Every CEO Needs a Great General Counsel

I really encourage all CEOs and entrepreneurs to read this. I have known a whole series of top-end CEOs, entrepreneurs, bankers, and others who ended up in profound legal crisis by total surprise.

A surprisingly high % of white collar criminal prosecutions are people who started with good intent, vs intent to break the law. After the fact they all get painted as bad people — but they generally viewed themselves as good people, as did many others, to start. Which means: Good people with good intent in top business roles must be very careful and frankly a little paranoid about white collar law.

The kicker is that CEOs and entrepreneurs cannot blindly trust even top accounting & law firms. Must verify everything yourself to be safe. Every CEO needs a top-end General Counsel even if only to stay out of jail — and GC should always report directly to the CEO.

I routinely try to explain this to new CEOs. Often doubted, sometimes ignored. Risk significantly higher than many think. Worries me a lot. Hopefully goes without saying that great outside lawyer can play same role as great General Counsel. But pick very carefully!

From tweets on 6 February 2014.

The 8 Business Models for News

Part 2 of news business discussion: Construction and reconstruction of business models — how to make $. Picking up from Part 1: Best news about news business is gigantic expansion of addressable market — rise of developing world + Internet.

Total addressable market for news by 2020: ~5 billion people worldwide; straight extrapolate from # of cell phones -> smartphones globally. However, we all have to get more sophisticated about defining and segmenting markets. Critical to really understand who, where, when, why.

Many evolving markets seeing “death of middle”: broadest breadth winning; deepest depth winning; neither broadest nor deepest in trouble. So logical to expect big winners in news business to either be the broadest or the deepest: to max mass or go max specific.

With that as backdrop, here are most obvious 8 business models for news now & in the future; each business should mix & match as relevant:

  1. Advertising. Still central for many news businesses. But need to get out of “race to bottom” of bad content, bad advertisers, bad ads. Quality journalism businesses need to either take responsibility for own high-quality advertisers & ads, or work with partners who do. There is no excuse for crappy network-served teeth whitening and “one weird trick” ads served against high quality content. Disastrous. 
  2. Subscriptions. Many consumers pay $ for things they value much of the time. If they’re unwilling to pay, ask Q, are they really valuing? 
  3. Premium content. Paid tier on top of free ad-supported. High end e.g.: Bloomberg & Reuters. Will work for more & more. Again, value = $. 
  4. Conferences & events. Bits becoming abundant; human presence becoming scarce. Charge for scarcity. Bits drive demand for presence. 
  5. Cross-media. I think Tina Brown was right but too early w/Talk. News key source of material for books, TV, film—also growth businesses. 
  6. Crowdfunding. GIGANTIC opportunity esp for investigative journalism. Match people with interest in topic to reporting. Click = vote = $. (Helpful hint: Start today with @Crowdtilt — easy as pie, no brainer.) 
  7. Bitcoin for micropayments. Easy to get started now (@coinbase); as consumer use scales up, easy to ask for small $ w/low or no fees. 
  8. Philanthropy. Today @ProPublica & @FirstLookMedia, tomorrow could get much larger. ~$300B/yr philanthropy in US alone. Underutilized. 

In addition, as my friend Jim Barksdale says, “Two ways to make money in business: you can unbundle, or you can bundle.” Or, rebundle. We already see the rise of new kinds of aggregators in the wake of the great unbundling of newspapers & magazines. Another thread to pull.

One frequent critique of brave new world is, “Won’t oceans of crap drive out quality content?” I don’t think so, in fact the opposite. On Internet, no limitation to # of outlets, voices; therefore quality can easily coexist with crap. All can thrive in respective markets. And, the more noise, confusion, and crap — corresponding increase in need for trusted guides, respected experts, quality brands.

Finally, the “investigative journalism problem” — how to fund investigative journalism, believed to be least commercially viable type.

  • Answer #1: Total global expense budget of all investigative journalism is tiny — ~$10s of millions only. Small $ problems easier to solve. 
  • Answer #2: Crowdfunding + philanthropy + subsidization by otherwise healthy news businesses should easily cover invst journ & even increase. Same answer to “Baghdad bureau problem”—conflict zone reporting super-important; expensive vs other reporting; but not that much $ total. 

Remember: Most great businesses are not big businesses. This market plenty big enough for thousands of high-margin small-medium businesses.

From tweets on 5 February 2014.

The News Business Now Faces a Massive Opportunity

Enthusiastic response to last series of tweets on evolution in the news business [blog version], so here are a bunch more thoughts, 5 multi-tweet parts. Starting point: I am more optimistic/bullish about future of news industry over next 20 years than almost anyone I know. Will grow 10x-100x.

The news business is a business like any business, and can and should be analyzed and run like a business. Thinking of news as a business is not only not bad for quality objective journailsm, but is pro quality objective journalism. A healthy business is the foundation for being able to build high quality products, and to do so sustainably. Including journalism. Analyzed as a business, the news industry is going through a fundamental restructuring and transformation, for worse AND for better.

The main change is that news businesses 1946-2005 were mostly monopolies and oligopolies, and now they’re not. Wrenching change for anyone. Doesn’t mean that great news businesses can’t get built in highly competitive markets, just that they get built differently than before. 

In particular, [the] monopoly/oligopoly structure of newspapers, magazines, broadcast TV news pre-‘05 meant restricted choice, [and] overly high prices. In other words, the key to the old businesses was control of distribution way more than anyone ever wanted to admit. Wonderful while lasts.

Now, with everyone on Internet, three things are happening simultaneously:

  1. Distribution [is] going from locked down to completely open, anyone can create & distribute, no $ premium for control of distribution. 
  2. Formerly separate industries [are] colliding on [the] Internet. Newspaper vs magazine vs broadcast TV vs cable TV vs wire service, now all compete. 
  3. Market size [is] dramatically expanding—many more people consume news now vs 10-20 yrs ago, many more still in 10-20 yrs. Big, big deal.

1 & 2 drive prices down. 3 drives volume up. Right now everyone obsessed with 1 and 2. Ultimately most important is 3. Market size=destiny. Big opportunity for news industry in next 5-10 yrs is to increase market size 100x, drop prices 10x. Become larger & much more important.

From tweets on 5 February 2014.

Changing the Story Changes Journalism

Such a fascinating change in the traditional journalistic press over the last several years. Used to be: Corrections to printed news stories were a really big deal, high bar to get accepted. Story as printed = permanent record. Now: Even top print newspapers frequently revise stories online, sometimes dozens of times, often w/no change tracking or acknowledgement.

Glass 1/2 full view: Stories get better and better in place over time, vector closer to truth. Accuracy over time goes up. All good.

Glass 1/2 empty view: Quality bar for initial post can be lower, original work sloppier, since can correct in place as much/often as needed.

Deterministic “truth” vs probabilistic “truth” — here it is/take it or leave it, vs here it is/subject to arbitrary ongoing revision. Print journalism converging in technique (?) and quality (?) towards blogs, Wikipedia — for better or worse (or both). Ed Bott @edbott fully decoded this with original NSA PRISM news stories: [1] [2]

So I am very interested to see how capital-J Journalism can maintain reputation for truth, accuracy vs blogs, Wikipedia. Stakes very high. Or, we may be entering new golden age of journalism, just not recognized yet — best of all worlds, accuracy rising, closer to truth?

From tweets on 3 February 2014.

Currency Is Gross

The joy of physical cash via @MargRev:

~150 billion new banknotes manufactured and printed every year around the world—cost of replacing unfit currency is ~$10 billion/year…Central banks must deal with environmental challenge of annually disposing of nearly 150,000 tons worth of notes unfit for recirculation.

And then it get disgusting: “Banknote soiling is primarily a yellowing of the notes due to the accumulation of oxidized sebum.” Sebum, of course, is “an oily/waxy matter secreted to lubricate and waterproof the skin”.

Physical cash is vector of human biological matter spread with no regard for hygiene or conscious care. What could possibly go wrong? In contrast, of course, digital cash is weird and scary and must be stopped! :-)

Ooh, better yet, via @HamzahHakim: “Fecal bacteria are present on 26% of hands, 14% of banknotes and 10% of credit cards.”

Last one: fecal matter on physical retail shopping carts, via @AOAlfi: “72% of shopping carts had fecal bacteria…and E. coli on half of them…More fecal bacteria on shopping cart handles than typically found in bathroom —bathrooms are disinfected more often than shopping carts.”

From tweets on 2 February 2014.

Redefining the “A” Round

Back to startups: very interesting piece on changing trends for Series A venture financing. I have a slightly different interpretation, which is that there are just more ways money gets staged into a new company now.

We still see many examples of the “old” model — small <$1M or no seed money; “normal” Series A of $3-8M depending on domain. But we also see (and fund) instances where companies have already hit product/market fit on seed money; raise larger Series A to grow.

And we see “new Series A”—co raises $3-4M, calls it seed but really A, then if things go well raises $15M, calls it A but really B. Finally we see a few co’s raising $5M+ of seed $ from lots of individuals; at that point, hard not to just be honest and call it an A.

Very hard to judge these things from outside; highly dependent on individual circumstances of company. External commentary often wrong.

In the end, none of this matters — what matters is magnitude of success of company & total $ and dilution staged in over all rounds. We saw one very fast growing new company the other day with total invested capital of $7 (for domain name) — ultra impressive.

From tweets on 1 February 2014.

News on Income Inequality

Fascinating new paper by Jeremy Greenwood et al on income inequality [1] source]:

Comparing 2005->1960, a very large cause of inequality is women becoming more educated, working, & marrying men w/similar earning power. Essentially, they find that if you eliminate these cultural changes, measured increases in income inequality 1960-2005 would disappear.

The obvious answer is for the government to require more highly educated women to marry less educated men! Volunteers? :-) This is probably a good time to note that my gorgeous and brilliant wife @LAAF has three more college degrees than I do.

Enthusiastic response to last tweets on income inequality; fascinating topic with major social and political implications. While issue is clearly extremely important, it’s surprisingly hard to understand causes & predict consequences of interventions. For example, another major paper from top economist Robert Gordon from 2009:

Price indexes for the poor rise slower than for the rich, overstating growth of real income of the rich vs. the poor…Up to 2/3 of increase in college wage premium vanishes adjusted for faster rise in cost of living in cities where college educated live…The excess growth of mean relative to median income reversed itself after 2000…The income shares of top 1% & of CEOs, which had exploded before 00, went down and back up between 00-06 but did not rise on balance…Our examination of labor’s income share shows virtually no change over past two decades once an allowance is made for the business cycle…Labor’s share in the first half of 2009 was virtually the same as in 1983, 1991, and 2001…Most significant ongoing increase of American inequality —> faster growth in life expectancy for top 20% vs bottom 20%…role of low educational attainment in causing both poor economic outcomes and poor health outcomes at the bottom of the distribution…The toll taken by smoking and obesity among the low‐income quantiles reflects behavioral choices tied to low education.

Last one for now: James Galbraith (liberal economist) writing in 2004. Analyzing inequality by county in US:

In late 60s & early 70s cross-county inequality declined, before stabilizing through the early 80s…The mid 1980s saw a rise in in equality, which was mitigated in the late 1980s and early 1990s…The period from 1994 to 2000 marks the period of largest inequality growth, a 48% increase in the between-county index…In 2001, the index began again to decline.

[His paper is from 2004 so that’s where his data stops.]

Rise in income inequality 94-00 can be explained entirely by four counties: Santa Clara/San Mateo/San Francisco (CA) & King County (WA). !!! Those four counties drove all measured inequality change across all 3,100 counties in US 1994-2000.

From tweets on 1 February 2014.

More Thoughts on the Crackdown on Bootcamps

What is this madness: California regulators threatening coding bootcamps? Really? Gov’t enables terrible for-profit edu incumbents via subsidized student loans, yet cracks down on new experimental programs early. Godawful. Fascinating reactions to my post on gov’t regulatory crackdown on teaching people to code.

So a few more thoughts:

  • Public education in US = government-run monopoly (even including the good schools/good teachers).
  • Non-profit college education in US = government-supported cartel (even including the good colleges/universities).
  • For-profit education incumbents in US = government-funded scams (not all, of course, but disturbingly often — the good ones will agree).

My view is wanting (1) improved education in US + (2) more gov’t involvement in education in US is an inconsistent position & not realistic. Now is the time for comprehensive fundamental innovation in education — let a thousand flowers bloom, run all the experiments, open minded.

I am hugely optimistic about the potential for big leaps forward in education, but won’t happen without innovation + free market opp’y. Four biggest K-12 education breakthroughs in last 20 years: (1) Google, (2) Wikipedia, (3) Khan Academy, (4) Wolfram Alpha.

Overwhelming response to last tweet: Add Youtube into top 5 K-12 education breakthroughs last 20 years!

From tweets 30 January 2014. 

Recap: Open Compute Project Conference

Was excited to [be] on stage at the @OpenComputePrj conference this morning with @CadeMetz and my hero Andy Bechtolsheim. Some topics:

Massive software innovation over last 10 years — particularly open source + Linux — powering/enabling next wave of hardware innovation.In turn, rapidly declining costs/increasing power of hardware = elasticity of applications… a lot more software for a lot more purposes. Just like current Internet services like Google and Facebook were not possible with hardware economics from 10-15 years ago…

New Internet services 10 years from now will astound in complexity and sophistication vs today’s state of the art, enabled by HW innovation. Same transition & separation of hardware + software that happened in servers (Intel/Linux) now happening in networking. Led by our amazing companies Nicira (now part of VMWare) in software-defined networking, and @CumulusNetworks for bare-metal networking.

Next up is storage — dramatic explosion of capability/reduction of cost/separation of hardware + software coming quickly. Fourth wave will be smartphone supply chain coming into datacenter — led by ARM-based servers + new low-power Intel CPUs + flash storage. All in turn powering cloud, SAAS, mobile apps, Internet of things, Bitcoin applications, etc. at enormous scale.

Amazing time of change. One of the most interesting things in venture capital today is seeing ping-pong dynamic of infrastructure innovation + consumer apps. Amazing feedback loop — each driving/catalyzing massive innovation in the other — with many more smart programmers & designers every year.

From tweets on 29 January 2014.

Davos in a Nutshell

Hmm, two big themes at [World Economic Forum Annual Meeting in] Davos this year (I’m not there due to acute snow allergy):

  1. Robots coming for all the jobs, be very scared
  2. Bitcoin only for morons and bad guys, be very scared

It’s almost like there’s a pattern :-).

Word of the day is “projection”.

From tweets on 24 January 2014.