Report: Financial planning = happiness

Pulling out some highlights of the Household Financial Planning Survey:

  • people who plan feel more confident about their financial decision‐making, manage to save more money, and feel better about their progress
  • only about a third (31%) of decision‐makers today report having ever put together a comprehensive financial plan. And just 35 percent of decision‐makers report having a plan in place to save for emergencies
  • Fed: devastating effects of financial crisis on the middle class: The median family… had a net worth of $77,300 in 2010 compared with $126,400 in 2007… wiping out nearly two decades of economic gains.
  • the crash of housing prices has been the single biggest factor that has reduced people’s wealth
  • only a third (34%) believes they will be able to retire [at 65, down from 50% fifteen years ago]. More than a quarter (27%) think they will not be able to retire before age 70, if ever.
  • 55% say “it’s hard for me to know who to trust for financial advice.”; 52% say “to me investing seems complicated.”; 55% say “I’m worried about losing my money if I invest it,” a significant increase from 1997 (45%)
  • half of household decision‐makers believe they “just don’t earn enough money to save regularly.”
  • American families today are less likely to be saving for their financial goals and taking steps to keep their family financially prepared.
  • The only area where families are more prone to save is toward a major purchase, like a new car, vacation, or home improvement project.
  • two‐thirds (65%) of decision‐makers say they follow a plan for at least one of their savings goals.
  • Forthoseathigherincomelevels,plannersputmoreoftheir income into savings than non‐planners and report having built greater wealth.
  • Among those in the $25,000‐$49,999 income category, 46 percent of those with a plan say they usually pay their credit card bill in full each month, compared with 26 percent of non‐planners.

Trends in Design for Financial Services, April 2014

I frequently design financial services, and having just rolled off a project took some time to reflect on trends I’ve noticed. Here’s the first three that came to mind:

  1. Active participation by the affluent: Sometimes financial services companies assume the affluent don’t want to interact with computer services themselves. In reality, the affluent don’t want to feel like they have second-class tools compared to their less-affluent friends who use sexy mass market services. I first saw this in 2008 doing international research for the private banking unit of a giant bank and again more recently with an insurance company.
  2. Breakdown of client vs. consultant views: It used to be common to pour all the design work into the client-facing screens and rush through the consultant-facing screens. With the spread of smartphones and tablets everyone expects top-notch design, and consultants will work on their tablets alongside the client.
  3. Breakdown of mobile vs. desktop: When mobile was new a lot of attention was paid to what it meant to design for mobile. Now people expect services to just work on whatever device they’re using.

Startup Legal Straight Dope

A benefit of being a speaker at Failcon was getting an invitation to a talk hosted by Anit Guha of Orrick Legal. Here’s some of his wisdom that I noted down:

  • When choosing a name use the uspto site and a 3rd party search service
  • Avoid incorporating in California; use Delaware C Corp. Not only because of the company-friendly laws in DE, but because everyone incorporates there so everyone is familiar with the legal aspects involved.
  • Founder vesting: vesting important if someone leaves. Typical is four years with a one year cliff, maybe some acceleration too. Can backdate the start of vesting if significant work was done before company was formed.
  • Worker classification: consultants vs employees; employees involve more overhead. But you must follow legal definition, state and federal laws when bringing someone on (you can’t avoid the employee overhead if the person is actually working as an employee).
  • Invention assignment – very important that everyone signs and agrees that ideas and inventions belong to the company; it’s pretty broad, it’s negotiated individually
  • Use offer letters for everyone
  • Use release agreements for involuntary terminated employees. They can refuse to sign; you need to pay them to make it enforceable.
  • Investor “finders” must be a registered broker dealer, otherwise you can’t pay them for that service.
  • Rule 701 disclosure obligations, options valued over 5 mil in 12 month period should be disclosed.
  • Only raise from accredited investors.
  • Taxes at acquisition can lead to a liability if you’re not careful.

Web 2.0 Strategy: Customers Create Value

Note: Over the next few weeks I’m blogging my notes on Amy Shuen’s book Web 2.0: A Strategy Guide: Business thinking and strategies behind successful Web 2.0 implementations. (O’Reilly Media). The book is both a good introduction and a synthesis of diverse theories that should offer something to even experienced strategists.

Background: What is Web 2.0?
Wikipedia entry
What is Web 2.0?, the seminal article by Tim O’Reilly

Chapter 1: Users Create Value / Flickr

  • Alvin Toffler predicted the “prosumer” in his 1980 book The Third Wave, and with recent technical advances in web and digital technology his vision is being realized.
  • Like so many startups, Flickr started out doing one thing (a game) and by listening to customers transitioned to another offering, online photos. The small team including technically-smart founders could turn customer feedback into rapid release cycles. A key to Flickr’s growth was making photos public by default.
  • The freemium business model was first described on Fred Wilson’s blog: “Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base.
  • Flickr’s platform was timely in compounding the positive network effects of broadband, digital cameras, blogging, social networking, and online syndication.
  • Flickr’s core business message: Don’t build applications. Build contexts for interaction.
  • Stages in the open systems movement: Linux; APIs; user-generated content. Flickr combines the last two to compound their use.
  • Flickr’s interestingness algorithm factors in popularity, interaction, identity, and time.
  • Flickr uses the first three of the six kinds of revenue models: Subscription/membership; advertising; transaction fee; volume/unit-based; licensing and syndication; and sponsorship/co-marketing/revenue-sharing.
  • They managed to avoid the four major cost drivers (inventory, payroll, IT, and marketing/advertising/CRM) compared to retail photo printing and online stock photo companies.
  • In March 2005 Yahoo! brought Flickr for an estimated $40 million, a value that can be calculated using a customer-based formula in which revenues are directly tied to customer fees, not unit prices. Tracking customer behavior and metrics on an ad-supported site can result in an average revenue expectation per customer; in 2006 it was $13 for Google. Flickr had advertising, premium services, and partner revenue, making the average revenue per customer about $20. Multiplied by Flickr’s 2 million customers, we arrive at the $40 million valuation. More sophisticated formulas might give different weights to customers based on how actively they use the platform.

How Can I Be More Strategic?

Designers often ask this question. Sometimes I think the question arises from a genuine desire to be doing something else which is more strategic in nature, and sometimes I think what is being asked is, how can I convince or influence others to do things my way?

The answer might be the same or it might not. I’ve started to keep track of the answers I hear to shed some light here.

  1. Change your title, brand identity, clothing, etc. in order to change perceptions of what you offer.
  2. Charge more money so that only the people who have real strategic influence can afford you.
  3. Bootstrap your way into different work.
  4. Be strategic. In Porter’s definition, strategic is long-term planning. Avail yourself of strategic tools both simple (e.g. roadmaps) and complex (futures analysis and design).
  5. Illustrate the strategic implications of seemingly tactical efforts. If strategic = long-term, show the long-term effects.
  6. Be more thoughtful, for example go beyond providing expertise to providing decision-making frameworks.
  7. Educate yourself. Strategy may be harder than finance, operations, and other business topics. Take the time to learn what strategists really do.
  8. Don’t be strategic in the usual sense. Instead, elevate your craft and expand its boundaries. See the influence and flexibility of a breakout designer like Joshua Davis.

What else have you heard?

Using Real Options to Value Design Concepts

The common way that financial people will judge the potential value of a project, or a design concept representing a potential future concept, is by building a model, usually a discounted cash flow model like Net Present Value (NPV). The calculation essentially asks, if we do this project and gain the profit we think we’ll gain, how much is it worth to us right now? That way we can compare it against our other options.

The problem with these models is that they assume the world doesn’t change. The model tries to predict everything that will happen in the project from beginning to end in order to arrive at a single numerical value. But in the technology world, there’s lots of change.

So peeps at the forward edge of product and service development have started using real options to value projects. Real options essentially breaks the project down into a series of decisions. At each decision point a number of outcomes can occur, and for each outcome there’s a probability it will occur. There’s also a revenue associated with each outcome that we receive if it occurs. By multiplying the probability by the revenue we get the value of the option.

This is often illustrated using a decision tree, as with this analysis of a drug in clinical trials

What’s the big deal? It turns out this is a better way to value investments in Internet services for at least three reasons I can think of off-hand…

  1. Versioning: The Web 2.0 way of doing things is to release our work in stages, the public beta being a perfect example. If the beta is a big fail, we stop there and cut our losses, or we go down a different path of the decision tree.
  2. Uncertainty: There’s a great deal of uncertainty in our work. Twitter, for example, is a big success, but at the cost of a very tricky technical challenge. Instead of an NPV model that would judge the value of the project to be either simply negative or positive, we can model this reality of “large audience / technologically expensive.”
  3. Fast Risk Management: The ease of building betas makes it tempting to skip a big financial modeling activity, especially if it can’t accurately reflect (i.e. predict) how customers will react. Creating at least a simple real options analysis can save a lot of investment before building a beta that is hard to emotionally trash once it’s built. And while it’s tempting to say predictions are impossible so we should just run a trial, few managers with any P&L responsibility will invest in that.

Real options isn’t a perfect technique, however. Proponents claim it supports decisions with “mathematical certainty,” but the probabilities are derived from managers’ experience and judgment which is subjective and imperfect. Getting a group of people to agree on the probabilities may be difficult, and once a project is up and running a team may be unwilling to revise their estimates downward to reflect new information, much less kill their own project. Still, for the kind of work we do it’s better than the old ways.

References:

The Age of Heretics, Updated in 2nd Edition

Art Kleiner revised The Age of Heretics and the 2nd edition is on it’s way to my greedy little fingers. It explores heretical ideas in management starting in 1945 through several case studies to find that:

  • People are basically good at heart; they are fundamentally trustworthy. Only workplaces that give their members the chance to learn and add value through their work will succeed in the long run.
  • Aim for quality of work, and money will follow.
  • Industrial growth is not always desirable. Sometimes it can be destructive.
  • Predictions and forecasts are mechanistic substitutes for awareness, and substitutes for awareness lead to bad decisions.
  • There is no such thing as “just business, nothing personal.” Business is always personal, even if it isn’t supposed to be. And we are better off recognizing that.
  • Everything in business is connected to everything else. Business is a complex living system with many interconnections. No one can control the system; one can only learn to influence it.

Mismatch Problems When Hiring People

Malcolm Gladwell is working on a book that argues there is a mismatch problem in the way we usually hire people, that we set up qualifications to try and judge how people might perform where what we should be doing is watching them actually perform. Here’s a recent video of him explaining the problem.

The best working relationships I’ve had have started over a meal, preferably at home, where you can get to know each other in a relaxed way, and proceeded to working together on a small, low-risk activity. It might sound like a lot of work compared to the usual interview process, but it’s better than making a bad hire.

People — Rather than Things — at the Centre of Work

The Harvard Business Review continues to support Gary Hamel’s ideas on management innovation, most recently with a summary inviting readers to contribute their thoughts on the subject. I’m eager to see the response. I think Hamel has a strong argument, yet the topic doesn’t have a handle that’s easy to grasp. “Alright, it’s clear we need to make management more innovative. Now what do we do?” My guess is management innovation will be the outcome of the causes Gary cites, tangible things like collaboration via wikis or recruiting talent on social networks.

Theodore ZeldinI do like the quote from Theodore Zeldin, a British historian of work, who says “the world of work must be revolutionized to put people–rather than things–at the centre of all endeavors.” This isn’t a new message, humanists have been talking about it since the 1920’s or 30’s, but perhaps now information technology will overcome the thing-centered work of the industrial age.

Kevin Kelly on Eight Uncopyable Values

Kevin Kelly established himself as an Internet pundit with true foresight with the 1998 New Rules for the New Economy which is still a classic, if showing a little age with its dot com bravura. Now he’s working on a new book piece by piece on his blog. The latest chapter examines the future of value online. In Better Than Free he posits:

“When copies are super abundant, they become worthless.
When copies are super abundant, stuff which can’t be copied becomes scarce and valuable.
When copies are free, you need to sell things which can not be copied.
Well, what can’t be copied?”

His answer is eight uncopyable values, which he calls “generatives”:

Immediacy — Sooner or later you can find a free copy of whatever you want, but getting a copy delivered to your inbox the moment it is released — or even better, produced — by its creators is a generative asset.

Personalization — A generic version of a concert recording may be free, but if you want a copy that has been tweaked to sound perfect in your particular living room — as if it were preformed in your room — you may be willing to pay a lot.

Interpretation — As the old joke goes: software, free. The manual, $10,000.

Authenticity — You might be able to grab a key software application for free, but even if you don’t need a manual, you might like to be sure it is bug free, reliable, and warranted.

Accessibility — Ownership often sucks… Many people, me included, will be happy to have others tend our “possessions” by subscribing to them.

Embodiment — …PDFs are fine, but sometimes it is delicious to have the same words printed on bright white cottony paper, bound in leather. Feels so good.

Patronage — It is my belief that audiences WANT to pay creators… But they will only pay if it is very easy to do, a reasonable amount, and they feel certain the money will directly benefit the creators.

Findability — …no matter what its price, a work has no value unless it is seen; unfound masterpieces are worthless.

Microsoft Offer for Yahoo! Shouldn’t Be Too Surprising

Ray OzzieIn my Internet Strategy Class I walk through the 2005 Internet Services Disruption memo from Ray Ozzie. The takeaway is that Microsoft realized services have become strategically crucial but that the company has significant organizational obstacles in the way of making the transition from installed software.

So it’s not terribly surprising when they start buying up companies like Avenue A/Razorfish and now an offer for Yahoo. They need to add this capability and revenue stream, and it’s extraordinarily difficult to turn the Microsoft ship around fast enough.

Banking joins bestiality and gambling on the banned in Second Life list

From TechCrunch:

Linden Lab has announced that virtual banking within Second Life is to be banned effective January 22 after receiving multiple complaints by Second Life residents scammed by bank operators.

I have a very early memory of pulling up to the drive-through window of our local bank in our station wagon, my mother depositing a little money I earned, and me excited to check my savings account book to see where the computer imprinted my new balance. Compare this fond memory to the recent mortgage loan crisis in the U.S. and I’d say trust in the banking industry has come a long way. Hopefully someone will see this as a business opportunity and focus on service and ethics.

An Open Letter to Internet Job Recruiters

The nice thing about having a blog is that you can pour your unfiltered frustration into it and walk away self-satisfied. Warning, this is one of those posts.

Dear New York City Internet Job Recruiters,

I’ve met several of you over the years, and many more lately now that the demand for talented people has outstripped the supply. For the most part, you are pretty nice people who are willing to go the extra mile to consider a good match of person and job and maybe even career, unlike the IT headhunters I knew in the early 90’s that were mostly middle men for resumes.

But, I have two giant gripes with the way you’re working these days:

1. Don’t ask me to do your job for you.
Yes, I know a lot of people, and yes I like helping them find new opportunities. But simply telling me about an open request you have tells me that you haven’t taken the time to build your network or don’t know how. Further, you’re being paid to do that, so if you want expert help you need to share a significant portion of your fee.

2. Great people are not found, they’re grown. There are simply not enough skilled workers to fill your jobs these days. This may be great news for you, but ultimately the companies you work for (and the clients they work for) will continue to suffer until you learn to cultivate good people. It’s easy to measure if a company knows how to do this, just look at the rate of employee turnover. If it’s under 5%, they do it well. If it’s over 10%, there are serious problems.

To illustrate the potential, I’ll tell you a story from the first dot com boom. I was working at a company that hired a certain smart guy as a receptionist. In between phone calls and signing for packages he taught himself javascript. Excellent, make him a developer. After a while doing that he wanted to be an information architect, so I trained him. At that point the company failed to keep engaging him, and he left to pursue a masters degree, where he formed a company with a classmate. Soon after his company was bought by Google.

That’s an extreme example, but I can tell plenty more about people hired that were not qualified, but had the right qualities, were smart, and got things done. A little training and encouragement made them qualified. But until your clients realize this and stop turning away good people, I’m done helping you.