When I hear the words “social entrepreneurship”, the first thing I hear is “entrepreneurship”, not social. I come from to the world of social business from the perspective of an educated and trained hard-core capitalist, a management consultant, an Excel geek, an MBA with a concentration in finance and accounting, an ex-private equity / corporate raider and a man who thinks numbers first. And since quantifying “social good” is hard, I tended to push it aside.

But over time, I learned that “social good” matters. It matters to us, our lives, our communities, our environment, our society. That’s obvious.

It also matters to business.

Social good has traditionally been an externality that businesses could not value, measure and rank, so they choose to downgrade or ignore it as an input to business decisions. It’s not just a choice between short-term impact and long-term impact, but a choice between the impact we can see, measure and be accountable for and the impact that we have. The full impact that we have can be difficult to measure even in the short term, as the cost and value of our business model externalities tend to disappear from our profit and loss statements. We’ve tried to bring these externalities back to the table with “modified” accounting statements, balanced scorecards and other decision-making frameworks, but they’ve failed to gain the same traction as the simple, culturally-known and corporate-benchmark corporate financial statements.

But we haven’t given up, because companies have come to learn that unaccounted and unvalued business model externalities lead to sub-optimal decision-making and reduced performance: financially, operationally and competitively.

Umair Haque, Why Betterness is Good Business:

Striving to do more good is associated with greater profitability, equity and asset returns, and shareholder value creation. But that’s still not good enough. Today, the bar is being raised: success is itself changing. Those are yesterday’s metrics of success — more importantly, maximizing good lets companies outperform on tomorrow’s measures of success.

More and more, investors aren’t just looking for near-terms financial returns: they’re looking for financial returns *plus.* Why? Because the *plus* makes returns less risky, more defensible, and, the biggie, more meaningful. As the expectations of people, communities, society, and investors change, the definition of outperformance itself is changing.

Umair supports this with data from a number of research reports proving the need for companies to adapt their measures of performance, for the simple reason that people now demand a different kind of performance. Financial isn’t enough. Financial returns *plus* is necessary. And interestingly enough, as we get better at measuring the *plus*, the *plus* will disappear, because we’ll have developed new measures of business model success. Based on ideals or “betterness”, these business models will matter, and that’s why they’ll succeed.

They’ll succeed because they’ll tap into “The Power of Pull”, tap into the edges of their networks, bring the edge to the core, tap into the power of serendipity, and open themselves up to “that which cannot be completely measured today”.

These business models will leverage the passion of individuals, create networks and build communities. They’ll provide ways for people to connect, to build, to contribute, to give. They’ll let employees be people. They’ll build products with a purpose. They’ll build companies with a purpose, with a mission that is understood, supported and created by their employees, customers and fans.

We won’t do it just because it’s socially responsible. We won’t do it because we’re in some utopian “post-consumer” era. We’ll do it because it’s strategically, economically and financially necessary. We’ll do it because these are the types of innovations that can be disruptive and sustainable today. We’ll do it because…

Rising hyperconnectivity and the increasingly publicly available trails of intentions and actions by individuals and corporations are creating the opportunity for an ethical edge to “pay” in a wider range of products, markets and industries.

We’ll do it because information, stories, content and context scale easier, cheaper and faster than ever before. We’ll do it because companies will have to understand how to create and tell stories about their business, impact, relevance and meaning to stay competitive. We’ll do it because obfuscating the truth or hiding externalities will be an expensive, inefficient, suboptimal business strategy.

We’ll do it not because it’s “social good”, but because it’s good business. And that’s the type of social entrepreneurship I care about.

The evolution of a thought is a funny thing. I’ve long obsessed over the idea of context, inspired and shaped by Umair Haque’s line of thinking about user generated context, markets, networks and communities and many of his other principles.

Later, I picked up the idea of culturematics from Grant McCracken, a concept I’ve applied in thinking about communities, the power of “doing cool (meaningful) stuff”", and creating relevant, shareable events and experiences as participatory “marketing” campaigns.

About “doing cool (meaningful) stuff”:

“Cool stuff” grows only if it resonates, if it’s meaningful, if people care. “Cool stuff” are the small-scale, human examples of the power of focusing on creating rather than capturing, of focusing on product instead of marketing. Demonstrations of the power of living a life too cool to ignore.

“Doing cool (meaningful) stuff” is powerful because it’s the foundation behind turning relevant, shareable events and experiences into participatory “marketing” campaigns:

I believe there is a huge opportunity for people to follow their passion and evil plans to create relatable experiences and culturematics as “marketing campaigns.” Because these experiences are inherently human, they can invade niches and propagate through communities cheaper, better and faster than traditional marketing efforts.

… What are the keys? Passion, meaningfully directed. Transparency. Authority. A unique point of view. An ability to connect discrete actions to a meaningful cause. Resonance with a community. An obvious, transparent business model that “fits” the product, service, experience and community.

In my recent post, “Instead of focusing on the image, focus on everything around the image”, I applied the continuation of these thoughts to the photography industry.

But it’s a concept that applies to all forms of marketing.

Creating rich, immersive and scalable experiences is the biggest opportunity in marketing today, and “experience artists” are going to play a large, rich role in marketing going forward.

Why? To repeat (and add to) my recent post,

• Content is far easier to copy than context.
• Content is cheap to create and distribute, but context is (still) expensive.
• Content creation is an evolutionary process. The evolution builds valuable, immersive, rich context for leaders and shapers to create and guide the markets, networks and communities behind the evolution.

  How? The path taken to create content impacts the final product, but the path to create context is *part of the final product*. Remember, paths are more valuable than destinations.

• The economics of the web have increased the competition between content creators, flattened the experience advantage and upended supply and demand for content. But at the same time, it’s expanded the opportunity to create context, made context easier, cheaper and more accessible to create than ever before. People that recognize how context is created, what type of context they can create, and why context is important will create economically meaningful, valuable and sustainable products, services and experiences. And more than anything, that’s what we need.
• Marketers and business strategists today are fond of giving the advice “join the conversation.” While I agree, it’s only a step towards the larger goal: “create shared experiences”. First: join, listen, learn and understand the best practices, cores and edges in your markets, communities and networks, because it’s step one towards building the knowledge and confidence to take the next step: “create shared experiences”.
• Experiences are more powerful than conversations in creating the rich, immersive context, social objects and shareable, participatory media necessary for marketing campaigns. David Cushman and Jamie Burke asked “Can you buy space in conversations?” in their recent presentation about The Death of Advertising; to extend the thought, my question is “can you buy space in experiences?” Conversations, no; but experiences, yes.

Lest one think of this as idle thought, the examples are being created by bleeding edge practitioners today.

If you’d like to discuss examples and see how you can apply these concepts to your business, drop me a line at tdavidson@taylordavidson.com or @tdavidson; hire me to consult and I’ll help you devise strategies and execute campaigns applying these principles.

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Last year didn’t turn out as I had planned. This year I stopped planning and just lived, and in doing so finally created “The Good Year” that I had envisioned for a number of years.

My simple goal was to spend a year traveling, following my passions, exploring and creating without any expectations for it to pay off right away. I wanted to test my idea that the universe will take care of me if I let it and give myself the time and space to let the year lead to something bigger.

The original idea was to spend a month of two in about eight different places, to live, work and photograph lives in each city, to dig into each new place and culture as a temporary citizen. The goal wasn’t to find myself or explore the world, but to live and observe different lives around the world.

But it didn’t go as planned. For one, after I quit my job last November I spent the next twelve months driving across the USA, bouncing on trains throughout Europe and flying around the world. Each time I tried to stay in one place and slow down, I found myself moving on and going faster. Why?

In short, the draw of people and opportunities over the horizon, the beckoning of the next place, the next person to meet, the next experience to create.

And secondly, the planned year of observing became a year of interacting, creating and sharing. Each step forward, each hello, each exploration, each person and each story led me to another, simply by embracing the opportunity, listening, caring and giving. The solitary journey evolved into a shared adventure, connecting thoughts to thoughts, thoughts to people, people to people, powered by serendipity, part of an introvert’s awakening, thirty-one years in the making.

It wasn’t as glamorous as it sounds. Littered throughout the year were misplaced steps, missed connections, miscalculations, incomplete thoughts, failed challenges, hopes and ideas dashed by realities, limitations and mistakes.

But even with the numerous failures, I’m still looking forward to where it could lead.

And thus, with “The Good Year” drawing to a close, having tested and found the limitations of the way I lived this year, it’s time to change it up and find a better way to live another good year (and more). For me, for now, that means I need to live in one place and build a core to bring together the edges I’ve opened throughout the year.

I considered lots of places to live, focusing on the typical hubs of business, culture and recreation that regularly grace the “best places to live” reports and pop up in the “what is your city” quizzes I’ve taken repeatedly, trying to think about what’s important and envision alternate lives.

Nothing ever indicated New Orleans.

But that’s where this year has led me. New Orleans first popped up though introductions by Lyell to Chris and Jessica, my first real tests of a year of showing up, meeting new people and asking friends and acquaintances to help curate my life.

As the year continued, New Orleans kept popping up, interjecting herself into conversations, showing up in my mind, my heart, my memories. I lingered over photos I took of the Quarter and the Garden district. Every news article with a snippet about New Orleans drew my attention. I felt a tug every time I saw news about friends doing cool stuff in New Orleans, stung by a small bit of feeling of missing out. I extolled the virtues of New Orleans as an example of one of the few unique, culturally vibrant American cities, proclaiming my love for New Orleans to fellow travelers in Bulgaria, Japan, India, Australia, Malaysia and England.

But I never told New Orleans that I loved her, with the type of love that’s only seen a glimpse and is unsure what lies deeper underneath, but is sure of itself nonetheless. The type of love that needs to be demonstrated and shown, not just said.

What better way to show it than to move there?

And that’s my early Christmas gift to myself: a home, an opportunity, a life.

Of course, I’m going to need your help, New Orleans. I’m scared the rush of a new city will fade quickly. I’m worried it will take me awhile to settle in, based on my mixed past in establishing lives in past cities. I’m nervous about not living up to expectations. I’m worried about creating a professional life that fits my professional and life goals (more, later *). In a way, I’m scared of getting what I want.

But I’m going to try.

I’ve never truly loved a city or a community; New Orleans, I’m hoping you can help change that.

So New Orleans, I’m moving here for you and for me. I’ll love you and give you my all. All I ask is for you to love me back.

—

* Later, a deeper dive into why New Orleans is a great professional opportunity for me and many others. But first, start with Sloane‘s great summary of what New Orleans has to offer and my past thoughts on New Orleans’ opportunity to leverage its vibrant cultural life into a vibrant hub for entrepreneurs (video, about 1 minute in). More to come.

Kleenex, anyone?

I traditionally think about startup and investment opportunities through broad frames, sectors and trends; but in an effort to get a bit more tactical, here is a general investment thesis:

• Products and services that build markets, networks and/or communities,
• Focused in industries with inefficient, expensive middlemen, high transaction costs,
• That aggregate and structure data,
• To create valuable relevance,
• Created and accessed via any device, anytime,
• Built as an API from the beginning,
• Monetized through API access,
• Requiring a small funding gap between costs and profits,
• Created by founders that embrace a grand challenge.

Perhaps that’s too broad an outline to be a meaningful and actionable thesis, but let’s start here. Breaking it down…

• Products and services that build markets, networks and/or communities.

  Markets, networks and communities form the base of successful next-gen companies; they create and serve niches, promote humanity and meaning, organically incent repeated competition and collaboration, create viral marketing and engagement loops and have “built-in” business models that facilitate creating and exchanging rather than allocating.

• Focused on industries with inefficient, expensive middlemen and high transaction costs.

  The media and entertainment industries get all the attention for the collapse of their legacy business models, but they are just the canaries in the coal mine for many more industries.

  The world doesn’t need another app for sharing photos and music: we need another app for solving expensive problems, understanding our actions and lives, valuing our impact, sharing meaning, being human.

• That aggregate and structure data.

  It should be fairly obvious by now that there are a world of opportunities in a world of increasing unstructured data. Why?

• To create valuable relevance.

  Data is cheap to create but expensive to understand. The basic need of people and businesses to understand the world and make sense of what is happening is the fundamental driving force behind innovation on the web today. Better yet, the high cost of context and relevance is creating opportunities for a variety of businesses. Relevance is a fundamental concept behind many of the web’s current fascinations: realtime, social search, the business models behind news and journalism, social capital, social anything.

  Examples? To start: surfacing and pricing externalities, reducing the cost of relevance, cheaper serendipity, faster, better and cheaper links between online and offline.

• Created and accessed via any device, anytime.

  How, when and why we interact with applications and web services determines their eventual impact; just like “the best camera is the one that’s with you” , the best computer is the one that’s with you. Neglecting to develop applications for mobile interfaces and use cases is at best a limiting strategy, and at worst a death wish.

• Built as an API from the beginning.

  Highlighting a comment by Joe Lazarus on APIs in the Late Afternoon:

  I’m not an engineer, so I don’t know how technically realistic this is, but I’ve always thought that conceptually, companies should build APIs before they build their own interface. That way, they ensure that all the APIs needed to replicate the experience are already in place. The company’s front-end engineers simply become part of their own API developer community.

  Given the importance of APIs (read and write APIs, btw) in linking together web services, creating development communities and building effective business models, developing an API at the same time as creating the technical infrastructure and user interface is an important part of building a web services company today.

  One might read this to think that I’m only creating an investment thesis for a web services company: however, the same principles apply to any company and person today. At its core, an API is a rules-based structure for collaboration, and the basic premise of developing and using APIs can be used by any company using the web for any part of its business.

• Monetized through API access.

  Disrupted businesses often misunderstand what business they are really in: focusing on the products they sell, rather than the needs they serve and the problems they solve, is a recipe for unnovation. Businesses based on multi-sided platforms are often the most confused, failing to understand how to evolve the platform as the markets on either side of their platforms change.

  Media companies are obvious examples of this confusion; but they won’t be the last to make this error.

  Focusing on APIs is a powerful way to focus on the core business, because APIs are structured around exchanging and transacting value. At the moment, only businesses are able to really publish, use and pay for APIs, but eventually using and paying for APIs will be easy enough for individuals to use APIs in their daily lives.

• Requiring a small funding gap between costs and profits.

  Venture capital emerged to serve a need, to fund the timing gap between costs and profits that would otherwise stop new businesses formation. To avoid diving deeper in an oft-discussed subject, the economics of funding new ventures aren’t what they used to be. Start cheap, create a minimum viable product and iterate often.

  Value attracts money; focus on value first and the money will come.

• Created by founders that embrace a grand challenge.

  Embracing grand challenges as an organizing principle helps build adaptable institutions that reward passion and create awesomeness.

  Why place big bets on small ideas?

How would I use this investment thesis? If I was an outside investor, this is how I would use for evaluating businesses as investment opportunities. If I was an entrepreneur, I would start by first determining what problem angers me deeply, and then apply this same thesis to help figure out how to structure the solution.

Obviously it’s only a framework, but it’s a start…

As always, I’m open to thoughts. Feel free to tell me what’s wrong, misguided, unclear, naive; and of course, I’m curious about what’s right…

—

Related

• Fred Wilson, Thematic vs. Thesis Based Investing
• Michael Karnjanaprakorn, If I Started an Investment Fund
• Charlie O’Donnell, Free Business Plan: How to start a venture capital fund in New York City
• Seedcamp, Seeding Ideas for Seedcamp 2009
• Seedcamp, Seeding ideas Round 2
• Me, Five cultural and technological frames shaping new business opportunities.

Download the free, completely functional Excel financial model below:

Basic Financial Model created by Taylor Davidson Right-click to download. Zip file, 244 KB.

This streamlined financial model is intended to help entrepreneurs:

• Create marketing plans and estimate the costs and success in acquiring customers
• Estimate pricing plans, price points and estimate revenues
• Understand the key components of cost of goods sold (COGS) and selling, general and administrative (SG&A) costs behind the business
• Understand the basic net income behind these estimates

The model uses a mix of assumptions to estimate all revenue and cost line-items monthly over a five year period, and then sums the monthly results into quarters and years for an easy view into the various time periods. Even though years three to five are not terribly important for most early-stage startups, I built the model on a per-month basis for all five years for consistency and flexibility.

Please note a couple limitations:

• The model is not built for all types of businesses or for all different types of revenue or cost models.
• The model is not robust enough for raising investment capital. It does not estimate complete balance sheets, statements of cash flows, sources and uses of funds, financing requirements, calculate capitalization tables and other information necessary for potential investors.

But this model is enough for an entrepreneur to get started understanding their business idea. And of course, if you do need a full financial model for raising investment capital, that’s one of the things I do.

But wait: why is creating a financial model important?

To quote past thoughts:

Creating a financial model forces an entrepreneur to outline very specifically how a business “works”: how a company creates their products, how users and customers find and use their products and how those processes create revenues and costs. The result, a set of operational metrics, financial statements and the “equation of the business”, is one view of a potential reality of the business. While any one view is inevitably wrong, by digging deeper and analyzing the key drivers and testing a range of assumptions an entrepreneur can create multiple views to help make crucial product design, marketing, organizational and strategy decisions.

Instead of focusing on the bottom line profit and net income, focus on the assumptions and key drivers of the business. Developing a financial model creates the type of thought and data that helps entrepreneurs figure out what they are betting on and how likely their bets will pay off.

What is needed to start creating a financial model?

The best way to start building a financial model is to start thinking about how the business works:

• What is the product / service and what customer need does it serve?
• How do you identify your addressable market and target customers?
• How do you market your product/service and acquire customers?
• What are the revenue streams? (prices, sales of products or services, advertising, usage fees, etc.)
• What costs will the business create? (i.e. employees, web hosting, SG&A, various fixed costs, variable costs)
• What timeline of development and product launch and market / customer adoption are you expecting?
• What do you know about the market? (# of potential customers, $ spent currently, market trends, growth, competitors, etc.)
• What lessons, revenue / cost models and performance / operational metrics exist from studying existing competitors and complementary and substitute products?
• What big bets are you placing (implicitly or explicitly)? What are the key drivers in the equation behind your business?

And building a financial model is a great way to understand one’s business, the key decisions you face and the bets you’re placing. As Mark Suster explains:

Financial models are the Lingua Franca of investors. But they should also be the map and the Lingua Franca of your management discussions.

—

Basic Financial Model created by Taylor Davidson Right-click to download. Zip file, 244 KB.

—

Note: if you’re interested in a basic Excel model for understanding your personal finances, click here to start getting a grip on your personal finances.

—

Updated Nov 18: Thank you to Matthew Ward for finding a couple calculation errors in the original model, now fixed.

At TribeCon 2009 in New Orleans last week I got to participate in a panel discussion about how to embrace making yourself uncomfortable for personal and professional growth.

Little did I know I would get to put the idea to use just a couple days later.

—

When I originally planned out my travel schedule for this fall, I booked my flight from New Orleans to San Francisco on the only reasonably-priced flight I could find, a 7 AM departure on the Sunday morning after Halloween. As I booked the ticket, I knew very well that I was also planning on either spending the night at the airport or going straight to the airport from a rollicking good time.

What I hadn’t planned on:

• Having the best Halloween of my life,
• Having a great time at Voodoo Music Experience with great guides and partners-in-adventure,
• Getting my face painted as a Zombie at the music festival,
• Taking a 5 AM challenge to keep the face paint on during my flight from New Orleans to Houston to San Francisco that morning.

But that’s why it was so fun, freeing and powerful.

First off, an important point: I’m an unquestioned introvert, and I’m not an exhibitionist. I’ve never liked Halloween; I’ve always loved to see the creativity and costumes, but I’ve never wanted to participate. I’ve skipped many Halloween parties, and taken a general pass on the holiday throughout my life. I can’t remember a single good costume I’ve worn over the years. I was a face-paint virgin.

But, when friends Sloane and Kyle jumped right in to get their faces painted as zombies at the festival, despite a bit of reluctance, it seemed like a good opportunity to try something new.

Without feeling physically different, I initially felt emotionally different, a little self-conscious, even if everyone else was doing it. I showed pictures from my camera of what I looked like without the face paint. But the feeling faded, and as the night continued at the festival and deeper into the New Orleans nightlife, I forgot about it.

And thus, helped by a little liquid courage, when Kyle and Sloane offered to drive me to the airport at 5 AM to catch my flight, on the condition that I kept the zombie face paint on for my flights to Houston and San Francisco that morning, it wasn’t even a decision. Of course I would.

Louis Armstrong New Orleans International Airport, New Orleans, LA

Would you let a friend board a plane looking like this?

Louis Armstrong New Orleans International Airport, New Orleans, LA

Waiting to go through security, worried a little bit about whether security will let me through without taking off the face paint, an unfounded concern as it turned out.

Sharing the moment on Twitter:

Getting ready to go through security at MSY (ping @feelgoodz @sloane) http://flic.kr/p/7c4tBV (tweet)

Sharing the moment on Twitter:

#photo a guaranteed conversation starter, getting ready to board flight http://flic.kr/p/7c8t9N (tweet)

On board the first flight from New Orleans to Houston

On board the plane from New Orleans to Houston, around 6:45 AM. As it turned out, I sat in the front row, at the entrance to the plane, enjoying the many looks from people getting on. Looks, smiles, quick glances, but no comments.

Sharing the moment on Twitter:

Taking a bit of #Voodoo and a NOLA Halloween on my flight (cc @feelgoodz @sloane) http://flic.kr/p/7c8A6u (tweet)

Layover at George Bush Houston Intercontinental Airport

Enjoying an hour’s layover at George Bush Houston Intercontinental Airport. A normal Sunday 8 AM, obviously.

Sharing the moment on Twitter:

A zombie’s layover in Houston airport (a late Halloween night, extended) #greatstory http://flic.kr/p/7c6cdt (tweet)

On board the second flight from Houston to San Francisco

Sharing the moment on Twitter:

Bringing a New Orleans #Voodoo Zombie to SF (on the second plane) #greatstory http://flic.kr/p/7c6z6g (tweet)

On board the second flight from Houston to San Francisco

Hanging with the airplane staff on the second flight from Houston to San Francisco.

At final destination, San Francisco International Airport

Arrived, a deal completed, at San Francisco International Airport, around 11 AM local time.

Sharing the moment on Twitter:

The Deal, completed; a NOLA #Voodoo Halloween zombie lands in SF http://flic.kr/p/7cfCQY (tweet)

Sharing the moment on Twitter:

Done. @sloane: The Deal. @feelgoodz & I drive @tdavidson to dawn flight, the #Voodoo NOLA Halloween makeup stays on. http://flic.kr/p/7c8A6u (tweet)

Once I arrived and took a couple pictures, I washed off the face paint the men’s bathroom. Interestingly, a couple guys came up to me and said they had flown the same route and had noticed me get on the planes in New Orleans and Houston and had been betting why I was in face paint, but hadn’t asked me.

And that was the most curious thing to me. Nobody asked me about the face paint. Not security, or the airline ticket-takers, or fellow passengers, or the stewards and stewardesses, or people walking in the airports, or even the passengers I sat next to (perhaps, especially the passengers I sat next to). All probably curious, but afraid to ask.

But instead of waiting for people to ask, I embraced this as an opportunity to start a lot of conversations. I converted many glances and quick smiles into conversations and laughs, simply by reaching out to people and explaining a little bit about why I was dressed in muddy shoes, a blazer and silver Zombie face paint that morning. Simply by being a little uncomfortable, by being willing to make a fool of myself, I hope I brought a little bit of joy to everyone that day: to everyone that saw me but didn’t say anything, to everyone I talked to and laughed with that morning and hopefully to everyone that followed the story on Twitter around the world.

Would I do it again? If the opportunity presented itself, yes. Would I plan to do it? No.

Why the difference? Because the joy was in running with the moment, with accepting the opportunity, to embracing the simple fun involved with carrying an in-context joy to an out-of-context oddity, to creating an unexpected experience and story for us all to enjoy.

The lesson? Being different usually isn’t the plunge we think it is; instead of shying away from trying something new or standing out, embrace the opportunity for yourself and for others. Being “a human in public” both online and offline is a fantastic way to connect with people and build real relationships, whether they exist only in the moment or forever.

And I couldn’t have done it without you.

—

Thanks to Sloane, Kyle and Andrew and the rest of the New Orleans community for showing me a truly great time and helping create a story for all of us to share. I’ll see you all again soon.

—

All the pictures above on Flickr, A Zombie’s Journey.

From a conversation with writer Cory Doctorow by Diane Coutu in Harvard Business Review (behind the paywall):

Coutu: What about the impoverished artist who wants her compensation?

Doctorow: Art is an economically irrational activity. That’s as true in the twenty-first century as it always has been. The majority of people who have practiced art never earned a living doing it. But artists create not only for economic reasons; they create to be heard. There’s no question that the internet does a better job than any other system of allowing people to be heard.

Agreed; the Internet is the most powerful mechanism for allowing people to be heard that we’ve ever seen, but it grants that ability as an opportunity, not a guarantee, even within tight networks. * Attention is a scarce resource, one we value far too lightly, in my opinion.

Continuing,

Coutu: This raises what to my mind is an interesting question: What is contemporary art?

Doctorow: I believe that from the artist’s perspective, today’s art must presuppose copying. If you are making art that you expect people not to copy, then you are not making contemporary art.

When attention is a scarce, obscurity is a bigger hurdle than piracy; if an artist today truly wants to be heard, it’s critical to make art that can be spread, shared and discussed, and in today’s world that means leveraging the structures and economics of the Internet’s copy machine. **

But most importantly,

Doctorow: I post all my books for free on my website, and people can remix them, translate them, distribute them to friends; they can do anything they want so long as it is for noncommercial use. the model works because for most people a free electronic book is not a replacement for a printed book, but rather an enticement to buy one. I sell the hell out of printed books by giving away electronic ones. That may change someday. A meteor might hit the earth, or we may lose our taste for novels altogether. But for now, giving away my books for free on the internet is earning me an income. If that changes in the future, it will probably change in a way that’s easier for me to understand, as I am already engaged with copying, than it is for someone who refuses to try to understand it.

As I noted to Jim Goldstein: ***

… the key is to evaluate the time, cost, and expected returns from strategies using “free” before blindly diving in. Too few creatives are thinking about the nuances of free and how trends largely beyond their control are changing their businesses. Fighting the “problem” of free won’t get anyone anywhere.

Free isn’t a problem, it’s an opportunity.

New markets, ready to be attacked. New structures, ready to be utilized. Confusion about copyright and piracy, ready to be cleared up. ****

Engaging, educating, thinking, sharing, helping, competing: it’s the only way we’ll move forward.

—

* Does the Internet destroy serendipity? No. In fact, the Internet enables us to experience the joy of serendipity through the power of the largest positive variable intermittent reinforcement engine ever created.

** See marketing, viral and the structures behind viral loops.

*** See Jim Goldstein’s recent posts about Free for a great discussion about how the principles of free apply in the photography business and for photographers, namely The Value of Free: Where Is It? and The Marginal Cost of Creativity.

**** Ok, so what does this mean tactically? I’ve posted my thoughts before in Lesson 2 and Lesson 3 of my series on how photographers can create new business models. Also, see Miki Johnson’s How can “free” work for photographers? on the RESOLVE lifeBooks blog for additional thoughts on how to leverage “free”.

Revisiting The stock photography industry needs to be unbundled from October 2008:

We need to unbundle the functions of the traditional stock photography agency. There is no fundamental need for the image delivery and management platform to be delivered by the same company that makes the market and connects buyers and sellers.

Platform
What we need is a quality, powerful open-sourced platform to allow photographers to control their own images in their own ways. We need a platform and a community of developers similar to WordPress or Movable Type. Blogs exploded because people were given the tools to create and publish on their own using the range of hosted and non-hosted options; why can’t the same thing happen with stock photography?

Market-Making
Agencies would still have a powerful role: agencies would still set the rules of exchange, organize buyers and sellers and promote images: but instead of the images residing on their platforms, the images could reside on photographers’ servers.

Obviously this disaggretated model would shift around some the economic value in the stock photography business: but perhaps the industry is failing because we have not developed or scaled platforms that allow the economic value to shift in ways the industry desperately needs.

… In essence:

• Decouple the the platform delivery and market-making components of the traditional stock photography agencies.
• Develop open platforms that allow photographers to control their own data, on their own servers, using open-sourced software, “promoted” by stock agencies.
• Let agencies focus on making markets, reducing transaction costs, making prices and image comparisons more transparent.

Allen’s comment:

I know nothing about the inner workings of the blog companies, however, they do not have the inherent problem that pro photography has — that is, a small addressable market. Millions of people use blogger and word press, by contrast, the # of “pro” photographers is in the low hundreds of thousands by most estimates. So I’m not sure an open platform system would work.

Secondly, storing digital assets and providing an e-commerce layer isn’t as simple as hosting a few bytes of blog data. Not to say that it can’t be done, but we have a ton of scripts that are necessary to control everything from conversion of JPG/RAWs into thumbnails to e-commerce systems that process transactions, email the client, and generate a downloadable file.

I would personally like to see more adoption of standards so that distribution of your images from a hub like PhotoShelter to any number of destination sites (whether it’s Getty or a boutique agency) could be as simple as something like sending an e-mail. Ultimately, however, I don’t think the industry has the economic incentive to develop such a system — and often, what’s good for the photographer isn’t necessarily needed by the buyer, and vice versa.

Continuing to explain my thoughts:

… in my mind the open-sourced platform would be given away for free. Give away the software, create a platform for developers to create plug-ins to manage images, fans, customizations for photographers. Provide (free and paid) services to help photographers host and customize their own stock solutions. Learn from the lessons of companies that have created platforms [and movements], not just products.

… Not all photographers will want this, of course: many won’t want to manage their own systems, learn about web development or managing their software and hosting solutions. But that’s what Movable Type and WordPress have learned, and it’s a key part of why they offer both the hosted and non-hosted paths.

Re: Storing digital assets and e-commerce layer: you obviously know what goes into this far more than I do. It’s not a trivial problem, but there are many software and web companies that have dealt with similar problems with managing massive flows of unstructured and structured data. Think of it as creating an API between the cloud of hosted software platforms and Photoshelter’s e-commerce market-making website.

What are the biggest barriers for photo buyers? It’s not just about prices … The lack of price transparency between RF / RM and in comparing images is a strategic mistake: the transaction costs (time, effort, energy) are a significant barrier to closing a sale.

Continuing with a related thought from an interview from April 22 with Ellen Boughn (@ellenboughn) on the future of stock photography:

John: I am hearing predictions that Google is the ultimate stock search mechanism, and that someday all the searches will be done on Google image search…even including Agency collections. Can you comment on that?

Ellen: I don’t know the answer. What I do know is that Google has taught us all how to search. We no longer look for anything with just one or two words. The vast amount of information on the web compels us to become more and more specific in our use of search terms and to use more words in a search. This knowledge spills over into how we search for images. I believe that photographers with collections on specific subjects and who have implemented best practices as far as SEO goes may find that they can make more money selling stock direct than with a stock company in the near future.

Today I am excited about the prospect that we may be at a convergence of technology and user behavior that will shortly enable photographers to license their existing images.

As Ellen continues to explain, we are beginning to see web tools break down the industry stack to help photographers distribute images, handle sales, licensing and infringement.

We’re starting to see bits of the chain emerge:

• Distribution platforms: In addition to the more traditional stock photography distributors, collections and portals, a number of platforms, including ImageSpan, Photoshelter, Fotolia and others, provide a variety of web platforms for photographers to sell and manage licensing from their site;
• Distribution platforms with alternate licensing and/or pricing models: Cutcaster, GumGum and Photrade provide distribution platforms with alternate licensing and/or pricing models;
• Syndication (distribution management): iSyndica helps photographers upload images to multiple stock photography platforms;
• Analytics: LookStat helps photographers track sales across multiple sites, creating the data behind image sales and performance necessary for stock photographers to make informed decisions about their business;
• Direct sales and E-commerce: Fotomoto helps photographers promote and sell prints directly from their site with a simple, small code change to their existing website, and almost all of the distribution and promotion sites also handle print and license sales;
• Tracking: Digimarc, Idée and PicScout all help track usage and infringement (with different methods, goals and business structures).
• Promotion: A number of companies, including A Photo Folio, liveBooks, PhotoBiz, NextProof and Pictage, provide solutions for photographers to create websites and manage clients and sales.

  But there are still a dearth of powerful tools and platforms for photographers to manage their own marketing efforts. Photoshelter might have the best range of tools, widgets and other solutions for photographers to promote their work; but it is still a relatively undeveloped space. How can photographers manage, track and understand their own web marketing efforts? How can photographers track their social media engagement / marketing efforts across the variety of tools and communities? How can photographers reach out and manage their fans and customers? Who will create the Topspin, su.pr or awe.sm for photographers? How will we bring humanity to the market for images and photographers?

I’m sure there are many other solutions available, and I might have missed a core part of the industry stack, but at the end of the day the photography industry still struggles with a mess of largely closed, non-interoperable solutions for matching buyers with sellers.

The photography industry may be suffering right now, but general interest in photography is at an all-time high; even though individual photographers will continue to struggle through the transition, big problems create great opportunities. Find your vision, target your niche, create great work, expand your business model, learn to market, and find a way to swim through the industry’s tides; if you figure all of that out, businesses will emerge to help you thrive.

—

Related:

• The stock photography industry needs to be unbundled, Oct 2008.
• Everyone is a photographer, Sept 2007.
• Photographers are your customers, not your competition, Oct 2008.
• Expanding on the role of middlemen in stock photography, May 2009.

I tend to use “frames” and trends to identify opportunities rather than industries or businesses because it pushes the focus away from the present and forces us to think about the larger, systemic trends shaping our futures. Each industry responds differently to similar fundamental forces based on their unique developmental paths and learned best practices, but as old truths and “best practices” fall by the wayside, focusing on fundamental trends allows us to import, export and apply pertinent learnings across industries, business and products. Change creates opportunities, so where are the opportunities?

Let’s start with five frames:

• A renewed look at capitalism, the role of markets and the mix between centralized and decentralized decision-making.

  Society tends to change its organizing principles (feudalism, capitalism, socialism, democracy, et. al.) over time in response to cultural and technological trends; there is no absolute “right organizing principle”, but rather the right principle for the time. Right now we’re in the middle of a massive shift in how we interpret and apply capitalism as an economic and societal organizing principle. Pay less attention to the ideologies (traditionally rigid terminologies such as capitalism, managed capitalism or socialism) than the fundamental trends driving us to re-evaluate how we organize lives and frame incentives; we may come out the other end with a very different set of economic rules and cultural expectations from five to ten years ago. Remember that the true turning points of our lives are revealed not in the moment, but in hindsight.

  Honestly I can’t begin to explain the full ramifications to do this topic justice; I just know we’re underestimating the full impact of current economic and geopolitical events.

• Entrepreneurship: a revolution or a fad?

  Revolution:

  … startups may represent a new economic phase on the scale of the Industrial Revolution. … People are dramatically more productive as founders or early employees of startups … and that scale of improvement can change social customs.

  Fad:

  “When I was in college, guys usually pretended they were in a band,” comments one observer. “Now they pretend they are in a start-up.”

  Entrepreneurship may be the sexy thing getting all the attention today, but the fundamental, underlying question is really about how people will organize themselves to create economic value.

  Vertical integration and horizontal integration may have fallen by the wayside, replaced by circles of small organizations, but the underlying economics shaping these organizational strategies aren’t set in stone. Current innovation strategies are based on creating modularized value chains using widely-available data to foster decentralized innovation – microbusinesses aimed at microinteractions – but we will reach a limit in how small each unit of the value chain can be divided until we develop more efficient methods for collaboration, compensation, incentive structuring and legal organization.

  Under-innovation will drive many large firms out of business, but that’s the point: from creative destruction comes creative reconstruction, and the survivors (large and small) will be the ones that find ways to re-orient their internal structures to take advantage of new technological and cultural realities. The economics of collaboration is a driving force behind internal corporate structure as much as external industry organization.

  To think that large companies will fail to adapt is folly; all companies exist in a marketplace for talent, capital and the valuable factors of production, and as the economics behind scale and scope shift, corporate collaboration and integration strategies will change. In short, “small” may be winning right now, but there’s no reason that “large” can’t catch up.

• A new, broader kind of middleman: not merely to execute transactional exchange but to facilitate interaction by aggregating, filtering and delivering relevance.

  Context is still expensive to create, for the simple reason that algorithms simply aren’t good enough (yet). Perhaps the largest opportunity in creating context and delivering relevance is to find better ways to use computing cycles to access “human cycles” through inexpensive, structured micro-interactions.

  As computer cycles get cheaper and easier to access, “human cycles” get more important.

  At a conceptual level, a “personal API” describes how we can create mediums and methods of exchange to reduce inter-personal interaction costs to make it easier for people to exchange more (quantity) and deeper (quality) units of value.

  How can we leverage technological platforms to access “human cycles” cheaper? Besides open-source software and collaboration / communication platforms, try out Mechanical Turk as an early example.

• Converting offline experiences into online structured data to capture, aggregate, understand, publicize and price our actions and externalities.

  How much do we truly understand about the costs and benefits of our decisions and actions? Do we understand the true, full societal costs of our personal lives?

  It’s fairly easy to track and analyze our online lives by piecing together what we tagged, shared and wrote; but it’s still fairly difficult to really track and understand our offline lives.

  Structured data is the required link between intention and action; only by understanding the full impact of our decisions can we hope to change our behavior.

  What’s the opportunity? Creating tools and platforms to unearth, capture, tag, analyze, aggregate (publicly and privately) and promote to price the full impacts of our actions. It’s not a new concept: the theories behind assigning and pricing externalities underlie a wide variety of government regulations (carbon caps, city trash regulations and tax policies just to start); but “scaling down” how we understand and price externalities to the individual level is an innovation opportunity. Scaling down data collection, aggregation and analysis to the individual level allows people to take decision-making into their own hands and offers people the information and control over their lives never possible before.

  But imagine what happens when we use online tools and networks to share, aggregate and benchmark our individual actions and impacts: we create the opportunity to identify new trends, create new solutions and tap into the “hive mind” to create value at the individual and societal levels.

  Examples? Off the top of my head, FitBit, Nike + iPod’s Nikeplus and Google PowerMeter come to mind. Remember at the end of the day it’s about combining the online and offline worlds; if we’re only focused on the online world, then we’re not thinking big enough.

• The enduring power of mystery and the unknown.

  In an “ambiently intimate” world, value is being created through the unexpected intersections and “human collisions” in our loose ties and loose networks.

  Mystery, powered by structured data and serendipity, underlies how positive variable intermittent reinforcement creates the most successful products and business models. We’re addicted to the potential for every click and interaction to create a new insight, connection or opportunity; introducing mystery into our communication, entertainment and work brings out the joy of solving puzzles deep within every person and delivers a richer, more powerful sense of engagement than otherwise possible.

  Why is mystery important right now? Ubiquity and reach is driven by the known, depth of engagement is driven by the unknown. Introducing a bit of mystery into a product or service is the key to creating the dedicated base of users less apt to switch to the new thing simply because it’s better, cheaper or faster.

  Please note I’m not proposing making things hard for people to use or understand, but the opposite: make things simple for everyone to understand and use very easily, but build in attributes and values for dedicated fans and users to discover and use; as people dig into your product and peel away the layers, make sure there are some extra layers there for the dedicated fans and users.

The outstanding question.
Agree or disagree, fire away; but the most important, unanswered question: how can we apply these cultural and technological frames to identify and target intriguing industries and valuable businesses opportunities?

Let’s start the discussion there.

As a side note, I’m trying to figure out a big project to apply myself to; ideas and thoughts are appreciated…

Related:

• What trends can entrepreneurs leverage to create new businesses?, Nov 24, 2008.
• What is the next platform for new businesses?, Dec 8, 2008.
• Value is created at the edges but captured at the hubs., Jan 29, 2009.
• Ten Frames (+1) framing the future of venture capital and entrepreneurship, March 15, 2009.
• Relationship “contracts” need to be based on our inability to predict the future., April 8, 2009.
• What’s free today may not be free tomorrow., May 15, 2009.
• Ambient Intimacy: Creating Archetypes from Avatars, May 19, 2009.

The industry has been flooded with news lately; Photoshelter closing their stock agency, Corbis laying off more jobs, Photokina and a raft of new camera announcements, etc., etc.

If you’re interested in learning more or hearing me talk about what’s going on, comment on the site or drop me a line. As always, I’m always here to talk: email, this web contact form, phone and Twitter.

We are all aware that the photography business is undergoing some changes that is making it difficult for photographers to maintain their previous levels of income. But it’s not just about that: the entire field of photography is undergoing massive shifts in how photographs are produced, distributed, stored, sold, viewed and critiqued. Additionally, the number of people involved with creating and viewing photographs has increased drastically as the the tools for producing and distributing images are easier to use, cheaper to buy and much more available than before.

More importantly, it’s not just photography, and it’s not just the creative industries; all industries are undergoing their own “democratization of the industry” in different ways.

Can a photographer just focus on “how have things have changed for my business this year”? No: a limited, myopic view will not enable photographers to understand how external pressures are affecting the execution their own business plans. (Wait: you’re a photographer and you don’t have a plan? Drop me a line.)

Instead, by understanding the larger changes throughout the industry photographers can develop a better understanding of how to invest their time, money and passion across the many potential routes.

The basic economics of the photography industry have been absolutely, fundamentally, permanently upended, flattened by the democratization of the tools of the production and distribution and a shift in the technologies, mediums and methods of communication. (link)

Technology has democratized access to the tools of production and distribution, leading to a surge of creators, squeezing the middle class of the industry; the long tail of photographers are getting squeezed. But the stars continue to stand strong: the rich get richer at the expense of the rest. If you look around, this isn’t unique to photography: across industries, countries and within societies, the rich continue to reap the benefits of increasing marginal returns to effort. Instead of railing against this economic order, let’s spend our time figuring out why it is happening in photography and figuring out how we can leverage the opportunities.

We are seeing a massive mismatch of supply and demand; photographers have flooded the market with an oversupply of images created and distributed using mediums and based on economic models no longer in demand. While our ability to consume images and stories has increased, our ability to mentally process, physically consume and filter out quality has decreased.

Framed under these pressures, “good enough” is the mantra of new consumers and creators of photography. The idea of a “good” image has been wrenched from the traditional photography and artistic elite and realigned to the larger mass market of populist photographers. The mass market has stormed the compound and they’re not leaving; better to learn how to leverage and profit from them rather than attempting to ignore or shut them out.

Most of the recent thoughts on how photographers can adapt have focused on either expanding what photographers create or how they market themselves and their images. Photographers have been adding multimedia and dynamic content to their traditional static images to find new ways to communicate and share their stories. We have been exploring how to use the Internet to market themselves and their images to the traditional industry gatekeepers.

But these are tactics, not goals, and as technology changes the tactics will change as well. Photographers need to identify their goals and find ways to introduce learnings from other industries facing similar threats.

Thus technological changes have altered the economic, social and cultural expectations of photography and photographers. Professional photographers need to utilize new technologies and leverage the newer cultural expectations of photography to stay relevant and profitable. Consider the changes in the industry as an opportunity, not a threat. While the existing routes to success have been under increasing pressure, many new avenues have opened up. Photographers have more opportunities, not less, as long as they are willing to explore new technologies and define their exact business models more precisely.

So what can professional photographers do?

Five Lessons for Professional Photographers

• Photographers are your customers, not your competition.
• Take advantage of the atomization of demand and expand the scope of consumption.
• Take advantage of the oversupply and target your brand, your niche, your fans, your customers.
• Connect with context and content.
• Make great work.

Check back over the coming days for the rest of the series. Drop me a line if you can’t wait…

/TD