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Capital Solutions Newsletter…                                                                                                            download pdf
October 2012

This month, we highlight the changing nature of scale economics; the entrepreneur and story behind ESPN; how Google built its advantage in the map wars; our usual five best blogs; and a way to make your smart phone pay for itself in our feature of one cool thing. 

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When Size Might Not Matter      

It's a question asked of everyone who has ever started a business: can it scale? The optimal final shape of different businesses can vary, but every new business is consumed with growth. Two different pieces from the Harvard Business Review argue that the notion and advantages of scale economics is changing, and that we need to think about size in different ways.

Scale, argues Max Wessel, is becoming a commodity. The economic advantages of size continue, but the mechanics of creating scale have changed.  Scale no longer belongs to a single entity; it is being broken apart and reformed. Initiatives such as off-shoring, crowdsourcing, and open source platforms have made it possible for smaller groups to come together and generate scale economies when required, and then slip into smaller and more flexible units when it is not.

Similarly, Nilofer Merchant examines the obsession many corporations have with scale, and how it fails them. She picks up where the earlier piece left off and stresses that social networks, tools, and processes provide the key to a different definition and the shifting advantages of size:

The new reality is this: The ability to scale is no longer a direct function of size. The Social Era - in which information efficiency is taken for granted, and people can easily self-organize without having to belong to a singular organization - dramatically decreases the cost of communication (e.g., finding people and collaborating with them), changing one of the fundamental reasons that centralized scale once created strength. The competitive advantages of scale have been commoditized.

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ESPN Entrepreneur 

One of the great entrepreneurial success stories that is rarely given its due is ESPN.  Explaining to today's college students that the world once existed without 24-hour sports television is akin to the evolutionary disbelief in the fossilized existence of a tethered telephone.  So it's great to see an interview in Forbes with ESPN founder Bill Rasmussen. Take, for example, the fortunate events which lead to ESPN's decision to focus only on sports:

I was behind the wheel of a blue Toyota Corolla, [my son] Scott was in the passenger seat with a pen in hand and a yellow legal pad on his lap. And the air conditioner was broken. We were in traffic on I-84 in Connecticut, it was sweltering hot, and we had all the windows rolled down. And we were trying to come up with ideas to fill 8,760 hours a year of television programming.

We had been talking back and forth for a while, until Scott finally said something like, 'Play football all day, for all I care.' And suddenly, the ideas started coming fast and furious during that car ride, we came up with the idea for 'Sports Center,' we had designed the entire building we would be in, we had decided what types of sports we should go after.

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The Mapping Advantage     

The Apple vs. Google mapping controversy has been clearly defined, but a cartography expert weighs in with an in-depth analysis.  The problem?  Partly that Google had a 400-year head start.

Interestingly, when it comes to maps, these two companies and growing rivals seemed to have switched characters.  Apple has always been well-known for the tactile and personal nature of its products; Steve Jobs was famous for saying that people could not appreciate an Apple product design on paper -- it was only when they held it that they would discover its power.  Google, in turn, has based its advantages on a fundamental belief that most everything can be solved by an algorithm -- including the industry problem of how to hire more women into technology companies. 

So it's interesting to see that Apple's miscue was its lack of human touch:

Perhaps the most egregious error is that Apple’s team relied on quality control by algorithm and not a process partially vetted by informed human analysis. You cannot read about the errors in Apple Maps without realizing that these maps were being visually examined and used for the first time by Apple’s customers and not by Apple’s QC teams.  

Google made a similar mistake, and solved it partly by turning to its user base to help improve the quality and accuracy of its maps, and these users eventually contributed about 400 years of expertise.  Assuming Apple can find its way through their current misdirection, one wonders at the products they might create if they can turn the passion of their users into product contributions.  

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Five Best Blogs

Our regular feature of the five best recent blogs includes: why it's better to be a VC than an angel; how Amazon's same-day delivery strategy will shake up merchants on Main Street, Mark Suster on what you should tell your VC's during diligence, some thoughts on social proof in the clubby culture of venture capital, and a bonus two-fer from Penelope Trunk: don't do what you love, and don't go to grad school. 

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One Cool Thing 

Smart phones are expensive -- often too much so for younger users, or even those suffering through the economic downturn.  But there are now apps to help an smart phone pay for itself.  As this article outlines, apps such as easyshift and gigwalk (both VC backed) allow users to do simple local tasks: take a photo of a menu, or product placement in a drugstore.  The average gigwalk user apparently makes over $200 a month. Enough to let your kid earn back the cost of a new phone. Or to pay for when he breaks yours.

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Capital Solutions is sent irregularly, and generally not more than once each month.  All content and any errors are ours exclusively, while the occasional sharp insight is probably borrowed.  As always, feel free to contact us at the number below if you have any questions, or just to catch up.

 Regards,

info@clearcreekpartners.com

303.383.1100