One of the first things to note is that the book is NOT about unanimity, which many people confuse the term consensus with. The CODM-model for decision making seeks to make decision making an inclusive, collaborative process that aims for as big a consensus as possible, but it does not necessarily mean the decision is made unanimously. In fact, an entire chapter at the end is dedicated to going through the pros and cons of unanimous decision making; turns out there are many downsides to requiring absolute unanimity, and even many groups whose primary mode of decision making is unanimity, benefit from a less restrictive fall-back mode of e.g. supermajority or majority (which are probably the most suitable default models for most groups). The CODM model can be successfully used across the whole spectrum of decision-making rules, even when the actual decisions are made with the person-in-charge (i.e. by the boss) model. However, when resorting to the person-in-charge model, it’s crucial that the process and views emerging from it are respected by the authority figure – otherwise further engagements with the group will be undermined.

What is a group-based decision-making model good for anyway? Well, we all probably know all too well that if a decision or a line of action is simply thrust upon us, there is often little if any positive commitment to help execute the decision if our voices haven´t been heard at all. What’s more, few significant things can be accomplished by individuals, so this benefit from an engaged group decision-making is a very important one:

The shared ownership of a group decision can foster considerable commitment to the successful implementation of group-generated proposals. A “B grade” decision executed well because of a strong sense of shared ownership may have far better results than an “A grade” decision poorly implemented because of lackluster support.

That is a very important point; the overall long-term health of a group is typically much more important than any decision the group makes; hence it’s very important for the group members to feel included and respected in the decision-making process, even if they don’t always get everything everyone wants (which nearly never happens). So what is the CODM model? It’s a seven-step process that consists of:

1. Framing the Topic
2. Open Discussion
3. Identifying Underlying Concerns
4. Collaborative Proposal Development
5. Choosing a Direction
6. Synthesizing a Final Proposal
7. Closure

Each of the above steps consists of several sub-steps; the book goes in quite a bit of detail, down the providing very useful language guidance for facilitators in how to approach each of the steps and prepare and guide the group through them, as well as how to defuse situations that could lead to arguments and how to return the group to productive working mode. The work also ties in well with techniques such as Focused Conversation Method and Nonviolent Communication (NVC) developed by Marshal Rosenburg. Working in an environment where stakeholders are numerous and distributed widely, I noted that the book covers stakeholder engagement rather briefly and almost passingly mentions options for things like interviewing stakeholders – so that part of the process will probably need more emphasis in certain environments than is given to it in the book.

As I haven’t actually tried the CODM facilitation model in practice yet, I cannot comment on the efficacy of the model; it does, however, appear to be an extremely useful model and something that will certainly come in handy. It’s also a flexible model in that many of the steps can be skipped for certain types of decisions and some shortcuts (such as referring a decision to a committee) are provided for some steps that can be used where appropriate. It provides very useful frameworks as well as practical guidance that cannot help but make group decision-making more effective, if implemented properly. An unfortunate fact that I have noticed in many corporate environments is that often companies are unwilling to develop or use facilitation resources sufficiently; all too often dysfunctional group behavior is allowed to continue without even trying to bring some structure, such as CODM, into the decision making process. So the book is not only a highly useful guide from a practical point of view, but it also highlights the importance of skilled facilitators in many situations.

If you finalize a profit formula too early, or, worse, are compelled to conform financials to the core business’s profit formula, then when things change – as they inevitably will – you’ll end up making wrongheaded compromises.
[..]
Incubation should be focused on establishing profitability, but it’s critical not to put pressure on the project to reap revenues at any great pace until the acceleration stages and in many real cases, large-scale revenues won’t accrue until the transition stage [ed note: which takes place up to 8-10 years from launch].

Now, let’s take a look at a few facts; first, Seizing the White Space is focused on creating and nurturing new business models, a vastly different undertaking from simply new products. Second, tangible profits from implementing a new business model are, according to the book and common sense, not apparent immediately – they may take years to materialize, as noted above. Now, I think it’s a given that most businesses really care mostly about (sustainable) profits. With those points, here’s the problem: the book was published some 18 months ago. 18 months is hardly enough time for even the fastest adopters of the advice therein to show any real, large-scale, sustainable benefits that come from following the advice laid out in the book. That is, there simply cannot be any real-world proof that these ideas work – yet the book has received rave reviews. Why?

It’s because of this revelation that I suddenly find myself hesitant in recommending it. That doesn’t mean it’s not filled with useful tools or sage advice – it is. Seizing the White Space presents useful frameworks that help in identifying opportunities and it provides many good examples of things done both right and wrong. Among some of the noteworthy points are:

• Structure can unlock creativity; and of, course, improper structure can and often does inhibit it.
• The profit formulas of online retailers are highlighted in a very positive light; the fact that they can make big profits on small mark-ups is impressive, but it begs the question of how much further can one improve from there once all suitable business is online? Going from a 40% markup of a department store to a 5% markup of an online-only establishment is a big efficiency improvement, but you can’t improve another 35 percentage points from there, now can you?
• There’s a good point in noting that needs-based, or voice-of-the-customer analysis, is not sensible despite it sounding like a good idea. Instead of asking “What do you need?” from customers, companies should start asking – or actually rather than asking, observing and analyzing – “What are you trying to get done?”
• Many books bring this point out, but it’s worth repeating because as many companies fail in that; one must keep idea / innovation incubation effort free of interference from the core [business] and the way it operates. Innovation cannot be managed per se, but it can and should be inspired, supported and encouraged.
• Companies often falter in discontinuities; “When faced with industry discontinuities, many companies falter. Some fail to recognize the complicated external forces propelling the event, or if they do they’re unable to trace the implications correctly or completely. Others hold tightly to their old paradigms and try to adapt them gradually to meet the changed circumstances.” Sound familiar in, say, the mobile industry?

Another interesting point was the notion that the world of business has become pretty dynamic or chaotic, depending on your viewpoint. It’s pointed out that:

If ever there was a time that business could just execute year after year and achieve lasting success, it is long gone. [..] But there comes a time when established product lines fully mature, when process innovation reaches the upper thresholds of efficiency, and when new product development slows. Then companies face a looming shortfall – a growth gap – between their desired growth path and the growth that the existing business and envisioned adjacencies can deliver.

Of course, the above rhetoric has a deeply-embedded view that eternal growth is not only possible, but also desirable and indeed crucial for companies. Anyone who has read more than this post on my blog by now knows that I do not share that view. But let’s leave that argument aside – after all, it is possible for a single company or even an industry to keep growing even in the long-term, just not the whole economy as an aggregate.

Even though I can’t really recommend the book, due to reasons discussed above, I do not want to discourage reading it either. In the context of the traditional business paradigm, it certainly provides helpful frameworks and guidance to steer companies toward a more dynamic, responsive, less restricted future – and we all know business model innovation is sorely needed in many areas. Seizing the White Space is a good guide for accomplishing that, and certainly much better than doing nothing.

At the beginning, the authors point out that typically business books deal with successes and “no one looks at failures“. While I agree there’s way too much emphasis on finding real or, as it mostly is, imaginary reasons for success, “no one” looking at failures is not exactly true either. “In search of Stupidity” is one good example of work specifically looking at (high-tech) failures.

The book then goes on to identify seven “failure patterns”, including things such as “Illusions of synergy” and “Faulty Financial Engineering”. While handling them, the authors provide what turns out to be the most entertaining and enlightening part of the book: numerous case studies how badly things went wrong in many companies. The treatise included many case studies unknown to me, and one has to admit it’s always interesting to read about major blunders. The authors are, rightly so, quick to point out that the people who were in charge of the failed companies or projects were not, in fact, idiots. That’s one of the key lessons of the book – without carefully and coldly analytically trying to avoid some of the pitfalls, it’s easy for anyone, even a very smart person, to end up flying a metaphorical plane straight into a mountain.

Some juicy details and case studies are given from “classic” mistakes such as mistaking marketing for market research and failing to acknowledge that acknowledging a threat is, in fact, not the same as dealing with the threat. Another interesting theme running through many of the cases is the loss of resilience in modern business – many bets are so highly leveraged that even slight movement in the wrong area (such as, in one case, a very slight drop in national death rate) can have catastrophic consequences to the business. Of course, this goes hand in hand with the inability or unwillingness to do some simple sensitivity analysis of those highly leveraged bets.

Throughout the book, Billion Dollar Lessons highlights many things that are very wrong in the world of business, from bowing to analysts and investors expectations to dangers of financial engineering and how many big decisions are made very emotionally with little or no actual supporting evidence. Towards the end of the book, then, many of these psychological shortcomings are identified and methods developed to reduce the risks associated with them. This part, while probably the most valuable to anyone running a business, is not exactly novel – the critical importance of Devil’s Advocates, of fostering and protecting and valuing diverging opinions and all the related issues have been identified years ago, and many have been highlighted by well-known authors such as Bob Sutton.

Given this, I would say that Billion Dollar Lessons is a great book for anyone not yet convinced of the value of diverging opinions and having devil’s advocates and is highly recommended reading. For people already familiar with this key lesson, however, it’s a less critical read – a very entertaining and interesting read, but not that important. This is not to say there are no other lessons in the book, but that’s what the main message boils down to.

The title tells quite succinctly what the book is about – it chronicles the creation and dismantling of the rational market theory from the very beginning. While reading up on the history of financial theories and how they were created was interesting and certainly useful per se it, to me personally, made for somewhat boring reading for the first 150 pages or so. Despite not exactly being a gripping page-turner, the first half of the book does provide a fascinating quick history of capitalism, the evolving view on profit & risk and, among other things, how the now-ubiquitous “shareholder value” came to mean anything.

One interesting aspect that I hadn’t fully digested earlier was that despite the view otherwise, one cannot really get paid for taking a risk, because risk is a measurable quantity that could be insured against; profit came when you proceed in the face of uncertainty. It may sound like a trivial difference, but the implications run deep.

During the course of reading the book, a few things become abundantly clear and with plenty of evidence to back the claims up. First, the markets are not rational or efficient. While this shouldn’t really come as a shock to anyone, for some reason the vast majority of (surprise!) finance professionals still act as if it is. The problem with utilizing this knowledge? No one person is rational either, so good luck in trying to beat the market. Second, the remarkably – for the lack of a better word – strange world of analysts, with all the expectations to beat the estimates and the resulting whisper estimates, “The Number” etc is revealed. Third, practically no actively investing funds does any better than the market on average – a find which any analyst, who supposedly trust mathematics, should find somewhat disturbing; already back in the 60s:

The scholarly consensus that nobody on Wall Street knew what he was doing began to harden. “Many academics have concluded that the value of investment advice is virtually zero,” Burton Malkiel and a Princeton colleague wrote in 1968.

Probably the most interesting part of the book is the anatomy of several market crashes and how they came to be. What’s most amazing are the rationalizations that some offer to explain the quirks and crashes away in order to keep holding on to the fatally wounded theories; this is from a chapter dealing with the 1987 crash:

“The appropriate response to the October performance of the market is applause“, Gene Fama declared. Fama’s reasoning was that an inefficient market would have been one in which the price decline occurred slowly. The rapid adjustment (a.k.a. crash) was evidence of how quickly the market processed new information. Left unanswered was what exactly that new information was. If your belief in efficient markets was strong enough, you didn’t need to know. The omniscient market had been able to sense something that, even after the fact, individual scholars and investors were unable to pin down.

At the end, some sobering conclusions are drawn. While fixing the market is probably too big a task to accomplish in short order, there is something companies can do, and something society needs to ponder:

It means that managers of a publicly traded company should insulate themselves and their employees from day-to-day or even month-to-month stock price fluctuations.
[..]
The biggest and hardest questions have to do with what sort of role we as a society give financial markets. For the past three decades the answer, backed by the theories of the rational market, has been to give markets an ever larger role – shoving aside other institutions such as governments and corporations. Now, though, we seem to have arrived at a turning point. It’s not just that the rational market theories have fallen apart. Financial markets have fallen apart, too.

All in all a very useful and interesting book that provides a lot of history and background to the nature of the market and how it works. Like I said, I found the first part somewhat boring reading, but overall the book was excellent. I would’ve hoped for some more coverage on the GFC, but then again the GFC as a tool against the rational market theory is a bit like shooting fish in a barrel so that might’ve been too easy.. The Myth of the Rational Market also gives a good background to many familiar names and as such provides much better context for understanding where Greenspan, Samuelson, Summers, Buffett, Minsky, Keynes, et al come from and what they’re all about.

Oh, and did I get the proof I was looking for that markets indeed are not rational? Yes. But, notably, I also learned that they’re not completely insane either and there actually can be some useful information embedded in the market figures.

Then some people realize that oh dear, most apps don’t make any money! The whole paid app craze must be a mistake!

This backlash, though popping up occasionally earlier, was propelled to the “masses” by Tomi Ahonen’s post here and followed by reactions and other observations here, here, here and in many other places.

Suddenly a whole storm of comments for and against apps and the “app economy” ensued. And I’m left thinking what’s with all the commotion? It is, of course, an indisputable fact that most apps don’t make a lot of money for their creators. What I don’t get is exactly why this is a surprise to anyone.

Why would apps be any different from other, crudely similarly structured industries? I.e. industries where creators of various sizes are vying for the same market with vastly varying resources, creating products with quality and appeal ranging from total crap to great? Take, for example, the music industry; of the 100,000 albums released last year, 17,000 only sold 1 copy; more than 81,000 albums sold under 100 copies. The vast majority didn’t make any money.

Book publishing is similar; the average book sells less than 500 copies, with the hits badly distorting the average. In 2004, 950,000 titles out of the 1.2 million tracked by Nielsen Bookscan sold fewer than 99 copies.

A few big hits, small reasonably profitable middle ground, long tail of disappointments. Sounds a lot like the app economy to me.

A tough market? Of course, any competitive market is.

But somehow surprising industry dynamics? Hardly.

And definitely not worth losing your sleep over either way; if you think apps will magically save your business case, reset your expectations to something resembling reality. If you think they’re a fad that don’t deserve to exist, you are almost saying books and music are in the same category – and yet it’s highly likely you happily consume both. Both sides of the polarized debate should just get a grip, take a step back and reflect on it a bit.

What’s with all the negativity? Is Steve Jobs such a polarizing personality that all the hatred surfaced just because of him?

Alas, no. It turns out the iPhone is not the only thing other devices are out to kill, at least according to the press. Google for any even remotely popular mobile device + “killer” and you’ll end up with a depressing amount of articles. From the remarkable 2.5 million “iPad killer” items to half a million “iPhone killer” articles and pages to the tens of thousands of “Nexus One killer” items to thousands of rants about a “Droid killer”, it seems the industry is in a flat-out war. From Blackberries to Nokias, it’s kill this and kill that.

And it’s not just the press either. It’s the individuals also – so-called Apple fanboys who are seemingly blind to all criticism directed at Apple products have been joined by similar extremism from proponents of other platforms and manufacturers. As a result, it’s getting increasingly difficult to have a civilized, objective conversation about something as simple as mobile phones – that does not bode well when you think about the need for having such conversations about topics of far bigger significance.

One problem with this is that business is not, contrary to the popular analogue, war. The technology press shouldn’t be out there going from one “killer” device to another without really having even elementary understanding of the product positioning and other basics. For example, the upcoming Nokia N8 has been called the company’s “iPhone killer” in many, many publications. Except a quick glance at the portfolio strategy and pricing will reveal the devices are targeted at very different segments. The iPhone is meticulously positioned at the very top of the smartphone range (and priced accordingly), something where Nokia has explicitly said it will have MeeGo devices – on the other hand Symbian, which N8 is running, is about “democratizing the smartphone”. Second, the pricing? The SRP of the N8 is roughly half of the iPhone 3GS’s. They are hardly vying for the same user base – which is not to say individuals wouldn’t perhaps pit the two against each other and decide to get one or the other, but in general the N8 is not positioned as the “iPhone killer” the vast majority of the press sees it to be.

The iPhone does not need to be killed. It simply hasn’t deserved it – it or Apple hasn’t committed any mortal sins against anyone. Very few devices deserve to be “killed” and most of the time, the market takes care of their early demise just fine by refusing the adopt the monstrosities. If and when a clearly superior devices come out, the older models will be eased out, simple as that. And with most modern equipment designed to self-destruct soon after the warranty expires, fast rotation of the mobile devices is, unfortunately, guaranteed for the time being.

But unfortunately it’s not just about the killing either; the “killer” devices are just a symptom of a common lack of basic analysis and fact-checking which seems to be too much to expect from the press these days. That is a loss to all of us, and will lead us down a path even more dangerous than ignorance – one of misinformation accepted as truth.

Anyhow, I was expecting Australia to fall somewhere between Finland and US in terms of online commerce. And most of the times it does, but at times the experience is even worse than in Finland – a big disappointment. First, relatively few companies are online here. There is increasing, but still low, awareness of how to do e-commerce properly (let alone m-commerce, let’s not even go there). Second, shipping, while cheaper than in Finland, takes surprisingly long even from “nearby”. Third, by coincidence or not, it was an Australian online merchant who happened to be the first one to ever lose my credit card details which forced me to get new cards after fraud attempts.

Now, years ago e-commerce really took off with books first, so here is a case study from yesterday about getting a book. I wanted to buy this book. By nature, I first checked Amazon US: $25 AUD plus $17 AUD for expedited international shipping, so $42 AUD total and I could expect to get the book in about 10 days. That doesn’t sound too bad for a big, 750+ pages, hardcover book.

What about the local competition? First up, Borders: sticker shock of $89.95 AUD and a delivery time of 10-12 days. Angus & Robertson was in the same ballpark. Only Dymocks was significantly cheaper at $55 AUD, but still more expensive than Amazon. None of the Australian vendors charged explicit shipping costs, but the high initial price and shipping times of 10-12 days explain why that is so. As a comparison, the book would have cost about $50 AUD including shipping if bought (with)in Finland with a delivery time of 5-15 days (annoyingly wide scale).

Let’s take a look at the figures again:

Remember that Borders, Dymocks and Angus & Robertson are all local, Australian companies and the Amazon US order is shipping from literally the other side of the planet just for me. If one bought more than one book, the figures would be even more favorable for Amazon.

Whenever an individual can import goods from halfway across the planet, while paying for individual express air cargo, for up to 50% less than the domestic companies are charging, some aspect(s) of competition and/or efficient markets are clearly missing.

Here’s one rather fundamental error in the guru literature:

Henderson et al put it even more bluntly in their HBR article:

Just goes to show that prediction is difficult – especially of the future. So considering the data the books are based on is more or less invalid, what good are these disparaged books by the gurus? In my experience, they do provide good alternative viewpoints into problems and help in taking a little bit of a different perspective to things. They help in generating some internal diversity in thinking and that’s always a good thing. And note that I say diversity; changing your viewpoint to align perfectly with the touted system in any given book is not diversity, it’s just altering the tunnel vision to a different version. Don’t use the guru books to merely change your way of thinking from one way to another – use them to broaden your thinking.

I also suggest you give the books’ authors as much money as their books are worth when compared to the promises they make, and borrow them from a library instead of buying. Other than just a few gems, it’s highly unlikely you’ll ever want to return to the books after reading them once. And if you and a hundred other people use the library book, the gurus get an appropriately small revenue slice for each read.

For a more detailed look at the topic, check out these resources:

• Andrew Henderson’s page at the University of Texas
• Deloitte: The persistence project
• Harvard Business Review: Are “Great” Companies Just Lucky? by by Michael E. Raynor, Mumtaz Ahmed, and Andrew D. Henderson
• .. and if you haven’t seen The System by Derren Brown, watch it here. It’s quite long and in multiple parts but very good. And don’t read the comments before you’ve seen it all.

This might seem like a stupid question – after all, if you’re hooked on for example Twitter, your service is being run by Twitter. Right?

Wrong. It is in fact likely that the service is running on the benevolence and patience of venture capitalists and other investors who believe that somehow, someday, it will be profitable. Because right now, more often than not, Internet services aren’t profitable business.

Facebook was for long a loss-making enterprise; and they made some significant losses. It is only now that they might be reaching the break-even point. Twitter on the other hand is expecting their first revenue (i.e. any money coming in at all) this quarter. Of course, since most of these companies aren’t public, it’s difficult to know exactly their financials. However, it’s still a safe bet to say most are not even breaking even.

Now, turn the attention to mobile operators, who have been accustomed to very reliable sources of revenue (voice calls). They are now having to venture into uncertain territory in order to continue on the growth path and try to fight against the somewhat inevitable commoditization of their business.

In one sense, operators have had it too easy. SMS has in just 10 years become one of the most incredible money-printing machines any industry has seen. With SMS, the operators enjoy what can only be described as excellent (or absurd, depending on your point of view) margins. And the enabling equipment is a bargain; SMSCs often have RoI times measured in hours or days. Premium SMS has, on the other hand, enabled many successful mobile services despite the operator margins.

But there are limits to growth in SMS and voice calls, so operators are looking to data to capture that growth. It’s easy in theory – just get people to sign up for $10 or $20 or $30 per month data package and voilá, your ARPU is suddenly back on the growth track. In practise, however, it’s not so easy – mainly because people are often difficult in the sense that they need a reason to spend their hard-earned money So the operators must be able to give a compelling reason for customers to sign up for a data package.

One interesting thing many operators are doing when searching for that reason, is turning to third party services. What’s more, they are turning to the above mentioned unprofitable Internet and mobile Internet services. Over the past few months, I’ve seen entire advertising campaigns by operators such as Elisa in Finland and Three in Australia that were focused on promoting just one service – Facebook, and mobile access to it. Riding on the popularity of Facebook, the operators want to sell you data plans and even devices.

This presents another interesting aspect; people have come to expect that Internet services are free. People have also come to expect that mobile services are not free, that you have to pay ludicrous amounts for simple things such as ringtones. But what happens when these worlds collide in the form of mobile Internet?

The jury is still out on this one, but really it all boils down to a simple question: what would you be willing to pay for?

Because contrary to what some people like to think, advertising will be unable to support all the services it’s now envisioned to support – at least in its current form. So how about Facebook or Twitter at $5/month? Would you subscribe?

Perhaps most dangerously, Web 2.0 still had only one business model, advertising, and the Valley was refusing to admit that only one company (Google) with only one of its products (search advertising) had proved that the model really worked. The older internet firms, Yahoo! and AOL, were doing their best to grab a piece of the action. But the “next big things” were selling negligible advertising, often on one another’s sites. Not one of them has become an advertising success in its own right.

Pretty much the only proven business model remains search advertising; what’s more, only one company has managed to really pull that one off. Think of all the Internet services you use, most of which are free for you to use. But since there are no free lunches, someone is paying for them. Chances are that most of the services you use are losing money and are thus unsustainable in their current form. Take Facebook for one – a loss-making business. Youtube? Estimated to be losing money at a whopping $500 million per year.

Clearly a service that only loses money cannot last forever. So, there are basically two options: come up with a way to financially support the service or eventually kill it. Advertising cannot feasibly support everything on the Internet and we can hardly rely on benevolent venture capitalists to keep pumping money forever, so in the end it’s you – the end user – that will have to pay for what you do. “Freemium” models work well for some services (e.g. Flickr), but it’s unlikely to work for all.

The billion-dollar question then becomes: what would / will you pay for?

While I already pay for several services, there are interestingly also services for which I’d like to pay but that do not offer a possibility to do so – in particular, I’m dying to pay for GMail; I would love to have a premium version of @gmail.com GMail with guaranteed up time and other nice things.