The Legal System in America Is Broken

There is something badly broken.

The US Congress - House of Representatives - have just passed, by a good margin (269 - 161), a bill that would raise the debt ceiling.

That’s not the part that is ‘broken’ - although, that is up for debate.

However, this excerpt from the Wallstreet Journal article about the bill really struck me as odd:

As leaders on both sides worked to sell the package to their members, they disagreed over whether it allows for tax increases.

“I think the big win here for us and for the American people is the fact that there are no tax hikes in this package,” said House Majority Leader Eric Cantor (R., Va.).

Democrats disagreed.

“We’ve had our lawyers go over this very carefully,” Sen. Kent Conrad (D., N.D.) said on MSNBC. “It is really very clear that [new] revenue can be part of any solution that the special committee develops.”

While the agreement does suggest that the deficit-cutting committee could propose increasing taxes, it would face multiple barriers to doing so.

One is that the committee is using Congressional Budget Office projections that assume revenue will rise with the expiration of the Bush-era tax rates and current middle-class relief from the Alternative Minimum Tax. In effect, the panel would have to look for additional tax increases to achieve any deficit reduction, which could prove politically difficult.

So…let me get this straight. The lawyers (i.e. professionals paid to interpret laws) of the writers of this law, don’t even agree on the interpretation of this new law created by their clients - even before it is passed into law?

Uhh…am I missing something here? There has to be a better way to do this.

I am not so sure that having lawyers running a country, really is the best thing after all. 

This is kinda ridiculous.

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Why the Value of Higher Education Won’t Diminish Any Time Soon

One phrase: Compounded Network Effects.

We know that Network Effects benefit companies like Telecoms - because the more people are on the network, is the more compelling the value proposition to join the network, which increases the size of the network which increases the value proposition - and Social Networks - everybody is on Facebook because everybody else is on Facebook - but it never occurred to me that a more powerful network effect is at work in higher education.

The more people that have a Bachelor’s Degree, is the more the value of a Bachelor’s Degree and everything else below is reduced (which actually runs counter to a network effect - but not really). Or said another way, the more people have a BA or BSc, is the greater the value of an MA, MBA, MSc, etc. If you get a BA, and everybody else has a BA, in order for you to stand out you have to get a higher degree. The more that happens, is the more everybody else is pressured into getting a ‘better degree’ - which reinforces the entire system.

Also, once you get a degree, and you are hiring - it’s more likely that you will look for people with either your credentials or higher (for most jobs that require some amount of education). That adds to the cycle.

So just on the basis of different levels of degrees, we have seen one aspect of network effects being compounded the larger each network gets. 

To add one more layer to it, each higher educational institution also has a brand. Some are differentiated from others (i.e. Ivy Leagues) which compounds these effects even further.

Not only do you now not just want to get a BA/BSc, you want to get one from Harvard, Yale, Stanford, MIT, etc. to stand out - otherwise you are just blending in. The more people get degrees from those institutions is the more other people will want to, which further compounds those network effects. So we have another set of compounding happening here.

To parlay this to telecoms or social networking, it would be the equivalent of not just wanting to get a cellphone - but to get an AT&T cellphone. Or not just joining a social network, but joining Facebook.

I don’t think the compounded effect is in play with telecoms and I don’t think it is in effect for social networks either. 

I am not sure what can be learned from this, or if there is a neat business model hiding in there somewhere - but I imagine that someday someone will come across some model that leverages compounding network effects like Higher Education has, but I haven’t seen that yet.

If you have any ideas or thoughts, would love to hear about them in the comments.

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Performance Based Ads - Monetizing Excess Ad Inventory (Idea)

I finally launched CompVersions, after 10 months of learning Rails, jQuery, and everything else I needed to build the app.

I thought that would be the hard part, but boy was I wrong. It seems sales and marketing is much harder than I thought it would be.

*brief aside* I think there is a shortage of posts about ‘How to get your first 100 paying customers’. *end aside*

One of the many things I have been trying is approaching folks (blogs, ad networks, etc.) to find out if they are interested in doing performance based ads. Where, if they have excess inventory, I am prepared to give them X% of the revenues for every paying customer - for the first few months.

I thought something like this would be a no-brainer - because excess inventory is space that is not being sold, the potential upside of a successful campaign could be much more lucrative than a flat rate, once momentum gets going there is potential for long-term (relatively stable) revenues.

But for some reason I am not seeing the uptake that I would have liked.

Am I missing something here ?

It seems that this could be an interesting idea for someone to run with. Either have an ad network where the majority of the inventory is based on revenue share, because it shows the advertiser that you’re incentives are properly aligned - you don’t get paid for just show impressions - you get paid when they get paid. Or, some variation of that, that involves auctioning/bidding between fixed rate inventory and performance based.

I know this doesn’t work in every situation, and for every product, but I imagine it could work for many - especially for startups.

If anyone runs a design/photography blog, that wants to put their ad inventory where their mouth is (i.e. get paid when you perform), please get in touch.

If I am missing something that could potentially make the value proposition for potential publishers more enticing, please feel free to let me know in the comments.


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Regulation Can Create Moral Hazard

There has been much talk about bailouts causing moral hazard over the last 2+ years. In an attempt to counteract the notion that when you get ‘too big to fail’, you will be bailed out, policy makers and regulators have been hard at work at new reforms to ensure the crisis never happens again.

However, the Economist just pointed out something that blew my mind (because I never thought about it before) and figured I would share it. Here is the passage:

Besides, the regulators’ reluctance to second-guess bank executives was well founded, because it can take them onto dangerous ground. If regulators underwrite certain strategies that seem safe, such as lending to small businesses or helping people buy houses, they may encourage banks to crowd into those lines of business. That can drive down interest rates and lending standards and push up asset prices. If enough banks pile into these markets, downturns in them can affect not just a few banks but the whole system. Paradoxically, the very act of signalling that a market is safe can make it dangerous. It also introduces a form of moral hazard, because banks and their creditors may assume that the government would be duty-bound to bail them out if a closely monitored institution were to fail.

I added the emphasis.

Talk about damned if you do, damned if you don’t. Thank God I am not a regulator, because this type of paradox is just ridiculous. 

The most common suggestion for getting rid of moral hazard has been to ‘break up the big banks’…..but with this new consideration, even if you break up a big bank into 3 smaller banks and all those banks crowd into a line of business deemed ‘safe’ by the regulators, that creates the same problem highlighted above.

So what is the answer ?

If anyone has any thoughts, I would love to hear it.

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Free Site Idea: Controversial YouTube Videos

I have been meaning to write this post for a while, but forgot about it until I saw a tweet recently by a friend that reminded me. 
Here is an idea for an interesting side-project that I thought I would be able to do, but I have too much on my plate, so I figured I would put it out there for the internets to run with.

Idea: A site that just has a ‘hot’ video - determined by a variety of factors. The site should be simple, and very elegant. Ideally it would just have that one video embedded on each page or rather be the main focus. It can then have many other sections. I will provide details and a back story below.

I never realized that YouTube publishes both the likes & dislikes of videos - see the classic example (below) of Rebecca Black’s ‘Friday’ video (look right below the number of views, that image has 2.7M dislikes). 
So rather than just doing the ‘most viewed’ videos (although you could have a section that shows that if you would like), the main feature of the site would be the video that is ‘most controversial’. The way you calculate that is the disparity between likes and dislikes and views. Digg used this with their ‘most controversial comment’ and that’s where the idea comes from. 

To break out the illustration some more, let’s look at some numbers, you can have different levels of ‘controversial’. If a video has 1 like and 1 dislike and 2 views…well, that’s not controversial yet. If it has 1,000,000 views with 100,00 likes and 0 dislikes, that’s not controversial. But if it has 50,000 views with 20,000 likes & 20,000 dislikes and is adding view numbers at a steady clip, that could be considered controversial.

Also, like Rebecca Black’s video that has 140M views, but 2.7M dislikes, that definitely is controversial. If it is so disliked, why do people like seeing it ? Which pushes up the views and likely pushes up the like-to-dislike ratio, which will likely push up the views and keep the cycle going. 

So I would say, you would have a ‘controversy’ factor, where it’s measured 0 to 1, where 0 is not controversial at all, but 1 is perfectly controversial (the Friday video would be perfectly controversial).
So that would be the main section. Then you can add other sections, like ‘Most Liked’, ‘Most Disliked’, ‘Rapidly Gaining’ - where you measure the rate at which the views are increasing along with likes, etc.

That’s it. Nothing too fancy, but could very easily be very viral.

If YouTube had a Ruby API, then I might have considered doing it, but based on the preliminary digging I couldn’t find one, and I don’t have the time to go through figuring out anything else that might cause me to have to do too much learning right now.

I imagine, a site like this could surface some very interesting videos and act like a nice filter of all the stuff put up on YouTube.

If you do find a Ruby API, please let me know in the comments and maybe I might re-consider.

Good luck!


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Self-Doubt: The Unspoken Truth of Founding a Startup

Founding a startup has been a dream of mine, for as long as I can remember. I methodically went about learning as much as I could about what it took to build a company from nothing to a going concern.

I don’t remember the exact moment (I was between 8 - 10 years old though) when I realized that in order to build a business, I had to come up with an idea first. Ever since then I conditioned myself (almost literally) to constantly come up with ideas. So much so that I became the annoying sibling/son/friend that always had a new idea. Luckily for me, I have another friend that was just as prolific, probably even more prolific, at coming up with ideas as I did [wassup Simms :)]. When I was ridiculed, I wasn’t the only one receiving it. As a result of that, I have learned to speak less, and do more. I only share with a select few (my poor wife has to bear it all the time - for better or worse, right ?).


But somewhere along the way, I realized that there is more to building a successful business than coming up with an idea. So I set out to do everything I could to learn about business and startups before jumping into mine. For instance:
  • I have read every single Paul Graham essay
  • Subscribed to Inc. magazine for three to four years while I lived in the US - read each issue cover to cover for my entire subscription.
  • Subscribed to Entrepreneur magazine and did the same.
  • Read most of Founders at Work by Jessica Livingston (Paul Graham’s wife)
  • Read books/articles/stories about many tech founders from Fairchild Semiconductor to Facebook. I know many of them by name and obscure facts about many of them, e.g. Apple had three co-founders (not just two), etc.
  • Convinced I was going to do a tech startup, I did my undergrad degree in Computer Science and did my MBA with a concentration in Finance (finance is the life blood of every company, right?) after.
  • I love economics, finance, and all that good stuff. I day traded currencies for a while. I understand markets - supply & demand and the battle between Capital & Labor.
  • I know all the startup theory - Lean Startups, Customer Development, etc.
  • I have decent-ish karma on Hacker News.
  • I worked with a startup company for a while, and understand the internal struggles of having to produce a lot with very minimal resources.
  • Once I finally decided to take the plunge and do my startup I taught myself all the programming I need to know to build the product I wanted to build.
  • I finally launched and got a good reception from many quarters. People like what they see. Had a few bugs, but have squashed most of the ones brought to my attention so far, and making good progress on the rest.
Now what? Now I have to go and sell it. Oh Crap! 

This is where the self-doubt kicks in.

Sure, I spoke to a bunch of people before building it. I validated the idea and I knew that this was a particular problem, because I experienced the pain and I know others that had this problem too. But now… I have to collect money from people. People I don’t know, and who don’t know me.

The transition from hardcore development to sales/marketing has been a tough one for me. I think I underestimated the mental switch needed to jump from one to the other. Especially since I don’t have the luxury of having someone else carry on with the development while I do the sales. If I do nothing, nothing happens. Knowing that, makes the self-doubt worse. But, it also makes it better. Because I know that if I do nothing, nothing happens. So I have to do something, so I end up doing something.

Self-doubt, when you are doing this for the first time (or second, third or fourth time) is perfectly normal. That’s how it is when you are just learning to ride, drive, fly or anything else new.

The trick is to persevere, because the only way to become confident in your abilities and be successful is to push through the doubt and get better little by little.

So stop distracting yourself with Hacker News, TechMeme, TechCrunch or any other activity/site you use as an excuse to escape the doubt you feel when you think about what you have to do.

Take a deep breath, and push through.

As the saying goes…Keep Calm, Carry On.

P.S. I help businesses get feedback from clients on their images, simply.

P.P.S. I was inspired to write this from a wonderful blog post and the ensuing discussion on Hacker News.

An Open Letter to Larry Page

Mr. Page,

      Good morning. It is a new day.

You have sent shock waves through the blogosphere and the internet industry by your recent moves

Google has much potential, and a lot of latent assets waiting to be successfully monetized. I know it is hard to see the forest from the trees - especially when you are locked in a media ‘battle’ with Facebook. Now is your opportunity to re-invent Google and not let Google be the next Microsoft.

The first step is to realize which business you are in, and which business you SHOULD be in.

You have been in the advertising business. That has subsidized your investment in your greatest asset - and possibly the greatest re birthing the tech industry has ever seen (if you jump on the opportunity that is).

You should be in the infrastructure business. Yes, like Amazon is. Amazon and Rackspace. As technology progresses, more and more people are going to have the need to create all sorts of services. Companies like Amazon, Heroku, Rackspace have lowered the bar for us to get started. You have toyed with the idea with AppEngine, but let’s face it, you haven’t given it much attention.

The market desperately wanted a successful ‘GDrive’, but you let Dropbox steal your thunder.

So now is your chance. Continue to use advertising to subsidize the monetization of those assets - but don’t be fooled by trying to compete with Facebook. That ship has sailed ages ago.

The real arms race is in Infrastructure-as-a-Service. 

If you don’t move now, I suspect that Mr. Zuckerberg will beat you there too. He has already showed inklings of this, with Facebook Credits, and the Platform. 

They have also more recently started showing off their sexy infrastructure. The day FB decides to start monetizing that infrastructure, like Amazon did, I think it might be too late for you.

Please don’t let that happen.

We (the Internet) are still rooting for you. You are quickly becoming the underdog again.

Just don’t get too wrapped up in the current skirmishes, that you forget the real war.


Henry Paulson’s Pay Cut

Here is a letter I wrote to the editor of The Economist recently (published on April 14, 2011), regarding Hank Paulson’s “pay cut”

SIR – You mentioned that Hank Paulson took a 99.5% pay cut. That may be true from a nominal perspective, however Mr Paulson saved $50m in capital-gains taxes because of a law passed by George Bush senior that exempts capital gains incurred by those selling investments to move into the public sector. He was also able to dump all securities shortly before the financial system imploded (without regulators or shareholders causing a fuss), so it was more like early retirement on the back of an extremely prudent financial decision than a pay cut.

Marc Gayle
Kingston, Jamaica

How Do You Get Good at Anything ?

John Gruber said something in a recent article about Apple that really jumped out at me.

Making money is not easy. Apple has gotten good at making large profits every quarter by building up to that — making ever-increasing profits all along, quarter after quarter after quarter, device after device after device.
This was in reference to a quote by Jason Fried in an Inc. article about how to get good at making money.

I can’t say enough about bootstrapping. Whether you’re starting your first business or your next one, my advice is to bootstrap it. Bootstrapping forces you to think about making money on Day One. There’s a fundamental difference between a bootstrapped business and a funded business. It’s all about which side of the money you’re on. From Day One, a bootstrapped business has no choice but to make money. There’s no cushion in the bank and not much in the pockets. It’s make money or go home. To a bootstrapped business, money is air.

On the other hand, from Day One, a funded business is all about spending money. There’s a pile in the bank, and it’s not there to collect interest. Your investors want you to hire, invest, and buy. There’s less — and in some cases, no — pressure to make money. While that sounds comforting, I think it ultimately hurts. It replaces the hustle, the scrap, the fight, with a false comfort of “we can worry about that later.”
As Gruber pointed out, this is painfully obvious, it almost bears not saying but it is so easy to miss. The way to get good at something is to do it. Over, and over, and over again. Keep doing it.

Whether it is painting, playing the violin, singing, learning a foreign language or programming language, hiring, firing, presenting, public speaking, cooking, writing, reading, cleaning, or farming.

Anything you want to get good at, you have to do it. Over, and over, and over, and over again. This kinda jives with what Malcolm Gladwell had proposed in his book Outliers.

We sometimes forget, so I figured I would repeat it.

Besides, I want to get better at writing so might as well be ‘meta’ while doing that eh ? 

The YC Dilemma - Thoughts About YC Reject

Paul Graham likes to say that the most important quality of a founder that they (YC) is looking for is determination…aka being Relentlessly Resourceful.

Well, one of the things that have always struck me about YC’s selection process, is that they are almost self-selecting for a 50:50 success rate (success in the sense of picking the winners).

I am not saying that 50% of their companies will go bust, but given that we know that at least 1,000 applied to the batch before the last one (can’t find reference, but it’s out there somewhere), and YC only chose 40+, there is a high likelihood that the rejection will be a catalyst to many companies to prove YC + team wrong. Even if just 0.5% of those rejected (950) are the ones that prove them wrong, that’s still about 45 companies.

If those 45 companies turn out to be ‘significant misses’ on YC’s part, that works out to about a 50:50 success ratio (where they successfully only chose 50% of likely successful companies from the entire batch).

However, given those odds, don’t just assume that because 950 startups were rejected - the most successful of those will migrate to YC Reject and as such YC Reject will be as successful as YC. But it is possible that YC Reject could tap into that latent pool of PG’s ideal candidates that were somehow missed by PG himself.

Could the next Heroku, Dropbox, Airbnb come from YC Rejects and not YC itself ?

Interesting times ahead.

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