Business Idea: GIS mashed with Demographics

So I was thinking about a business idea. What do you think about using
google maps API to do political geographical analysis for political
campaigns. When used with polling you could determine certain areas to
push certain ideas. Almost like customized caimpagning for certain
ideas. The data would be from census and other public information,
plus information from polls. Using google maps API, it would be put
into an easy-to-understand graphics.

For instance, if you wanted to get the vote of white married women
with kids, by using polling stats you could determine which areas to
focus on with a certain issue, say k12 education. Present this
graphically and easily, you could charge campaigns for this service.

Theoretically, this could be used for other orgs like businesses but I
have not put much thought into that yet. Actually, one idea came to
mind is new businesses, such as franchises, to find areas that are
conducive to certain demographics. Example: To create a water ice shop
in the Salt Lake Valley, where would be a good location for that, by
looking at age of residents, income, etc.

So in essence, by using demographical data, mashed with polling data
and other business specific data, we can create easy-to-use internet
program that finds specific locations to for campaigns and businesses
to focus on.

Scalability would be easy; just more data inputs. Scalability means
more money, access to venture capital, etc.

Diversified Careers

Often financial advisers are telling you to diversify, diversify, diversify. Why don't people do this in their careers? Theoretically, productivity should be the same level. If you don't take into consideration of specialization. But it's specialization for the X amount of hours you work right?

I want 9 careers. I really do. Why can't I have them all, do them all, and enjoy them all? Right now I'm at about 3. 4 if you call school a career, and 5 if you take into consideration volunteer work. In my plan, I can have 6 paying careers and 3 non-paying but soul-mending careers. To do this, it is essentially required to have some capital in the beginning. And two, the flexibility of employers.

$50,000 is an easy amount to live on. That's 175 dollars a day you have to make for 6 days a week for 48 weeks a year. That's 24.17 hours a day (impossible!) at my going rate at B&N. Or 17.5 hours a day at my current internship. Essentially, I need to make 25-30 dollars an hour to make my benchmark of $50,000 a year.

Can I make 30 bucks an hour doing 9 different things? Probably not. But I can try to do what venture capitalists do by creating a goal. 1/3rd of the jobs will be less than 30, 1/3rd will make 30, and the last 1/3rd will make more than the $30 an hour.

I want to do volunteer work. I want to write a book. And do academic research. Volunteer work is nice. Writing a book and doing research can help drive my other business ventures, in the idea of fringe benefits. Even if you do something for free, you can benefit from it financially, but you must have the right systems in place. For example, if doing academic research creates credibility to me and what i say, my books will sell better, and my business consulting will benefit from my popularity.

Other things on my career list is to run a website. Run a company (but what type?). Be a venture capitalist. Do Business consulting. Work at a coffee shop. And the 9th one will be undetermined.

To be Fair

I was recently wondering to myself the fairness of the business world and economics. I think I may be thinking about econ too much.

There is a connection between equity and economic efficiency. In terms of money, efficiency would come in the form of value-based pricing of goods. The greater you wanted a good, the more you would pay for it. This, ideally, would be in disregard for all other things, such as race or gender. This is a blind fair, but it is efficient. However, there are some inefficiencies that are created purposefully to be more fair. This relies on the basis that all people are equally deserving of goods and services, in terms of both equal ability to buy (fair distribution of wealth) and reward for selling (fair compensation for equal work), rather then fair in terms of the “blind economic man.” There are inefficiencies that happen “naturally,” or without government or institutional mandates.

One example of the creation of inefficiency in the market is patents. If a pharmaceutical company creates a drug and obtains a patent on that drug, the government will outlaw copying of that drug by other companies. This is an effort to encourage companies to develop drugs and allow them to reap the rewards for the research done to create it. This is fair for the drug company, but it implies that the price of the drug will be higher due to the monopolistic nature (which is a market failure) the patent created, making it unfair for the consumer. The government then allows companies to copy the drug after a certain amount of years, therefore returning the market to a competitive, efficient and fair market.

The welfare system is an example of a process where distribution inequality is changed to be fairer to less wealthy people. This is a large market inefficiency, however does make the distribution of wealth more fair, (or equal).

gift giving

I've never been a good gift giver. I'm just not that creative. It could mean something more than that though. I think its something that has a deeper psychological and, of course, economic meaning.

Gift giving provides a keen signaling affect which represent an investment in the relationship. In romantic relationships, people can easily say something that doesn’t truly represent their own feelings.

Even personally, I have told a girl that I was romantically interested in her when that wasn’t the truth, just to escape the drama that is associated when someone is heart broken. It took very little effort on my part to say such things. That separation from the truth is essentially a market failure due to the asymmetric information I created with my lie.

To enter into a relationship, a contract is essentially made. You are pledging to invest your time, effort, emotions, and money into the individual you entered the relationship into. Whereas time is easily monitored, it is much harder to determine effort or emotions. Gift giving signals that you invested thought into the person to get an appropriate gift and put emotion into the gift by sacrificing your money, which would otherwise go to things you value and enjoy. It is a commonly used tool to show commitment towards the relationship.

Dare to disagree?

Dishes and Why I don't do them

Free Riding and (Not) Functioning as a Human Being

The Free Rider problem has often been analyzed in terms of institutions and in government, however where the free riding problem has the greatest influence, and sequentially problems in my life, is in everyday life. Although, one could propose that my living situation, which is sharing a house with seven other people, is in essence an institution. By analyzing it, as though it was an institution, can provided a keen insight to how the free rider problem affects most individuals more than they think. Simple structures, in the household, can eliminate most of the transaction costs which enable the possibility of the free rider problem from occurring.

The free riding problem at my house runs rampant. Despite the popularity and efforts of MTV’s “Real Life” to display the problems of 20-somethings functioning together in a large house, my house has few contentions. This may be a good thing, but the relaxed nature of most people living in my house nurtures the free riding problem. The most obvious example of the free riding problem in my house is dishes. Seemingly a very benign topic, it is by far the largest contentious issue in my house. Even today, one member of my household declared that Person X is “a lazy asshole.”

Every person in my house is responsible for washing their own dishes. Some members of the house declare that it must be done right after eating. Being raised where I’ve never had to wash my own dishes (I had other cleaning responsibilities growing up), this is a difficult problem for myself personally. I enjoy spending time relaxing after a good meal, and it is hard for me to be motivated after the meal. So, I simply don’t do them right after I eat. My housemates understand and guilty of these crimes as well, so they do not chastise me for it. After, I often become distracted and forget about the dishes in the sink for a long period of time. Mind you, I am not the only one who does this. Sequentially, the more responsible members of the household end up doing the dishes for those who are enabled by the free rider problem. Thus, the problem has been created.

It is proposed that within smaller groups, social ramifications occur against the offender if certain individuals free ride. I can see how this can be argued, due to the fact that I only do my dishes when my roommates yell at me enough, but I have witnessed the opposite as true in some instances. Even as I write this right now, we have a sink full of dishes, some of them my own, but most of them from the others. The failures of the free riding problem are still a problem in small “institutions” where intimacy, in the non-romantic sense, is a large aspect of the institution’s dynamic.

Along with the free rider problem, other transaction costs exist such as monitoring costs and commitment problems which exacerbate the problem. Anonymity, or imperfect information, could be used to explain this, in that we all use the same dishes, but it is some what transparent by observing the remnants of the food left on the dish and what the person previously ate. This is a prime example of monitoring costs and how it has enabled the free rider problem. Also, as a housemate has said before, “it’s a good thing I like you, or I’d be really rude about the dishes.” This allowance for free riding is not based on ability to recognize the deviants, but is due to the pressures on those who do their dishes appropriately to maintain a healthy friendship with the deviants. This particular problem would not occur if all of the housemates weren’t friends.

To help this situation, a few things could occur. By better understanding the free rider problem, I proposed to my housemates, with little success, to create a system where a person is responsible for doing the dishes one night of the week. This would make it much more apparent who was not fulfilling their duties in a blatant way. It would be obvious the following morning that the person responsible for the previous night’s dishes did not follow the rules, and would be reprimanded by having to do them that day. This would allow for a structured process of applying ramifications and limit the amount of social reprimanding the person and eliminate the allowance to occur due to defined terms of the system.

Large externalities are also very much a part of living in a household with many people. The free rider problem extends to most responsibilities of running a household, such as toilette paper purchasing, bathroom maintenance, vacuuming, yard maintenance, and more. Until I lived in a house where it was easy to free ride, I didn’t understand how encompassing it can be. It could be argued that free riding could be the function of your personal responsibilities and how well you fulfill your personal responsibilities; essentially it occurs when you are not a functioning member of society. Structured regulation, rather then periodical scolding, may provide tools to eliminate the transaction costs that allow for the free rider problem to occur. The elimination of transaction costs makes it easier to fulfill your role as a functioning member of society, whether society be defined as the seven people you live with or the city you reside in.

Disinterest in Venture Capital

Historical evidence shows that the rich have an interest in maintaining their relative wealth. This is done in means of using their wealth to further themselves or repressing the innovative class. It is easy to think of this as evident in the Feudal Age when monarchs ruled, but harder when considering the modern age and the prevalence of venture capital. Venture capital, which is in the business of supplying a temporary cash flow to entrepreneurs, is often looked at in an almost philanthropic way but it can hardly maintain that image with returns of investment and a company-destroying exit strategy in mind. The practice of maintaining comparative wealth through venture capitalism and other financial tools is just another act which further entrenches the wealthy despite the venture capitalist’s mission of value-adding services and their denial of such claims.

The economic and political elites have been a franchise of economic interest and heredity-based opportunities for the since the times of the Roman Empire. In an essay concerning the elites in universities and business, Brezis and Courzet observe the circulation of elites in the past: “…recruitment of the elite was actually carried out via heredity, nepotism, and violence and the word “aristocracy” cam to describe the hereditary upper ruling class. Hereditary monarchy was for centuries considered the most legitimate means for recruitment for rulers, based on the assumption that morality and intellectual prowess are inherited, according to God’s will.” These actions in the feudal age were the most legitimate way of retaining wealth and transferring prosperity to the children of previous leaders.

With the growth of nations and industrialization, there was a fundamental shift from the power of the ruling class to the business class, but both wanted to ensure economic well-being. Before an increased of importance of university education, large business leaders were often hereditary. Brezis and Courzet explain “Most of the British economic elite were recruited and trained via the traditional channels of family connections and patronage, the so-called“old boys’ networks”of those who had attended public schools.” Essentially, even though there was the creation of the business class, heredity still ruled. Barriers of entry are high when it is your father or his friends who give you the opportunity to become economically well-off. Although obtaining wealth was becoming easier, there were strong methods for elites to retain wealth.

The twentieth century brought the advent of the availability of the university education. There is evidence that the economic elites still had a fairly large monopoly on gaining entrance into the elite schools, such as the Ivy League. However, this change brought a fundamental shift in the retention of relative wealth. It was no longer viable for practice of heredity-based opportunities in large businesses in the scale of previous centuries. The retention of wealth was brought by investment vehicles and trusts.

In 1946, the first venture capitalist firm was created by Georges Doriot and was called American Research and Development Corporation. Although it isn’t the most popular avenue for majority of economic elites to retain their wealth, it was the creation of a vehicle to do so. Typical venture capitalists buy shares of a start-up company to provide liquidity for the company to grow and become profitable. A large percentage of today’s most successful companies are a product of venture capitalism. Since 1946, the rise of venture capitalism has grown immensely. By 2000, Venture Capitalism was a $105 billion dollar industry (PricewaterhouseCoopers 2008).

Historically, elites have made tremendous efforts to retain their wealth and have done so throughout the progression of society and economic development. There is no reason to believe that altruism is a product of the twentieth century. Through investments and now with the proliferation of venture capitalism, investors take a share of all profits and growth in a company. This does not prevent people from gaining new levels of wealth, but it does help maintain a continuation of growth of their wealth to levels that are fairly consistent in terms of relativity.

Revolutionary ideas and the products they create are the cause for loss of relative wealth for the economic elite. Even despite an economic interest in new companies, their share is not large enough to make the economic elite a permanent position. Barriers of entry help preserve their wealth. However, in an economic situation where the entrepreneur can make massive amounts of money and usurp the previous economic elite, there has to be some mechanism to stop that.

Venture Capital has had a history of pseudo-philanthropic work. Ideally, their firms would provide the liquidity for companies to grow to their potential and would further propel society. They risk their capital in the name of progress and often take a handsome reward for the risk take. However, through growth in of the venture capital market and less altruistic venture capitalists involved in that growth, the business plan for the firms has been severely been altered. Previously, the prevalence of the initial public offering in a S.E.C. regulated market, such as the New York Stock Exchange or Nasdaq, provided venture capitalists to seek their returns on investment in profit and growth building methods.

In March 2000, the internet bubble popped. Many venture capitalists had invested in internet start-ups which exit strategy was an IPO. The majority of these companies were purely speculative based and some were not revenue generating businesses. Internet entrepreneurs and venture capitalists had taken advantage of a speculative market and had profited immensely from it. It transformed the IPO into something that wasn’t economically stable as an investment and, in the process, negated the requirement for company to be viably profitable and growth-based. As a result, with the advent of the bursting of the internet bubble, IPO’s were no longer a relevant exit strategy for most entrepreneurs and venture capitalists.

With the most prevalent exit strategy erased, venture capitalists have turned to use mergers and acquisitions as the primary way to gain the return on their investments. However, it is beginning to become apparent that this exit strategy is potentially harmful to innovative ideas.

The problem arises from the same agenda of three very different groups of people; the entrepreneur, the venture capitalist, and the large companies buying the new ventures. They all, generally, would like to make a lot of money of the products created.

Companies, such as Microsoft, Yahoo and Google are buying a multitude of smaller companies that are the product of venture capital pipelines. These companies are small companies that often only offer one service that are very specific in nature. Viability is a challenge for these companies if they are not acquired by a large corporation. However, the large corporations are buying the start-ups in an effort to gain the value-added products of the start-ups offer. In the process, the sell-side of the equation is getting their exit strategy.

Just as the economic elite have maintained their relative economic wealth by preventing the capable of gaining wealth through meritocracy, these large companies are doing the same. However, these companies are not creating seemingly impossible barriers of entry through heredity and “old boys’ clubs.” They are preventing the growth of companies and new innovative ideas from fruitation through acquisitions. Fred Wilson, a venture capitalist and discussion leader of this trend, talks about these activities with Google as an example. “[Google] has bought a number of assets over the years and several of them have languished.” He continues with the comment, “we can argue about the magnitude of the return we need and a host of other things, but the fact remains that without a path to liquidity, all the innovation that is being created by the entrepreneur/VC equation will stop happening.”

Fred Wilson gives an example about the acquisition of a company, which he was a venture capitalist for. The company, delicious (http://del.icio.us), was acquired by Yahoo in 2005. By tracking the user base of the company after the acquisition by Yahoo, the company’s popularity decreased immensely and is growth has essentially become a stand still. Wilson states, “I see what happens when a company gets purchased. The service languishes. The team leaves. It stops getting better and often gets worse. So, even though I am happy to take the money, I am left wondering, frankly wishing, if there is a better way.”

Umair Haque, writer for the Harvard Business Review, wrote a response to the issue. He agreed with Wilson, “public offerings are tough, and acquisitions end up trapping innovative startups in corporate bureaucracy.” He continues with, “Every company that had the potential to be economically revolutionary over the last five years sold out long before it ever had the chance to revolutionize anything economically… All sold out to behemoths that are destroying every ounce of radical innovation within them.”

The discussion often leads to the example of Google. Google was a company that had a multitude of offers to sell the company to a large company like Microsoft or Yahoo. However, Google declined all offers and is now a strong, revolutionary company that is a successful in both profit and growth. Google has since become the idealistic venture company and is the result of a successful exit strategy.

Haque continues the discussion with a criticism of the current state of the venture capital industry, “The venture industry is fast becoming an old boys club: one big boardroom mostly full of guys with the same perspectives, beliefs and incentives.” This gives way to the idea that the economic elite, which are now not only defined by investors but the largest corporations, have successfully monetized the process of killing innovation. Venture capitalists gain money from the sell of their assets and the large corporations continue to maintain their market share by eliminated the competition through acquisitions.

With the market demanding more reasonable exit strategies, large financial institutions have created a secondary market for private and venture equity. Goldman Sachs recently created the GS Tradable Unregistered Equity OTC Market (GSTrUE). Similar secondary markets have also been created, such as Opus-5, more recently by other investment banks.

These new markets are a combination of the venture capital market and the process of initial public offerings. The companies under the new GSTrUE are private companies and are unregistered by the SEC. They do not trade publicly and there can be a maximum amount of 399 shareholders of the company. Investors who participate in these new secondary markets must have assets over $100 million dollars and are closed to individual investors with smaller assets.

A Wall Street Journal article by Randall Smith on the new secondary markets states that “it represents he latest step in the creeping exclusion of individual investors from a growing proportion of financial-market activity. The growing importance of hedge funds -- which are generally limited to wealthy investors, institutions and endowments -- also excludes individuals.” The new secondary markets do not necessarily create a new end game for venture capitalists. Large shareholders could still demand certain exit strategies, such as a buyout. Fundamentally, this new market does not change the dynamics of venture capitalism, but provides liquidity to venture capitalists. The problem is not solved, just changed.

New innovations in the financial services industry are bringing the franchise of the economic elite to a more solid foundation, since education and hereditary barriers of entry have lost their viability. Instead, the barriers of entry are much more clear and simplistic. If you do not have copious amounts money to invest, you can not invest in these high-return investments.

The income share of the top decile of American is a good indicator of the establishment of the economic elite. The graph below (Piketty and Saez 2006) shows the top 1% of people in 1917 with about 18% of the national income. This could be correlated to the hereditary process of opportunity and the elite school education. After the end of World War II, the income share decreases to below 8% in 1973. With the increase of financial tools like venture capital and hedge funds (the first hedge fund was created in 1949), the income share rises dramatically to around 17% at the time of the internet bubble. The top decile of Americans earned an aggregate of around 44% of the nation’s income at this same time.

Throughout history, innovations in the barriers of entry into the economic elite have changed, but are still strongly entrenched. The process is still alive today with the creation of the asset-heavy industry of venture capitalism, the creation of hedge funds and, most recently, the creation of a secondary market for private equity. The availability of these resources needs to be made accessible to the common person for this vast economic inequality to start eroding.

blogs and bad incentives

Transaction costs are apparent in all institutions. With better technology, there is a reduction of information costs. However, there are some transaction costs that cannot be solved through technology. The incentives for sharing the information limit the amount of information shared even despite the reduction of information exchange costs. A fairly recent development of information exchange was the creation of the blog, which create an avenue to share information from a singular individual perspective. The ways in which a blog gains profit should be from providing a consistent quality product. However, the incentives are limited to profit through advertisements. This creates a separation of incentives between the author and the reader. However, with the creation of organization-supported blogs, incentives are re-aligned with the benefit of the reader in mind.

Technology and the advent of the internet have greatly reduced information-based transaction costs. Availability of essentially any information is at the grasps of anyone with the access of a computer. There are also avenues to promote your own thoughts: blogs. Blogs are the creation of technology which enables you to share your own voice. Originally, many blogs were journals; highlighting day-to-day activities. They have since transformed into a vehicle of discussion on a multitude of compelling topics. They have created companies to manage blogs, to organize them, and to profit from them.

Most blogs are but a mere collection of one person’s thoughts. However, if those thoughts are particularly useful or they come from someone who is an expert, it is capapble to monetize the viewers of the blog. For example, Chris Anderson, author of the book The Long Tail, runs a popular blog due to expertise and insight he showed in his book and advertises the sale of the book by those viewers who discovered his blog first.

Originally, blogs had a limited availability of ways to profit from viewers. They were limited to goods sold, like Mr. Anderson’s blog which promotes his book. Then, Google created the Adwords process of milking profit from strategically placed advertisements that are associated with the subject. With easy use and implementation, Google’s Adwords revolutionized blogging into something that could support the authors financially.

A fundamental shift began. It transformed the blog from something that facilitates the sharing of information for the sake of being heard to making money. It created a separation between the authors of the blog, who wants to make money, and the reader, who wants useful information. The incentives of blogging were no longer aligned with the original purpose of the blog.

The most successful blogs, however, do provide useful information to their viewers. By giving useful information to the viewer, ideally, the amount of viewers would increase and consequentially provide more profit to the blogger. In a recent post about successful blogs, Kathy Sierra, author of the top 100 blog Creating Passionate Users, states that “what's good for [the reader] is what's good for the blog. And for me.”

The fundamental business model of a profit-oriented blog is still aligned with the benefit of the viewers; if you offer a quality profit, the readers will give a return on that information through the use of Adwords. However, the majority of blogs offers a poor quality product and expects returns from the poor quality product. One of the most popular blogs is problogger.com. This website’s focus is only to explain how a blogger can gain the most amount of money from their blog. When profiteering is the major focus of a blog, the incentive is no longer aligned with the benefit of the user.

Advertisements are also a direct cost to the consumer. The costs are created when forcing the customer to view an advertisement before or while the product is provided. The customer pays the costs for these dilutions. Google, one of the most popular websites on the internet, foregoes profits from advertisement on its websites, limiting the costs to the consumer who have to read the ads. It could be viewed that Google is actually investing in their customers by foregoing those profits. This provides a better product to the Google consumer.

Incentives need to be realigned. I have found that some of the most useful blogs are those which are supported by an outside institution. The institution provides the blogger with an income, which shifts the incentives from profiting through Adwords to providing quality information in effort to ensure continual sponsorship from the supporting institutions. Such institutions that support bloggers, who provide more useful information, are academic institutions or publications, like the Harvard Business Review. Other institutions that provide support are companies such as the New York Times. The bloggers do not provide a direct source of income but create a market for other profitable aspects of the company.

One extremely popular blog is postsecrets.com. Viewers send their secrets to the author of the blog via small, art-driven postcards. The author, Frank Warren, has no advertisements on his blog, except a link to a website that allows you to book Warren as a speaker at your college campus. Mr. Warren does not profit from the blog specifically, but makes money by using the popularity of the blog to create a market for his speaking events. This minimizes the transaction costs of viewing the website, but still provides a source of income for the author.

Profiting by providing information to people through blogs is not fundamentally bad. It is those authors who wish to gain profits more so than providing useful information to user does a problem arise. The transaction costs in this separation could reduce the amount of viewers and consequentially the amount of profit made. The better quality the product with a lesser amount of transaction costs will result in higher profits and, most importantly, benefit the viewer in greater amounts.

With transaction costs reduced and the flow of information increased due to the internet, it is extremely profitable to share information. However, the incentives must align for the benefit of both the creator and the beneficiary. If the current method of incentives does not cater to this interaction, alternative methods and incentives must be created. Market creation through blogs is the most viable incentive which benefits both parties.