The term Branch Plant Economy is not a new one, and gained specific relevance for Canada in the early 20th Century, when US Companies began to build factories in Canada to circumvent pricey tariffs on importing their wares to the Canadian market. One example where this really took hold is the automobile manufacturing industry, centered in Ontario, that has churned out Chevys and Chryslers, among other makes, for both Canadian and foreign markets. While NAFTA destroyed the tariffs that caused these plants to be set up in the first place, Big Auto successfully lobbied the Ontario and Federal governments for subsidies and tax credits that helped their north-of-the-border plants remain cost-effective, and in some ways cheaper to operate, than their US counterparts. That lobbying strategy has been highly successful, and while it was overshadowed by the US auto industry bailout, the Ontario and Federal Government bailout of Canada’s auto industry was $3.3Billion, nearly 20% of the proposed US bailout package in 1998.

The Canadian auto industry typifies the modern idea of the branch plant economy. The term really grew legs in the 1960s and 1970s during a rise in Canadian economic nationalism, and fears that our country was becoming a U.S. Protectorate as a cause célébre during Trudeaumania. Most of the rhetoric around this idea is centred on the not-so-great visage of a nation whose factories (literal and metaphorical) and workforce are wholly owned and commanded by foreign companies, with the profits and fruits of their labour remaining largely overseas. For economists, this is tantamount to the surrender of the nation’s sovereignty. If your paycheque in Canadian dollars is signed by a US-based company you are likely keenly aware how much command and control of your company’s destiny resides this side of the border.

In a white paper from the Canadian Advanced Technology Alliance, the organization argues that our country’s philosophy on innovation is all wrong. On that point I couldn’t agree more. The CATA argues that while we have many programs in place to fund R&D, whether it’s the soon-to-be-reformed SR&ED or the NRC’s IRAP program, we have none in place which explicitly helps our countrymen reap the benefits of this R&D through commercialization. The white paper suggests that the effect of this more than $7Bn/year in R&D subsidy spending is for taxpayers’ money to act as a stimulant to profitability outside of Canada’s borders.

Why? Because funding the research without funding commercialization leads to a familiar story for those of us in the technology scene: the flip. Canada’s venture financing having been aenemic as it has during the past ten years, Canadian companies chasing great ideas have had to bootstrap, scrape, and starve their way forward — typically leading early investors and founders to the mutual desire to sell the business early.

Many of us, myself included, bemoan that while some great products and technologies have emerged from Canada (such as Flickr or BumpTop or Radian6) we typically fail to commercialize these in scale until they are purchased by a US entity. Certainly these companies’ (mostly Canadian) investors are happy — since Flickr went to Yahoo!, BumpTop to Google, and Radian6 to Salesforce at sizeable bumps in valuation — but the profits generated from these innovations will be realized by a US entity, and in most cases the workforces don’t even remain in Canada.

A pessimist’s way to evaluate those three deals, presuming that they all claimed SR&ED / IRAP / CNMF money at some point in their evolution, is as the Canadian taxpayers in effect assuming R&D risk to the benefit of US companies and, arguably, a handful of investors. In other words, much like the film and video game industries, not to mention the automobile manufacturing business, Canada’s tech industry functions as a Branch Plant Economy at worst, or as the equivalent of a Junior A hockey league at best.

The CATA advocates that the SR&ED program be reformed in a few trivial ways and, using the savings, that the subsidy be expanded to support commercialization activities associated with innovation. This is an interesting idea and worth the read. On the other hand, having read the tea leaves I believe that the government’s position is that if it’s supporting the R&D component, the investment community is incentivized to fuel commercialization.

However, this is clearly not how things are going down in practise. Next to RIM, or previously Nortel, Canada can boast very few large-scale domestic tech industry successes. Anecdotally there are as many examples of global companies, such as Lululemon, which were built in Canada without any form of subsidy as there have been tech giants facilitated by giant R&D grants. Across the border programs like SR&ED and IRAP are unheard of, though the US Government has subsidized a great many technologies via DARPA and NASA.

And startup veterans such as myself frequently argue that Canada’s SR&ED, IRAP, and CNMF funding strategies represent a rare advantage over founding and operating a technology company in Silicon Valley — so long as they are well-run programs and do not overburden startups with oversight and administrivia.

As for our neighbours to the south, it may simply be that proximity to their more free-flowing investment economy and greater density of large tech-oriented businesses (not to mention a market 10x the size) is too much of a temptation to resist for fledgling Canadian tech ventures. Perhaps our nationalistic pride is a whimsical relic of the past, and we should instead just stop worrying and learn to love the bomb.

Does the CATA solution of “subsidizing” the commercialization, and not just the R&D component, of new technologies carry water for Canadian tech startups?  Maybe. Does it open up SR&ED to even greater abuse by recipients who do not require it? Probably. Is there anything we can do to mitigate the prevailing trend of Canada’s tech industry as a Branch Plant Economy? You tell me.

From the perspective of any modern corporation, Steve Jobs was a misfit and never should have made it to the top of the world’s largest technology company.  Compared to his peers at AT&T, RIM, Hewlett-Packard, IBM, Samsung, LG, Lucent, Nokia, and even Google, one of these things is not like the others.  These people, while they are for the most part talented managers and/or innovators, are not brave and unconventional visionaries questioning — and challenging — the status quo.  The template of a contemporary CEO simply does not apply to Jobs.. yet it is safe to say that he created more shareholder value during his split tenure at the helm of Apple than all of these combined.

Jobs doesn’t fit as CEO material because, as I wrote a few years ago, the design of corporations systemically weeds out and ultimately purges people like Steve Jobs, tending to favour evolution over revolution; hedgehogs over foxes.  Insodoing these institutions prefer making incremental steps toward that which can be known and quantified versus embracing risk and opportunity to make great leaps forward.  HP or Microsoft would never have brought us the iPod.  Certainly not the iPhone.  And the efforts of Apple’s competitors in the tablet space?  Hmph.

The lesson with the greatest gravitas from Steve Jobs’ famous 2005 Commencement Address is in my opinion the following:

You can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something — your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.

So what made Steve special is that, having ascended to the top of the technology industry ecosystem, he was seemingly a fluke.  Those dots — The iPod led to the iTunes Music Store and to a flattening of media distribution and to the iPhone and iPad and beyond — all connected back to a single leap where a computer company decided to sell some portable music devices and see what happened.  Jobs made big bets all the way along and knew that the dots would somehow connect down the road, and staked his personal and corporate reputation on quality in every regard.  No focus group or market research could have supported the decision to place these bets, and so no other CEO did.

Many of us think that we have the courage to make big bets.  Far fewer among us are given the resources and leeway to execute these broadly.  Still fewer among those are actually successful in both ideation and execution.  Steve Jobs danced on that razor’s edge and always came away unscathed, teaching us all that it can be done and that the rewards for success await.

Steve Jobs created new markets and made us crave things we didn’t know we would need; he helped us consume information and ideas in ways we never knew we could; he literally tore apart the media business and set forth reshaping it to be more consumer-friendly.  All the while he dazzled us with things which are ‘insanely great’ like a magician entertaining a crowd of transfixed six-year-olds.

The saddest aspect of Steve Jobs’ passing is simply that without him it will be a long time before a similar revolutionary will ascend the treacherous climes of corporataucracy to lead another hugely successful company to create things which dazzle and inspire us.  If ever.

Here’s hoping there’s another Steve in the wings somewhere.  Until then, we’ll likely have to make do with a whole lot less magic in our world.

During this time the practise of Policy by Press Release rose to prominence as ill-founded concepts like the “Bomber Gap“, “Missile Gap“, and “Submarine Gap” were leveraged to justify a massive expansion in military spending.  U.S. Doctrine from the end of the Vietnam era to the collapse of the Soviet Union in 1991 was to essentially outspend the Soviets while engaging them in proxy guerilla wars in weak communist ally states and financing developing countries through the World Bank.  It is thought by many (mostly Pro-Reagan) historians that it was indeed the US Military-Industrial Complex that won the Cold War and bankrupted the Soviet Union by simply outspending them.

Nowadays, we live under the spectre of far more benign [perceived] enemies.  Most of us in the technology industry fear Microsoft’s Goliath and align with Google’s David more meaningfully than any political discourse, though we only rarely cower under our desks in fear of a Vodka-soaked phone call between Steve Ballmer and Eric Schmidt (which I am positive has happened).

Google only stumbled its way into Microsoft’s crosshairs nine years ago, whereas Microsoft’s founder Bill Gates has long sought to get in on the action on the Internet and the Web in particular.  The two are presently in a pitched battle on a number of fronts, including Search (Microsoft recently launched Bing), Mobile (Google’s Android is a pattern-cut copy of MSFT’s Windows Mobile strategy), The Browser (Chrome versus the dreaded IE), Email (Google is making inroads into institutional and corporate email services), and Productivity Applications (Microsoft Office as an app and a hosted service versus a number of nascent Google Apps).

Most recently, Google responded to the Bing launch by going after MSFT’s supposed crown jewels with an announcement about Chrome OS.  Microsoft then parried with its own vapourware announcement about Web Office.  Engaging Microsoft on another front on an increasingly expansive battlefield might seem like the smart thing to do, but as Kevin wrote, Spite is not a business strategy. This is akin to pissing in your neighbour’s yard just because he took a whiz in yours.

The Soviets, like our more modern evil empire whose Kremlin sleeps in the dales just outside Seattle, were more cagey than we might have thought in those days.  They didn’t match the US and NATO move-for-move in force expansion, and rather than counter Reagan’s famous SDI initiative with a Star Wars system of its own, they simply rejiggered their ICBMs to penetrate airspace using different methods and geared fighters up to be able to shoot down satellites from within the mundane confines of our atmosphere.

No … the Soviets didn’t join in the arms race — instead they were quite content to watch their enemy blow its own brains out, expanding US debt in leaps and bounds (US debt doubled under Reagan in a single year, mostly on the back of military spending) while their own programs pursued less lofty goals, financing battlefield weaponry and troops on the ground in Afghanistan and elsewhere.

We didn’t know it at the time, thanks to a lot of propaganda from our own leaders, but the Commies were actually the underdog.  And like any underdog, the Soviets capitalized on American fear and loathing to nurture an inflated perception of its own militarism and level of armament, hoping that the US would collapse under its own weight trying to keep up — and it nearly worked.  Some would argue that it has — and that our current and previous economic hiccups, heaped atop rampant social problems in the US, are the reckoning for decades of rampant Cold War spending — and may not be remedied anytime soon.

Google is apparently trying to match Microsoft on every front in the technology industry — but it too is an underdog.  It’s attempting to do so with far fewer employees (Google has 20K employees – Microsoft has 90K), far fewer financial resources, and no apparent profit model associated with many of these businesses.  Microsoft has also had the benefit of nearly 30 years — all supported by revenue growth in the rising tide of the PC revolution — to expand its business aspirations from its core business of supplying Operating Systems.  Furthermore I would argue that the core of Microsoft is no longer Windows, and has instead long been its much more expensive product offering, Office.

If Google is attempting to parlay its underdog status into some sort of puffer fish role, in forcing Microsoft to compete on many more fronts than search, then the insincerity of these efforts is pretty transparent to most of us.  And it will fail.  I use MS Word and Apple’s Pages, but would not even consider using Google Docs.  As a web app, it delivers a far poorer user experience at the point of my absolute maximum requirement for efficiency and dexterity.  Google’s Chrome browser isn’t much better than Firefox, and as I’ve pointed out frequently, Android is a duplicate of Microsoft’s own floundering efforts in the mobile space with little improvement.

Microsoft is likely snickering (I know I am) as it watches Google’s many flailing attempts to strike it in different arenas.  Particularly so in Operating Systems.  Slapping a GUI onto Linux, particularly when said GUI developer is Google — a company apparently bereft of UX designers — is a cynical, me-too play that will alienate the Linux Community and pale in comparison to OSX.

According to Yahoo Finance! on MSFT and GOOG, Microsoft has 3x the revenue and 20% more cash reserves than Google.  That’s an amiable war chest and revenue stream that means it’s unlikely that Google can cause Microsoft to spend itself into oblivion.  Google, on the other hand, is moving in too many areas and executing poorly in most of them.

If Google truly wants to hurt Microsoft it needs to double-down on a sincere effort to unseat Microsoft Office and Exchange and thereby dominate the ways in which we communicate at work.   Otherwise, much as the Soviet Union really collapsed due to radical downward shifts in the price of oil and lack of access to credit, Google may suffer from a decline in CPC advertising and all of the air will spew out from its puffer fish act.

In May Day parades, the Soviets would invite Western leaders to the review stand, as bombers and missile launchers would run circles past the parade ground.  These Westerners would return to their peers wide-eyed with parables of impressive arrays of weaponry and massively inflated estimates of actual force sizes.  Unlike during the real Cold War, Google’s foe is not self-invested in grandiose estimates of its enemy’s fortitude and the rest of us are quite aware that in many cases, such as the ill-fated Orkut and other flailing products, Google’s emperor has no clothes.

And unlike our former evil empire’s round-faced leader, Ballmer is under no pressure for Perestroika.

Here’s a question:  Where do you host your email?

Gersham and I are rather well-known for a business we started in 2002 called Geekmail.  By 2003, we were on the cutting-edge of IMAP-based email hosting and ran thousands of mail accounts on a cluster of 9 servers hosted at Peer1 Network in Vancouver.  We pushed the envelope in anti-spam technologies: combining advanced whitelisting techniques with behavioural, bayesian and heuristic anti-spam technologies and using our own common-sense approaches to deliver very high anti-spam effectiveness with a too-low-to-track false positive rate.

What we achieved, in essence, was a sort of email nirvana.  In those days, giving someone 1GB to store their email on your server was unheard of… but we did it.  Hosting catch-all email accounts was a novel concept … but we did it.  Hosting custom email domains was tough stuff too, even, but we did it.  We also had a hell of a launch party. 

A couple of things conspired to force us to close Geekmail… a situation which I will always regret:  1)  We were taken to court by a fool fellow whom we’d (our mistake) taken on as a business partner, and whose sole objective was to kill the company; and 2)  Google launched Gmail.  The latter was far more significant since it was A)  Free and B)  From the web’s hottest property.

Now, this all is the long way of explaining that I am perhaps something of an email geek.  I’ve used one form of computer-based electronic mail or another since 1985.  I co-founded Geekmail, of course, and also did a considerable amount of strategic work for FrontBridge — the world’s #2 message management service provider before its acquisition by Microsoft in 2005.  BuzMe and RingCentral, two Unified Communications services I helped bring to market, were among the first to deliver voicemail to their users via email (believe me, a novel concept in 1999/2000).

Be that as it may, it rather surprises me that even today GMail (which has been in Beta for 5 years) still pales in a number of key features (including anti-spam) to the technologies and quality of services we provided with Geekmail.  While we didn’t have nearly the scaling issues that Gmail has to deal with (except for in our very early days) we never experienced the kind of multi-hour outages that Gmail regularly hands to its users.  We also focused the users’ experience on Secure IMAP, not a web-based interface (though we had one of those too) and offered lots and lots of storage to go with it.  And in our later version of Geekmail, the anti-spam functions were tweakable: if you didn’t like the default settings, you could turn on and off different techniques that were used to combat spam on your inbox.

When we were forced to let Geekmail die a rapid death, we scrambled around to find a company who could take our subscribers and whose service closely mirrored our own.  The short answer was:  there weren’t any.

It wasn’t until a couple of years later that I began talking with John Capo; founder and operator of Tuffmail.  In addition to being a pretty nice guy, John runs a service that is the closest analog to Geekmail that I can find anywhere.  In my view this ranks Tuffmail as the very best email service provider for email geeks anywhere.  And so it has been for about 4 years that I have blissfully run my personal email address at ianbell.com on this service — and am now at a point where it is so critical to how I do my daily business and live my life that I would be miserable without it.

As these screen shots should reveal, Tuffmail is literally like having your own mail server cluster up in the sky somewhere.  By that I mean practically every aspect of its functioning is customizable to your whims and needs.  I can change how it responds to spam, I can block certain servers from sending me mail, I can blacklist any email sender from connecting to the server, and so much more.  I can also have a catch-all, which many email hosts hate to do because it creates spam honeypots, but which has become a critical means for managing my accounts online.

I don’t do any filtering or routing of email at the client level.  This would be impossible, since I access email from four different devices on a day-to-day basis.  Instead, I have input a complex set of rules into Tuffmail’s extremely robust email rules interface (sorry I can’t show you this — classified!) and all incoming mail is stored in the appropriate folder when I check it from my MacBook Pro, my iPhone, my Mac Pro, or whatever.  Microsoft Exchange, Gmail, yahOo! Mail, your ISP’s Mail Server — they all wither by comparison because they don’t allow this sort of granularity — and because they don’t fully embrace standards-based IMAP email messaging.

I keep all my mail, as well, nearly 5GB at the moment.  So if you said something in 2005, it’s pretty easy for me to find that message in my email clients (this could be the reason why mail.app sucks up most of the free memory on my MacBook Pro) and regurgitate it.  This is extremely handy and it reaffirms email’s rightful place at the fulcrum of my life (sad but true).  This is only possible because I have an enlightened email hosting provider who A) embraces large mailboxes and B) embraces large message sizes, which means I can send around presentations and big graphics files without fear of them bouncing back (unless the receiver’s mail server is a dunce, of course).

I don’t ever receive spam in my InBox anymore, because I have the settings and filters perfectly tweaked to my needs on Tuffmail.  But blocking spam is easy these days.  The real problem is blocking it without also blocking legitimate messages — this is much much harder.  And this is where GMail, which uses the Postini service (which is not directly integrated to GMail), tends to fall over.

Have you ever heard the excuse “Oh, I sent you the email, but maybe it got caught in your spam filter….” before?  Sure you have.  That doesn’t happen to me.  The benefit of the Realtime Reports (screen shot above) is that I can go in to the server logs  and actually see when a message flew through or was rejected by the Tuffmail server hierarchy.  I just view the page, do a Firefox search for the person’s email address, and if they sent a message it’ll be there.  I’ve caught anyone who’s ever made that excuse to me in a white lie… not that I hold it against them.  🙂

There is one downside to all of this, of course… with Tuffmail, I have created a monster.  I have so many settings and tweaks, and I have the spam filters so well-trained, that the pain of moving to another provider would be excruciating.  Most likely, I never will.

I don’t endorse products very frequently (and I never do it for any sort of remuneration) — but Tuffmail is one of those rare birds that truly deserves the kudos.  Email hosting is a tough business and in many ways I’m glad I’m no longer in it.  On the other hand, when I use Tuffmail I get pangs of jealousy and nostalgia.  Ah, what could have been!

Which one are you?  The ancient parable of the fox and the hedgehog has come into increasing view in popular culture lately.  And while its origins are somewhat ambiguous, the allegory has been applied to entrepreneurs, scientists, philosophers, playwrights, business leaders, economists, and even US presidents.

One of the fables goes something like this (sorry, no link to a source … I am paraphrasing a story from my childhood):

A fox and a hedgehog were strolling through a country path.  Periodically, they were threatened by hungry wolves.  The fox — being blessed with smarts, speed and agility — would lead packs of wolves on a wild chase through the fields, up and down trees, and over hill and dale.  Eventually the fox would return to the path, breathless but having lost the wolves, and continue walking.  The hedgehog, being endowed with a coat of spikes, simply hunkered down on its haunches when menaced by the wolves and fended them off without moving.  When they gave up, he would return to his stroll unperturbed.

According to the great liberal (before that was a dirty word) historian and thinker Isaiah Berlin who in 1953 wrote the Essay “The Hedgehog and the Fox“, interpreting the works of Tolstoy, Foxes are complex thinkers who account for a variety of circumstances and experiences while hedgehogs have the keen ability to focus and drive along a single path.  As examples, Berlin flags such thinkers as Plato, Lucretius, Dante, Pascal, Hegel, Dostoevsky, Nietzsche, Ibsen, and Proust as Hedgehogs and slots Herodotus, Aristotle, Erasmus, Shakespeare, Montaigne, Moliere, Goethe, Pushkin, Balzac, Joyce, Anderson as Foxes.

More recently, Jim Collins (author of “Good to Great“) took this concept into the business world in his book and it is one of the central unifying themes of his work.  In his book and other writings Collins comes down pretty hard on Foxes:

Those who built the good-to-great companies were, to one degree or another, hedgehogs. They used their hedgehog nature to drive toward what we came to call a Hedgehog Concept for their companies. Those who led the comparison companies tended to be foxes, never gaining the clarifying advantage of a Hedgehog Concept, being instead scattered, diffused, and inconsistent.

This is understandable.  Collins, a former Stanford University Business Professor, comes from a hedgehog factory.  He has made a career of spooling hedgehogs into mainstream companies at the mid-management level and consulting with large, heavily-matrixed companies on business strategy and leadership.  In many respects he lives in a world constructed by and for hedgehogs — so it makes sense that he could see the “Great” companies he writes about in his books (all typically fortune 500 players) as hedgehogs.  On a long enough timeline we are ALL wrong, but it is worth pointing out that a number of Collins’ “Great” companies have suffered badly from (and others have caused) the current economic downturn, eg. Circuit City.

As Nicholas Kristof describes the dichotomy in the NY Times:

Hedgehogs tend to have a focused worldview, an ideological leaning, strong convictions; foxes are more cautious, more centrist, more likely to adjust their views, more pragmatic, more prone to self-doubt, more inclined to see complexity and nuance. And it turns out that while foxes don’t give great sound-bites, they are far more likely to get things right.

John Kerry is clearly a Fox: A self-doubting; complicated; unable to present absolute, sound byte-friendly answers to complex questions.  George W. Bush, however, presents himself as a hedgehog: simple, direct, ideological, and absolutely assured of his correctness.  In 2004, America signed up for its second term of 4 years of hedgehog leadership to substantial effect.

In our industry, hedgehogs have the benefit of focus and the ability to keep their heads down and companies out of trouble during tough times.  They succeed through the avoidance of substantial risk and through the ability to see things through.  When they fail, it’s because their conservatism holds them back, and markets move past them; or because they can’t release their death grip on that singular idea and move on to the next thing.

The Fox has the benefit of broad vision and the ability to perceive the complex interaction of seemingly dissonant ideas, and they succeed because they are able to travel outside of marked pathways with their ideas and make substantial gains.  When they fail it’s because their reach exceeds their grasp, because they are too far ahead of the market, or because they have difficulty maintaining focus to see things through.

The one problem that Mr. Collins cannot cop to is that while Hedgehogs are mass-produceable through training and discipline (this is what MBA factories do), Foxes are not so easy to come by:  their behaviour is learned but it is most likely interdisciplinary and tangential.  As a modern example, one could strongly argue that Steve Jobs, Reid Hoffman, and many successful tech entrepreneurs are foxes.

On the other hand Bill Gates, who at one time was the richest man in the world:  pure hedgehog.  Rupert Murdoch?  Count the spikes.  There are many successful hedgehogs in the mainstream business world and far fewer Foxes.  The structure of businesses, after all, are generally designed around hedgehogs. In general larger corporate structures aren’t great at absorbing foxes.  It’s why Jobs quit Apple, before going back as CEO under a mandate that embraced his wide-ranging aspirations.  It’s probably why entrepreneurs such as Evan Williams, who blew out of Google as soon as he could after selling blogger.com to them, generally can’t wait to get out of the mother ship after a their lock-up periods are done.  A friend and the CEO of a company acquired by Microsoft always referred to Redmond as “they” and never “we” even while he took down an amazing salary serving as a VP for two years.

Innovation is a concept which we modernists tie into every description of a person’s thinking process.  Wikipedia says there are a few different types of innovation:  “It may refer to incremental, radical, and revolutionary changes in thinking, products, processes, or organizations.”  Perhaps the razor cuts this way:  Perhaps hedgehogs deliver incremental changes while foxes deliver radical, revolutionary changes.

As a fox, I know that many of my successes have come when paired with hedgehogs.  A hedgehog can pluck a singular concept from the maelstrom of energy emanating from the fox and run with it along a narrow path.  Steve Jobs had Wozniak on the engineering side, and just as significantly Mike Markkula on the financing and business affairs side.  The latter two are quintessential hedgehogs.

While it’s valuable to know whether you’re a fox or whether you’re a hedgehog, it is not particularly constructive to assign a static value judgment to one versus the other.  At varying points in the arc of a business, a prevalence of influence from either a fox or a hedgehog can make or break a company.  Witness the foxes that artificially inflated hyper-economies at Enron (Jeff Skilling) and AIG (Joseph Cassano) to great personal benefit but ultimately destroyed hundreds of billions of dollars in wealth.  And meet the Hedgehogs, Gil Amelio and John Sculley, who sapped the growth of Apple, diluted its brand value, and very nearly bankrupted the company.

So figure out what you’re good at, chase the visions you believe in, and if you’re fortunate enough to work in an environment that embraces and supports your particular attributes, you’ll ultimately be successful.

Every year, beginning around this time, trucks shunt around cities and visit every household in North America, and indeed most of the world, depositing these 6-7lb. volumes in stacks as an edifice to a pre-internet era.  Small businesses waste thousands of dollars each in perfecting their ads and emplacing them in a book that, nowadays, most of us will never demean ourselves to open.

There is substantial waste in this business:  whether it’s the energy expended in physically delivering these books to your doorstep every year, or whether it’s the paper (usually recycled — but that still uses energy) that could go to other uses it’s hard to ignore this big yellow hunk of tree when you trip over it while fumbling for your keys — twice a year in some cities as there’s now competition.

Us New Media types like to portray the Yellow Pages business as an anachronism — an embattled dinosaur searching for relevance in an era when we can Google ’til we puke to find the things we need.  Since this is 2009, a Facebook group has emerged, rather unambiguously called “The Yellow Pages Must Be Stopped“, to demand that the industry adopt an “Opt-In” practise.  I personally have not used a Yellow Pages for anything other than as a monitor stand since the last millennium — except when I was once desperate for a Pizza in a Long Island hotel room.

But unfortunately, the Yellow Pages business is not yet the death march that the Web 2.0 kids have hoped it would become.  … This may say a lot more about the new media of web, telephony, and mobile and their capabilities than it does about the old medium of schlepping giant books door-to-door for punters to thumb through.

For one thing, the Yellow Pages is still the number one tool used by consumers to find local business; the industry continues to forecast growth in the bellwether US marketplace from $10.3 billion in 1996 to a projected $18 billion by 2010 — yes, some of their revenue comes from online, but that number is pegged at between 25% and one-third.

Oh.  And people still (gasp!) turn to their Yellow Pages more frequently than anything else for finding products and services that are local to them.  According to research released a couple of months ago from Knowledge Networks, nearly half (48%) of consumers report print Yellow Pages as the resource they turn to most often for information on a business or service, and more than three-quarters (77%) use the print Yellow Pages overall.

As you would expect, age represents the greatest cutoff point.  The print books are for the olds:  54 percent of respondents over 35 years old said they prefer the Yellow Pages, compared to 29 percent of 18- to 34-year-olds.  I would also hazard a guess that the dividing line dissects social class and educational background as well.

So it might be a little bit early to plan the funeral for the dusty old Yellow Pages, though the companies that produce them are clearly being forced to diversify their product offerings and revenues.  They’re also adapting new standards, such as the shift to recycled paper and soy-based inks.

The Kelsey Group, a Research firm which services the Yellow Pages industry, does forecast turbulent waters ahead for the Print business.  This cut comes from their core base of advertisers, small businesses:

Print Yellow Pages is now in a challenging situation … overall, the accumulated data show small and medium-sized businesses’ spending on advertising has dropped, and the distribution of ad spending by bracket appears to have deteriorated. The assessments of the effectiveness and return on investment performance of print Yellow Pages are also weak. There is strong sentiment to reduce print Yellow Pages spending, and advertisers no longer view category position as a sufficient reason to maintain their current spending levels. In broad terms, SMBs that advertise in print Yellow Pages tend to be more consumer-oriented, established businesses. As a relatively expensive medium, Yellow Pages has lower uptake among younger, growing firms. These findings suggest directory publishers have work ahead of them in reestablishing their value proposition to small-business advertisers, particularly as these advertisers seek partners to help them find customers through nontraditional channels like the Internet, voice and mobile.

Google is not yet good at selling or positioning truly local advertising in scale.  In fact, there is not a single substantial advertising network pursuing this opportunity at the moment:  the problem isn’t in building the technologies that match advertising to your locale — the problem is in having a customer acquisition and sales engagement model that cost-effectively pulls in the mom & pop businesses that are the bread and butter for such an advertising network.

What the Yellow Pages is learning is that perception is their greatest enemy.  While surprising numbers of people still use their dead trees to find services and businesses, their advertisers are pulling out.  Other forms of advertising (even local newspapers) are more trackable and accountable than a static ad in the Yellow Pages that changes, at best, once per year and so there exists a greater perception of value in these.  Ironically, even though it’s still reaching customers, people are starting to realize that for most businesses the Yellow Pages isn’t cost-effective.

The real problem is the lack of a viable alternative.  This is actually where the Yellow Pages businesses stand to benefit.  They practically have a first-right-of-refusal in the small business advertising game already.  They have a scaled-out sales force and a revenue model that supports them — and, if it wasn’t already patently clear, a mandate to protect that structure — therefore they can cost-effectively engage with these small-scale advertisers.

What the Yellow Pages industry needs to do is sell more SKUs.  Today they sell advertising in the printed publication, as well as a range of services within their freestanding online directories.  In fact those Online Directories are #3 behind Search and the Printed Directory for how people find local businesses.  But that ain’t enough.  They need to become advertising networks.  They need to engage with the market of local bloggers, like Vancouver’s own Miss604, and give them advertising inventory that is relevant and can be targeted to their local audiences.

In other words the Yellow Pages businesses need to turn themselves inside-out and, instead of attempting to divert everyone into their silos and cathedrals, free their advertising to integrate with the wealth and breadth of the bazaar.  Locally-focused content sites, which today are starving because the best they can hope for is directly-retained advertising revenue or Google Adwords, could use the help — and in return they stand to generate substantially greater advertising exposure at far less cost than the online yellow pages businesses are attracting today.

It’s a simple shift but one which, I suspect, will have difficulty gaining traction within businesses that emerged from the Incumbent Local Exchange Carriers (Ma Bells) and which have inherited much of their managerial culture.

But there is a breakaway business opportunity here.  If they can make the shift then I believe the Yellow Pages can experience their third renaissance — and avoid the death by a thousand cuts that awaits them from environmentalists, web 2.0 kiddies, the expiration of their primary demographic, and online media empires alike.

So why are we spending millions making and positioning TV commercials and magazine ads encouraging people to vote rather than addressing the root of problems? As usual, it is the usual Khafkaesque penchant of Americans to re-arrange the deck chairs on the Titanic while averting their eyes from the largeish gash in the hull.

Besides, online politics junkies are really not the people whom the reform-minded need to speak to. There are a large (increasing) number of disenfranchised, hope-bereft Americans living in the margins of society, just barely scraping by. Most of these people don’t know how to navigate the chicanery that is the U.S. Electoral process, and so are left out even when they are able to see enough light at the end of the tunnel to vote. According to a U.S. Census study, 25% of eligible voters are not registered to vote in the election.

Topping the list of controversies surrounding the 2004 election is the failure of the voter registration process to service the voting public. It is a convoluted, clunky, error-prone, and eminently corruptible system that is administered differently in different states, precisely because it is operated by state electoral bureaux, rather than by any national authority. It favours voters who declare their affiliation in advance, which further exposes the system to corruption by the clearly partisan officials who maintain it.

In particular, all U.S. states except for North Dakota require voters to register substantially (generally one month) in advance of the election. As this article in the Detroit Free Press points out, that deadline for Michigan is October 6th. Both your name and your address must exactly match on both your ID and on your Voter Registration card. If you move? Tough luck. This will, ironically, affect some of the foreclosure victims in a cruel way come November. The process is convoluted to say the least — even the Governor of South Carolina was turned away from the polling station a couple of years ago due to a registration snafu. And in this electronic age, why on earth is it even necessary?

Officials in Columbus, Ohio estimated that 5,000 to 15,000 voters were turned away during the last federal election. In 2004, more than 300,000 voters were actually turned away at the polling booth due to ID mismatches around the U.S. According to the same report: “in Ohio, about one-fourth of those registered by Jesse Jackson’s 2004 voter drive found their registrations delayed beyond the election date or lost.”

Most modern democracies have addressed, if not solved, the problem of voter disenfranchisement quite simply: same-day registration requires prospective voters to merely present credentials which prove their eligibility to vote, and *poof* they’re in. In Canada, for example, pre-registration is optional and designed to smooth the process at the polling booths — however voters can still drift into the polling station, present proof of citizenship and residency, and their vote is soon counted. Canada’s electoral system is operated by a federal authority, strangely enough.

So whereas in the U.S. blacks, minorities, and the poor tend to vote to the left, it is clearly to the benefit of the GOP to keep the electoral process as exclusive as possible. And so you have had two consecutive contested Republican victories in the United States. I think it’s pretty clear what effect yet more pretty people telling us to vote will have, and I think it’s similarly clear why no fundamental solutions to the problem of voter disenfranchisement are forthcoming.

I experienced some catharsis last night reading Kevin Curry’s (is he a real person?) comments on the Vancouver startup scene over at TechVibes. You should really follow the link and participate in the discussion @ TechVibes, but I have pasted my thoughts and response below as well, for posterity:

I, too, had the opportunity to both work and raise capital in Silicon Valley. While I think every city has its fair share of bad, mediocre ideas (the Valley has lots too — see MC Hammer’s latest enterprise) I believe that the far more common theme here is ideas that are derivative, in which the best hope for success is a bunt, not a home-run.

Startups are supposed to swing for the fences, but there are too many startups here who fail to understand market limitations and try to boil the ocean. I spoke to a pair of entrepreneurs who honestly believed that they could replicate craigslist, zagat’s, epicurious, citysearch, and about half-a-dozen other best-in-class sites with a few hundred thousand dollars and no technical skills between them. I was embarassed for them.

The opposite problem is also true here: people looking at a technology sector and deciding they want to be in that space, without a clear idea of what the product will look like. That too is the wrong approach.

The best services and products solve problems. I’m not suggesting that RosterBot is the end-all be-all of web services, but it’s as successful as it is because it addresses a need, and I as an entrepreneur and athlete happened to experience that need so I was well-qualified to figure out how to solve it. It solves an obvious problem with some effectiveness, and it was built within the parameters, opportunities, and limitations that govern it.

Is it the next Google? Obviously not… but it was built entirely without outside funding and without defocusing me from other career obligations and objectives — and it’s beating other “Social gaming” sites because it is laser-focused on addressing the real needs that teams have.

I too have experienced major frustration with investors in Vancouver. I have always been comfortable saying “I don’t know” when, in fact, I don’t know something. This always played well south-of-the-border, when used in good measure, but here investors are looking for any sign of weakness to exploit in an entrepreneur and immediately go for the jugular.

There is a lack of respect between entrepreneurs and investors in this city. For the most part, I think that disgust is earned by both parties. To fix it, you’ve got to start from the top.

Vancouver has no successful mid-size (in U.S. terms) venture-backed technology startups. You can’t expect someone to go from junior individual contributor at a tiny aenemic startup to CEO of another aenemic startup in one step. With respect to many of the smart engineers I’ve met who are running small companies here, this is too often the case — and because they’ve never managed others or driven strategy and marketing, the results are predictable.

The lack of an informal apprenticeship system for information technology, such as exists within the medium to large technology companies in Silicon Valley, means there is little opportunity for workers to gracefully climb the ladder from junior engineer or marketer to senior management or company founder. Lots of folks have skipped this, and with some success — but I would submit that this is more due to happy accident and raw talent than anything else. So the catch-22 is that we need successful startups — who can stand on their own two feet, and not flip to the lowest bidder — in order to create more successful startups.

In the meantime, consider the following: we don’t need capital sources that are Canadian in order to nurture executives and companies on the Vancouver technology scene… and in fact doing so is putting the cart before the horse.

The Film and Video Game industries in this city are examples of technology-centric businesses that have developed and flourished within Vancouver, creating tens of thousands of jobs each, with capital from outside the city.

What we need to do is nurture programs that make it advantageous to invest, and remove the red tape from investing, in Canadian (and BC) venture startups for foreign VCs, and work to lure them to our city and province. This will attract capital from south-of-the-border, where investors are more seasoned and better-connected — and can bring more capital and greater exit opportunities to bear. These more seasoned investors will also act as a natural weeding mechanism to separate the wheat from the chaff in the local community, and they’ll force local investors to be more competitive and to bring more value to the table if they wish to participate in the upside opportunities. Honestly I think local VCs would appreciate and welcome the help and wisdom of their bigger cousins.

Solve the capital problem, and the other problems will fall into line over time. You’ll get mature, free-standing, profitable technology companies with seasoned entrepreneurs and middle management running them. We will all benefit.

Of course, Microsoft can afford to write these cheques practically ad infinitum, but if your tools are so lacking in perceived utility that you need to bribe people to use them (even if the graft is partially subsidized by affiliate fees), perhaps this is not really the best you could hope for from your marketing team.

You can’t take on Google by trying to buy, or even out-feature, your way into the blank-text-box Search Engine arena. Except for some regional players, like Russia’s Yandex, they’ve won and will not soon be replaced.

What Ballmer, and lots of other people, are missing is that the Search marketplace as we know it is poised for a change. Much of this change emerges from the fact that Google fundamentally owns the global Search Market, but much of the opportunity extant in this space comes from the fact that the technology behind search, and how people will make use of search engines in the future, will be a whole lot different than what you see when you type in www.google.com today.

…. but, there is light at the end of the tunnel for folks who are on the outside looking in at Google’s substantial (and impossible to dislodge) market share:

For most people, web search is a kludge.

Think about how you use Google today. Think about why you type things into that blank text space beckoning to you on your Firefox browser, or why you surf over to Google.com and enter a few snippets of text into that empty area amidst the sea of clutter-free Google whiteness ten, twenty, or maybe many more times per day.

In some cases, you overheard something being discussed in a coffee shop. Or you saw a billboard ad. Something offline motivated you to head to the blank text box and ask it to do your bidding. That is Google’s fundamental market opportunity and has remained largely unchanged since the first search engines began emerging in 1995.

This is, however, just a fraction of the reasons why many of us head to search engines. Often the reasons are as much motivated by inadequate information at one site as by anything else. An example: You’re reading an article from a wire service like Reuters, which rarely include photos, about a car or a submarine or a mountain. You’d like to see what that looks like, so off to Google you go. Or you’re looking at a new LCD on eBay, but the seller hasn’t listed the number and type of inputs that come with it; so off to Google you go to try and find the specifications.

In short, most often we go to Google to search for things because our browsers aren’t good at building pathways between like objects on the web. These types of Searches are what I call context-driven. You shouldn’t need to do this. You shouldn’t need to interrupt your surfing to drop off to a third-party site in order to add flavour to the web objects which have already garnered your interest.

What if you could press a button and instantly be delivered relevant information that is contextual to that which you are/were looking at? What if sites displaying articles from wire services (notable for their sparseness) were able to draw in information – in realtime – which added relevant photos, videos, or related stories?

Some of this is already happening, albeit rather jerkily. One of the leaders which started doing this some time ago was Sphere, which was recently acquired by AOL. It took them some time to draw the same conclusions as I have, and they had a difficult time monetizing these services. But on a great enough scale the same technologies which make relevant content possible also make relevant advertising possible. And while click-thrus will be fewer in quantity they can be greater in quality and therefore infinitely more valuable, thanks to much more accurate targeting.

Being accurate in driving these sorts of searches is hard. Whereas Google relies on its users to sift through its top 30 or so recommendations to find the most relevant information, contextual search engines need to be able to do that with high accuracy on the first few matches with little to no meatware — sorry, Mahalo. Many of the current buzzwordy trends such as the Semantic Web initiatives, Social Search, the shift from RSS to Atom, and API-accessible semantic processing are key enablers to make this easier, but there’s still a considerable amount of R&D necessary to beat Google’s current level of accuracy in this regard.

As a result, you need a long lead to get there, and few of the companies dabbling in the Vertical Search space have raised enough capital or have investors who have committed to developing these opportunities. But in the long run, this will augment Web Search and replace much of the traffic that is today driven by Google’s simple, primitive, empty text box.

What’s clear is that Microsoft’s desperate attempts to lure users to its essentially equivalent service to Google’s can only cost its shareholders. A new paradigm is necessary and, fortunately, the opportunity is ripe for the picking, right in front of us all.

This is a rare opportunity where the solution lies in good, solid R&D and product realization — not in leveraging semi-monopolistic product integration or in brute force advertising spending. Is Microsoft bold enough to understand, and embrace, the fact that Search is shifting? Do they have the product and engineering people to make this happen?

… and the web application hosting business cowers in fear. Now, my friends, people are discovering what Google’s REAL differentiated IP is..

Application scaling is a real problem for the managed hosting business unless some software company comes up with a platform/solution that lets them leverage their existing computing infrastructure. This is allegorical to, and is probably as big an opportunity as, SAN and NAS a few years ago … big incumbents like EMC and Network Appliance with totally vertical solutions (Google and Amazon in this case) competing with guys using software and off-the-shelf hardware (the hosting companies licensing the wares of some as-yet-non-existent software company).

As I’ve been saying for a couple of years, the shortcut to building an application scaling environment is to build the framework and make it reasonably custom to the scaling environment (Google’s path) which is an obstacle but also makes it very hard to leave once your app is in. There are a number of companies, such as EngineYard, who are making progress on doing this using Ruby on Rails as a platform starting-point, which is very sensible.

I’m not sure what Fred is blathering on about … this has much less to do with how to finance companies than it does with how to host apps. App hosting costs are usually about 1/15th of the operational burn of any company, so this announcement in itself doesn’t change anything in terms of incubators vs. traditional VCs.
It seems to me like he’s using this announcement to beat the “let’s exploit naive, inexperienced fresh-outta-sk00l coders via an incubator” dead horse. Incubators are a worthy financing strategy, but less likely to have the same success ratio as working with people who actually know what they’re doing.
Most entrepreneurs in my peer group would never in a million years shepherd their idea through an incubator. Of course, many of us remember IdeaLab, and its Canadian imitator, IdeaPark.
Regardless, Google’s announcement has nothing to do with business incubators. The effect this really has on incubators is in making it much easier for them to flip their spin-outs earlier to Google. 🙂