as compared to projects devoid of any such claim.

I’ll let three academics explain why this might be hurting innovation:

“Prior research has shown that products that are novel and useful typically succeed in the marketplace,” said study co-author Amitava Chattopadhyay, Professor of Marketing and the GlaxoSmithKline Chaired Professor of Corporate Innovation at INSEAD. “But when projects make both claims, backers either assume a product’s benefits are inflated, that it carries a high risk of failure or that it divides the crowd between believers and skeptics, making it hard for backers to pick a side.”

“The higher level of uncertainty in the crowdfunding context drives backers to choose modest innovations and shy away from more extreme innovations,” said Cathy Yang, Assistant Professor of Marketing at HEC Paris.

“This is deeply disappointing as the premise of crowdfunding is to support creativity and innovation”, said Anirban Mukherjee, Assistant Professor of Marketing at Singapore Management University. “Entrepreneurs, therefore, might be advised to frame a project as only novel or only useful, rather than both”, Dr Ping Xiao of the University of Technology Sydney (UTS) added.

Something I’ll be keeping in mind when putting together a crowdfunding campaign. It seems a little sad though, doesn’t it?

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September 29, 2017 · 9:42 am

Breaking The Fast

We’ve arrived at Yom Kippur again and there is a part of the holiday’s traditions that involves food so it’s an appropriate Foodie Friday topic. Beginning this evening, those who observe the holiday will fast for 24 hours. Traditionally, the meal that follows the fast is “dairy”: bagels, cream cheese, smoked fish of some sort, a sweet noodle dish called kugel, and cakes. The thinking is that a relatively bland meal is appropriate following a fast and the dishes can be prepared ahead since one doesn’t do work of any sort on the day. Hey – if Sandy Koufax can skip work and not pitch the World Series (which made a huge impression on me back in 1965), you and your bubbe can stay out of the kitchen.

My family generally had whitefish salad, egg salad, and tuna salad available as well. I know that blintzes are big with some families, although my family was never patient enough to cook them (listen, when you’ve not eaten for 24 hours, even another 10 minutes is an eternity). Everyone would generally grab whatever was available to eat immediately, breaking the fast while their bagel toasted.

Obviously, there is a much more important aspect to the holiday than food. Last year I wrote that:

Most people think of the day in terms of atoning for one’s sins. That’s not quite right in that it’s an incomplete statement. That atonement is only a part of the equation. There is a broader focus on other things as well. One is charity, one is repentance and the other is prayer. Those things can also be interpreted as trying to embody high ideals, returning to those values and ideals if we’ve strayed from them, and self-reflection.

Whether you’re Jewish or not, taking a day to think about that three-legged stool is a valuable thing, both personally and with respect to your business. Since this is a business blog, let me focus on the business aspect. Every business needs to give back somehow. Whether it’s mentoring on a pro bono basis or sponsoring a Little League team, it’s not only smart marketing. It’s the right thing to do.

Atoning in business is simply reflecting on the times over the past year when you missed the mark and determining to do better. It may be a badly handled customer service issue or it may be treating an employee badly. Identifying those instances and improving the future is a fundamental part of being a good businessperson.

And prayer? I’ll leave that to you. I was always taught that prayer is not about you and shouldn’t focus on your wants. I think even atheists can pray since, as Emerson said, “Prayer is the contemplation of the facts of life from the highest point of view.” Not a bad place for any businessperson to be.

Happy New Year!

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