Emerging Trends

TREND 2:     RAISING MONEY

                     NEW MONEY GETS OLD FAST

                                NO TIME FOR R&D? BUY IT! BARTER IT !

Emerging Trends:

Banks may soon become relics of the old economy.   Banks have proven that they can no longer handle the high levels of risk they had taken on in the last decade. And now with the new era of stimulus packages and government regulations ahead of us, banks may soon morph into a different kind of animal than we have known for the last 100 years. On one hand when banks get into high risk investments they get into trouble as they did in the 1990s and are now with sub-prime mortgages. Meantime American Express is seeking to get into conventional banking. The old labels will no longer apply. We will soon have a whole new set of norms for how money is transacted. The Who and How of money transaction in the 21^st century is fast mutating.

So what is the future of banking? Traditional banks can only hope that regulators will allow them to survive with much stricter regulations on risks.  A more likely scenario is Venture Capital and credit card morphing to include personal and small business banking as a small subset of their core business.  Charles Schwab, the investment house, is doing it now!  Personal banking as a stand alone industry will become a thing of the past in a matter of a decade.

Meanwhile, companies such as IBM, Cisco Systems, Intel, Nokia, Oracle and many others have decided that putting money into R&D is a lost cause in this fast paced Internet world. It is better strategy, faster and less expensive for Cisco to put $210 million into DSL HarvardNet and then publicly “certify” that 95% of its network infrastructure is built on Cisco gear.  A win/win strategic partnership.  If at any time Cisco deems it to be in its long term interest, it can simply buy up HarvardNet.  In the meantime it spreads its risk by also investing $85 million in Digital Broadband Communications to ensure it has multiple bases covered in the all important area of broadband capacity which is essential for the next wave of Internet media streaming.

Many companies like Cisco and IBM have had venture capital divisions within them for the last decade or more, targeted at picking the next new startup that could either compliment their product or simply be a good investment.  In either case it has been better than having to slog it out with in-house or outsourced R&D; the risk is minimized, and options for remaining nimble are left open.  But even tech savvy Intel Venture Capital missed out on AOL and Yahoo when as startups they were out looking for money.  The future has become ever harder to define in today’s investment world where Yahoo, Motorola, Sharper Image, and real estate have all tanked in 2008. Who would have figured that even 2 years ago? Be assured that fundamentally new concepts around the transaction of money will result from this economic melt down and rebuilding that is happening around us today.  And you can be part of creating some of them.

Next Opportunities:

One of the recent trends has been for startups to fund startups. Something like micro lending.  The next generation of venture capital may come from startups leveraging each other’s advantages and pooling resources to get to the marketplace, skipping the traditional method of shopping around for venture capital.  When two or more companies working independently on web phone applications decide to collaborate to create related content and seamless applications, they get to the market faster and are seen as way more attractive to a VC than one company at a time. Funding a whole package of partnership creates a new market as opposed to simply a new product.

Non-profit or grass roots venture capital began with the now famous Nobel Prize winner Muhammad Yunus, who started the micro banking trend with Grameen Bank in Bangladesh.  But the more current version is Kiva.org.  where any one can be a venture capitalist. You make an investment, not a donation, to a deserving company, not cause. Kiva simply acts either as the clearing house or a full service broker but does not take a fee from the lender or borrower. Check it out. It’s a brand new model for small scale venture capital as well as philanthropy based on a business model. 

Cities and towns will also get in on this act. Think past old fashioned tax breaks to cities becoming investment partners with startups and in certain key communication infrastructure like broadband, partnering with the local provider to become the monopoly. We are entering the age of government as business partner. After a 2 trillion dollar government intervention there is no other alternative but for it to be a big player in the economy for the foreseeable future. Get used to it.

Where do you fit in as an individual, you ask? Create that new i-phone application in your spare time, beta test it with the 19 year old gamer, or create the next social networking concept with a few key technical partners, and put together a basic business plan.  Take it to eBay or Kiva and get others to bid. Or put your money into the company that your high school or Harvard dropout friend is starting. If you pick right, putting small money in at the basement can pay big dividends in the next economic cycle.  This is not for the faint of heart, but then, it doesn’t have to be big money either.  Ask Bill Gates Sr. or Dr. Dennis Selko each of whom provided the seed money for his son’s internet venture and made out big. OK one made out better than the other.   Many major Internet companies started with money from their immediate family and friends. Yes, you could get burnt, but you could also retire real early if you get in on the next Google or FaceBook before it gets out of the dorm room or goes on line.

Typical technology startups are willing to pay for most services, real estate, legal advice, human resource management; you name it, with equity – stock options. Venture head hunters have been known to take a third of executive placement fees in first year stock options along with a cut of the salary. Even the cleaning firm that comes at night might discount its fees for stock.

Elite Island Resorts in the Caribbean is accepting reservations from now till Jan 31, 2009 for high-end resorts on six islands payable in upto $5,000 worth of stock transactions–with shares’ value rolled back to July1, 2008 premeltdown levels. Even major Silicon Valley law firms like Wilson Sonsini, Goodrich and Rosati have played this game of bartering services for future options. The game is part gamble and part barter. Startups base their equity on an infinitely bright future of fabulous growth potential, but need services right now to realize that future and have limited access to cash today. You have to pick the ones with the bright future that will payoff.  It’s Las Vegas but with real stakes that can transform the world!

What do you do, as Joe or Jane Smith with services to offer, wanting to cash in on this crap shoot? Do what the big guys do. Bill your service (whatever it is; catering, temp personnel, corporate limos) to the next startup partly in stock options, but make sure you get paid cash for your net cost and pick up options only for your profit margin – startups are a crap shoot. Odds are worse than an evening in Vegas, but you could get to ride the tiger for zero cash if the company paying you in stocks is the Apple of tomorrow.

Let your imagination run wild.

Create the future and smell the roses, it’s your move!

TREND 1:           MONEY AND LEADERSHIP

                           BUILDING COMMUNITIES/PARTNERSHIPS

                                         CREATE NEW FORMS OF CURRENCY!

Emerging Trends:

Obama’s campaign showed us how money, community and leadership can merge in the Internet age.  He raised a record $680 million from individual donors across the country and outspent his Republican opponent 2-1!!  That’s just one example of how the merger of these three key ingredients has changed the face of political fund raising.  Money, community and leadership intersect to form new trends.  It’s a happening phenomenon.  Just as the idea of a community organizer becoming President of the USA seemed remote 5 years ago, the founder of an IT company running for president may seem far fetched today.  Watch out!  It’s coming.

A most unusual community of people is forming as Internet companies bring together younger and younger people from across cultural and economic backgrounds that have as their defining characteristic a dual passion for technology and money.  Even within the high tech world of millionaires this community is divided between the haves and the have nots.  With net worth of $1 billion, $500 million or just a few million, each level defines a measure of success as well as a set of life style options.  And don’t be fooled by the common “look”, the casual geek wearing chinos and denim shirts or urban chic black T-shirt and jeans. The pecking order might not be obvious to the untrained eye, but it is clearly defined.

What has all this to do with money and community?  Each sub-group regardless of cultural background or past history is very well defined by a need to stake out a claim to their legacy.  After the first $100 million is cashed out and you know your financial future is secure, if you are in one of these groups of millionaires or billionaires, the question nagging you is; do I have the will to lead? And to be a leader in this community, one has to rise above the simple initial quest for money. Perfection is cool. Steven Jobs is the icon of perfection.  Steven Jobs is cool. Only a very few like him will want to lead.

It was the passion to innovate and the fascination with inventing the next new thing that made them want to create and lead a company. Not their passion for people or their business acumen. Yahoo’s demise is attributed by many to Jerry Chang’s inability to be a decisive CEO.   There are exceptions.  Bill Gates is not among the top 5 innovators in his field, but he sure is a leader.  So is Jobs. These two men, more so than others in the computer industry, have proven that they can build a community of people who will rally around their battle cry and make believers execute their vision with passion.

A Mac World convention is like a Grateful Dead concert.  Leaders stand for a set of values.  You can agree or disagree with their values but they have clarity and a vision for the future. Which one will you be, a leader with a sticky vision and a burning passion to change the world or simply a techie with tons of money to burn? That’s the question facing the ones who still have millions.  In spite of the current economic downturn there is no dearth of millionaires in the US, Russia, or Asia. Their wealth may have dropped considerably since a year ago, but they are still worth millions.  Watch for a feeding frenzy in the coming months as companies go bankrupt and fire sales of 50-60% become the norm at the retail level.  Expect companies like Google, Oracle, Pfizer, Apple, Samsung who are currently sitting on piles of cash to go on a major buying spree in 2009 so that they can widen their leadership.

Next Opportunities:

Many of the leaders yet to emerge are reluctant public figures today, which is why other than Bill Gates and Steven Jobs, names like Tim Koogle, Jeff Bezos, John Chambers, Jim Clark and Andrew Grove are not known by the vast majority.  But the reality is that many of the next generation of leaders of our nation and even the world are going to come out of the New Economy. Don’t count out a run for President by Bill Gates or John Chambers. And in the next presidency watch for a lot more aggressive economic and foreign policy based on developing strategic alliances to maintain US competitiveness in the digital world. If you think President Clinton’s visit to South Asia in 2001 was to build his legacy as a peacemaker, dream on. Its real impetus was the push from US software and Internet firms to improve relations with India and to get India to open its markets to the US. Since that visit, a number of Presidential foreign trips have been covert economic operations. A US-India alliance could become a juggernaut of innovation and catapult the www world into the next generation within the next 5 years.  If India and the US were to form a true partnership of equals and harness the investment capital and technical talent of the two countries, China could be left in the dust.

What has all this to do with you? What do you think of Bill for President, Gates not Clinton? Obama raised $680 million dollars from you and me, but Gates doesn’t even need our money.  Gates and Jobs want to leave a legacy and are much better known. Talk of radical change agents; these leaders do not care for or understand Washington politics. They’ll make radical change.  They want a true capitalist free market society but with health care and education for all.  No conflict in that for Mr. Gates or Mr. Jobs. Just look at the dozen people the “socialist” President elect Obama met with in his mini economic summit days after his election, former Federal Reserve chairman, treasury secretaries, Wall Street giants and the current CEO of Google.  The days of Capitalism and Socialism as two separate concepts are over.  We’ll see more mixing and matching of values and concepts from both to create new economic models for growth. Look at China.  Is it Capitalist or Communist? I doubt they know or care.  Past labels apply no more.  New ones will emerge.

Leaders of all sorts are needed for companies after they get off the ground. From CEO to team leaders and coaches who can teach managers to become cheerleaders and engender loyalty and reduce staff turnover. Yahoo hired Tim Koogle as CEO to take it from a great idea into a great and profitable company. It still didn’t work. Old world CEOs will not mesh with new economy cultures, whether in DC or in Silicon Valley. New forms of leadership are needed. Even if the economy is in a downward spiral, to keep your best staff and create loyalty you have to offer something special that is meaningful beyond the work and the paycheck. What’s the next generation of compensation packages that will keep the passion going?

On site day care is passé as are perks from the recent past like unlimited sick leave, employee beer and wine and ultimate Frisbee® clubs.  Already, companies like SAS, Cisco, Virgin, and Razerfish are considered leading edge not only for their products, but for their realization that to remain leaders and maintain their sense of community and purpose they must continue to innovate.  They give people meaning.  They make their companies movements for change and their employees part of a cause, not simply performers of a job. Obama won because he made his campaign into a movement you believed in and worthy of your time and money. He got you invested through embedding meaning in his winning. He made it about YOU !

The new model of companies will be built on people who believe that the concept of loyalty is for losers. If your company is to continue to innovate and be the leader of the pack at all times, it must be so laden with talent, so energetic that it constantly attracts the best by being the best, and becoming a movement with followers behind.  Obama did it, Nike asks you to Just do it, Apple and Ideo have made it their core value.  Be different. Think Different.  The best will come and go at these companies, but as long as they strive to innovate around their best products and services they will attract new talent.  This is a paradigm shift whose time has come. Talent is and will remain one of the two scarcest commodities of the 21^st century.

To attract the best, be the best.

Let your imagination run wild.

Create the future and smell the roses, it’s your move!