Wednesday, July 18, 2012

How to be successful by using self-generating phenomenons

I have written before about self-generating phenomenons in estonian, but it is an important topic that could be discussed more. Self-generating phenomenons are really important development paths in business, technology, society and environment. Detecting or creating one might easily you a millionare.

First, what is a self-generating phenomenon. It is a process, technology or anything such that creates output that increase the process itself and that in turn increases the output. Let's look at some examples to explain:
 Training and sports. The more people are into sports, the more sports shops there are in town. The sport shops want to increase their business, so they do advertising and sponsor sports events. The more advertising and events, the more people are into training and sports. The loop goes around until a logical maximum is reached and all the possible people who can be won over to sports are there.
 Tourism. Apparently Stockholm is earning the most from tourism among the Scandinavian city's. This means that it makes a lot of sense for companies, museums and restaurants to offer services for tourists. The more tourists the more flight, boat, train and buslinks there can be profitable. The more there is to do in a city and the easier to get there, the more tourists are tempted to go there. Tallinn provides a wonderful example of such a self-generating loop and the growth of the number of tourists visiting Tallinn has been growing for 20 years.
 Money. The more money one has, the more it is possible to invest and earn with it. If invested wisely the more you will get, which in turn makes it possible to earn on investments more. This self-generating loop has the unfortunate downside on the individual or corporation level of rich becoming richer and poor poorer and therefore outside parties (like the gevernment) need to controll this process. But this process works also for countries. If you have a lot of debt you get poorer and if you have a lot of investments you get richer.

....and there are many self-generating loops in IT and technology also.
Smartphones and Apps. Would you have developed an app. for a mobilephone in 2005? Probably not....there were not exactly many potential customers around. Nowadays, tens of millions of smartphones means there is much sense in developing apps, TV on mobile, location services, e-books, games and so on. This in turn means that there is much more to do with your smartphone so you buy one. And if one buys a smartphone then it again makes more sense to develop for smartphones.
Authentication, the ID-card. When ID card was introduced in Estonia there were no services where you could use it. There were no services in turn, because people did not have ID-cards, or card readers and lacked the interest. In due time this vicious circle was turned into a positive self-generating phenomenon and now all services have ID-card authentication because everybody uses and demands it.

Understanding these processes is very important because if you manage to jump onto one in the beginning it will be like cycling with tailwind. You are finally at the right place at the right time and the process of positive feedback increases your success. A good example here are the first real-estate, used things, discussion and news portals like City24, Auto24 in Estonia or Hemnet, Blocket in Sweden or Suomi24 in Finland. Announcements were put up there, because the customers were there and customers were there, because the announcements were there. By now they have became phenomenons themselves and it is almost impossible to build a competing portal now.

It is usually possible, but time consuming and expensive to start a self-generating phenomenon. You usually have the egg-and-chicken problem and need to invest heavily into "the egg" before the chicken comes along and the process starts to get positive feedback. Here timing is also really important - if the prerequisites are not there you might have to wait for too long. Some examples:

 Amazon is currently planning a major shift in online sales and building warehouses so that they could deliver on the same day to everywhere in USA. If they are successful in setting that up then online shopping could become a self-generating phenomenon, because getting the goods on the same day means that more people will shop online. That in turn kills offline shoping, making shops go bankrupt and their selection worse and therefore again making online shoping more popular. But imagine the costs and risks of setting up warehouses all around USA (or the world) so that delivery can be made the same day.

 A social network is a self-generating phenomenon in itself because the more people there are online the more new members they attrack. Some months ago I believed that Google+ could get this positive feedback loop going, but I think they are still not there and might fail. Again the investments have been huge.

Fighting a self-generating phenomenon is extremely hard and expensive. Sometimes though very necessary. For example city districts becoming a ghetto is something a municipality and the society should fight with all they got. We should also fight seriously the positive feedback loop of polar ice melting->ice reflecting less heat back to space->earth becoming warmer->polar ice melting. (So take the bike instead of the car and spend the money on theather instead of buying useless things transported from the other side of the world. :-))

 One should avoid fighting the phenomenons when it is useless. For example try to avoid making another "daily deals" portal.

 So to conclude with. if you have a business idea you want to develop then look if it can have a positive feedback process making the need for it stronger and adjust the idea for that. And if you decide to go for it then check that you have the necessary time and resources to get the positive feedback process working.

Sunday, July 15, 2012

Slim state, IT systems and the Internet

In Estonia the idea of "slim state" has long been a praised one. Relatively low taxes, minimal government and regulations are considered to be ideal. Until now this strategy has worked rather well .... in the sense of economical development. Estonian economy has been developing best among the post-Soviet republics.

 I would like to make the point that in the 2012 world a neoliberal governance might not be the most successful one and looking on other models could prove useful. As I am residing in Sweden now I have an opportunity to observe the differences between the relatively neoliberal Estonian and the relatively social-democratic Swedish society. I also suggest that modern IT technology, social networking, datamining, mobility and other technical+sociological developments provide many new opportunities for governing a society better than ever.

 Firstly I will define the problem.
 If one pursues a slim neoliberal government then the ideal is the absolut minimum of public services. In the most extreme cases the public services could be limited to law and order, foreign policy, defence, governance and some infrastructure. The taxes can therefore be very low and most of the affairs in the state would be taken care of by the private sector. In a way such a public sector could be described as an effective automation. Little (taxes) goes in and minimal (services) comes out. This is indeed (economically) efficient ... but only in short term.
 The problem with such a model is that a slim public sector is not able to deal with long term development and any new problems that turn out in the society. This is because by definition creating an effective public sector means getting rid of all the specialists and budget that are unnecessary for dealing with the upmost current and burning issues.
 Here are some examples from Estonia. In Estonia there is unfortunately no public office, department or specialists who are currently developing plans to deal with the approaching demographic slump - it is nobodys problem. For many years the fighting with HIV and drug abuse has been voluntary, project based endeavour and not an issue dealt with a budget and a dedicated office. The development of infrastructure and public transport is rather hectic both on municipal and state level. The whole national energy policy of Estonia was for many years more or less handled by one man - Einari Kisel. In February 2012 he left for World Energy Council and I am not sure if anyone is looking on the issue after that.
 Of course things are not so bad as it may seem from the few previous examples - they are just illustrations of the issue. Estonian government is fortunately not a slim neoliberal automate, many occurring problems are dealt with and especially thanks to EU funds long term development of infrastructure is also going on.

 In Sweden the government is not slim. This is not only a tax issue, but also an issue on how people look at their society. Public sector in Sweden is trusted by the citizens and it holds an important role. Many problems are expected to be handled by the public sector and they also are. This means that long term development is (well) handled in many areas. There really are not many problems that do not "belong" to some public office and if a new one appears then the public opinion quickly demands that "somebody" must step up and take care of it. One might argue that sometimes the handling has not been the best possible one. For example the risks of the housing credit bubble are very big and the amount of processes handled on paper by public offices could be smaller.

 So in a nutshell: Having a slim government and not managing the society is better than bad management and waste, but good active management is much better than non-management.

 The good thing in modern times is that active management and handling long term development has never been so easy. Nowadays it is possible to measure and analyze all kinds of data. This gives much better input for number based management and policy decisions than guessing and using expert opinions.
 Thanks to social media and Internet it is much easier to measure public opinion and to discuss things. Should we have more bike-roads or should we build one km of high-way? Should we increase the salaries of teachers, nurses or pensions?
 Thanks to the Internet and the widespread of the english language it is now much easier to learn from experiences of other countries. There are many fields where copying policies or programs is a valid option. Why not copy the whole school program of Finland or Sweden - what could go wrong with that?