The Web.  Open, democratic, leveling, freeing information from closed networks.  The wisdom of the crowds. Or so it seems.

I originally came from the entreprise software world (for 10 years) and before that I was in mobile & telecoms (8 years) so the last three years of immersing myself in consumer Internet, digital media & advertisings has been very eye opening.  I arrived on this scene wet behind the ears assuming that the web was, as it seemed to me as a user, powered by the masses for the masses.  Ah, the joys of youthful naivete.

I first learned the ropes around SEO (search engine optimization) and how for years this has been a cat-and-mouse game where people game the system (Google) through link exchanges, offshore SEO “agencies,” widgets, algorithmically optimized content and the like that degrades the quality of search results.  I then learned about the large world of Internet arbitrage, lead gen, and “crap-taculous” revenue as one friend calls it.  I learned about domain parking and how much money that drives for Google.

And then I had another bubble burst.  I had previously believed that the world of user-generated news sites were run on a open, crowd-sourced model.  You submitted news to a website like Digg and if it was interesting content with a great headline and newsworthy text it would get driven up to the masses.  I know the more experienced consumer web people will be laughing about now.

What I learned 18 months ago is that sites like Digg traditionally have not been “crowd sourced” so much as “mafia sourced.”

Here’s how I learned:

When I first started blogging 18 months ago or so I started asking people the best way to get distribution.  I didn’t want to obsess with it (I have a day job!) but I wanted to be sure I wasn’t writing just for my mom.  I had a lot of initial success publishing my content on Twitter and the truth is that it was fairly democratic.  If I wrote an interesting story with a compelling enough title it tended to get good click throughs (2-4% each time I Tweeted & for reasons I’ve explained before I Tweeted 2-3 times into different day parts).

I had a few friends help with the initial distribution and explained how to do that in this post on how to blog effectively.

I then experimented by putting a button from Tweetmeme to make it easier to Tweet from my blog and FB share button from awe.sm.  Things started to spread more virally.  Awe.sm is right!

Then I started experiencing the magic of being “profiled” on a few sites.  The first to hit was when I was on the WordPress home page.  BOOM!  Traffic rolled in.  And then I got covered a couple of times on HackerNews and another major spike.

Next on my agenda – Digg.  If HackerNews was big, Digg must be even bigger – right? I put up a button on my blog and noticed that I got a few clicks on the button.  But it didn’t drive ANY traffic.  Hmm. Not the expected reaction.  I tried another experiment – I asked a friend of mine to submit a story on Digg.  He had told me he used Digg all the time so I figured if people saw him there submitting a story it would bring at least some juice.  Nada.  Bagel.  Zippo.

I called a friend of mine who is REALLY in the know.  I’ll need to protect his identity I asked him why I sucked on Digg.  He asked me who submitted my story.  I told him and he said, “well, that’s your problem.”  Huh?

“On Digg it really matters who submits your story.  There is a small group of people that all work collectively to promote stories.  We all know each other by online handles.  We are all linked in IM (instant messenger).  When we want a story promoted we ping each other and all of the power users will promote the story.  When it starts breaking then the power of the crowds takes over.  If you want a story to break on Digg just let me know.  I’ll help promote it.

I never took my friend up on this offer.  Blogging is a hobby for me and I love being able to learn about all of the technologies from a practitioners perspective rather than the Ivory Tower.  But I don’t make a penny from blogging and I certainly wasn’t wanting to mafia source a bunch of users who probably would drive unfocused numbers to my blog.  I care about quality entrepreneurs & investors engaging with me intellectually, not mob scenes.

I’m not talking about systems where a few friends conspire to get more coverage for their news – that obviously happens everywhere and in many ways is just part of hustling as an entrepreneurs.  I’m talking about places that are systematically rigged by powerful trading networks of people who are paid to help propagate (and kill) stories.  That’s a far cry from friends who are your personal user-generated marketing machines.

I called a bunch of other friends in the space and they all corroborated my initial friend’s story.  Some offered to help promoted me on  StumbleUpon, Fark and others.  Uh, no thanks.  Et tu, Brute?  Yup.  Seems these rings operate where they can.  And I learned that some of these people I knew are paid to help promote stories.  They have consultancies that guarantee you traffic and get paid to operate in these mafia rings.

One place that really has surprised me is HackerNews.  At least from what I can tell (maybe I’m still PollyAna-ish about it because I love HackerNews) this user generated news is much less gamed.  Not zero, but less so.  They seems to make it hard to directly link to stories and I haven’t heard of HN mafia circles.  It seems that they have a desired goal to control it as outlined by Paul Graham even this week.

So when I read the articles about the Digg V4 controversy (see: wikipedia & TechCrunch) it doesn’t surprise me that Digg would want to change its feature set to make it a more honest broker of user-generated news (the way Twitter seems to be to me).  Yes, they are getting lambasted by their users for the recent changes but probably precisely because when you’re the mafia you don’t appreciate a little light shining.  I must admit that I haven’t followed the Digg v4 controversy closely enough.  I stopped watching when the Sopranos ended.  So there might be more to users discontent than making the system harder to game.

I for one applaud any efforts to make user-generated news (and the web) more democratic & open.

This post was originally published in a shorter (more sensible) format in the Wall Street Journal online.  If you’re short on time click on the WSJ link and read  the 990 word version there.  Otherwise, grab a cup ‘o coffee …

Clicking on any graph below will take you to that article.

One year ago I predicted that in 2010/11 the economy, far from being on the path of permanent recovery was on a temporary resurgence and there was a strong possibility of a “double dip” recession.  My advice to entrepreneurs was and is “when the hors d’oeuvres tray is being passed take two” (e.g. raise money now to weather any storms).

My original thinking from Oct ’09 was, while I didn’t (and still don’t) have a crystal ball I worried that: consumers were over-stretched with debt (and make up 77% of the economy), unemployment would continue to rise, which in turn would drive the stock market south and cut the rate of M&A activity and VC investment even further.

Sounds obvious now, but as I wrote the original piece the DJIA had already come roaring back from 6,600 to 9,865 so it was certainly against conventional wisdom. It eventually closed at 11,204 in April ’10 before sliding back around 10,000 as I sit here and type.  Well before the recent decline I sent out a Tweet that said, “Many will disagree but I still fear deflation, structural unemployment and political malaise.”  Scott Austin of the WSJ (worth following) saw my Tweet and asked me to go on record with my rationale.

So I agreed to offer my current thinking on the economy and what it portends for the VC industry & fund raising for entrepreneurs.

Let me preface by saying I obviously have a vested interest in being wrong about tough times ahead but as the old saying goes, “hope for best, plan for the worst.”

• 2010 has been a great year for startup fund raising: Let’s face it, 2010 has been “the year of the super angel / seed funds” that was arguably first popularized by First Round Capital but has gathered steam with the success of great firms like Floodgate, Founder Collective, SoftTech VC and more recently Felicis Ventures, 500 Startups and incubators like YCombinator & Betaworks.  The prices of angel deals have recently crept up, VCs have also gotten their checkbooks out again, frothy deals are happening and people are feeling bullish.  I heard an entrepreneur last Friday tell me that after he appeared on AngelList he had a funding frenzy with one investor whom he had never met offering to fund him after just 15 minutes on the phone.

• We’re still caught in the “post recession bounce”: What’s happening is that the angel & VC community is still feeling good from having bounced back from the nadir of the famous “RIP Good Times” funk that we felt in 2008. This has been especially true for angels or seed investors as there is a new thesis that less capital is needed to start Internet companies so more money is being spent at this phase of the funding lifecycle.

VCs have also gone back to writing checks because as an industry we can’t be seen as “sitting on the sidelines” for years at a time.  VCs get paid to “put money to work.”

While not 1999 all over again but I am observing first-hand the signs of funding frenzy.  I know not everybody agrees.  Let’s talk again in a year or two.  I’ll happily eat crow if it turns out this wasn’t an overly bullish phase.  The industry is still in major contraction with many funds shutting down or slimming down and I believe this trend will continue for the next few years.

• We have structural employment issues:  The official unemployment rate in the US is hovering just below 10% but “true” unemployment is much higher when you account for those that have stopped looking or taken part-time employment and in key states like California and Michigan we’re downright hurting.  45% of all unemployed people have been looking for jobs 6 months or more – this is unprecedented.  And when you further strip out any employment created by government stimulus that is uncertain to continue going forward we know that the country is not creating enough jobs.  We’d have to hit 2.5% GDP growth just to stand still on employment! And last quarter we now know grew at just 1.6%.

We as a country are suffering from what is known as “structural unemployment” where jobs have disappeared from certain segments forever due to technological or structural obsolescence.  This led to the unusual protectionist proclamations by Andy Grove (former CEO of Intel) in a recent BusinessWeek article where he measures the US against China in what he calls the 10x problem – for every high-tech job we create in the US, China is creating 10 as evidenced by Apple’s 25,000 employees against its Chinese supply-chain of 250,000 (see Foxconn’s growth below: now larger than HP, Microsoft, Dell, Apple, Intel and Sony combined!).



Yes, I studied Ricardo’s theory of Comparative Advantage in college that says that lower-skilled jobs should move to countries with lower labor costs, but Andy Grove’s point about loss of skills in manufacturing leading to a decline in innovation in the next technology wave is both real and troubling.  Here talking about lithium-ion batteries and the early lead we’ve squandered in that market:

“With some technologies, both scaling and innovation take place overseas.

Such is the case with advanced batteries. It has taken years and many false starts, but finally we are about to witness mass-produced electric cars and trucks. They all rely on lithium-ion batteries. What microprocessors are to computing, batteries are to electric vehicles…

The U.S. lost its lead in batteries 30 years ago when it stopped making consumer electronics devices…

U.S. companies did not participate in the first phase and consequently were not in the running for all that followed. I doubt they will ever catch up.”

I don’t agree with his protectionist solutions such as tariffs, but the problem seems both real and lasting.

• Personal balance sheets are still stretched: The problem in the US starts & ends with “consumerism” that was fueled by artificially high real estate prices, which drove up spending and the stock market.  The reality is that we’ve spent beyond our means for years and the process of “de-leveraging” (increasing savings by spending less) has begun.  We took $2.3 trillion out of our homes and spent 2/3rds of it on flat screen TVs, trips to Hawaii, time shares, Apple products and everything else we couldn’t afford.  The spending contraction is inevitable in a period of declining real prices of housing, high unemployment and tightening credit.

High unemployment, wage stagnation, lowering real estate prices and the lowering of demand for products may lead to deflation (where prices of goods & services decrease each month – i.e. the opposite of inflation).  This coupled with government intervention of companies “too big to fail” were the blight that led to Japan’s “lost decade.”  Sound familiar? Deflation is crippling because as consumers expect products to be cheaper tomorrow they hold off purchasing every month to see what happens leading to a negative spiraling economy.
• The housing market is not recovered: Sales in existing homes in the US fell 27.2% between June and July 2010 (and 25% from a year ago).  Sales fell in every region of the country with the Midwest suffering the worst at 35%.  We also have an overhang of foreclosures either held by banks or consumers who have not yet “blown up” but are increasingly behind on payments.   Anybody wanting to understand how “oversold” the housing market is should read The Big Short.

• Government programs led to the law of “unintended consequences”: Our housing slump now is continuing well beyond where many people had hoped it would be by now.  Some of the delay is just overhang of a bad market but we may be delaying true supply/demand matching through the well-intentioned government’s attempt to stem price declines.  The government had a tax incentive for first-time buyers that expired April 30^th, which many people believe “pulled forward” demand rather than improved the market.

The same happened in autos and one could argue that the same has happened with the government stimulus overall.  Surely any retrenchment in Keynesian stimulus will lead to further economic declines going forward.

The reality is that when governments try to intercede they often create “the law of unintended consequences” and to a certain degree assets prices just need to normalize.

• Washington is in no mood to take stimulatory action – for a long time: While there was a momentary unity in the US government for bailouts & stimulus spending that were initiated in the Bush administration (many people conveniently forget this now) and continued under Obama, it is clear that this era of consensus is over.  Keynesians will argue that this is a bad thing and fiscal conservatives will argue that it is a necessary discipline.  Either way, the gridlock that is now the US congress will prevent any real economic responses and it seems likely that this political malaise will last beyond the 2012 election as the Republicans look to make big gains in the 2010 mid-term elections.

• The Fed: That leaves the most likely response to any economic weakening to be dealt with by the much less political Federal Reserve. With interest rates near 0% the Fed can’t cut interest rates to try and stimulate the economy and drive good inflation (or avoid deflation).  They would need to turn to non-conventional means to spur the economy such as “quantitative easing.”

In fact, just last week Fed chair Ben Bernanke hinted that they would consider “unconventional measures” during his speech in Jackson Hole where he talked openly about the problems in the US economy:

“Consumer spending may continue to grow relatively slowly in the near term as households focus on repairing their balance sheets. I expect the economy to continue to expand in the second half of this year, albeit at a relatively modest pace.”

While he is publicly saying that he expects a modestly improved economy in 2011, it’s hard to be too sanguine when you look at the data.  Consumer debt relative to incomes has risen to an all time high reaching 138% of 2007 (obviously that’s not sustainable!) and has recently come back down to 122% (said David Brooks on The PBS News Hour).  Historic averages were in the mid-60′s.  It’s obvious that consumers need to cut back spending.

Bernanke again:

“the pace of spending will … depend on the progress that households make in repairing their financial positions. Among the most notable results to emerge from the recent revision of the U.S. national income data is that, in recent quarters, household saving has been higher than we thought”

Obviously a “good news, bad news situation.”  People are lessening their debts but that decrease in spending slows the economy.  I expect this to continue.  In the long run it’s important but in the short-run I expect more volatility in the market.  As I like to say, “We were at one hell of a 25-year cocktail party, expect that the hang-over is just going to take some time.”

• State & local governments are going to be hit:  One likely result of the economic crisis and lack of political alignment in Washington is further cut-backs at state and local levels because unlike the federal government they can’t print money.  This spells further unemployment, cuts in services and a further retrenchment in middle-class spending and housing prices.

In California the primary school education system has cut 10 days from the school year to save jobs.  Surely cut-backs are needed in every state but we’re going to have a heck of a debate going on about where to cut.  But as you can see from the graph below while private sector jobs in CA have contracted the public sector job rate has been static.  I doubt this situation will hold politically.  Oh, and one more politically charged issue we’ll deal with in our lifetime – the total “pension shortfall” across all states in the US is estimated at more than $1 trillion dollars.

• And the tax changes for 2011 could cause a further end-of-year sell-off: Another factor often not discussed is that the capital gains tax increases coming into effect in 2011 are might just lead to a stock market sell-off in Q410 as investors “lock in” gains at a lower tax rate.

Stock market declines equal lowering of wealth effects which in turn equals lower consumer spending and hits on corporate earnings.   This affects M&A activities for startups, which with the reduction of the IPO market could spell lower returns in the short-term for technology startup investors.

I try not to predict stock market prices are too much because I’ve lost track of what “normal” is.  I just checked and if you bought $1,000 of the S&P Index exactly 10 years ago it would be worth $700.64 today (and that excludes the effects of inflation).  But at a minimum it’s hard for me to sign up to a “bullish” stock market scenario.  I’ve heard them argued – I’m a bit circumspect.

• The initial vulnerability will affect angel investors:  The stock market and real estate impacts usually hit angel investors (excluding angel funds) before they hit VCs so that is where the initial hit will likely come again this time.  This class of investors is more diversified across categories plus is investing personal money and therefore feels the hit in assets declines first.  Also, if there is a lowering of M&A activity this will lead to increased financing needs for startups driving higher failure rates or increases in “adverse terms” entering future financing rounds.  Either won’t bode well for angels if they’re also hurting on non tech investments.

• Many entrepreneurs could be caught in the “series A&B funding gap” Equally worrying for entrepreneurs if the markets take a turn for the worse is that even if they managed to get angel rounds funded they may run into a VC brick wall.  VC funding is definitely back from the constipation that was 2009 replete with frothy valuations chasing dreams of the next Facebook, Groupon or Zynga.  But a double-dip recession couple with contracting VC market highlighted by Paul Kedrosky, a Kauffman Fellow, will surely bring back a period of inertia.

What does this mean if you’re an investor?

If we do have a double-dip recession or a “lost decade” the investors who have put money to work in capital efficient companies at reasonable (not frothy) valuations will fare the best.

The investors who in my opinion will be especially vulnerable are those who chose to spread too many bets or didn’t reserve enough for follow-on investments.  Massive market corrections require hands-on investors who are good at: building management confidence in tough times, encouraging costs cuts, performing triage so that the strongest survive and helping shepherd co-investors into writing follow-on checks.  You simply can’t do with with 50+ active investments for one person.  I saw this first hand in the first dot-com crash.

What does this mean if you’re an entrepreneur?

If economic times turns out to be worse than they are today entrepreneurs who raised enough money in 2010 to weather a storm will be best placed to survive the second dip or the long lack of recovery.  Additionally, those who run lean operations and raised money from supportive investor bases will be best positioned.  Having a combination of entrepreneur-friendly angels plus deep-pocketed VCs might be just what the doctor ordered.

In the end

I’m a venture capital investor so I will still be looking to make investments.  My time horizon for investing is 7-10 years so today’s economy doesn’t affect my exit prices BUT I need to be sure the companies I invest in reach the promised land.  I will continue to look for “lean” teams, co-investors on deals to help get through any rough patches and entrepreneurs who have the resiliency to make it through whatever the economic conditions throw at us.

The tech industry can help with job stimulation, but we’re not immune to macroeconomic trends.

Seth Levine of Foundry Group addresses this important topic this morning on his blog with a post, “Has Convertible Debt Won?”Seth was basing this on a Tweet by Paul Graham that said”

“Convertible notes have won. Every investment so far in this YC batch (and there have been a lot) has been done on a convertible note.”

I have to say that I didn’t take the question to mean that convertible debt had won for the entire market, but either way it’s clear that convertible debt has become an increasing trend.  I’ve written about the topic of convertible debt at length before specifically about how angels & entrepreneurs should think about pricing.

Convertible debt is an investment that “converts” into equity in the future usually at a discount to your next funding round price and sometimes has a “cap” (maximum price).

Clearly this is is a trend and a topic that is interesting entrepreneurs.  Funnily enough I just answered this question yesterday on Quora when somebody asked,

“Why would an early-stage investor specifically NOT prefer a convertible note structure to straight equity (e.g. a priced/valued preferred stock financing)?”

Here is my answer with some minor editing:

_____________

Why many early-stage investors DO price rounds (e.g. prefer equity to convertible debt):

• If you’re an early stage investor (e.g. angel, seed) you’re taking the most risk.  If you’re the “first money in” usually there is still product risk, market risk, financing risk and execution risk
• So from basic econ 101, the higher the risks, the greater the failure rates, the higher the returns need to be to accomodate for those increased failures and the higher risks taken
• Your goal as an early stage investor is specifically to lock in the most fair early-stage valuation you can
• You clearly don’t want to price it so low that the founders don’t feel incentivized so it’s not about the lowest possible price but more about guaranteeing a certain cap
• As an investor when you do convertible debt you’re usually pricing the round when the next money comes in.  But as an angel you’re usually not only taking risks but also helping the company succeed (through introductions, social proof, coaching, recruiting). So think about it – why should you be penalized for helping a company to get a higher valuation in the next round and thus your money gets converted at a higher price?

How early-stage investors have learned to accomodate convertible debt

• The mechanism that people use to resolve this conflict is a “convertible debt with a cap”  meaning that while the funding instrument is still debt when it converts it has a maximum price – a “cap.” Make no mistake – this IS a priced round.  In fact, in some ways can be worse for the entrepreneur.  It basically sets your maximum price rather than your actual price.  Example: If you do a convertible note raising $400k at a $3.6m pre money you’re ceiling is that you’ve given away 10% of the company ($400k/$4m post money).  But your actual next round might come in at $2m pre money.  You might have been better just negotiating an agreed price in the first place.  Not always, but sometimes.
• So why do people do convertible debt with a cap? 1) it can be cheaper to complete the round from legal expenses 2) emotional.  Entrepreneurs are increasingly trained to think convertible debt is better (when it’s not always the case)
• I’m OK to fund companies with a convertible debt with cap model for small investments – no problem.  In my mind the deal is priced.

Should entrepreneurs ever prefer a priced equity round to convertible debt?

• If you have a choice between pricing a round and not pricing a round for the exact same investors then it is in the entrepreneur’s best interest not to price it and I could understand why one would do this.
• That said, I have seen times where convert with no cap was done and the entrepreneur slightly regretted it EVEN when the got a big up round in the next financing.  I know that sounds crazy, but the situation is – you got people that you like, trust, respect as angels that really, really help a lot.  You then get a big VC to invest at a high price and you realize that means your angels are going to be unhappy with how much they own of your company after the financing relative to what they THOUGHT they would own.  The reality is that as an entrepreneur you really do want to try and keep all of your investors happy and it really is fair that early investors who were willing to take a risk on you before you were a BIG DEAL should really be compensated.
• Also, f you have 2 competing offers from different investors and one has “convertible debt no cap” and the other has a “priced round.” If the second firm or people were much stronger investors I’d take their money all day long even thought it’s priced as long as the valuation / price range was “fair” (e.g. 20-25% dilution).  I’d optimize for success vs. exact ownership.  Most companies fail and most entrepreneurs who raise money don’t make a return.  Therefore anything you can do to turn this into a 1 vs. a 0 is a smart move IMO.

Why would an angel agree to a convertible note with no cap?

• Simple: he/she feels the deal is “hot” and therefore competitive.  He/she is hoping to “get in on the deal” whatever the terms may be.  I personally don’t believe this makes for a good long-term investment thesis but that’s not for me to decide.
• In frothy markets (like we’re seeing in August 2010) this happens more frequently. In down markets more deals are priced.
• YCombinator might determine that it is best for them but they’re not the typical angel investor.  YCombinator runs a program where they get a really wide group of companies involved for which they invest in each one.  That’s not the typical angel investor

What about “super angel” funds?

• I think super angel funds may be more willing than angels or VCs to do convertible debt.  Super angel funds usually want to invest at really early stages and are putting small amounts of money to work.  Therefore if they put $250k into your company and it’s not priced it’s not the end of the world to them (on a $40 million fund) if the eventual round gets done at $8m pre-money vs. $3 million pre-money.
• The reason they might feel this way is that they’re really just placing an option that if you succeed that they’ll have the inside track to invest a larger amount in your next round.  I’ve heard at least one super angel tell me this.
• I can understand this investment philosophy since as an investor like this you’re really trying to optimize for finding the few really big deals and price (within reason) will be less relevant.  If they got in at $3m pre vs. $8m pre doesn’t matter if the company sells for $500m.
• True that this logic COULD be applied to angels.  But angels typically don’t have as deep of pockets and therefore don’t do as many deals and don’t follow as much as do angel funds.

Maybe we should move towards “convertible debt with a price?”

• Thinking about it some more – the biggest reason I keep hearing cited is that the process is so much quicker & cheaper legally than an equity round.
• As I’ve cited the problem I see for investors is the risk of not pricing and for entrepreneurs “convertible debt with a cap” gives them a maximum price but not a minimum.
• In larger rounds I think equity makes sense so that everybody agrees to the terms up front
• On smaller rounds, why don’t we just do “convertible debt with price” and everybody can be happy?

In summary – I don’t believe the “convertible debt” has “won” in the market – especially not “convertible debt with no cap.”  The market is frothy right now so terms are bending toward entrepreneur-friendly terms.  But as you’ll see in my next post – I dont’ believe this will last for long.

** Image courtesy of 22Dollars.com

There are times to fight.  I must admit it’s part of my DNA to enjoy a good fight (not as much as Jason Calacanis does, mind you ahem: Facebook. Er: Comscore, Cough: Angel funding payola).

But there are times to give in and compromise.  Don’t confuse the two.  When you give in,
do so graciously.  Take the high road.  Act and feel zen.

Back when I ran my first company I fought a lot.  It seemed the world was always on fire and there was some skirmish to be had.  I fought with landlords (when the real estate market crashed), venture debt providers (who wouldn’t take a hair cut when everybody else had to), the board (over compensation), our competitors (over everything) and any service provider who didn’t live up to our perceived contract (recruiters, accountants, sales lead companies, web hosting companies).  I guess the older & wiser that I get the more I realize that finding common ground is often better than fighting.

The guys who usually were there to talk sense into me were my close colleagues Stuart Lander (COO) and David Lapter (CFO) – both more level-headed than I.  Stuart has some fighter instincts like I do but the ex lawyer in him taught him that a negotiated settlement is always better than a drawn-out fight.

I remember one of the conversation points we always had when we agreed to compromise and one I’m proud to say that I took the lead on – how to give-in graciously.  I had this philosophy that if I’m going to fight I’m going to fight hard and win.  If I’m going to compromise then I wanted to at least come off graciously.  Many people make the mistake of giving in and being nasty.

What I always told Stuart (who handled most of the final negotiations) was, “Ok, we decided to give in.  Let’s agree what our compromise is and let’s be gracious.  Let’s tell them we were wrong to have fought so hard.  Let’s tell them that we’re sorry about how things turned out.  Let’s tell them there’s not hard feelings and we’d like to find a way to rebuild our relationship going forward.”  And we did practice what we preached – it wasn’t just rhetoric.

See my view is that if you give in or compromise and you display “sour grapes” then in the end you don’t get what your really wanted AND you end up feeling miserable about the whole thing.  So you lose twice.  Not to mention that you gave in and the other party still thinks you’re an arsehole and probably talks badly about you in public.  I’d rather choose to be zen and maintain my public reputation.

This also applies to internal company decisions.  Let’s say a senior member of your team demanded a pay raise (cash or equity) and you didn’t like the way they approached you. Sometimes the right thing is to firmly but politely resist the increase.  Sometimes the right thing to do is to give in completely.  And sometimes the right thing to do is to compromise.  That’s not the point of this post. But if you DO decide to either compromise or meet their objectives then DON’T be snide or mean-spirited about it.  If you’re going to give in then lavish praise on them as you meet their request.  There’s nothing worse than consenting to the increase and still having them be pissed off about it.

Developers don’t want to work yet another weekend? Need to decide whether to fight or concede.  Again, don’t concede and be a baby about it making people feel badly for not coming in during a crucial hour.  If you feel you need them there regardless then dig in your heels, but others say “we’re in a crunch time but you guys sure do need a weekend off.  Enjoy.”

And on and on.

I got to thinking about the “lose twice” scenario this afternoon.  I was at a swimming pool (on vacation) at a nice hotel near Laguna Beach, CA.  They have two pools – one adult and one for children.  Unfortunately (for reasons that are unclear to me – even as a parent) they allow kids in both pools.  So we were sitting there in our lounge chairs when they announced they were closing the adult pool for the day because a little kid (I hope) had just pooped in the pool.  Aaargh.  But it was done – so what are you going to do about it? Zen.

The lady next to me would not let up.  She was ranting about why it should still be OK to go in the pool (“in my day kids always pooped in the pool,” “a little poop never hurt anybody,” “how can you complain about poop when everybody wears suntan lotion & chemicals into the pool!”)  I’m not exaggerating when I tell you she was still ranting 30 minutes later.  All I kept thinking was, “you’re losing twice, lady.”  Once because you can’t swim in the adult pool and twice because you’re so worked up about it you’re miserable x10.  I had to leave so I guess I lost twice, too.  Beatch.

It reminds me of when somebody cuts you off in their car on a highway.  Sure, he (and let’s face it – it’s always a “he”) is a jerk.  But you can’t change it.  Aside from being dangerous to chase him and wag your finger at him, you’ve suddenly gotten your heart rate up 20 points.  You lose twice.

There are many times in life where taking the wrong path causes you to lose twice.  Know the difference between fighting (and enjoying it) or giving in, letting go of the angst and choosing to be zen. So in business when it’s time to fight – fight.  When it’s time to concede or compromise – do so graciously.  Don’t lose twice.

Two days ago I wrote about Quora.  I’ve been loving the product even if it sucks up some of my time.  I prefer my time go into a very focused Q&A website than into a more generic Facebook.  What Quora has done is wrap social networking around Q&A with the more clever next-gen UX I’ve seen.

But my post today is not about Quora, it’s about an answer that I wrote on Quora.  I stumbled upon the Question, “What-is-the-motivation-behind-writing-public-reviews-and-tips-as-on-Amazon-Yelp-Foursquare-StickyBits-etc” and took the bait.  I wrote the following answer:

“I have always believed that UGC (user generated content) website users fall into three categories that follow the 1/9/90 rule. 1% = power users, 9% = casual contributors, 90% = lurkers.  We all get benefit regardless of our roles.

1. Power Users – These are the people you’re likely asking about.  They spend inordinate amounts of time contributing to the website.  They might be moderating categories on Wikipedia, writing 100′s of restaurant / bar reviews on Yelp, checking-in and commenting on every Foursquare venue or even writing entire transcriptions of TV shows on ViiKii.net.  Or let’s face it – writing lots of answers on Quora.

These people use these networks for a variety of reasons but it relates to:
- enjoyment from being a creator rather than just a reader
- creation of social status within the organization for having contributed
- rewards or perceived rewards for achieving status (kind of like collecting airline miles)
- self promotion in order to gain status that might either help with future job prospects or to drive traffic to ones website for primary business
- to meet friends / other people that are similarly inclined because they, too, are “power users.”

I tell people who built UGC websites that you really need to cater to the 1% users.  They need to have the right tools, social status, rewards and stickiness to your product because they don’t want to abandon their creation.  You live or die on the power users because they build the most compelling content and help promote your website (because it helps them).

2. Casual Contributors – These people are uninterested in achieving status on your website.  They had a very positive or negative experience and they want to tell the world.  They are passionate about a topic (like this one for me!) and they feel inclined to spend some time contributing.

For casual contributors the system MUST be quick and easy.  They don’t want to figure out how your complicated stuff works.  They don’t want to register for everything and they don’t care about your points or game mechanics.  As you scale your business they are tremendously important because at scale their contributions really add up.

3. Lurkers.  Most UGC sites try to spend time converting lurkers to contributors.  Don’t.  90% of all users will never contribute anything to your company.  They are there to ingest content.

I wish Twitter understood this better.  If they did then they would run marketing campaigns to let users know that “it’s OK to turn up and just consume content. Twitter’s great for that, too.  You don’t ever need to send a Tweet to love Twitter.”  I never understood why they don’t communicate that more broadly because I think most people’s fear of Twitter is that they don’t want to tell the world what they ate for lunch.

Make it fun and easy for lurkers to visit.  They deliver real value to you because however you choose to monetize, lurkers will always be your largest category.”

Then two things happened.  Ming Yeow Ng asked, “Would you consider Facebook a UGC site?”  Great question.  I wrote the following update to my original answer to that question:

Update: Social networking sites have an additional attribute in that they are communication vehicles as well as UGC sites.  Therefore more people contribute as they are communicating in an IM like way with other people rather than looking to contribute community content.  I still think they follow predictable behavior with power users, casual contributors and lurkers.  But perhaps the lurker category is smaller.

And more embarassingly to me Garindra Prahandono gave me this link to an article written by the guru of web design, Jakob Nielsen about the 1/9/90 rule written back in 2006.

I’ve been talking to entrepreneurs about the 1/9/90 rule for ages and didn’t realize that it was “tacit knowledge” that I had picked up through conversations with many people over the years but attributable to Jakob Nielsen.  Although the 1/9/90 and the word “lurker” seem to be attributable to somebody else, my philosophy on building UGC has been original thinking / POV.  That said, it’s scarily similar.  From the Neilsen article I loved this bit:

“How to Overcome Participation Inequality

You can’t.

The first step to dealing with participation inequality is to recognize that it will always be with us. It’s existed in every online community and multi-user service that has ever been studied.

Your only real choice here is in how you shape the inequality curve’s angle. Are you going to have the “usual” 90-9-1 distribution, or the more radical 99-1-0.1 distribution common in some social websites? Can you achieve a more equitable distribution of, say, 80-16-4? (That is, only 80% lurkers, with 16% contributing some and 4% contributing the most.)

Although participation will always be somewhat unequal, there are ways to better equalize it”

So in summary, if you’re going to do a UGC site:

• Know that there will be three buckets of users
• Design the product to accomodate needs of all three.
• Incentives for “power user” plus product features that make tons of iterative contribution easy
• Easy for one-time contribution without registration or other hassles for “casual contributors” and don’t think you need to convert them all to power users.  You won’t.  Their character and use case is different.  Celebrate their contribution as good enough.
• Make it easy for “lurkers” to get value out of your website.  This is where your website goes mainstream, addresses “normals” and becomes monetizable.
• You can convert some people to “casual contributors” to give you a 2/18/80 curve or similar but lurkers will always be lurkers.  Just ask people who receive traffic from Stumble Upon.
• And if you’re Twitter, LET THEM KNOW IT’S OK TO BE A LURKER!!  Trying to convert everybody to a contributor is counter productive.  If a person feels that they need to contribute to get value out of your site then they’ll probably stay away.  Simply letting me know that most people are lurkers and they will get tons of value out of your product as pure lurkers and there are plenty of other reasons to use Twitter without contributing will encourage more people to come every day.  Nobody wants to join a club where they feel like they’re not supposed to be there.

** Lurker image courtesy of Wine Library TV.  T-shirt can be ordered here:

I was an early user of Quora and like all new technologies they take a bit of playing with them for a while, discussing them with others and reflecting on them to let them sink in.  I’m no wall flower so when something doesn’t resonate I’m usually pretty vocal about it.

With Quora, it was the opposite – something has always felt right but it took me a while to
really understand it.  I now do.

Here’s my experience, my “ah ha” moment and why I think, although still nascent, it’s one of the most powerful websites on the web right now.

1. Pre Quora – AVC & Answers OnStartups
AVC: I’ve always loved Q&A websites and discussion boards.  For me this dates back to pre-Internet days of bulletin boards, CompuServe, Prodigy and the like.  If you find the right community it’s a great way to learn, contribute and get to know other people with similar interests.

Take AVC.com, the blog by Fred Wilson.  He wrote a blog post that always stuck with me about how there are regulars on his blog who hang out there a bit like “Cheers” just having a chat with a metaphorical beer in hand.  It’s true.  I go there frequently and often spend as much time reading the comments as I do the post.  I rarely only read the post.  What I notice is that people further the conversation, talk with each other, network, try to get noticed (linking to their websites, etc.).  Basically, it’s a topic community discussion board and that’s why people go to AVC.com every day.

And to give credit where it’s due (in addition to the content that Fred produces) a lot of the discussion works well because of the Disqus commenting platform.  I wish every blog used Disqus and I wish every website that syndicated content would create an integrated commenting thread the way that Business Insider does.  It’s an awesome implementation.  Fred talks about it here – he beat me to the punch because I always wanted to write about how awesome this is.

Answers OnStartups- Shortly after I started blogging I noticed a website called “Answers on Startups,” which I instantly loved and spent a bunch of time on.  It was this sort of techie / geeky looking UI implementation of questions that anybody could ask about startups.  There were so many good questions that I raced through and answered a bunch.  If I’m totally honest it started as a marketing exercise.  I didn’t have a ton of followers (was only getting about 20,000 visitors a month back then) so I saw it as a way to promote my content.

I picked questions that I had already covered in depth on my blog and answered them in shorter form. I always wrote an authentic response and never cut-and-pasted text.  But at the end I always put a link that said, “if you’re interested in a longer discussion I wrote a blog post on the topic here (link).”  It drove great traffic and when I checked the referral logs they stayed on average of like 8 minutes with many staying 20+ minutes.  This compares with an average user who comes for 2 minutes, reads 1.5 articles and leaves.

Only later did I realize that this was part of Dharmesh Shah’s larger blog and that the software was based on the popular “stack overflow” software.  Frankly, I enjoyed the community so much that I would have continued to come back more often but my blogging pace has been such that evening time commenting on an answer website was time away from writing pieces like this.

2. Quora “Lite”
When Quora went into Beta and became the “hip product to have access to” in Silicon Valley I felt compelled to play around with it.  Like the initial days of Twitter there wasn’t a whole lot of explanation about what you were really supposed to do on Quora and without all of your friends there contributing it wasn’t obvious to me what was so important about it.  I felt that the Stack Overflow software made it much more obvious what I was supposed to do when I arrived.

That said, I noticed really early on that the Silicon Valley “power players” were all on Quora and people like Reid Hoffman are actually in there answering questions.  The design, albeit not intuitive at first, was beautiful and in weird ways very graceful.  But still … with blogging being my priority it was hard to commit the hours to Quora.

3. The Revelation
The big “ah hah” came through a lunchtime discussion with my friend James Hritz, a smart and deep thinker who is VP Strategy & Biz Dev over at FAN.  He said (paraphrasing):

“Mark, you put a lot of time into blogging and so you have a large following now.  Let’s face it, you give out money for a living so if you can write well you’re always bound to have a big following (me: um, thanks, I guess).  I have a lot of topics I’m passionate about and love to talk, think and debate about.  But let’s face it – I don’t want all of the overhead associated with blogging.

You blog both because you enjoy it and because it helps build your online reputation.  I’m the same but without a big following and without wanting to put in the effort to market myself to create a community I can achieve what I need to on Quora.  You wouldn’t believe the discussions I get into over there and the people I debate with!  I pick my topics to answer and they’re ones that I know better than most having worked at Fox through all of our growth years and building out this large advertising network.  I comment and I build awareness & reputation.  It’s the same things you’re doing on your blog.”

Wow.  Really?  Let me have a look again at Quora.  Really?

4. The Power of Quora & Why it Matters
Really.

On Quora you can subscribe to topics, specific answers or people.  You’re alerted when people follow you, when the create new questions in your topic area and when new people have answered the questions you’re following.

And the system is really quite smart.  First, it has DIGG like voting mechanism where you can vote up or down the quality of an answer.  If your objective is to be near the top of an answer stack (e.g. and thus be read by everybody following the topic) then you need a great quality answer.  You also need to answer the question reasonably early because when a question has been around for a while the important people aren’t likely to be going back and reading it again (thus they will neither see your answer or vote your up).

So in a way it has built in game mechanics.  And they are trying to bake in user adoption into the design of the product.  Obviously it is build on a social network “follow people” model that is asymmetric like Twitter.  When somebody is new to Quora and is following you it encourages you to “give them topics” to follow, which is clever because if they accept the topics they get more alerts, more emails – more bacn – and thus they come back to the site more frequently.

Want to get more followers?  When you vote up and/or comment on people’s answers they get an alert.  You definitely notice the people who are engaged with your content and you can’t help but click on the link of their name to see just who they are.  Engagement. Game mechanics. Get me some followers.

And somehow there is a brilliant self-organizing like mechanism to Quora.  When I made a typo in describing why I love AngelList, Nivi spotted it and “recommended an edit.”  One click, accept and fixed.  When I was looking through some questions to see if I could answer them I noticed that topic suggestions were getting attached in real time like tags.  Was this automated by the system or recommended by users?  At this point I don’t know but I’m guessing both.  But the power is that if a question is asked and it pushed into the appropriate topic areas then it will pass in front of people who want to answer that topic.

It also feels very wiki like.  I saw some questions where the tags looked wrong. I deleted them just to see what would happen.  Poof!  I wrote some answers and then quickly noticed alerts flashing gracefully across the top of the screen.  People were voting up my answers in near real time (within 10 minutes of my posting).  New followers.  People were commenting on my answers.  What were they saying, I better check!

Now somebody has asked me to answer a question.  They want to know whether I think Fourquare is dead now that Facebook has announced “Places.”  My answer to that question is here.  Doh! Ming Yeow Ng has me beat on the leader answer board!  Argh.  My answer to that question and another question about why people contribute to UGC sites could be blog posts.  They ARE blog posts.

The thing is … in a way you can blog on topics you want in a format where people who want to hear about that topic (or from you) have self selected.

Quora was becoming addictive and sucked me in to the “time suck” quadrant. Although on reflection, answering questions, reading other people’s responses, earning social status … probably more “zone of effectiveness” than might immediately be obvious.

And, finally, anybody who works in the space of SEO knows that the hottest thing going right now in user results are Q&A sites (see below).  So James Hritz’s hypothesis proves correct – I blog about AngelList and get third in the SEO rankings.  Ming Yeow Ng writes a killer response to the AngelList questions and gets the pole position (again!) when people read the topic (although there’s still time for you to go there and vote up my answer ) Obviously kidding.  Sort of.  No, really.

At an $86 million, pre-money valuation Benchmark sure did pay up for this investment.  Still, I’m betting they got this one right.  High value content + early maven adopters + topic orientation + SEO friendly content + bacn + high user engagement = a very montizeable product one day.

I’ve never made a public appeal before.  Then again, I’ve never had a friend in need like my dear friend Colin Bower who is trying to recover his two kidnapped boys Noor (8) and Ramsay (6).

The short story:
Colin & I have been close friends for 13 years when we started our MBA program together.  We then both lived in London and our children played together.  Colin moved back to his home town of Boston before I returned to the US and unfortunately he got divorced from his wife, an Egyptian national, in 2008.  He was granted full legal custody by the US courts of his two young boys (US citizens).  His wife created forged passports in a fake name and kidnapped his two children by illegally flying back to Cairo on Egypt Air.  He hasn’t seen them in more than a year and she is in hiding.

Mirvat el Nady now has an arrest warrant in the US and is wanted by Interpol (see here).  Colin is being supported by his Senator John Kerry and has received help from Vice President Biden and Attorney General, Eric Holder.  The problem is that Egypt doesn’t support the Hague Convention and doesn’t have an extradition policy with the United States so they don’t recognize any of the international legal rulings in Colin’s favor.  Colin has now won visitation rights in an Egyptian court, but Mirvat didn’t show up at the legally required meeting day / time in Egypt.

What can you do to help Colin?

• Watch a short 3 minute video of Colin being interviewed by the Boston news station - this will make Colin’s situation come to life for you rather than just trusting my blog post.  It is a heart-breaking interview to watch for anybody but more so if you have children.  What would you do if your’s were kidnapped and taken abroad with no recourse?
• UPDATE: I’ve set up a donation page where you can contribute (even small amounts appreciated) to Colin’s legal defense fund. I figure if I can get 1,000 people to give just $25 Colin will have greatly needed resources. Click here for donation page:
• Visit this Facebook page with further details. Leave Colin a short note of support
• Please share the Facebook page from the link with your network to help create awareness and like the page to receive updates
• Sent out a Tweet with the text “I support the release of @colinmbower’s boys #noorramsay http://bit.ly/noorramsay“
• If you feel so inclined you could add “thank you @johnkerry for your support” (Colin lives in Boston so John Kerry is his senator. We hope the more public support Kerry sees the more active his support will be)
• Please Retweet this post by clicking on the green retweet button and share it on Facebook by clicking on the blue FB share button
• If you know any way to help (friends in government or any other ways you could recommend) please email me.  My email address is my Twitter handle at Gmail.

The slightly longer story:
Colin was married to an Egyptian national (who went to USC and had previously lived in the US) and had two boys, now 8 and 6.  We were close friends at the University of Chicago’s international MBA program.  We then both lived in London where Colin was a director at AOL Europe in their hey day and was then CEO of a tech startup.  When he left to set up his own company he worked out of my office.

I knew Colin and Mirvat (his former wife) both well.  I will refrain from any commentary about her character.  My wife & I went out with them as couples and I spent much time with Colin separately with our business school classmates when they were in town.  I knew Colin’s eldest son Noor really well.  He was born about 18 months before my first son so he was one of the first young babies and toddler I hung out with a lot.  When my first son was born and was a toddler the four of us used to hang out together.  Colin was a loving and affectionate father.  Our kids played well together and naturally my son followed Noor’s lead as the “big guy.”  A couple of years later Colin’s second son Ramsay was born.

Colin moved back to the US before I did.  He moved to Boston (where he resides today) near where he was raised in Manchester-by-the-Sea.  In 2008 Colin & Mirvat were divorced and Colin was awarded full legal custody of both children.  Mirvat was granted restricted visitation rights and was specifically barred from driving a car with the children (she wasn’t legally allowed to drive at all) or to leave the state of Massachusetts without written consent.

Mirvat’s family is well connected in Egypt.  When we lived in London we had attended parties at the residence of the Egyptian ambassador to England and went to several dinners with the children of prominent and internationally renowned Egyptian families that I won’t name here.  Mirvat was able to obtain falsified Egyptian passports with the name “Power” rather than “Bower” and she was able to fly out of the country on EgyptAir, whom Colin holds accountable for its lax security policies even post 9/11.

I spoke to Colin nearly weekly through his entire divorce proceedings.  His wife had access to large economic resources and I saw first hand how our justice system can be heavily biased toward parties with vastly superior financial resources.  After Colin won the much drawn-out US proceedings Mirvat opened a further legal battle in England where they shared joint property.  This further bogged down Colin from a time perspective as well as emotionally and financially.

Colin’s battle to win custody of his two children has now raged on for 3 years.  He hasn’t seen or spoken to them in more than a year.  To this day my phone conversations with him are still heart-breaking yet I’m struck by his resolve to win back his boys.  I could see weaker men giving up in the futility that the international system imposes.

I am amazed and inspired by Colin’s commitment to his boys.  He spends all of his working day working hard at his social media consulting firm because in his words, “I need to continue to be economically successful to finance the return of my boys and have a stable environment for them to return to.  My job and my fight for my boys are all I have now.”  He flies regularly to Cairo to try and increase his legal rights there and had spent months flying to London in their protracted property battle.  To say that Colin spends all of his free time and his money on his efforts understates the case.

Colin, I know things have been difficult.  But you’re an inspiration to fathers everywhere. I saw the love you gave Noor and Ramsay first hand.  And all of my love, thoughts and support goes out to you in your time of need.  Bring back #noorramsay

Yesterday I wrote a post about the “Urgency Addiction” and how many people start important tasks late and then motivate with a huge wave of productivity and inspiration driven by deadlines and commitments to others. In the comments section Bill DAllesandro offered some insight that he had seen from Microsoft on “interruptions”

“A study by Microsoft showed just how lethal interruptions are to productivity. The researchers taped 29 hours of people working in a typical office, and found that they were interrupted on average four times each hour. Sounds like a day at most offices.

Here’s the kicker – 40% of the time, the person did not resume the task they were working on before the interruption. The more complex the task, the less likely the person was to resume working on it after an interruption.

That means most of us are getting derailed from our work four times each hour, maybe more if you work in a high email traffic office.”

He also write a nice post on limiting email and managing on the important / urgent matrix from the perspective on a recovering ex investment banker.

This comment and blog post prompted me to write a post that has been in my queue for a long time.  I often write that I learned more than I care to admit from working at Andersen Consulting.  Compared to being an entrepreneur it feels like I didn’t learn much there but on reflection I learned much more than I think even I realize.

One of the earliest lessons we learned was how to make our bosses productive through a very simple tool called a “point sheet.”  The premise is simple: whenever you have a question or get stuck on something you’re tempted to quickly ask your boss or your colleagues for help.  This solves your immediate need but it greatly interrupts the productivity of others.

So the solution was that any time you had a question you had to write it down on these pre-printed tablets of paper called “point sheets” and once you had accumulated enough questions you could bring them en masse to your boss (everyone who worked at Andersen in the early 90’s is giving a small chuckle from nostalgia about right now).

And the funny thing – by the time you were ready to walk through 7-8 issues with your boss you realize that you had already figured out 3 or 4 of them on your own.  With a bit of patience it’s surprising just how many times you find answers to your own issues if you just try (seems like a lesson I’m trying to teach my 7 and 4 year olds these days). Now imagine in the world of email, IM, Twitter and mobile phones imagine just how much worse this problem has become.

So if you’re managing a team why not ask them to all abide by the PSP (point sheet policy) and save yourself from all of the distracting productivity drains.  Set aside one block in the morning and one in the afternoon for going through your team’s issues. Of even if you don’t have a team I’ll bet you have a boss.  Why not tell them you’re implementing a new tool designed to make THEM more productive.   Chances are they’ll love you for it.

I suffer from the “urgency addiction.”  I know it sounds like one of the falsely humble things like telling somebody in a job interview that your weakness is that you’re too much of a perfectionist.  But the urgency addiction is a bad thing that I’m fortunate enough to get away with.  When I first discovered the concept I found it enlightening.  Here’s what I learned.The concept comes from a Stephen Covey book called “First Things First,” which is a worthwhile book (Wikipedia overview here) but if you haven’t read his seminal book “7 Habits of Highly Effective People” you should start with that.  It’s as good as it gets in personal productivity / life reflection.

As individuals we have choices about how we spend our time.  If I asked you whether you want to spend your time on things that are important or unimportant it’s a no-brainer answer.  But if I asked you instead whether you want to work on things that are urgent or not urgent it requires more consideration.

Here’s how I break down the four quadrants (and I’ve put my definitions in here – not Covey’s).

1. The Urgency Addiction – Deep down I’m a procrastinator.  I know that would be surprising to many readers since keeping a blog somehow convinces people that I’m a time management or productivity ninja.  I’m not.  Why do today what I can put off until tomorrow, right?  Actually, I’m exaggerating but not by a tremendous amount.  I have my “hacks” for delivering outputs that are meaningful while managing the daily life more chaotically than you might imagine.

The biggest technique I use to avoid procrastination is commitment.  I make commitments to others and I have such a high sense of honor for not breaking commitments that it forces me into action.  That’s why productivity wasn’t tough for me as a CEO.  As the CEO you have a team that is counting on you and a board that is measuring your performance.  It’s hard to hide.  So I always performed.

But don’t confuse results with how you get there.  And that’s where the urgency addiction comes in.  I have always been good at prioritizing what is important but bad about starting my work early enough.  I was the guy in high school who didn’t have to study early to do well on tests and that continued into college.  It also applies to other parts of my life such as presentations.   I’m a pretty natural public speaker so I can write my presentation the day before and do just fine.

Actually, people with the “urgency addition” thrive on the pressure.  We rise to the occasion as it stirs our creative juices.  There is something about the adrenaline rush of being under time pressure that excites us and teases out our creativity.

We get away with having the urgency addiction BECAUSE we perform well under pressure.  Not everybody does.  I focus my energy on “critical path analysis” so I mentally sketch out what parts of  task I actually need to do early and I don’t let those slip.  So things that have to be done early get done early, but only at the last possible moment that the early task is due.

Example: I was recently in China and had three public appearances.  The first was to do a 5 minute “ignite” presentation – 5 minutes, 15 slides.  I did the outline of the 15 slides on the flight over (after a few beers). I wrote the presentation the morning of my talk, I mentally memorized what to say to each image about an hour before I spoke. And I stepped on stage and delivered what looked like a presentation I’d given 10 times before.

Internally I was a wreck.  I tried to visualize how I was going to hit such a precise presentation where you get 20 seconds per slide and then they get auto forwarded.  I was in my zone and I believed I delivered pretty well.  Anyone who saw me within an hour of speaking, though, must have thought I was Rain Man.  I couldn’t carry on a conversation.

I left that presentation and sat down in a coffee shop.  I had been asked to do the keynote speech at a dinner that night but of course hadn’t written a speech in advance.  I wrote out 3 pages of bullet point notes on paper and delivered a 20-minute speech to a crowd of entrepreneurs (which included the Minister of Technology for China).  I didn’t socialize with anybody as we walked into the room.  I couldn’t.  I accomplished the results but I certainly didn’t get there in style.

I tell this story to give you a sense of the urgency addiction in action: procrastination meets deadlines meets embarrassment if you suck = creativity and peak performance.

[As an aside, if you want a sense of the GOAP Asia trip check out this wonderful 3 minute video of Christine Lu.  I promise you'll enjoy it.  Another 3 minute version with Dave McClure on the same topic. If you only have time for 1 watch the first, we've all seen Dave but both are fun.]

Covey covers all of the problems that the urgency addiction brings in his book.  You retain less knowledge.  You take short cuts.  You make too many trade-offs.  You suffer too many internal stresses.  I haven’t read the book in years so I don’t remember the whole chapter.  But this book made the problem so clear to me that I do try at times and for certain tasks to force myself to do parts of the task early to avoid the mad rush.

It seems that we should want to do things that are both important & urgent.  After all – that’s what is on our to-do lists with the AAA next to it and a circle around it.  The obvious answer on reflection is that we should want to do things that are important and not (yet) urgent.

2. Zone of Effectiveness – The examples that Covey talks about here are things like exercise and planning.  They can’t be rushed.  If you can carve out some time during your day to not sit in meetings but instead to dedicate to thinking about the longer-term, strategic initiatives that are important to you then you’ll do bigger things in life.

Here’s an example where good behavior leads to higher results.  I founded a mentorship group called Launchpad LA.  It didn’t come out of nowhere.  I was on vacation in Santa Barbara two years ago with my wife and I was reflecting on what I had learned in my first year in LA and in VC.  I though to myself, “too many young entrepreneurs in LA seem to feel pressured by NorCal VCs to move to the Bay Area.  I hear it all the time.  Yet in LA we have hugely successful entrepreneurs who have built big companies like Overture, CitySearch, MySpace, TicketMaster.com, LowerMyBills, Commission Junction, eHarmony and on and on.

We have amazing large companies that are an important part of the future of the Internet such as Disney, Warner, Fox, Universal, etc.  The thing I need to do is figure a way to tie all this together and we can create a sustainable ecosystem where people see huge advantages in being located here.”

So I decided to create a mentorship organization where first time entrepreneurs could spend time with senior execs, seasoned entrepreneurs and VCs.  I thought through the steps:

1. Get a class of interesting companies
2. Get VCs to agree to join
3. Figure out a way to finance it
4. Get some seasoned entrepreneurs to come

I knew I couldn’t build the perfect “mentorship product” over night but I knew that MVP meant just getting the first version launched.  And we’ve slowly built it since then.

I use this story because big initiatives like this take planning.  And I spent time with Dena Cook, Adam Lilling and Dana Settle this morning discussing how we’re going to take our events to the next level in September & October.  I visualized.  We debated.  We planned.  It’s not urgent yet.  I’m so much more productive when I’m in this mode.

I think big, audacious thoughts that require planning come from down time. I almost always plan annual objectives and plot out my future when on vacation. Having the time to think is important.  I wonder if companies ought to have senior executives spend a paid week away every year with the only goal, “to think about what major initiatives they want to enact in the next year.”  Most corporate retreats are spent doing busy activities and don’t leave enough time for reflection.

3. Responsive Low Hanging Fruit – I view email in the category of urgent but not (always) important.  Some of it is important, no doubt.  But much of it isn’t.  It’s mostly other people adding tasks to your to-do list without your consent and expecting timely completion or responses.  Sounds harsh but when you think about it that’s what email really is.  I heard that Jeremiah Owyang said that sometimes you need to “pay yourself first” as in do things that you want to do (blog, exercise, do public speaking, plan events, whatever) before always being responsive or reactive to the demands of other people.

I used to be a “respond to 100% of emails” guy but I simply can’t keep up.  I try my best but am increasingly comfortable that sometimes it’s just going to slip.  At volume I don’t see any other way.  Obviously you need to dedicate some of your time to email and other less important but urgent (as defined by somebody else who is waiting for your input) tasks.  Just don’t live in this quadrant or you’ll never do anything meaningful.

4. Time Suck – And the pejoratively named “time suck” quadrant of things that are neither important nor urgent.  Here we’re into Angry Birds, MineSweeper, BrickBreaker or YouTube territory.  I don’t know – sometimes I just need to veg out.  So I don’t let myself get too bummed out by “time suck” time.

Sometimes the times where I have deep thoughts about what is going on with the Internet is when I give myself 2 hours to just play around with shite for a bit.  Try random products, play random games or send funny Tweets. The obvious answer is that you need to time box this stuff.  Obviously some people get carried away with this stuff or companies like Zynga wouldn’t be as big as it is today.

Anyway, I have no magic pills for controlling the urgency addiction but recognizing the pattern in myself was an important part of both trying to move to the non-urgent quadrant more and knowing that for some things like public speaking I’m just likely to continue to channel my urgent energies and be Ok with that.

How about you?  Urgency addiction anyone?

The Hidden Impact of Technology on our Everyday Lives …

There’s an old (semi true) parable about frogs boiling in water.  While not literal it’s a fun and instructive metaphor for change.

It goes like this: if you put a frog in boiling water it will sense the hot water and immediately jump out yet if you put it into cold water and very gradually turn up the temperature in the water the frog won’t notice and will stay in until it has boiled to death.

There’s some metaphorical truth to this in our everyday lives.  When we’re faced with shocking changes the societal impact becomes immediate and obvious.  An example would be an economic shocks that caused mass job loss and unemployment as happened after the dot-com crash, 9/11 and again in Sept 08. In times like these we reflect more about life in general and about the impacts technology has on our lives and on our society.

But most technology impacts us in imperceptible frog-boiling like ways.  We struggle to remember the days when we had to coordinate via calling friends from pay phones or having to have an atlas in our car in case we got lost.  Or how about traveling to a foreign country and worrying about having a big stash of American Express traveler’s checks lest we find ourselves with no access to cash or credit.

Technological change is astounding and I think none more than the impact that social networks has had on our lives.  We begin linking up with friends and colleagues, communicating through chat or video and sharing personal thoughts in a public or semi-public way that has impacted recruiting (> 30% of employers use for background checks), divorce, dating and so many other aspects of life.

And what is interesting to me is that as we post our videos on YouTube, record our lives on webcams, upload location updates on FourSquare, search for restaurants based on the wisdom of the crowd – society is slowly changing.  I tried to capture a small slice of that in this post that explains how Twitter is changing the nature of relationship building and merging online & offline experiences.  If you haven’t read it I think it’s a pretty interesting piece on change in the era of Twitter (as distinct from previous social networks).

I’m not implying good or bad – it just is.  An old colleague of mine who has long since retired used to lament the fact that his kids never read the newspaper.  I used to tell him that it was HE that wasn’t keeping up with the times.  Before he’s had a chance to rub the morning ink off of his thumbs I’ve read op-eds from the NY Times and Washington Post as well as scanned Techmeme and read a few blogs.

It’s true on the one hand the with the fragmentation of the news media increasingly people choose to get their news from the perspective they want to hear (e.g. left wing, right wing) but it’s also true that curious people in the age of Twitter get a much wider purview of news stories through shared links.  So my message to my colleague was – it’s different, not bad.  Your kids are alright.

Interestingly David Brooks (my favorite op-ed writer) wrote this must-read counter-intuitive piece on children and computers.  The summary version is that there is data asserting that there is a correlation with children with access to broadband-connected computers in the home and lower test scores in math and reading.  There is a separate study showing that disadvantaged children given access to 12 free books to take home in the summer (and nothing else including no assignment) scored significantly higher in reading than a control group given no books.

It’s clear that our attention is being dragged in a million places at once and this lack of focus has an impact.  There is an argument to be made about the need for time to read, time to reflect and time to write.  As much as I love Twitter and love (and hate) my Blackberry – I need this time for reflection to really have insights.  Writing has a way of forcing focus and reflection.

Speaking of technology change and our acceptance into our everyday lives.  I remembered having read that Brooks post more than a month ago but hadn’t saved it anywhere (so much for delicious).  But simply remembering the key theme of the article I was able to retrieve in from a well-crafted 8-word boolean search (nytimes.com david brooks kids books summer learn focus).  Amazing how we take this for granted.  First result was the right article.  Frog.  Water.

So that brings me to the inspiration for today’s post.  I saw two movies recently that I would like to recommend to you that are thought exercises.  Watched on their own they’re entertaining but they’re worth seeing with a friend and then discussing afterward.

The first is called “Catfish” and was apparently a darling at the Sundance Film Festival.  It’s worth not trying to watch the trailer or discovering too much of the plot but the version for this blog that doesn’t give away too much is this: it is a documentary film of a photographer who builds an online relationship with a remote family who becomes interested in his work.  The relationship involves a mother (guardian), a young woman in her twenties (potential love interest) and a young girl (8 years old) who is a savant-like artist.

The documentary really challenges you to think about relationships, loneliness, desperation, identity and also about lives of obligation and dealing with people whose personal circumstances require you to subjugate your own time, needs and desires.  It deals with a care giver dealing with severely retarded children and that person’s life in the age of social networks and virtual friends.  As you can see it tackles a lot.  And it’s a documentary so it’s a slice of life.

It’s both a brilliant film that is captivating as well as a wonderful thought exercise.  It hasn’t been released yet (living in LA I was able to get a screener video … sorry).  But if you’re interested in the Facebook connected world this is a must watch for you.

More troubling but equally interesting and certainly more provacative is “We Live in Public” the documentary of Josh Harris, founder of Jupiter Communications.  This film is both NSFW and not for the faint at heart.  But it is an important film nonetheless.  It profiles the life of Josh who became a multi-millionaire at a very young age by having a unique grasp of the social trends that the Internet would usher in.  Call Josh the frog in boiling water – he saw what we now see long before we knew about it.  With that vision comes a story of somebody also disturbed and troubled.

After making his riches he decided to wire up a building that would be housed by a large number of people who were to be filmed 24/7 in every part of the house (including bed, shower and even toilet … from the inside.  Yuck!).  This preceded Big Brother, Justin.TV, YouTube or social networks.  Josh had the view that we would all live in public and document our lives.  He went from that group facility to having a 24/7 public relationship with his girlfriend by wiring up his house.  He went from there to recluse.

But I won’t ruin it all for you.  If you have the stomach and want to tap into the important trends happening in our boiling water check out this film. Oh, and by the way, the film has lots of appearances by Jason Calacanis, Fred Wilson and Shawn Gold (none in any compromising situations – just as commentary on Josh).

And for my final bit of frog-slowly-boiling technology change – I watched it with my wife in bed on our iPad.  Wow. Nobody can tell me that the iPad isn’t subtly transformative.

Photo credit to Angi Nelson on Flickr.

*** end of post personal side note if you’re interested:

I first met Josh Harris in 1990.  He actually was the founding president of my fraternity at UCSD.  He flew in from New York and, as I was the president of the fraternity then, I met him up at the airport and drove around with him for the day.  He was such an odd and fascinating guy that the memory of my day always stuck with me even though I had no idea what his future held.  I never knew what happened to Josh until I saw the film recently.  The day I met him Josh had rented a convertible Mercedes, smoked a cigar incessantly and was this flashy “big city” guy.

This was strange for a 21 year old who grew up in a smallish town and had never really hung around flashy types.  He seemed so intent on showing me (and our fraternity members) how successful he had become but we were all oblivious to it all.  I remember then seeing his name in the Wall Street Journal the next year and that in itself was such a big deal (I knew a guy quoted in the Wall Street Journal! Wow!).  Anyway, funny about life that you come across characters that enter into your life for a brief moment and they go on their way without your ever really knowing what becomes of them.  This film was fascinating in its own right – but seeing Josh again was really a trip for me.