Solvation

Why He Hires People Who Fail - An HBR Article

Great thoughts on creating a resilient outlook, by Jeff Stibel, Chairman and CEO of Dun & Bradstreet Credibility Corp. 

Curious about this "fail wall"? Go read the original aricle. I have nothing to add.

Alternative Energy Investment

Out of public companies only, in everything related to advanced materials (nanotech, solar, etc.), my gig was to pick something related to alternative energy. They needed to buy and hold for 3 years. After a few months of analysis, I picked AMSC, which produces superconductive wire and products that incorporate it. They were not profitable yet. Very few analysts covered them, possibly because understanding superconductivity does require some fairly specific knowledge. The ROI was around 190%. This was from 2006-2009.

 

Quick Look: Innovation and Sustainability

 The New Sustainability is the cover story on launch day for a brand new online magazine which is branding itself as a news source for optimism and solutions. The main thesis, "It's wrong to think economic growth and sustainability are mutually exclusive." That's it. Though there is a shower scene where the author notes that even though people are dying of thirst elsewhere, the (un-bylined) auther did his or her best creative work in the shower, so....

I tried to be brief.

Financial growth is meaningless. It's what we measure, but it's not what we want - what we want is the ability to exchange money for goods and services that make us happy and healthy. In other words, we need growth in intangible assets, such as trusted relationships, an environment conducive to mental and physical health, the ability to attain and maintain health, and continued learning.

But we don't relate any of that as growth in the US. So "economic growth" becomes useless as a measurement of the success of our "economy," and sustainability is a term that also requires a thorough understanding of the ACTUAL things we have and want, not a projection of our current rate of depleting the environment vs. a rate at which the planet can sustain itself.

The reason you're having trouble tying innovation into sustainability is because you're comparing a straw man with an unused metrics system. The connection is only created by thoroughly understanding intangible assets.

Wisconsin, Unions, Corporate Tax Breaks, and a Better Way

In his blog post, which was republished in the Huffington Post, UC Berkeley Public Policy scholar Robert Reich outlines the issues facing Wisconsin and the United States. In a nutshell, he argues that tax breaks to the rich and corporate entities have contributed to the already-severe impact of the recession to cause extremely tight budgets.

The standard argument for tax breaks is that allowing a more attractive environment for corporations will encourage them to continue to invest in the local economy and reside within the tax base. The logic is that by reinvesting, they will grow, and with additional growth comes additional revenues, and that even at a lower percentage, this will result in higher tax revenues in the future.

Let's pick that apart.

In times of crisis, we need short term cash-flow-oriented solutions at a community level in order to keep individual families functioning. Waste management, water systems, children enrolled in schools, and emergency services are all funded at a community level. Giving tax breaks is obviously in opposition to that goal of keeping the community functioning.The reasoning for giving tax breaks is to spawn future community revenues.

But in order to grow and to innovate, any company needs healthy employees who can think, have knowledge, are creative, understand processes, and have relationships built upon trust. Those components (health, skills, knowledge, creativity, processes, relationships, and trust) are intangible assets. So the best way to improve future revenues is the increase the intangible asset base that evenutally can produce financially productive assets.

And where are those components built? Health is built at the community level; it's based on food, clean water, sleep, access to medical care, and a supportive environment (emotionally and physically). While some skill and knowledge is built within companies, a lot is built in the formal educational system and more is built informally through interactions with one's peers during shared activities. Creativity is to some degree innate, but also developed in the same way knowledge is: through both formal education and informal community context, as detailed in depth in the seminal work of Richard Florida. Relationships and trust are reinforced through casual extra-work activities after (some) have been nucleated in a work context. And while processes are developed inside companies, companies also often look to the best practices of other organizations for process refinements (often enabled by faculty at educational institutions). Another overlooked intangible asset is that of the spiritual -- love, connection, vulnerability, passion, mission -- which provides the deep engagement human beings need to feel satisfied with their lives overall. Spirituality is rarely cultivated in a professional context.

Building intangible assets is crucial to the future success of the private sector. Since in large part they're built and reinforced within non-work communities, healthy communities are therefore also crucial to the future success of the private sector. When we dismantle the ability for the community to renew itself and rely on a relatively few wealthy individuals and private firms to fund the development of all these critical intangible assets, we vastly increase the risk that these assets will not be built, and in fact the financial competitive power of the United States will be tremendously weakened in the future.

No institution is perfect. Governments aren't, unions aren't, and corporations aren't. Individuals aren't perfect either. It is understanding the role of each in the overall economic landscape and optimizing for the production of intangible assets and their conversion to tangible assets that we will, as a society, rebuild a resilient global economy.

Will Millenials Usher in a New National Measurement System?

Chip Conley gives a good talk about he personally began to understand why intangible assets are an important thing for leaders to concentrate on.

There are a few things he says that I'd quibble with, but what really interests me here are two things that don't come up, but which his talk sparked:

(1) The equivalent generation to the Millenials -- the "Greatest Generation" -- were the people who took the precursor to the GDP, which was designed first as a measurement of national accounts, and then refined to manage World War II supply lines, and recast it as a country wide productivity measurement tool. "How many people don't have income or food?" is similar to "What happened to our systems: our food system? education? health system? protective services?"

So I wonder: Are we in the same historical place? Are the millenials poised to play the same role in bringing forward whatever the next measurement system will be? What WILL get us through this economic crisis? I doubt we'll pull out by looking even more critically at book value and EPS, just like I think our communities need to measure volunteerism at least as much as they need to measure household income.

(2) At the same time, many Millenials and GenX are trying to balance both the  lowest and the highest of Maslow's levels: survival and self-actualization as it relates to one's community. It's transformation for extreme environments. There are many ways this is now spoken of, for example gift economy and relationship economy, but it's been around whenever there have been people who are relatively poor in increasingly oppressive environments who must help each other to survive. Just like during the depression.

The time-location similarities are really fascinating.

 

The Future of Economic Wellbeing

This is simply a quick overview of topics I intend to work up further.

(1) The difference between microfinance and economic development is that microfinance assumes the intangible assets are already there (or easily built), specifically the intangible assets related to health, relationships, and skills. Economic development focuses on building those intangible assets first, without concern about whether a lack of access to capital will mean they stagnate or decay once they've been built.

(2) The way to enable future economic growth is to build intangible assets. "Supply side" economic thought glossed over the fact that when you invest in a business, relationships and knowledge are formed along with an actual product that may or may not make it to market and then be competitively successful. However, stimulus money does the same thing; in particular it builds relationships and guards physical and mental well-being. Just as community development + microfinance need to work together in emergent markets, encouraging the flow of capital and ensuring the maintenance and growth of intangible assets is crucial in the revitalization of mature markets, whether they're distressed or booming.

Most intangible assets are built in families and communities (and intangible liabilities are unfortunately built there too, in the forms of behaviors that limit the development of trust, health, emotional wellbeing, etc.) Specific metrics can be built into community monitoring processes in order to support community and build a framework for future economic value.

(3) Specifically, the way that the innovative environment in Silicon Valley can be "replicated" is by mapping the intangible assets which are used to create the tangible ones, and then thinking about how to build those intangible assets within a new environment. It's a "localization process," requiring replicating and refining that process in other contexts. Based on past research at Ricoh Innovation Labs, I have a system for visually depicting such a map and its change over time.

(4) So, once we've gotten to a point where we can develop intangible assets in the emergent and distressed markets, and we understand how to innovate and to replicate the development of innovative environments, then we can map how to replicate specific, successful programs within that environment, using the same methodology.

(5) Finally even in existing firms who are relatively successful in navigating the fast-changing waters, it's likely they have a Corporate Social Responsibility program. There are many reasons to have such a program, including building internal morale. However, by measuring impact and tying this into community metrics, a significant amount of knowledge can be built, turning CSR programs into strategic assets for firms.

Seminal Assets

I was driving along, thinking about the proverb, "A bird in the hand is worth two in the bush." I thought: yeah, except when evidently "A bird in the bush is worth any number of birds already in hand." I thought, "The elusiveness of those uncaptured birds is so mind-numbingly intriguing...."

I thought, "Some sort of compulsion about pursuing what's intangible."

I thought, "Hey! Wait a second! For some people, "the intangible" is synonymous with "stupid distractions that could derail your life!"

So. It's time to rebrand.

No longer "intangible assets." Now, it's "Seminal Assets" - those assets without which future assets can't be made.

Specifically:

• Social assets (that accumulate into "capital," that's where "social capital" is from). Examples are relationships, processes, and trust.
• Intellectual assets (pre-IP), such as knowledge, cleverness, skills.
• Natural assets, such as physical health and the ability for the planet to support its ecosystem.

And two components introduced here:

• Spiritual assets, such as emotional health, love, connection, empathy, and creative spark.
• Comparative assets, which represents those assets that exist only when taking a comparison: e.g. superior physical power (used for moving a toddler away from the fireplace as well as picking a fight; without the comparison, it's the natural capital of health.)

A couple notes about the last two:

Without the concept of "Spiritual Assets," we can't explicitly include aspects of spirituality or religion in the discussion of things that people find of value.

Without the term "comparative asset," we can't talk logically and objectively about the instinctive need to "stand at the top of the hill."

Valuing Impact Investments (Social Responsibility as an Asset)

As I originally presented in the Finance Perspective for the Institute for the Future's Ten Year Forecast, there are two ways to talk about the value of intangible assets, which is the fundamental issue of Impact Investment:

(1) Return on Investment. In order to do this properly, it's crucial to link to all possible outcomes of an investment to gauge the impact the investor cares about, and hopefully to understand the context well enough to parse out any environmental influences. For financial investments, we note financial return. For community investments or development-oriented investments, there are specific outcomes to note... and it gets complicated quickly.

Take a simple business situation where the question is what is more important: immediate cash flow or trusting interpersonal relationships? Assuming we identify that we need both, how much cash do you put into social capital building and how do you measure its financial value? This is "difficult" because it's impossible, without knowing a lot of related data.

(2) Risk Management. I suggest you examine using risk management as the primary way to value intangible assets. It may not be obvious what strong social relationships bring in financially, but it's certainly obvious what risks need to be mitigated. (And in thinking this through, a heuristic emerges that facilitates decisionmaking that is actually in alignment with value creation... but that's another post.)

Risk Management can be well understood by traditional investors and financially conservative people: you figure out the amount of financial risk, and then the probability -- often scenario based -- of that risk occuring. So if a risk is a $10 billion threat, and it has 0.001% chance of happening, mitigating that risk has a value of up to $100,000.

What's the risk of not having customers in the future? Of your marketing program not working? What's the financial risk of a severe flu season vs a minimized one?

The more complex questions, but the one that can be used to build alliances: what's the risk of an uneducated group of parents to the local hospital, and the risk of a population that doesn't manage their own health well for the schools?

United States-based Extreme Environments: Where are You?

After having conversations about what is maturing in this space and what is emergent, it seems that the big "buzz" is around: what about US?  And by "us" I mean the United States.

Specifically, why are we focused on extreme environments internationally when there are extreme environments in the United States?

This question was first brought up on Social Edge forum in about May 2009. (Can't find the link; will update when I can.) But it has persisted and grown, and every conference makes it more obvious that there is a dearth of socially-oriented businesses incubated in a more survival-oriented culture by those very people who have few resources... that are represented.

Is it real? If so, is it a matter of patronizing attitudes that we're unwilling to face? Is it because of an international infrastructure that makes it easier to get funding for work in Uganda than East Oakland? Something else?

Or is it an artifact of disconnected communities, where the elite-educated go one way, and the grassroots grown innovators go another?

There's no denying there are entrenched problems in the extreme environments within the United States, but there's also no denying that there is massive innovation emerging here, also. However, those stories are not making the news in the way international work is.

#socap10, #impact

Real Marketing vs Mad Men

I have had several conversations recently with people about Marketing's role, and I realized I have internalized a "different kind" of marketing so thoroughly that I've forgotten that only a certain breed of Marketing pros really think this way.

Real Marketing is Facilitative

The role of the marketer is to facilitate the emergence of the market and the connection of the market to the product or service.

You can think of marketing as "becoming the exchange platform."

The questions a real marketer needs to know:

• what are the attributes of people who might need this good or service?
• where are those people?
• how do those people communicate?
• what are their triggers: what makes them act?

And then the work of marketing is to live where the market already is, and create messages that they understand that put the product or service in a place where it's easy for them to buy/adopt.

Then finally, the marketing person needs to learn:

• What just happened?
• How can I improve?
• Are there new people who need the goods or service (or can I conjecture that there might be in the future)? Where are those people and how do they communicate?

So you can see "marketing" methodology can be used for any situation where there's communcation between an institution and a population: non-profit, social enterprise, community group, or business. Also, it can be used to "sell," which is to say facilitate the exchange of money for goods/services, or it can be used to exchange knowledge or messages or ideas. You can use this to explain a product, or you can use this to find a pool of recruits.

Marketing is a community building activity.

The Case FOR Corporate Social Responsibility

This is based on a comment I made on a SocialEdge discussion regarding The Wall Street Journal article, The Case Against Corporate Social Responsibility from August 23.

Fundamentally, that article took issue with the mission of the social enterprise. I believe that "social enterprise" is a compromise term anyway, and what's important is linking what we do for a living with what we need to do as a species to survive. We're getting there; the economic models are developing, the finance is changing, but it's a big project.

You know, it's miserable to feel like you're working against your own, your family's and your community's best interest. And that should tell us something.

I'm adding a few references to my assertions.

---

Not to oversimplify, but it's pretty direct:

 - in order to build products and services, we need developed intangible assets (knowledge, relationships, processes, physical and emotional health, creativity) [Note: see Baruch Lev's seminal work, and many others since then.]
 - a large amount of intangible asset creation and development happens in the community, transcending the boundaries of the firm, or even being initiated in the community at large by people who are unaffiliated with any firms. [see Anne Saxenian's study comparing HP/Silicon Valley with DEC/Boston area.]
 - therefore, when a company takes on its corporate social responsibility, it links back into the community and is able to develop pathways to assist faster development of intangible assets, gain knowledge of where they are and what affects them, and bring them into product/service-relevant activities when it's appropriate.

That's just strategic behavior. It can be done poorly -- there's such a thing as a poor strategy, or an inefficient one -- but that's how "edge" is built, that's how companies compete with each other.