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Category: venture capital

@cshirky > Promiscuous Reading > Contra Solipsism > Here Comes Everybody

This isn’t a review. I’m not sure that reviews are very useful beyond the basics: Here Comes Everybody is an important book. Some people will choose to read it, but that doesn’t really matter because it’s in the air we breath. You’ll absorb the book’s insights through some sense organ within the next few years. Clay Shirky has written about network theory in a style that might appeal to a broader audience; and it will directly reach more people than books by Duncan Watts or Albert-László Barabási. However reading will not be the primary diffusion model.

One criteria I have for judging the quality of a book is the number of times I have to stop reading. This generally occurs when some string of words in the flow of the book makes a strong connection either to concepts from another text, or to something I’ve scribbled in one of my notebooks. The monologue of the text is interrupted by a conversation racing across a network of intertextuality. While this slows reading as an act of consumption, it opens the door to reading as a full-duplex, 2-way engagement. And that’s where its real value is revealed; in this sense, I found Here Comes Everybody to be a very promiscuous book. There were connections everywhere.

The obvious literary reference would be to Joyce, but instead Rilke provided the more forceful connection with his fragment “We are the bees of the invisible:”

Transform? Yes, for it is our task to impress this provisional, transient earth upon ourselves so deeply, so agonizingly, and so passionately that its essence rises up again “invisibly” within us. We are the bees of the invisible. We ceaselessly gather the honey of the visible to store it in the great golden hive of the Invisible.

There’s a sense in which this describes the process by which poetry is crafted, but it also seems to inform the way we build the collective experience and history of a group. We have a collective story we tell each other about the importance of the individual, but stories about family, tribe and society are on the rise again. Shirky points out that the transaction cost of organizing a group has declined nearly to zero through the tools available on the Network. He goes on to note that low transaction costs are not sufficient — a plausible promise around purpose and a mutually beneficial membership bargain are equally necessary for a living community. 

Two factors suppressed in the current commercial infatuation with the social graph are the ownership of the products of the community and the emotional volatility of a group. These are high risk ingredients in the recipe, human elements that need to be purged to sell the current business models. And those services without explicit business models continually run up against these issues. Can you sell what isn’t solely yours to sell?

As we gather in tribes and loose associations across the Network, we invent ceremony, initiations, ritual, taboos and forms of justice to ensure the ongoing health of the system. We optimistically believe the rules, mores and sins of our fallen culture won’t simply be mapped on to the social space of the Network. Experience has shown that absent some form of persona or identity, the life of an online community will be nasty, brutal and short. Could the Network be the new world where individuals are judged by the character of their content? Or is it really just more of the same, a place where it’s not Metcalf’s law, but Sturgeon’s law that rules the day.

We’re in the middle of a shift in perspective. We’ve been focused on the individual, the physical limitations of an un-networked personal computer metaphorically defined the limits of our ability to think about the Network. In the area of identity we seem to only now be uncovering the idea of a relationship layer. The silo’d thinking of the technical community causes it to lay down cow paths on the well-paved roads of other disciplines. While Shirky’s book is written for the layman, its highest and best purpose may be in introducing technologists to the idea of society.

In the larger network of connections there are two that put themselves forward. In Saussureian Linguistics meaning is derived from the set of differences within a system. Here are a list of ideas that can help us overcome the solipsism of the hard drive:

  • “A sign is the basic unit of language (a given language at a given time). Every language is a complete system of signs. Parole (the speech of an individual) is an external manifestation of language.”
  • “A linguistic system is a series of differences of sound combined with a series of differences of ideas.”
  • “The connection between the signifier and the signified is arbitrary.”
  • “In language there are only differences, and no positive terms”
  • “Speaking of linguistic law in general is like trying to pin down a ghost”

The other charged connection is to Ludwig Wittgenstein’s thoughts on the idea of Private Language. Like those who believe in Private Languages, we seem to be caught in the fly bottle. We don’t understand that language and communication is social at its core:

If the idea of a private language is incoherent, then it would follow that all language is essentially public: that language is at its core a social phenomenon. This would have profound implications for other areas of philosophical study. For instance, if one cannot have a private language, it might not make any sense to talk of private sensations such as qualia; nor might it make sense to talk of a word as referring to a concept, where a concept is understood to be a private mental representation.

Nor might it make sense to talk about identity apart from society, computing devices apart from the Network, or data (signifiers) apart from an economic and trading system of language. The end of our solipsistic weltanschauung is beginning; we are perhaps in the middle of the beginning of a general revolution. Some will ride the strong currents as they emerge, others will fight the current, grow tired, and eventually drown. And the looming danger ahead is the task of assuring and preserving the inalienable rights of the individual in this new Network. Once the technical perspective has been transformed from the one to the many, all the really important questions become political.

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More Rules for Startups: Embrace Error

Here are some of my rules for startups:

  • Have a great product that everyone wants
  • Enable huge margins by creating great value
  • Reduce the production cost of your product to as close to zero as possible
  • Sell lots of your product
  • Make it easy for your customers to pay you
  • If you don’t have a hit product, preserve your ability to make errors

Efficiency in a start up business has to do with your margin for error. The larger your margin for error, the better your chance of success. You want to use resources wisely so that you can make more errors. If you are a model of efficiency and save money on all the right things and don’t invest in making errors, it won’t matter.

When you find the right product or service, and the stars align, you’ll want to be able to put your foot on the gas. That takes money, it’s the moment when you test your belief in your product. It’s hiring at the right time, scaling infrastructure, buying advertising and providing adequate customer service. If your company has money, you maintain control. If you don’t, you’ll lose equity to investors in exchange for the funds to go from beta to launch.

And a final piece of advice, understand what the words ‘burn rate’ mean. Until your burn rate has crossed over the zero point, and your model is delivering on the margins in your plan, you’re on the clock. It works just like basketball, you miss every shot you don’t take. If you’re open and you have your shot, you’ve got to take it.

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Transparency and Information Asymmetry in Venture Capital

Is The Funded going to create transparency and symmetric access to information for both buyers and sellers in the private investing market? TechCrunch says that they’re going to create a database of term sheets. If this works, it’ll change the landscape of private investing.Today venture capital firms have vision into the pricing market, in fact they largely create it. New companies are completely in the dark. How do you decide the right price for equity units in a private company? How does a new company know if they’re getting a good deal, or getting taken? Openness and transparency will change the market and just like with IPO pricing, the status quo will resist the change.

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Digg, Mixx and Viral Negativity in a Social Network

Arrington writes that some of Digg’s unpaid editors are moving over to Mixx. Since they aren’t compensated for their work, switching costs amount to getting some of their friends to switch too. This is an interesting case study in the value of social networks. If the creators of the “user generated content” decide that the environment has become poisoned with negativity, they may decide to pull up stakes and migrate to another more friendly environment.

One Digg user makes the claim, in Arrington’s article, that:

I think Mixx has a real chance for success…Mixx has a much more positive audience than Digg. It always amazes me that even the most popular and highest quality articles can get so many negative and unnecessarily degrading comments on Digg. So far the users of Mixx have proven to be quite a bit more pleasant, something that I know will be welcomed by most users.?

Negativity can quickly become viral in a social network, especially where some kind of voting takes place. Competitive strategies can overtake collaborative strategies and then the community’s overall output starts to become skewed. To combat the negativity, the owners of the site make rules to curb some forms of competition, and before you know it– it’s not that fun anymore.

It’s interesting to watch the figures of game theory play out before your eyes. Should part of the valuation of a business that depends on social networking and voting be dependent on its ability to enforce and maintain a friendly environment? See Craig Newmark for a lesson in how this can be done.

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