An alternative to Criticism

I decided to translate for you this blurb I found from an incredible woman who is actually a customer of my hosting services. She’s a counselor for families, couples and so on, and has 30 years of experience in counseling:

Israeli society is characterized by large involvement of people in each other’s lives, as well as being overly critical of each other’s behavior. However, the act of criticizing may sometimes cause great damage, especially where children are involved.

It’s difficult for some to imagine raising children without a good amount of criticisms. They think “How else will the child know what good behavior means, and learn and improve his habits?”.

It may be true that most people use criticism with nothing but the best of intentions in their hearts, out of an attempt to help the person being criticized “improve”. However, try to think: When was the last time you actually learned something from being criticized? felt grateful for someone’s criticism? when did criticism ever convince you to improve your habits? and how often did the exact opposite happen?

Many people grew up in a criticism-heavy environment and it is the only thing they know. They are unaware of other, better tools. It is burned into my mind from my childhood, that teachers only focused on the mistakes the children made, and never gave any praise for the amount of effort the children put into their work, into how well crafted some of the answers were, even if the answer was wrong.

Superiority is a naturally occurring phenomena and is part of competing, achieving, and criticizing. It is difficult for a person to feel they are “not good” or “worthless”, therefor most people have the need to prove their worth, “lest the awful truth be discovered”. And what is the one thing that “proves” ability and worth, without much effort? Criticizing others. By criticizing, the critic believes he demonstrates and accentuates his superiority over the criticized. This makes him feel superior, and his feeling of self worth increases.

Criticism and negative remarks have a negative impact on human beings in general, and even more so on children. Children might start to believe they are lazy, stupid, evil, and so on, and respond with a feeling of failure, despair, and they may give up entirely on making any efforts into proper function.

One of the most important principles of education for children, is the premise that you can achieve far better results and success by accentuating the positive actions and achievements of the child. Children know very well when they made a mistake, and are well able to learn from their mistakes and reach conclusions without all the remarks and negative comments we hurry to make.

Self aware parents are able to look into themselves, become aware of their emotions, and by doing so, change their approach and attitude towards their children, and towards their children’s actions. They are able to refrain from making negative comments or giving criticism, which as mentioned, is not effective nor efficient, and may in fact be detrimental to the parent-child relationship, and instead create a new kind of relationship based on encouragement, acceptance, mutual respect, sharing, and focusing on the positive aspects of the child.

I strongly believe we make the same mistake with the adults in our lives, and need to approach adults with the same care and consideration that we would approach our own children.

 

Investors with Vision; Oxymoron?

I recently found myself engaged in heated debates with a few of my friends and acquaintances about Angel Investors (the real and the wannabe), Venture Capitalists, Incubators, Bankers, etc.

One of the things said, which resonated with me, was the following: “An Angel Investor or VC is looking for companies like Facebook, Twitter and Google. Basically superstars.”

But if we look at most investors in the market, we would find NONE of them would have the vision to fund Google when they were getting started. Sergey and Larry even went to Yahoo, who reviewed the company and declined to purchase it or invest in it. Now ask yourself this: If Yahoo (who supposedly “understood” the Internet and were a major player) failed to see the vision in Google’s product, why should an Angel Investor? Or even worse, a VC? (who is really more like a banker).

Indeed – Sergey and Larry had to work hard and against all odds, to get their search engine up and running and make it useful for internet users. And what they created changed search engines forever, changing the perception and meaning of search, and big data along with it all. It was true innovation, and at the time it was introduced, NO INVESTOR UNDERSTOOD IT. Remember this when you start working on your idea.

I feel I need to expand a bit on what it means that they “did not understand it”. Sure, they saw the product demo, they heard the pitch, but they were unable to project the impact of the technology they saw on the market. The ability to look at a market and say, wow, this really changes everything, is a combination of skill and art reserved to a handful of people. In other words, don’t assume that Angel Investors have this magical ability to see into the future of your company, and understand whether or not it will succeed.

UPDATE: I found this report today by the awesome guys at CB Insights: Top NY Seed Investors ranked by Follow-on Investment Rate and while I am not saying you should ignore investors who are not on that list, I do strongly recommend you take a look at the ones on this list first. As a small company, you need to be even more careful how you spend your time.

Investors: Basically sheep, with strong herd instincts

“Fear is the path of the dark side…” — Yoda

The problem here is fear. Here is a list of problems caused by fear:

  1. Investors who invest in “packs” or a “herd”, look for a leader. You will quickly recognize them; you’ll be presenting to a room full of “investors” (sometimes ~30 people!). If there is no leader, this diminishes the chances of investment by many orders of magnitude (to basically none).
  2. Modern investors no longer invest with their hearts, they try to invest with their “brains” instead (which in theory should be a good thing, and while many of them are pretty smart, it takes time to really look into a technology, do a proper due diligence, and make an informed decision). So instead of performing a proper analysis, they look for something to make them feel “comfortable” that there will be an adequate ROI (Return On Investment). They no longer “connect” with the venture’s “spirit”, something that might give them the needed courage to make a leap of faith.
  3. VC’s are really more like bankers. Why? Because they are not investing their own money. They fear failure above anything else. When you invest your own money, and you make sure it’s money that you wouldn’t cry over it if you lost it, you tend to have way more courage with your money, and you put your money where your mouth is, without fear.

Now, Bankers operate according to the most basic fear principles: What if you are unable to repay your debt? What if this, what if that? This is why unless you can offer some assurances, banks will usually not lend you money. If you own a house, a banker will agree to use your house as security, and will give you a loan up to X% of the house’s value (taking into account depreciation, costs of handling, etc). Needless to say, the whole thing will be insured from here to the moon. All due to fear, and the need to perform. Or rather, the fear of not performing. We all know what happens to men who have performance anxiety: Impotence.

Mathematical formula to magically convert an investor into a sheep:

Anxiety Performance + Investor = Sheep (baaaaaaa!)

A fun exercise!

I decided to test this theory. The idea was to find a company that became extremely successful, improve on its products, but address the same market with a more or less similar technology. In other words, innovate enough to be different, but be similar enough to be able to replicate the same success.

The problem was that Facebook, Google and Twitter were started, and have succeeded in the US. I had to import something that the US had not seen yet, but that I knew the US needed. I chose the QIWI model. I added some innovative ingredients into the formula: Bitcoin currency support (sell Bitcoins, and accept Bitcoins for products), and a QR Code Scanner which doubles as a document scanner for KYC (the US is a heavily regulated business environment, and I knew better than to leave this feature out of the Kiosk).

QIWI is a highly successful, publicly traded company, but it is almost unknown in the US. It has nearly 200,000 cash payment kiosks in Russia, Ukraine, and a few other countries. I don’t think many people realize what a great company QIWI is, and how awesome its impact on humanity is.

I spent a year developing the technology as a hobby, and a few months ago I presented it at Ultralight Startups, and surprise surprise, it took second place in the startup competition. This earned me the “privilege” of being considered for investment by New York Angels.

To make a long story short, I presented the company, showed that the product works, explained that I already signed important agreements and explained that i’m about to deploy several machines in the market. Guess what? They didn’t get it. And they declined to invest. Their concern? That I won’t be able to sell it…

And now, just to prove them wrong, I am going to actually deploy this Kiosk in the US market, and it is going to work. Why? There are many reasons for this, one of them is of course my tenacity and determination. But also because America has at least 25% unbanked population (this morning at Finovate I heard a much more pessimistic figure, claiming that after 2008, almost 50% of the population is now living month to month, with very little access to advanced financial tools). And finally, because this model has been proven to work, and it will work. I will then also take it to North Africa, and other African countries in West Africa.

I found out that there are credit unions working very hard to address this population with innovative products. There’s even a foundation called The Ford Foundation, which invests money in innovative products that serve the un-banked and the under-banked. I’m also seeing huge excitement when I tell people I managed to build it so cheap, that I will be able to sell it at a street price of $2500. This is unheard of in the world of self-service Kiosks of this class and quality, and the people who live and work in this market know this, and respect it.

Anyway, Wish me luck! :-)

 

Hitting the big 40

So. Here we are! tomorrow (or tonight, around 2pm IST, if you count based on my exact birth date and hour) I turn 40. I’m still alive, and kicking.

I once thought that by the time I turn 40, I will surely have at least 2 children. But after some setbacks I’m now well on my way to becoming a father, ETA November 11 (which coincidentally is exactly one year since the marriage ceremony took place).

I also thought that by the time I turn 40, my hair will go entirely gray. Instead, it is still 99% black. I think that’s a good sign.

I used to like being alone on my birthday. I used to take the day off (if it wasn’t a weekend), and just walk around aimlessly, meditating on the year past, thinking about the strange events that brought me so far. This year, I am happy to say, I do not want to be alone. I prefer to spend tomorrow with my wife, doing something relaxed and fun.

And on the 31st, we’re having a combination of Baby Shower, Birthday Celebration, and House warming. We’ll entertain guests in our house, make all kinds of delicious finger foods, play some chill music and offer drinks. Maybe a champagne will be opened. Who knows.

Anyway, Here’s to hitting 40. One part of me didn’t think I’d make it (that’s the part that expects i’ll be hit by a garbage truck any day now). Another part of me thinks I’ll live to 100. Both parts are grateful to be alive ;-)

A stack for the apocalypse

Or Afristack, as I call it. I was approached by a wonderful person recently who wants to end death from hunger. What I liked in his approach, besides the fact that it mirrors my own philosophies about helping neglected communities, is that it does not give handouts to the poor. Instead it educates them on a path to a form of mini-capitalism.

For a person like me, who loves distributed projects, financial engines, gamification, and mass deployments, this sounds like an awesome beast to design and play with.

The idea is to create self-healing, self-establishing smart network infrastructure in remote areas, and provide some basic services to those remote communities, such as:

  • Tracking the progress of people, the courses they took, their health (mental and physical), their income and assets, their trends (personal and social), and more.
  • Messaging services, both real-time and non-real time. Chat and Email for example. Except servers should queue messages and hold them even if there’s no internet connectivity. In other words, mail should be MX’d by regional nodes, until they obtain internet connectivity, to deliver to real mail servers.
  • Wallet services. This services allows people to run local economies, and track their currencies and assets. It should also allow them to pay each other, but in a decentralized manner. Think Bitcoin.
  • Alerts, News, etc. for example the ability to detect outbreaks (malaria and the likes), dangerous weather phenomena, low water reservoirs or bad water quality that could endanger lives. And on the other hand, generate news that those remote communities might find useful, such as weather reports, general news, weddings, new regulations, and anything else of interest.
  • General access to the internet, but especially to resources such as Wikipedia, Khan Academy, and so on. The regional and local server nodes should cache as much as possible, so as not to tax the internet gateways at the edges of the mesh.
  • Eventually, add more services, such as package tracking and routing, to allow some sort of “post office” to exist, complete with reputation systems for participants, and a reward system based on speed of delivery and quality of service.

So after much thinking (24 hours), I came up with the following software stack and approach. Tell me what you think about my choices:

  • Node.JS as a lightweight application server
  • Meteor.JS + Angular.JS for web apps
  • MongoDB for data storage and replication
  • Byzantium for mesh networking (takes care of DNS and Routing)
  • ZeroMQ for fast, efficient messaging between mesh nodes
  • Squid or Nginx for web proxying
  • node-rules as a lightweight rule engine, to automate as much as possible based on generated events that flow, and are captured, over ZeroMQ.
  • Open-Transactions to issue currencies, and manage cryptographic wallets

 

When is a business plan needed?

I saw this question today on a forum in LinkedIn and decided to write this quick post, about when exactly a business plan is needed.

One of the participants in the discussion even suggested that VC’s should be more trusting of entrepreneurs, which caused me to scoff and cough. Anyway, here’s how the world really works: Nobody trusts anybody. People don’t even trust themselves. We are all human beings. Human beings invented the atomic bomb, and human beings orchestrated the holocaust. So nobody should trust you that your idea just works – that just makes no sense.

If you have a great idea, one you think will revolutionize some thing or other, you need to first create a working prototype. This is the ultimate proof that you can actually make something happen, and not just talk about, or write a word document about. If you create a working prototype it means so many things: You have the team. You have the skills. You have the motivation. You validated your concept. You invested your own time and money into your vision, instead of waiting for someone to shower you with money.

What if creating a prototype costs way more money than you have? That’s where investment is needed. And that’s also where you’ll need a business plan. But you need to realize that a business plan is something that will change many, many times over the course of a company’s life. Below, I detail to some degree, how that business plan changes, as you progress in the investment/stage ladder.

And it goes in this order of precedence:

You are the first investor: Do you have a day job? Don’t hurry to quit your day job. Maybe you can move to a cheaper apartment, maybe that will mean you can divert some of your salary to building your product. You are your best investor. And you should become your own devil’s advocate, and ask yourself: Would I invest in myself? And this is where your first business plan comes. This is a simple spreadsheet. Put your costs, and put the costs of your product, put the market size, and try to include the element of time. Nothing happens overnight. Just creating this first spreadsheet will be very revealing even to yourself. And you should ask yourself difficult questions: Will people pay X for Y? How much % of the market will actually purchase?

Friends and Family: You’d be surprised and enlightened, when trying to pitch the idea to your friends and family. How fast will they get it? Will they shoot you down? Will they have other great ideas to contribute to you, for free? An idea is great, but presenting it to someone other than yourself is an enlightening experience. You can trust your family, and sometimes you can trust your close friends. Maybe some of them will help you with money. I’ve seen it happen, so don’t rule it out. This is where your business plan will probably change again, and improve. It needs to look simple for your friends and family. Is it overly complex? Chances are your friends and family are not going to be the only ones who will lose interest in your spreadsheet.

Crowd funding: This new investment channel is revolutionary in itself. If your product appeals to consumers, you can sell it before it even exists. Isn’t this extraordinary? Many projects are now starting their way in crowd funding. One of those projects that is close to my heart is the Oculus Rift. Here’s an absolutely perfect example of a product that no VC would ever fund. And worse! The world of VR was considered worse than dead. Why do I say worse? Because there have been several attempts at VR, all have failed miserably. But here comes a guy with a vision (Palmer Luckey), and a promise to make it happen. And guess what, I now have a Rift and I can testify it works, and Palmer delivered on his promise. Not only that, but due the wild success of his campaign, game companies joined in the effort, and many games are now adapting their software to work with the Rift. And with all this incredible success, Oculus can now raise money from VC’s and bring the product to the masses. But even here, you need a business plan. Why? Because if you promise a product for $300, but spend $500 building it, you will not be able to supply this product to all the customers who ordered it, and you fail miserably. A business plan is ALWAYS needed, even a simple one that makes sure you are at least in the green.

Angel Investors: And I am talking about REAL angel investors here, not VC/Bankers who are masquerading as Angels. An Angel investor loses money if you go bust, and you are not expected to return any “loans”. It is more like receiving a Grant. You receive it based on trust, that you can make it happen, and that your idea is worth trying. The Angel investor should sit down with you, one on one. Do not fall for the trap of meeting “flocks”. Insist on meeting one on one, and if that angel wants to bring more people in on the investment, let him do the work of convincing additional angel investors into joining. If they have questions, they will ask him, and he will ask you in turn. And this is where a good Angel Investor who has experience, will help you revise your business plan again. They will ask for more details, and help you structure your business plan, and make it look more professional. In some cases, if they put money into your idea, some of that money will go to a professional business plan analyst who will make your business plan look like a tasty cake.

The banks: Sometimes banks are seen in a negative light, but I avoid falling into that trap. Same thing with VC’s, but more about that in the next section. So banks are in a position to give you a business loan. Depending on your relationship with the bank, you could get a loan with more, or less, favorable interest rates. And yet, they do not expect a x5 ~ x20 times return on investment. They only expect the money back with interest, and you can usually refinance and spread it over a period of time. If you have reached the prototype stage, and spoken to a few customers and realized they want to buy it or lease it, and you have orders, say 200 orders for a device that cost $200 to make, and sells for $400. You need $40,000 which the bank will usually give you quite easily. You then sell your customers the device for that 100% profit, give the bank their 3% ~ 12% and you are still left with 80%+ of the margin, and no VC meddled into your business, or replaced you with his brother in law CEO, just because you failed to produce a x20 time ROI. This is where your business plan might change again, you need to show your bank that there is a very high chance that you are making your money back. This should boost their confidence in you and your business, and increases your chances of getting the business loan.

Finally, Venture Capitalists: Those guys are last in the list, and for good reason. A VC usually sits on a pretty large amount of cash. Say $100M to $500M, many times more (I’m not going to talk about Micro-VC’s, they are a slightly different creature). The VC’s goal is to make at least x5 ~ x10 ROI. To achieve this fantastic ROI, they need companies that are at a very mature stage, selling an existing product to existing markets. In other words, a company that has already proven its business model and is on the verge of international success, but now needs more money in order to replicate that success. The VC then invests the money required to reach those new markets, to produce more products that will sell to those untapped consumer markets, to advertise the product to more people, to raise brand awareness, to hire more teams to produce the product faster, and so on. So primarily, their investment is focused on maximum ROI, always, forever. They do not need or want to trust you, and they do not need to have a vision – they only need to focus on ROI. That is their job, and don’t take it personally. This is why their due diligence is a long, painful process. To get to this point, you must have a very mature business plan, where all the numbers are REAL numbers (data collected in the field); You know how many people bought the product, you know how much it cost to produce, you know your own costs (burn rate, production costs, advertising costs), you know everything there is to know about your business!