Author: Paul Elosegui

Alternative Investment in 2021

I entered bitcoin in 2014. I diligently read the Satoshi paper and the O’Reilly “Mastering Bitcoin” bible by Antonopoulos. I installed a bitcoin node in the office and tried mining with a graphics card. Learnt the magic of cryptographically large numbers and generally joined the crypto faithful.


I had doubts though. I was never a maximalist. Going to the moon is fine, but how about we make Bitcoin and Ethereum useful. Bitcoin needed to either be a (1) store-of-value, (2) unit of account or (3) means of payment. Ethereum needed a killer-app; not crypto-kitties.

Coming from a traditional trading exchange, I tested orderbook slippage at various crypto exchanges and found the bitcoin price was too easy to manipulate. I was sceptical about its function as a store-of-value. Too many colluding whales, too much suspect wash trading by exchanges.

Nevertheless, I believed enough to continue with crypto projects.

In the past six years, bitcoin has emerged as a store-of-value. Here is my 2021 context for bitcoin as an alternative asset investment.

Traditional investment managers are sceptical, but overlook the fact that emerging asset classes have been part of finance for centuries.

Investment managers generate over 90% of their returns when allocating to investment asset classes. Selection within classes, fund selection and stock picking are typically secondary [1]. For general saving portfolios, a performance attribution analysis will flag asset allocation as the principal influence in the portfolio’s performance.

One the best examples of portfolio management is the Yale Endowment Management. With $31 billion under management, Yale’s Investment office is a reference on how to manage long term savings. Yale endowment’s asset allocation in particular has been exemplary for decades [3]

Yale Investment Office Asset Allocation Graph

Optimizing a Portfolio

The visual for optimizing a portfolio is the returns vs risk graph, shown below. Each asset class has a different characteristic, and the risk vs return of the overall portfolio will be a function of the allocations made to each assest class .

Returns vs Risk Graph for different asset classes

The efficient frontier line, shown in the graph below, represents the best of these securities combinations — those that produce the maximum expected return for a given level of risk.

Efficient Frontier Line: Portfolio Return vs Risk for different asset allocations Source: investinganswers.com

The relationship securities have with each other is an important part of the efficient frontier. Some securities’ prices move in the same direction under similar circumstances, are correlated, while others move in opposite directions.

Harry Markowitz used the efficient frontier graph to demonstrate the power of diversification with un-correlated assets. He won the 1990 Nobel Prize for economics.

The graph below shows Yale Endowment’s pursuit of an efficient target allocation over a period of 10 years. Higher returns and lower volatility.

Risk vs Return Chart for Yale University Endowment sources: university documents

Yale continues to maintain a well-diversified, equity-oriented portfolio, with the following asset allocation targets for fiscal year 2021:

absolute return23.5%
venture capital23.5%
leveraged buyouts17.5%
foreign equity11.75%
real estate9.5%
bonds and cash7.5%
natural resources4.5%
domestic equity2.25%

Yale targets a minimum allocation of 30% of the endowment to market-insensitive assets (cash, bonds, and absolute return). The university further seeks to limit illiquid assets (venture capital, leveraged buyouts, real estate and natural resources) to 50% of the portfolio. 

Combining Non-Correlated Assets

When combining negatively correlated assets the portfolio’s risk return will in theory improve. When one asset is down, the other asset is up, reducing volatility.

Cross Asset Class Correlations source: kkr.com

So, in addition to return on investment and volatility, asset classes are judged on correlation to principal asset classes like public equity and fixed income

Alternative Asset Classes

Yale Endowment’s above average performance has been attributed to their search and allocation to new emerging asset classes.

Post World War, Yale moved away from traditional liquid asset classes and targeted illiquid investments, like private equity and venture capital. The illiquidity premium brought over-large returns for decades.

Real estate and commodity asset class brought another decade of overlarge returns.

In the current environment, with Quantitative Easing, and lower forward return forecasts, alternative asset classes are forecast to bring alpha and safe-haven correlation to portfolios [4].

Alternatives like Gold are often weighted during difficult economies. In periods of extreme instability, investment managers seek refuge in gold, silver, copper, as safe-havens rather than yield plays. As shown by the price graph below gold can provide negative or no correlation to public equities.

Negative correlation between Gold and Equity

New Alternative Assets

New store-of-value assets emerging in recent years include Art collectables, and crypto currencies.

In 2017 the global art market topped $67 billion. Since 1985 contemporary art has been the best bet for investors of the asset class, returning an average of 7.5% per year, Citi said in a report using data from Masterworks.io. Impressionist art averaged 5.0%, while the art market as a whole returned 5.3% annually.

Since 1985 contemporary art has been the best bet for investors of the asset class, returning an average of 7.5% per year, Citi said in a report using data from Masterworks.io. Impressionist art averaged 5.0%, while the art market as a whole returned 5.3% annually.

The leading art index, created by Jianping Mei and Michael Moses, using “same sales” data from public auctions calculated a long-term correlation coefficient of 0.04 with the S&P 500.

Though the Mei-Moses art index issues, and and correlation data is still non-conclusive, the collectibles asset class is becoming attractive. Better trading transparency and liquidity through new collectibles marketplaces is behind the trillions of dollars stored in this asset class.

Bitcoin and Crypto Currencies

Described as the ultimate store-of-value [10], bitcoin and crypto-currencies are increasingly used as alternate asset classes in professional investment portfolios[11]. Bitcoin crossed $1 trillion market capitalization in 2021. Though an order of magnitude less than gold, it’s importance as a store-of-value in no longer questioned.

Current expert recommendation[11] is 1% – 5% of portfolio weighting.

Bitcoin holds the principal part of crypto capitalization. The remainder of digital assets are highly correlated to bitcoin, as shown in the correlation table below. The majority of coins exhibiting correlations above 0.5 with other cryptoassets.

Cross Correlation values for major crypto coins (2020)


Digital Collectibles – NFT

Collecting Art is about uniqueness as well beauty. Digital Art like music, images, video, have long been handicapped by the difficulty of claiming ownership and author’s rights. Cryptographic signatures and a distributed ledger provide this uniqueness, and Non-Fungible Tokens (NFT) fix the provenance problem.

Lack of liquidity is investment art’s Achilles heels. Buying into the long tail of art works is easy, selling obscure artists is hard[6].

New marketplaces are emerging though; opensea.io, rarible.com, niftygateway.com or superrare. Better search engines for Art’s long tail will without doubt improve market depth and liquidity. The financial instruments to make it a viable investment class, insurance, futures, options, settlement, clearing are on the way.

All you have to do now is spot the next Banksy. Online.

Conclusion

The hunt for new asset classes for investment is the future of portfolio performance, always has been. Yale has yet to add digital assets to its portfolio, so it is not yet too late to buy. Timing though. That is difficult.

Reference

  1. Pension Fund Management – Arun S. Muralidhar, Stanford Economics & Finance, 2000.
  2. Yale Investment Office
  3. Venture Capital & Private Equity, Josh Lerner, Wiley, 1999.
  4. Rethinking Asset Allocation Henry McVey, KKR, 2018
  5. The Efficient Frontier, Harry Markowitz, Modern Portfolio Theory, 1990 Nobel Prize.
  6. Why Investing in Fine Art is Different Than Investing in Traditional Asset Classes, Doug Woodham, 2018.
  7. Why should art be considered an asset class, Adriano Picinati di Torcello, Deloitte Art and Finance, 2010
  8. Buy a Monet instead for treasury? Art has shown long-term returns to rival bonds, Pippa Stevens, CNBC, 2019
  9. Why art should be in every investor’s portfolio, Masha Golovina, Masterworks.io, 2018.
  10. Bitcoin is a Collector’s Item Meltem Demirors, Coinshares, 2020.
  11. A little Bitcoin Goes a Long way James Butterfill & Christopher Bendiksen , Coinshares, 2020.
  12. The Case for $500k Bitcoin, Tyler Winklevoss, 2020
  13. Bitcoin Investment Thesis, Ria Bhutoria, Fidelity Digital Assets, Oct 2020.
  14. The NFT Landscape, James Bennett, Bytetree, Oct 2020.

Debugging Creativity

Creativity, they say, is solving problems with no apparent solutions.

I confess, I hate creativity work.

I hate problems that fall outside my everyday work routine. Obstacles un-movable that I did not see coming.

I hate having to be creative. We all do.

If you are like me, here is a list of tricks I use for practical creativity. Ways of debugging creativity, when you are stuck.

Mixing Different Skills

Creativity is about mixing different types of skills.

The best equation [1] for creativity is

Creativity = fa(K, E, I)

where

    • K – Knowledge specific to the problem domain
    • I – Imagination to generate novel approaches
    • E – critical Evaluation for selecting and developing the best solution to the problem
    • a – attitude; how well you combine the 3 skills above
  • [1] Dr. Ruth Noller – “Guide to Creative Action”, 1997

The Godfather of creativity, Edward de Bono, says its 6 skills [2] or thinking hats:

    • White Hat – Data collecting reliable and objective facts
    • Red Hat – Emotional emotive perception: do you love or hate the idea
    • Black Hat – Rational critical analysis of the solution
    • Yellow Hat – Optimistic positive extrapolation, supporting and evolving the idea
    • Green Hat – Imaginative fertile and irrational pursuit of ideas round a problem
    • Blue Hat – Control orchestrating the above skills well
  • [2] Edward de Bono – “Six Thinking Hats”, 1999

Creative work is about perceiving [3], about seeing the solution. A good creative solution seems obvious afterwards.

Why did I not see it earlier?

The different skills provide different ways of perceiving.

If you are stuck, you need to switch skills.

Domain Specific Knowledge (DSK)

Understanding lets you see more.

The extreme is the 10,000 hour rule [4]. It takes 10,000 hours of practice to master a craft. To improvise like a jazz master.

If you are stuck, learn more about the problem domain.

Frame the Problem

Acknowledging and describing the problem is sometimes half the battle.

Something is wrong. You don’t know what, how or why.

State the nature of the problem, then leave a huge blank space where the answers will eventually be pinned or drawn.

Framing also provides constraints.

Without constraints and a focus, creativity work will not solve anything.

The Elusive Problem Domain

Its about the problem, not the tools. Classic mistake when learning.

Tools always have books and qualification courses.

For the problem domain, you have to experiment and observe. Try things. Test.

For the problem domain, you learn most from failure. Not from getting “A+” in class.

We all have academic skillsets which focus on generic, reputable abilities. Very distant from the product and problem domain.

Matrix organizations are the worst at this. Functional managers, in their silos, recruit and train for these generic skillsets. Theory is so much more elegant than practice, than real client problems.

Product Managers are central to creating a problem domain focus [5].

For creativity, demand problem domain loyalty. You have to disown your tools and generic skillsets, and swear loyalty to the problem domain.

Observation

Your Context has a Wide Horizon

Nowadays, you never see serious problems coming.

Your job layoff, product end-of-life, company closure problem often comes from outside of your assumptions.

Nobody can predict the next 10 years.

The threat horizon is wide. Your market, clients, users and technology span beyond what you can see.

Similarly, the solution often originates from outside your competencies and context.

Never assume closed, isolated, scenarios for your thinking.

Observe your context accordingly. Assume the world is flat, with no barriers.

Watch for these externalities.

The Braintrust – Domain Mentors

The truth is adding more people to a team does not speed up know-how intensive tasks – The Mythical Man Month.

In Pixar and Disney, story telling knowhow is concentrated in a small group, the braintrust. The group acts as a catalyst for quality films. The rules for the Pixar braintrust are:

    • Members of the braintrust have deep domain experience. They include the Pixar founding team
    • Braintrust has no authority, it cannot tell other director’s what to do
    • Deep kandor required. The brainstorm does not work in the presence of personal, political agendas. Divisiveness and politicizing is actively managed out.
    • The dynamics of the room, the attitude, is all important

In the absense of a braintrust, seek domain mentors. Helpful people that have previous experience in the problem at hand.

Generic managers need not apply


Imagination – Ideation

The most imaginative ideas are invariably unpleasant at first, but wonderful in hindsight.

The most fertile, original, promising ideas are never in your comfort zone.

“You want to do what?! Whatever next!”

Do not discard the idea. Place it on the project wall.

Defer judgement. Easy in theory, hard in practice.

Rhythms

All ideation techniques use a two phase diverge-converge rythm: create ideas – choose ideas. And repeat.

Design Thinking goes to Users to source new ideas. Deep ethnographic observation, User’s lives, problems and tasks as a base for ideas.

Lean Startup builds a minimal prototype and experiments with users, technology and the market.

The wider your observations horizon, the better your idea generation will be: Users, Technology, Competitive market.

You Need to Play

This is hard for adults, specially for those of us with a management background.

Invoking emotions and feelings, Red and Yellow Thinking hats in brainstorms are not for everyone. Being unflichingly emotive and optimistic about someone elses idea is tough.

Green Hat, lateral thinking provocation techniques, which use outlandish non-sensical ideas to shunt fast-think, cognitive filters, habitual prejudice, and allow a fresh perception, are hard.

Being playful and emotive at work is hard.

Use de Bono Thinking hats discipline.

Take it seriously.

Orientation and Mapping

Next comes the sorting and visualising phase. Group and order the post-it notes, or observations and observe the patterns and themes that emerge.

Visualize as much as you can. Mapping in different dimensions, and along spectrums.

Visual thinking with pictures, cartoons, diagrams and graphs is the most intuitive.

Resist writing reports.

Maps are best.

Critical Evaluation – The Dreaded Black Hat

When Critiquing an Idea: Be Rational not Prejudiced

A professional design critique starts with “This will not work because…”.

An amateur design critique starts with “I don’t like this…”

Best critiques come from professional development managers like certified Scrum Masters.

Accurate development and execution planning is an essential part of creativity process.

A good critique is essential to eliminate evidently bad ideas, and then rank and prioritize.

A good critique always gives good reasons.

Risk and Value Are Linked

The best lessons involve risky projects. Projects that offer no guarantees.

Each trial, prototype and experiment has a cost, nevertheless. Not just time and money. Failure has a cost. It is tiring to fail.

So, triage your best ideas wisely. What will teach you the most about the problem domain?

But, try to retain some synergy with what you know, so adaptation is possible.

Just outside your comfort zone, where you will learn the most.

Playing it safe has the least creative value.


Debugging Creativity – Attitude is Everything

Organizations are not creative, individuals are [12].

Here are some frequent failure modes that are vexing.

Avoid Zero-Sum People

A zero-sum game is a scenario where gamers compete over a fixed amount of prize. The winnings balance out the losses. The net sum of the participant winnings and losses is zero; it is a zero-sum game.

Creativity, obviously, is a non-zero-sum game. You are creating value out of nothing, not stealing a prize from somebody else.

Zero-sum people compete as a way of life. Cooperating and enabling others is a weakness. All relationships are transactional, tit-for-tat.

Give a bag of corn to a group of zero-sum people, a time later they will each have competed and won part of the original bag of corn. The net growth of a zero-sum economy is always zero. Stagnation.

Give a bag of corn to a group of non-zero-sum people, a time later they will have harvested 100 bags of corn from the planting of the original bag. The net growth of a non-zero-sum economy is non-zero.

When a person’s way of life is about competing over fixed assets, creativity will be difficult for them. They need to compete, not create. Zero-sum people simply do not believe in creation of value. Avoid them in creative process; out-competing everybody does not fit with ideation.

For creativity, don’t compete, cooperate

Beginner’s Mind: Defer Judgement

Some people think they know everything. Academics, for instance, are notorious for always having an answer; “That’s because ….” . They are teachers, they are supposed to know everything.

But, with a creative problem, you don’t know the answer. Nobody does.

So, defer judgement. Don’t judge even the wildest ideas without testing.

Original ideas always have risk and doubt.

Your chosen ideas must have reasonable doubt, otherwise they are worthless

Beginner’s Mind is the buddhist practice of approaching life as a student. Empty of judgement, full of question.

Cultivate Disregard – Create a Safe Space for Ideas

Practicing Beginner’s Mind, acting as a student often attracts scorn, derision, hostility. Students, beginners, are always the bottom of the totem pole.

Thinking different, not being part of a larger group, will be uncomfortable.

Richard Feynman, Nobel laureate, says it is the key: “You have to worry about your own work and ignore what everyone else is doing.”

Resist the temptation to conform or to seek approval.

Disregard people outside your creative project.

Test and Validate Assumptions

Being dogmatic is opposit to being creative.

Unquestioned belief in what you have been taught is a creativity fail.

New MBA students are the worst. They are rarely warned to test their conceptual frameworks in the real world [7]. Validate what is taught in class before using it in anger.

Unconscious prejudice and dogma is the biggest reason experts fail in creativity

Practice “Strong beliefs, lightly held”, says President Obama

An informed challenge is an opportunity

Whenever possible concede, don’t debate

If you can’t beat them, you join them; change your mind quickly.

Try and progress through

what should be,
what is,
what could be

If none of your ideas need testing, something is wrong.

Creativity is a Dance, Don’t Be Bossy

Creativity is a flow through different ways of thinking, in pursuit of a good perception.

Don’t be rigid or bossy.

It is more art than science.

Blue Hat Thinking is about the choreography of achieving a nice flow of thinking.

If you are stuck, time to take a step back and change your approach. Try something different.

Sometimes, you just have to take a walk.

Embrace Risk

Risk is Now Part of Our Lifes.

In our jobs, our products, our services, our media, our companies.

Career, earning a living, and education require effort and taking risks.

Risk free investments don’t exist anymore. A risk free asset is no longer an investment, like cash, it is just storage.

Good investments no longer come with guarantees.

In investment language, you only get a return on investment in exchange of uncertainty and volatility.

If you want more return, you must accept more risk.

The same applies to ideas.

Optimising Return with Portfolio of Projects

Risk-return is best optimised through portfolios. A basket of ideas.

Venture Capitalist create portfolio of investment projects, like a basket of lottery tickets. Only one or two will be winners. Every funding cycle, they retain the winners, throw away the loosing tickets.

Curate your basket of ideas. Test, and weed out. Decide on cut-off rules for ideas.

Risk Budget

You cannot achieve success on a zero risk budget.

Decide how much time and money you can risk, and embrace risky ideas accordingly.

Risk is real. Expect to fail randomly and repeatedly.

When the Value-at-Risk is too much, go for tactical, limited risk developments.

Maintaining employment is always a smart move.

When gauging risk, common sense is required. Don’t invest more than you can afford to loose.

Creative Success Is Random, Be Humble

Randomness is widely overlooked in the creative and investment industry.

Winners are, often, simply in the right place at the right time.

You are not born a winner. You are not chosen by Destiny. You will not automatically win the lottery ticket.

But, we are always fooled by randomness. We look for causes, schemes, and tricks. We become superstitious.

Nevertheless, ignore the guaranteed success advice.

Ignore the lucky few who now proclaim their God-like winning qualities and schemes.

Be yourself, score high on the creativity equation, and try your luck.


[3] “Thinking Course”, Edward de Bono, 1996
[4] “Outliers”, Malcolm Gladwell, 2008
[5] “Inspired: How to Create Tech Products Customers Love”, Marty Cagan, 2017
[6] “Ed Catmull:Inside the Braintrust”, Ed Catmull, 2014
[7] “Don’t Go Back to School”, Kio Stark, 2013
[8] “Surely You Are Joking Mr Feynman”, Richard Feynman, 1985
[9] “Fooled by Randomness”, Nassim Nicholas Taleb, 2001
[10] “Creative Mischief”, Dave Trott, 2009
[11] “Zag”, Marty Neumeier, 2007
[12] “Organization Creativity”, Puccio, Gerard J., 2017
[13] Zero Sum Thinking
[14] “Who Moved My Cheese”, Dr Spencer Johnson, 1998
[15] “Creativity Inc”, Ed Catmull, 2014

The Art of the Pivot

The hardest part of entrepreneurship is to know when it’s time to change direction, to pivot, and when it’s time to stay the course.

Foremost, you must be able to distinguish between internal operating problems, and external problems of the product in the marketplace.

The first requires improving competence and processes of the team, the second requires a product pivot.

Signs That You Need to Pivot

Product management in competitive marketplace, like the Art of War, involves tactics, strategy and vision.

When a product has problems competing, the first signs are in everyday tactical work.

From tactics to vision, here are signs to look for in the product management processes.

Scrum & Agile Development

When a product falters in the marketplace, Key Performance Indicators (KPIs) and other analytical measures will flatten or start dropping

The KPIs can drop in spite of product improvements. Completion of projects in the product’s agile backlogs may not bring the expected improvements.

Scrum and Agile are the most effective in prioritizing and completing projects in collaboration with all the product’s stakeholders. The agile processes are, however, poor in diagnosing more strategic and vision problems

UX Redesign

Research and testing with Users is the first step in fixing issues with an under-performing product.

UX Design Stack

Collaborative design with mixed skill teams, which include User feedback, is the backbone of UX design.

UX addresses usability, product identity & narrative, branding, aesthetics, gamification improvements. Improvements in the entire design stack, shown in the graph, are tested with users to validate the work.

The UX design team must, however, recognize when a product’s problem are beyond the scope of just improving the User’s Experience.

A wider view, which includes the marketplace, is needed to solve the product’s problems.

Lean Startup

The business canvas is the best way to map out the immediate strategic issues of a product

Lean Business Canvas

The lean startup and customer development, are excellent methods to collect information for the Business Canvas.

The processes build lightweight prototypes/modifications and measure User’s reactions to when using them. Lean startup is able to prioritize the weakest areas and riskiest assumptions in the business canvas, and establish the cause of a product’s weakness,

When a product’s vision still has full potency, these build-measure-learn iterations are sufficient for small change pivots, like price, narrative and re-targeting customer segments.

Based on the business canvas, a lean startup team can establish, also, when a product’s problems are beyond their responsibility.

Design Thinking

Design Thinking

When a product’s problem are beyond quick build-measure-learn iterations. Questions of vision and purpose may come into play. The framework for a possible solutions expands beyond a business canvas.

A more extensive user research project, a full ethnography, may be needed to understand the User’s full daily environment. An ethnography enables a wider exploration of the problem domain.

Design Thinking provides processes and people culture to explore a wider area of ideas. The product’s situation can be mapped, studied through ideation, prototyping, user testing and other creative methods.

Design thinking always starts by framing the problem, defining a goal, including time-frames and constraints. The design thinking team can, also, identify when and how a product’s problems are beyond the scope of their fixing.

Entrepreneurship

In spite of well established methodologies, products fail all the time.

The best product management teams in the world cannot fix a depreciated product vision. Usually, the breadth of pivot required exceeds their framework of competencies.

Entrepreneurs, however, continually create products that disrupt markets, even without the help of formal methodologies.

Hence, once the product’s vision has lost potency, the product’s founders must create a product vision anew. The owners must embark on an entrepreneurial big pivot.

The new product vision must show how to make the product original & valuable again, how to achieve a unique differential in the marketplace.

Clearly, entrepreneurs operate on a wider vision of the market place. The  widest understanding of the context for a product.

The broadest context canvas is “USER”, “TECHNOLOGY”, and “MARKET”, as shown. The most common forms of product failure, for example, can described as follows:

  • USERS: no differential utility
  • TECHNOLOGY: will take several decades to mature
  • MARKET: squeezed out of the value chain by bigger players

 The Art of Entrepreneurship

A big pivot, an entrepreneurial project, has the widest framework and freedom from constraints allowable. The bigger the problem perceived by the product team, the wider the allowances made to the big pivot team.

The art of the pivot is combining the freedom and the constraints. A
judicious blend of bottom-up experimentation and top-down guidance.

Freedom Constraints
Bottom-Up Top-down
Original Valuable
Exploratory Procedural
Ideation Synthesis
Problem Focused Tools Focused
Problem Pulls Method Pushes
Discover Exploite
Rebel Collaborate
Interesting Useful
Disobedient Disciplined
Disregard Orthodoxy
Random Incremental
Unpredicatable Methodical
Irreverant Doctrinal
Open Mind Dogmatic
Un-grounded Reasoned
Beginner Expert
Experiment Look It Up
Improvise Analyse
Self Learning Educated
Wonder Measure
Move On Acumulate
Challenge Comply
Defiance Conforming

The rules of engagement of the pivot team is freedom w
ithin the agreed framework.

A part of entrepreneuship is an art which cannot be taught, Steve Blank, Stanford University

The pivot team is best composed by those most exposed to changing externalities (technology, shifting user base, strategic competitors).

Also choose the specific domain experts, those with the know-how which creates the most differential for the company.

Usually, the founders are in this group.

Framing and Constraints

Frame your pivot as solving a worthy problem for the User. A worthy problem is naturally original, and valuable to users.

A big pivot must be risky and uncertain. It is a law of nature with worthy problems.

The key here is the problem domain’s know-how.  The most expensive asset. Know-how about the Users, the Technology and the Market in the problem domain is essential to build and explore.

Problem Domain

Even a random bottom-up exploration needs the know-how to (1) build and solve small problems, (2) avoid re-inventing the wheel, and (3) perceiving an out-of-the-ordinary outcome.

You must frame your problem domain in accordance the resources, the know-how and time your have to explore it. Otherwise, you will find yourself trying to swallow an ocean.

Choose a problem domain you have a passion and know-how for. Big pivots are long term endeavours of indeterminate length. Think of it as a at least a 3 year commitment. It is likely you will achieve success on the 2nd or 3rd bounce of the ball.

Grass is greener projects maybe attractive initially but the effort and time required to achieve a critical mass of problem specific know-how will be considerable.

The narrower the focus of the project, the more specific the User’s problem, the more feasible the exploration.

Start Learning

Unbiased exploration within the problem’s framework is most critical here. Unconscious assumptions, cognitive biases, existing expectations guarantee failure.

An empirical approach, where you make, build and user-test is best in suspending prejudices, and perceiving truly. Thinking with your hands is the good approach to finding original problems.

Use bottom-up, individual sample of problems within the framework, with a strong disregard of established expectations. Use the small problems as an opportunity to learn the problem domain, and actively look for unexpected outcomes, failures and opportunities.

You must pull knowledge in, learn what you need, to solve the problem at hand. It is problem-driven, self directed learning.

The ability to pull knowledge as needed is what distinguishes
product professionals, from classic specialist professionals. Department, function centered staff, like programmers, designers or salesmen, study the tools, methods and processes of their profession. Product focused professionals are discipline agnostic, and learn only to better the product outcomes.

Self directed learning is not easy. Every discipline, department and community you approach will consider you a beginner. It requires a beginner’s-mind, humility and self confidence.

Diversity through team work can enable discipline agnostic work. Know-how is best shared through prototypes and visual thinking.

Rules of engagement are important when working collaboratively with people from diverse backgrounds. Blending the arbitrary, random, discovery work with the discipline to build and test requires an understanding and an agreement of the overall process.

Map Your Progress

Visual thinking is a well known technique for avoiding biases and perceiving truly. A project wall with post-its, pictures, and graphs is a great way to make connections between different experiments, studies and map and re-map along interesting trends.

The know-how that will make a difference will not be generic. It has to be problem specific, and combined from diverse areas:

Looking & Observing

KNOW-HOW

  • Do you have enough know-how?
  • Are there enough post-its on the project wall?
  • Are you sampling the problem area well?
  • Are you working outside the problem domain?
  • Should you redefine the problem domain?
  • Are you covering enough perspectives, enough disciplines, enough user segments?
  • Is there a different discipline or specialist that could contribute to the problem?
  • Are prototypes failing because you don’t know?

IMAGINATION

  • Is there originality, randomness, exploration?
  • Is the exploration too methodical?
  • Is there too much groupthing?
  • Are you breaking any rules?
  • Have you built anything yet?
  • Are the prototypes heading to new areas?
  • How many of the prototypes failed?
  • Are the prototypes bringing anything new?
  • Are you having fun with the prototypes?

ORIENTATION & SEEING PATTERNS

  • How are the ideas, post-it notes, clustering?
  • Any ideas outside classical, orthodox disciplines and specialisms?
  • Any cluster of ideas cross-pollinating?
  • Can you draw a any spectrums, low to high, on the project wall?
  • Does clustering ideas along the value chain show patterns?
  • Are you finding a User Segment focus?
  • Is there a disruptive Technology?
  • Is there anything un-expected?
  • What is irritating?
  • Do any of the prototypes have traction?
  • Is anything not making sense and why?

Action

  • Is the framework too wide?
  • Is the framework too narrow?
  • Does the problem domain need to be moved along either the User, Market, Technology axis
  • Are there too many competitors?
  • Is this problem domain too old, too mature?
  • Do any of the prototypes have interest?

 A Game of Know How

Reaching Critical Mass of Focused Know-How

Know-how is bed-rock. Intuition is possible only with enough domain know-how.

Accumulate enough focused know-how and perception of possibilities multiplies a thousand fold. Past a critical mass of focused know how, and creative output explodes.

Accumulating focused know-how is frustrating though. How much is enough? Is this enough? When does it finish? The narrower your focus, the quicker you will go up the learning curve. So focus down.

The most reliable form of innovation is extending ideas and patterns from an unrelated domain. This form of innovation requires high know-how levels, you must master several domains before you can visualize parallels.

Have You Reached Problem Domain Mastery?

How do you measure problem domain competence?

Have you failed, or do you continue the learning process?

The difference between beginner and master is awareness of context, the true size of the problem framework. The expert knows how much he does-not-know.

 


Mastery is when domain of expertise becomes second nature. You are not conscious of the rules, methods or tools. You just perceive, build, talk, play without a second thought or effort. You are native to the problem domain.

Can you do things in the problem domain others cannot?

The Mythical Man-Month

The truth is adding more people to a team does not speed up or help know-how intensive tasks – The Mythical Man-Month.

Though diversity and open emergence of ideas are essential, problem domain know-how is still required for team members.

A pivot team must be composed of domain experts, each in their own field. T-shaped experts are recommended.

And a Lot of Luck

Entrepreneurship is, also, about being in the right place at the right time.

The best venture investment teams in the world score 1 in 10 as sustainable companies, and 1 in 1000 companies reach their target investment returns.

Entrepreneurship is not like a job. Often it is an all or nothing bet.

The Efficient Market Theory

The efficient market theory (Nobel Prize, Merton & Scholes, 1997) states that when more than 10,000 people are examining a market with equality of information, you can no longer outperform the market. Market is risk-reward efficient.

Sometimes, the market is just too crowded, and the problem domain know-how has become a commodity.

Your domain know-how has become generic. A big pivot is not possible within the old framework. It is time for the entrepreneur to move on.

 No Shortcuts – Beware Strategy Schools

Beware “descriptive” strategy methods from Business Schools.

“Descriptive” methods are good for describing what HAS happened. But useless at deciding what to do. Great post-event, bad pre-event.

Michael Porter’s “Competitive Advantage”, Kim & Mauborgne’s “Blue Ocean Strategy” are two such popular descriptive methods. Excellent for explaining success or failure  AFTER the event.

“what got you here, will not get you there”

Descriptive methods fail because they rely on historical knowledge, past history. Extrapolating the past does not work in efficient markets.

“Prescriptive methods” provide a process to learn new knowledge. To find a new differential in the market. Prescriptive methods are exploratory.

“Prescriptive methods”, on the other hand, give you a process, a framework, for what-to-do-next. Processes like Lean startup, Design Thinking, OODA Tactical Loops, visual thinking are “prescriptive”

Focus, Focus, Focus

As you quest forward, your framework will narrow. Your quest will converge within the framework.

Searching for a worthy problem is like panning and sluicing gold paydirt, looking for nuggets. Focus is the narrowing down to the promising areas.

Focus, the ability to disregard areas, to say no to problems is a joy when it arrives. It arrives in moments of intuition, in fits and starts.

Focus, unfortunately, is fickle and often comes wrapped in doubt. By narrowing down, are you stepping past a worthy problem?

You can never have enough focus. The more limited your means, your time, your assets, the more you need a hard focus

REFERENCES

PROBLEM FOCUS & DOMAIN KNOW-HOW

    1. Anti-disciplinary, Joi Ito
    2. Simplicity on the Other Side of Complexity, Jon Kolko
    3. Understanding a Problem Better than Anybody Else, Chris Dixon
    4. Generating Startup Ideas, Marc Barros
    5. The Role of Domain Experience, Marty Cagan
    6. Finding Your Edge, Alice Bentinck, Entrepreneur First
    7. Complexity and the 10,000 Hour Rule, Malcol Gladwell
    8. The Problem with Design Thinking, Tim Malbon
    9. There is no such thing as the perfect idea, Alice Bentinck
    10. The Secrets Behind Many Successful Startups, Vinicius Vacanti, Yipit
    11. Beyond Agile and Lean, Marty Cagan, SVPG
    12. How to be an Expert in Changing World, Paul Graham
    13. Etsy CTO: We need Software Engineers, Not Developers, John Allspaw

CREATIVITY & ORIGINALITY

  1. What Does Design Thinking Feel Like, Tim Brown, IDEO
  2. The Zag, Marty Neumeier
  3. Look, I Made a Think: Confidence in Making, Jon Kolko
  4. Illustrations by Hugh McLeod, Fair Use
  5. How to Get Startup Ideas, Paul Graham
  6. Why to Not Not Start a Startup, Paul Graham
  7. Before the Startup, Paul Graham
  8. Creative Confidence, Julie Zhuo, Facebook
  9. Creativity Inc, Ed Catmull, Pixar
  10. Startup Differentiation: You are the DNA of your Company, Peter Nixey
  11. Advice for Thriving in a World of Change, Joi Ito
  12. How Reframing A Problem Unlocks Innovation, Tina Seelig
  13. You’re working on the wrong idea, Alice Bentinck
  14. Leaders Can Turn Creativity into a Competitive AdvantageTim Brown, IDEO
  15. Roofshot Manifesto Luz Andre Barroso
  16. Surely You’re Joking Mr Feynman

VISION & MAPPING

  1. A Visual Vocabulary to Product Building, Dan Schmidt
  2. Using Situational Maps for Business Strategy: On Being Lost, Simon Wardley
  3. Framing your Search: Vision vs Hallucination, Steve Blank
  4. Founder’s Vision – Entrepreneuship is an Art, Steve Blank
  5. Product Evangelism: Sharing the Vision, Marty Cagan
  6. Missionaries vs Mercenaris: The Need for a Compelling Product Vision in Driving Product Teams, Marty Cagan
  7. Product Managers Must Understand Product Vision: Big vs Small Product Owners, Roman Pichler
  8. How do You Find the Secret for your Product, Peter Thiel
  9. Pivot, don’t jump to a new vision, Eric Ries, Lean Startup
  10. Get Clarity on the World Around You and Your Business with the context map, Erik Van Der Pluum, Design A Better Business
  11. Vision versus Hallucination – Founders and Pivots, Steve Blank
  12. When vision blinds traction, Stefano Zorzi
  13. How to Understand Your Market, Justin Lokitz, Design a Better Business
  14. You product is already obsoleteDes Traynor, Intercom

METHODS & TOOLS

  1. Developing Strong Product Owners, Marty Cagan
  2. Product Strategy in an Agile World, Marty Cagan
  3. Product Porfolio Management: Planning the Life of Your Products, Marty Cagan
  4. The Kano Model: Depreciation of UX Design Differentiators Over Time , Jared Spool
  5. Emergent Strategy: The Big Lie of Strategic Planning, Roger Martin, Harvard Business Review
  6. Change by Design, IDEO, Tim Brown
  7. Driving Corporate Innovation: Design Thinking vs. Customer Development, Steve Blank
  8. Well Designed: How to Use Empathy to Create Products People Love, Jon Kolko
  9. Lean Doesn’t Always Create the Best Products, Jon Kolko
  10. Be a Great Product Leader, Adam Nash
  11. Driving Corporate Innovation: Design Thinking vs. Customer Development, Steve Blank
  12. Agile vs Lean vs Design Thinking, Jeff Gothelf
  13. Where Lean Ends, Peter Nixey
  14. Beyond Lean and AgileMarty Cagan, SVPG
  15. The Tao of Boyd: How to Master the OODA Loop, Brett & Kate McKay
  16. Ethnography: When and how to useAndy Walker, Spotless
  17. Why anti-Lean Startups are BackDennis Mortensen, x.ai
  18. Why Innovating Is About Doing, Not Talking Diego Rodriguez, IDEO

STARTUPS

  1. Product Passion: What are you trying to achieve?, Marty Cagan
  2. Startup Playbook, Sam Altman, Y Combinator
  3. Big Ideas: Google’s Larry Page and the Gospel of 10x
  4. Why Founders Fail: The Product CEO Paradox, Ben Horowitz
  5. Why Startups are Agile and Opportunistic – Pivoting the Business Model, Steve Blank
  6. How to pivot properly — linear ideation, Alice Bentinck, Entrepreneur First
  7. Black Swan Farming, Paul Graham
  8. Why is it Hard to Bring Big Company Execs into Little Companies?, Ben Horowitz, A16Z

Product Vision and Creative Leadership

“So, how did you get that idea?” the aspiring entrepreneur asks the billionaire

Where does product vision come from?

A product vision describes a problem, owned by enough people, that it is worth solving.

Finding a product vision is, then, about finding a worthy problem.

My Quest for a Worthy Problem

As a PhD student at Oxford University, I was prone to solving problems, any problem. Ticking boxes felt like an achievement, like progress. Eventually, I learnt that to contribute to science I would need to solve one problem. One worthy problem.

I asked my PhD supervisor, Mike, to give me my one worthy problem. He told me PhD’s were all about the search for the one worthy problem. This search was my quest, my mission, my purpose.

Mike gave me a broad title to frame my search, a broad vision to aspire to, a friendly research lab, and sent me on my way.

For three years I apprenticed and learnt my problem domain, robotics. With time I kept narrowing the focus of my problem to one that still mattered and I could solve.

Only at the very end of my thesis, as I was about to end with no results, did I finally perceive a problem that made a difference, and I could solve

An image analysis method for sure detection and diagnosis of Cancer in mammographs

Mike Brady, Oxford University

How does DNA replicate and how is hereditary information coded on it?

Crick and Watson, Cambridge University, Nobel Prize 1963

Pick Your Problem Domain

A quest for a worthy problem is domain specific. You have to commit to a problem space that is non-generic, a narrow specialization.

Many turn away from specializing in such a narrow domain. Preferring a wider, more generic domain, where clients are more numerous and possibilities more diverse.

Without a quest into a problem space, however, there is no chance of finding a worthy problem. You will not achieve a product vision of any value.

The problem domain is about 3 things:

  1. Users & clients
  2. Markets: the value chain, the competition
  3. Trends & Technology

Tips for choosing your problem space:

  • Who are you, and what makes you different?
  • Where can you make a difference?
  • What trends and breakthroughs are making new problem spaces

First Problem Title – the Problem Framework

Choose a broad problem title to frame your opportunity.

Best to choose a broad, ambitious goal first. A statement of intent

A times ten improvement of an existing problem is a good standard. 10x thinking is favored at Google for framing problems

A narrow, timid, un-ambitious problem framework is unlikely to contain a worthy problem. It will constrain creativity, and will not inspire. Be brave, go ahead, “cure cancer”

Purpose & Belief

At the start, there is no testing, no validation, no process, no management, no derisking, no reassurance.

You have to commit to this fully. Purpose and belief is your only recourse.

If you are not nervous, not un-comfortable, you are doing something wrong. Go back and multiply by 10 the ambition of your problem framework

The searching for a potent product vision is profoundly uncomfortable. Many turn away here.

I am a recovering executive. I like order and structure, certainty and process. Being aspirational and brave in my problem statements is still difficult for me. Hence, I fail a lot.

Jewelry that represents the world of good taste, timeless design, purest materials, and finest craftsmanship

Tiffany’s

Sportswear that brings inspiration and innovation to every athlete in the world

Nike

Enabling People to Live on Other Planets

Elon Musk, SpaceX

To enable sustainable transport through making every-day electric cars as soon as possible

Elon Musk, Tesla Motors

Tools to organize the world’s information and make it universally accessible and useful.

Google

Computer-animated feature films with memorable characters and heartwarming stories that appeal to audiences of all ages

Pixar

To give people the power to share and make the world more open and connected

Facebook

To give everyone the power to create and share ideas and information instantly, without barriers

Twitter

Well designed home furnishings at prices so low that as many people as possible will be able to afford them

Ikea

To make a contribution to the world by making tools for the mind that advance humankind.

Steve Jobs, Apple

The Quest Process

The first problem title, the initial product vision, will be broad, aspirational and full of potential. It is the framework for the search for a valuable problem.

Finding a potent product vision is about progressively making choices. Progressively narrowing down, focusing till you find the one worthy problem.

focus, focus, focus

As you quest forward, your framework will narrow. Your quest will converge within the framework.

Questing for a worthy problem is like panning and sluicing gold paydirt, looking for nuggets. Focus is the narrowing down to the promising areas.

Focus, the ability to disregard areas, to so no to problems is a joy when it arrives.
It arrives in moments of intuition, in fits and starts.

Focus, unfortunately, is fickle and often comes wrapped in doubt. By narrowing down, are you stepping past a worthy problem?

You can never have enough focus. The more limited your means, your time, your assets, the more you need a hard focus

No amount of work, magnitude, can make up for a lack of direction. Without focus and direction, you will not vector forward. Simple Math.

Research Mantra

If you are a large conglomerate, you are HP Innovation Labs, then you can widen your focus, and likely find a handful of worthy problems. If not, you must focus.

learn-dream-build

Best creative work involves talking to people, and making stuff. There are three types of learning;

  • enactive – action based
  • iconic – image based
  • symbolic – language based

The best creative work occurs by combining working with your hands, drawing and talking to people.

At this stage, dreaming is the best form of prototyping

Imagination

Imagination is a difficult exercise. Uninformed imagination leads to re-inventing the wheel, chaotic digging exploratory holes all over the framework field, and gimmicks that have no value.

Yet imagination is key to the best problem category “new to the world”. Where the problem is not derivative. A true sideways jump, going outside the box. Seeing things no else sees.

Critical Mass of Focused Know-How

Know-how is bed-rock though. Accumulate enough focused know-how and perception of possibilities multiplies a thousand fold. Past a critical mass of focused know how, and creative output explodes.

Accumulating focused know-how is frustrating though. How much is enough? Is this enough? When does it finish? The narrower your focus, the quicker you will go up the learning curve. So focus down.

The most reliable form of innovation is extending ideas and patterns from an unrelated domain. This form of innovation requires high know-how levels, you must master several domains before you can visualize parallels.

Recipe

So first, critical mass of domain specific know-how, then look to migrate patterns from un-related domains onto your problem domain. Finally, attempt whimsy and imagination; can you reframe the problem? Forget all assumptions about your problem, what comes to mind?

The Perpetual Pivot: Method in the Chaos



During a problem quest, the entrepreneur will appear to be cascading through perpetual pivots. He will look at succession of user segments, points of the value chain, trends and technologies.

The quest is chaotic and uncomfortable. Every area and task will require learning anew. Nothing will be a comfort zone.

Yet there is order and a pattern in the chaos. Focus and direction.

The quest is a constrained, disciplined exercise, with boundaries. The multitude of pivots, in user segments, differentiation and technology are framed tightly within boundaries.

An effective entrepreneur has discipline. He stays within his problem framework; sticks to his chosen problem domain, his problem title.

Deadlines are Your Friend

Creativity needs constraints, and a deadline is the best of constraints. A pressing deadline gives you resolve and energy to decide, to make choices.

At this stage, you will have little data, no extensive metrics to gather, no KPIs, no excel sheets. Most choices will be based on incomplete data, on intuition.

Pressing deadlines give you the energy to keep making choices, keep deciding on the way forward. Keep Moving!

Actionable Product Vision

The quest for the one worthy problem finishes when you hand the product brief to a product manager.



The product manager will require

  • customer segment for which the product is intended
  • customer problem which the product will address
  • utility prototype demonstrating the utility to serve the customer’s needs
  • technology prototype demonstrating the technology to be used

Introduce the product manager to your fieldwork, the pool of test candidates on which you have been testing your product vision

As a guarantee for your work, explain the user value tests you have conducted. Some measure for User satisfaction, NPS (net promoter score) that proves a defensible differentiation in the market.

Once the product vision reaches this point, it has to have sufficient focus and potency that it requires no more pivots.

Senior product managers will run opportunity assessment evaluations of their own, to establish that the product vision is viable and has potency. They will then proceed with a product discovery process which will detail the user segment and prototypes, and mature them to targeted production quality products.

Senior product managers, with a good UX team, are capable of limited scope product pivots, and minor market pivots. But the product founder should not count on these, and should consider the product vision search complete.

Product Vision Lifecycle

The internet, with its almost perfect information flow, is making a product’s differentiation depreciate quickly. Your competitors can copy you quick.

In fashion, it takes only one season for a leading style to go out of fashion, or be copied by other fashion houses.

Product differentiation lessens through both competition and commoditization of the market


So, experienced product managers will demand an appreciable differentiation in the product vision.

The Best Product Team in the World

Differential utility buys the user goodwill essential for a product to engage well with a user. If the utility you offer is available, equally, one click away, you have become a commodity. The user will extend a very limited amount of goodwill during the interaction.

UX design teams sometimes don’t understand this.

Usability, lean startup iterations, product identity & narrative, branding, aesthetics, interaction design, and gamification are for naught if the product vision does not provide differentiation

The best UX design work in the world does not make up for poor differentiation.

Even with lean startup iterations around the product vision, the market’s maxima positioning is taken by a competitor. The market horizon for the product has become fallow.

It is time to pivot the vision, pivot the product, pivot the business.

Signs of End-of-Life

As differentiation depreciates, the product team will start to struggle with important metrics, KPIs. Starting with virality, then loyalty, then basic engagement.

The efficiency with which a product team achieves its outcomes degrades progressively, as product vision depreciates.

The life-cycle of a product ends either as a monopoly, or as a commodity, like Aspirin. You may achieve basic User engagement through brilliant product, sales and marketing team. But profit margins will be zero.

Either conjure up a new potent product vision, or change the business to provide services to other product companies.

Creative Leadership

Creativity is, increasingly, the only differentiation in the market

So expect to monitor, and prepare for end-of-life of your product vision.

When, ultimately, the product’s end-of-life arrives, it will arrive suddenly

Have the next product vision ready.

References:


Product Vision bookshelf

– Understanding a Problem Better than Anybody Else, Chris Dixon

–

– Generating Startup Ideas, Marc Barros

– Founder’s Vision – Entrepreneuship is an Art, Steve Blank

– Framing your Search: Vision vs Hallucination, Steve Blank

– Developing Strong Product Owners, Marty Cagan

– The Role of Domain Experience, Marty Cagan

– Product Strategy in an Agile World, Marty Cagan

– Product Passion: What are you trying to achieve?, Marty Cagan

– Product Evangelism: Sharing the Vision, Marty Cagan

– Product Porfolio Management: Planning the Life of Your Products, Marty Cagan

– Missionaries vs Mercenaris: The Need for a Compelling Product Vision in Driving Product Teams, Marty Cagan

– Product Managers Must Understand Product Vision: Big vs Small Product Owners, Roman Pichler

– The Kano Model: Depreciation of UX Design Differentiators Over Time , Jared Spool

– Emergent Strategy: The Big Lie of Strategic Planning, Roger Martin, Harvard Business Review

– Finding Your Edge, Alice Bentinck, Entrepreneur First

– Startup Playbook, Sam Altman, Y Combinator

– Big Ideas: Google’s Larry Page and the Gospel of 10x

– The Zag, Marty Neumeier

– Change by Design, IDEO, Tim Brown

–
Driving Corporate Innovation: Design Thinking vs. Customer Development, Steve Blank

–
Look, I Made a Think: Confidence in Making, Jon Kolko

– Well Designed: How to Use Empathy to Create Products People Love, Jon Kolko

– Lean Doesn’t Always Create the Best Products, Jon Kolko

–Illustrations by Hugh McLeod, Fair Use

–How to Get Startup Ideas, Paul Graham

–Why to Not Not Start a Startup, Paul Graham

–Before the Startup, Paul Graham

–Creative Confidence, Julie Zhuo, Facebook

–Creativity Inc, Ed Catmull, Pixar

– Startup Differentiation: You are the DNA of your Company, Peter Nixey

–Why Founders Fail: The Product CEO Paradox, Ben Horowitz

–Be a Great Product Leader, Adam Nash

– How do You Find the Secret for your Product, Peter Thiel

– On PhD Students, Sir Mike Brady (my supervisor), Robotics Research Group, Oxford University

– Advice for Thriving in a World of Change, Joi Ito

The Future of Competence: Don’t Be Generic

My competence seems to cycle back and forth from leading-edge to generic.

I started as a specialist, with a PhD in robotics, head-hunted by the robotics department of the UK Nuclear industry.

A few years later, I was a technology manager delivering solutions to customers in the nuclear, aerospace, pharmaceutical, and financial industries. A generalist

Then, I was CEO. Raising finance, recruiting, designing departments, objectives, process, operations. The ultimate generalist

Then, as the dot-com bombed, I stopped having a job.

I joined 100,000 other business managers who were out of work.

That was the end of a cycle

You have a Choice

The choice of a specialist skill or a generic skill is hard.

The choice, like any investment, is a compromise between risk and reward.

For both people and companies. We either choose or it is chosen for us.

Often we dont seem to have a choice. It just happens

The Lure of Generic Skills

Learning excel or outlook are good investments. They are low risk choices, most likely to pay off

Lawyer, manager, accountant, salesman, marketing are also low risk choices.

Job boards always have openings for good managers and salesman.

A manager, salesman or accountant can work anywhere.

Business is about managing people. If you can manage people, you can manage any business.

Managing Human Capital, Harvard Business School

Generalist skills provide structure, certainty and choice. Established education, clear career path, wide choice of employers and customers.

It is the sensible, reputable choice.

Why be different?

Global Markets: Commoditization of Skills

Globalization and technology have increased the supply of skills and services

Generic skills and services are the first to be replicated by competitors in different geographies.

In the world of Google, and online job search, your competition is just one click away

Being the best at a generic skill no longer guarantees a job.

You can no longer compete by simply being better

The Need to Be Different

To compete, you need a service and skills that are not replicated easily

I dont want to be the best. I want to be the only.

Marty Neumeier

Your skills need to be special, different

If you are not different, you have no identity.

You’re just a commodity

To have an identity, you need a point of difference

And if you dont have one, you need to create one

Dave Trott

Differentiation: You Have to Choose

Making yourself different involves choosing. You have to choose a focus. You have to choose your difference.

Persisting with your focus involves saying “no” to jobs, requests and clients outside of that focus

Acquiring a specialism, a differentiation requires a sacrifice. Requires an investment

The greater your focus, the greater the possible reward, the more risky the investment.

Increasingly, without risk, there is no reward. It is the nature of the current market.

You will have to take some risk.

Focus is the Hardest Thing

Most of us like being generalists.

I like being versatile. Give me a problem, I will fix it.

I dont have to make choices. I just serve.

I like diverse problems. I like learning new things.

Variety, is it not the smart thing?

No

Focus is the hardest thing.

Rules of Focus: The One Thing

First choose your focus. Your domain of expertise.

The generic skills are the functional axis, horizontal rows, in an organization chart.

The specialist skills are the product or project columns, the verticals.

The specialist skills, product or client know-how, provide the competitiveness, the differential of the company.

Specialist skills are always domain specific. Highly dependent on context.

You are unique because you know the context that matters.

Pick a narrow specialist skill. How many people claim to be experts in your domain?

The harder the competition, the narrower, the more focus you need.

Conclusion: How Your Company Values You

A company is as competitive as its differentiation in the market

Companies value the people that create the difference

All companies can hire generic skill staff. Therefore, that can’t provide the company’s differentiation.

The staff with skills specific to the company create the differential. They focus on the company’s specific domain, its context, its products.

“Computer science purists love the art of coding, if the algorithm is cool, if the integration is pretty, they’re happy.

For me, it’s all about the end product, not how I got there.”

Rasmus Lerdorf

Are you loyal to your products, or to your generic skill?

You can measure Domain Specific competence

How much do you know of the company’s specific context?

Do you know the customer? the product users? the specific technology? the product? the competition?

The highest scorer in Domain Specific competence is the company founder, always

If you score high on Domain Specific competence, you make a difference

If you want to make a difference, dont be generic

References:

– College and Business Will Never Be The Same – End of Silo’d Careers, Steve Blank

– Knocking Down Walls, Marty Cagan

– The Internal Agency Model, Marty Cagan

– The Refragmentation, the demise of the corporate class, and rise of creative classes, Paul Graham

– How Google Works, Eric Schmidt, Jonathan Rosenberg

– Developing Strong Product Owners, Marty Cagan

– The Role of Domain Experience, Marty Cagan

– Product vs IT Mindset, Marty Cagan

– Finding Your Edge, Alice Bentinck, Entrepreneur First

– So You Want to Manager?, Julie Zhuo, Facebook

– The Zag, Marty Neumeier

– The Brand Flip, Marty Neumeier

– The Linchpin, Seth Godin

– Theory of Efficient Markets, where return is proportionate to risk

– The no.1 Reason to Focus, Seth Godin

– No is Essential, Seth Godin

– Reductio Ad Absurdum – The One Thing, Dave Trott

– “T-Shaped People”, Tim Brown, IDEO

– Understanding UX Skills, Irene Au

– Advice for Thriving in a World of Change, Joi Ito

Contrarian Investing: The Story of Mr Womack, the Pig Farmer

“Mr Womack the Pig Farmer” is my top investment philosophy

The man never had a loss on balance in 60 years.

His technique was the ultimate in simplicity. When during a bear market he would read in the papers that the market was down to new lows and the experts were predicting that it was sure to drop another 200 points in the Dow, the farmer would look through a S&P Stock Guide and select around 30 stocks that had fallen in price below $10—solid, profit making, unheard of companies (pecan growers, home furnishings, etc.) and paid dividends. He would come to Houston and buy a $25,000 “package” of them.

And then, one, two, three or four years later, when the stock market was bubbling and the prophets were talking about the Dow hitting 1500, he would come to town and sell his whole package. It was as simple as that.

He equated buying stocks with buying a truckload of pigs. The lower he could buy the pigs, when the pork market was depressed, the more profit he would make when the next seller’s market would come along. He claimed that he would rather buy stocks under such conditions than pigs because pigs did not pay a dividend. You must feed pigs.

He took “a farming” approach to the stock market in general. In rice farming, there is a planting season and a harvesting season, in his stock purchases and sales he strictly observed the seasons.

Mr. Womack never seemed to buy stock at its bottom or sell it at its top. He seemed happy to buy or sell in the bottom or top range of its fluctuations. He had no regard whatsoever for the cliché’—Never send Good Money After Bad—when he was buying. For example, when the bottom fell out of the market of 1970, he added another $25,000 to his previous bargain price positions and made a virtual killing on the whole package.

I suppose that a modern stock market technician (on CNBC) could have found a lot of alphas, betas, contrary opinions and other theories in Mr. Womack’s simple approach to buying and selling stocks. But none I know put the emphasis on “buy price” that he did.

I realize that many things determine if a stock is a wise buy. But I have learned that during a depressed stock market, if you can get a cost position in a stock’s bottom price range it will forgive a multitude of misjudgments later.

During a market rise, you can sell too soon and make a profit, sell at the top and make a very good profit. So, with so many profit probabilities in your favor, the best cost price possible is worth waiting for.

Knowing this is always comforting during a depressed market, when a “chartist” looks at you with alarm after you buy on his latest “sell signal.”

In sum, Mr. Womack didn’t make anything complicated out of the stock market. He taught me that you can’t be buying stocks every day, week or month of the year and make a profit, any more than you could plant rice every day, week or month and make a crop. He changed my investing lifestyle and I have made a profit ever since.

From John Train‘s, The Craft of Investing.

The longer your time view, the easier the practice of contrarian investing

The art of waiting for the large sentiment swings. Waiting on the market does not come naturally to investment professionals

Set your own rules, don’t be influenced by market volatility.

Product First

What Comes First? Sales, Branding or the Product

What comes first? I have had this argument regularly for the last 25 years.

With sales, marketing, technical, and services departments. In fact, with every department director I can think of.

As a junior engineer, my sales director gave me my first “commercial awareness” ticking off; “first, you sell it”.

The 21st Century – Your Product is Your Branding

Not long ago, you could create a brand with advertising. Pure Brand Advertising.

Now, you can only create a brand with people, with a community. With a crowd of people that say your stuff is good.

You need buyers on ebay voting you as good. Good reviewers on Amazon. 5 star feedback, social media likes, up ticks, votes

What you think and say no longer matters.

Your brand is what the customers say it is. The crowd uses your product, and they decide

The product creates the experience,

The experience creates the reputation,

The reputation creates the brand

Dave Trott

Your product must do your advertising, your sales and your branding

I know sales and marketing directors who are confused and saddened by this new age

Think of it as an oyster,

You start with a piece of grit, and build a pearl round it,

People buy the pearl, they don’t buy the grit,

But no grit, no pearl

Dave Trott

So, please. Product first.

References:

– Death of Salesman, Marty Cagan

– “How to empower the customers who will drive your success”, The Brand Flip, Marty Neumeier

– “Is advertising a Con?”, Creative Mischief, Dave Trott

– Product Trumps Distribution, Nic Brisbourne

– Positioning, Eric & Laura
Ries

– Red Hat Community Branding, Chris Grams

Product Style

In the Beginning, I was an Engineer

I engineered solutions to problems. I built things. By training, by aptitude, by inclination. I did the maths. I ensured bridges built did not fall in the river. Style was an alien word to me. I did not do colours. I engineered.

My First Client


I delivered a product to my first client. A tele-robotics upgrade. A robot and a fancy joystick. Great tele-presence robotics. For cutting up radioactive boxes. High end gear. Superb function and utility.

But the operators did not like it.

  1. “I have to think about it”
  2. “It is distracting”
  3. “Gets in the way”
  4. “Makes me nervous”
  5. “Too much funny business”

My first product ended in my bin. Client was annoyed. “It is about my operators and their job, not about your product”.

Great engineering failed my users

Always Develop with Style

That moment, I became a stylist. A product Stylist. Styling my products for ease of use. Where the operator retains his train of thought, his flow, his focus, his concentration, his attention. My product designs must be invisible to the user, while he works.

Always style for your user, and the user’s task.

Elements of Style – circa 1900

My first style lesson was – please write clearly

  • Write to and for your audience
  • Do not say more than is necessary;
    confine yourself to what the user needs, to understand what is happening
  • Omit Needless Words
    Vigorous writing is concise. A sentence should have no unnecessary words, a paragraph no un-ncecessary sentences. Every word must tell.

To improve styling skills, practice, practice, practice

Develop a Personal Style

My favorite style is minimalism. I favour brevity. I keep things simple. I am simplicity driven. In writing, taking pictures, coding, building websites, apps or even fashion. Minimalism is a most effective style.

Nevertheless, always style with a purpose. Style for your User and his tasks

Product Style Pyramid

First rule of product style – please be useful

  1. First comes content and utility, of course,
  2. Style for readability and usability even when developing
  3. Remember the product’s identity, narrative and iconography
  4. Finally, focus on the aesthetics to shape a personality, an affect, an emotion
    Dont open a shop unless you like to smile – Chinese Proverb

Style basics have not changed in 100 years. The human eye and the hand are a constant. Style has evolved though, check Kathy Sierra’s Cognitive Seduction.

Where Entrepreneurship is Easy

The US seems to be steaming ahead in its drive to out-startup and innovate the rest of the world. Consider, the qualities an entrepreneur must show, as Mark Suster well describes :

  • Not very status-oriented
  • Doesntfollow rules very well and questions authority
  • Can handle high degrees of ambiguity or uncertainty
  • Can handle rejection, being told “no” often and yet still have the confidence in your idea
  • Very decisive. A bias toward making decisions even when only right 70% of the time moving forward & correcting what doesnt work
  • A high level of confidence in your own ideas and ability to execute
  • Not highly susceptible to stress
  • Have a high risk tolerance
  • Not scared or ashamed of failure
  • Can handle long hours, travel, lack of sleep and the trade-offs of having less time for hobbies & other stuff

Evidently, this level of creative drive is more easily sustained when you are not starving or worried about how to pay the rent. When friends, family, and companies in your neighborhood provide a safety net, for you when you crash or need to bounce back.

Then consider the whitehouse’s Strategy for American Innovation, whose main lines are:

  1. Expand access to capital for high-growth startups ($2 billion)
  2. Expand entrepreneurship education and mentorship programs
  3. Strengthen federally-funded R&D commercialization
  4. Identify and remove unnecessary barriers to high-growth startups
  5. Expand collaborations between large companies and startups

Entrepreneurship is easier in a context that is so supportive. America is bound to have a lot more people prospecting for new businesses if the cost of failure and bouncing back is so reduced.

Cameron’s Silicon Roundabout needs some beefing up to stay competitive.

Update

Speaking of which, just released:
Prime Minister Welcomes Cisco’s $500 Million Investment Goal for UK as Part of Support for East London Tech City

Widget Media

After a year of extensive development, Enclick has launched the following information services for social networks, blogs and individual web sites.

Keeping with the current vogue for the free price policy, all the web sites have free widget services. Needless to say the services have quickly found social traction with 100,000 webmasters taking a widget