Tag Archives: Small Business Labs

Is Venture Capital Gone Forever

Angel investment, Venture Capital, , , ,

I completely agree with Steve King of Small Business Labs, in Is the Venture Capital Industry Broken? He says:

The news here isn’t that the VC industry is broken. This has been actively discussed for years. The news is who’s saying it’s broken.

Which is, in the flap this month, the Kauffman Foundation.

The Kauffman Foundation has long been a close friend of the VC industry.  In addition to investing many millions of dollars with VCs, Kauffman’s mission of supporting entrepreneurs and high growth companies has resulted in them closely collaborating with the VC industry.

The foundation recently published We Have Met the Enemy and He is Us, a blistering critique of venture capital and its role in startups.

Here’s the problem in one simple business line chart (why I like business charts). It shows how the rate of return on venture capital looked great during the first big Internet boom. It’s not a pretty picture.

On the other hand, those low points in the last few years aren’t uncommon, are they? How is your industry doing since the great recession? The chart shows pretty much what Steve summarizes as follows:

Kauffman has many reasons why the industry is broken.  But the quick summary is the industry simply hasn’t performed well.  Only 38% of the funds Kauffman invested in over the last couple of decades beat public market small cap indexes.  This is primary due to the expensive fees VC firms charge.

So does this mean hard times for startups? I doubt it. I see is a shift towards smaller seed rounds and more angel investment as a web and software technology have reduced the capital needed by the average high-end web startup to get from nowhere to proof of concept and validation. In an oversimplified general sense, what took $2.5 million in 1998 takes probably $250,000 today.

Business comes in cycles. Suppose the huge camelback hump in returns in the late 1990s (the boom) were a temporary aberration. The hard times afterwards (the crash) are probably a temporary aberration too.

Steve recommends this story in GigaOm and this one by Fred Wilson of AVC for further reflections on the Kauffman findings.

Enhanced by Zemanta

Tell the Truth: Where Are You Most Productive?

Personal Productivity, ,

Interesting post today where Steve King at Small Business Labs asks Is The Traditional Office the Least Productive Place to Work? He cites professional research and uses clear logic. But I still think there’s a catch.

survey

He starts with surveys indicating that people who work in coworking locations say they are more productive than working at home.

Which he follows with surveys indicating that people report working at home is more productive than working in company offices.

Which he takes to this conclusion:

This suggests that the least productive place to work is a traditional office.

But wait — coworking is working in an office with people who aren’t part of the same team, right? So working in an office is more productive than working at home, but only if those around you aren’t part of the same team? What’s wrong with this picture? I know and like Steve King and he’s a professional researcher, so it’s not a problem with the research. But could it be …

  1. People often answer surveys with the answer that makes them feel best about themselves and the choices they’ve made, so the home office worker is compelled to claim productivity and the coworking office worker is too, but the traditional office worker isn’t? That might explain the research.
  2. And for that matter, how well does any of us really evaluate our own productivity in different situations? I’m going to claim to be most productive at the place I most like to be.
  3. And productivity by location is an entirely new concept over the last few years. Even in the office, I’m located where my attention is pointing. I might look like I’m in the office in a traditional office mode when I’m on Twitter or instant messenger with my mind entirely out of the office, chatting with friends. And if, in that moment, a survey taker asks me about it, I’m going to say I’m really productive right there.

What do you think?

A New Dimension of Haves and Have-Nots

Current Affairs, Economics, ,

Wow. Talk about misreading data. They found clusters of autism and looked for pollution or some such problem as a cause, but found something entirely different, and probably just as significant. You have to read this, on NPR: Autism ‘Clusters’ Linked To Parents’ Education. It turns out that…

Clusters of children diagnosed with autism tend to occur in places where parents are older, more educated, and white, according to a study by researchers at the University of California, Davis.

The study found no link to local pollution or chemical exposures — which some consumer groups have cited as possible causes of autism clusters.

The results suggest that areas in California with apparently high rates of autism spectrum disorders are probably just places where parents are more likely to obtain a diagnosis for their child, the researchers say.”

I grew up with a sense, inherited from my mother, of the danger of dividing the world into haves and have-nots. It’s not just a matter of fairness. Even the haves are worse off when surrounded by large numbers of have-nots. Nobody wins. This was just a bad vision when I was growing up, but it’s an undeniable reality now.

And now it’s affecting things like drugs to increase focus and intellectual achievement?

Shades of The Child Buyer, a strange novel from 1960, by John Hershey. Large corporations were buying children to convert them into something like biological computers.

I picked this up from Steve King of Small Business Labs, who posted on it here yesterday. He takes it a logical step forward, noting that drugs like Ritalin, supposedly for helping ADD, are now widely used by students looking for an edge. He wrote:

This is an early sign of the coming human enhancement divide.  Simply put, rich people are going to have better access to technologies and drugs that improve cognitive ability and other forms of human enhancement than poor people.  The same will be true for rich countries versus poor countries.

He says this scares him. Me too.

Why Survivor Bias Threatens Business Research

Advice, Business Mistakes, Business Research, ,

I want to start this with a story. I’m quoting Jason Cohen in his post Business advice plagued by survivor bias, with thanks to Alan Gleeson for tipping me off to this one. As you read this story, think of how it applies to business experts and business advice:

During World War II the English sent daily bombing raids into Germany. Many planes never returned; those that did were often riddled with bullet holes from anti-aircraft machine guns and German fighters.

Wanting to improve the odds of getting a crew home alive, English engineers studied the locations of the bullet holes. Where the planes were hit most, they reasoned, is where they should attach heavy armor plating. Sure enough, a pattern emerged: Bullets clustered on the wings, tail, and rear gunner’s station. Few bullets were found in the main cockpit or fuel tanks.

The logical conclusion is that they should add armor plating to the spots that get hit most often by bullets. But that’s wrong.

Planes with bullets in the cockpit or fuel tanks didn’t make it home; the bullet holes in returning planes were “found” in places that were by definition relatively benign. The real data is in the planes that were shot down, not the ones that survived.

Could there possibly be a better summary of survivor bias? Do you see how it matters with business research? I need to thank Steve King as well, because he focused on survivor bias recently in his post Don’t Quit Your Job Until You’ve Talked to a Small Business Failure. Steve points out, in that post, that if we only ask small business owners about risk, we only get opinions from the survivors. 

But if your goal is to find out how all small businesses owners think about risk, this approach is flawed.  This is because former small business owners – the folks that went bankrupt, lost their companies or were removed from their jobs – are no longer small business owners so they aren’t included in these surveys.  Because business failures are excluded, the survey results are biased towards successful small businesses. 

Do you see his point? You can’t get an accurate picture of a contest by asking only the winners. Sure, the winners are the right ones to ask for stories of what worked. But the losers have some insight too, like on what didn’t work. 

 (Image: Nick Schroedl/Shutterstock)

Why I’ll Never Retire

Baby Boomer, True Stories, Work Life Balance, , ,

Ugh, baby boomers, retirement, selling the business … ouch. Strikes me like “lions, tigers, and bears,” in the Wizard of Oz. Scary.

I’m 61. It was my choice to change my job more than two years ago, so that now instead of managing my company with 45 employees I’m writing, speaking, blogging, and teaching. And I thank God that I had that choice. The company’s better off with a new management team, and I’m better off with a new job. But I worry about the rest of us. Retirement scares the hell out of me.

One of my closest friends retired two years ago. Now he’s bored out of his mind, looking for things to do, and not happy about it.

I’ve seen some successful retirements: it seems to work when they jump from one thing to another, something they like, something they’ve always wanted to do. Golf and fishing, or the equivalent, are rarely enough.

One variable that I’m sure matters is liking what you do. As my good friend now retired used to talk about it with relish, just 3-4 years ago, it always sounded great to him, but horrible to me. And, no surprise, he was tired of his work, but had nowhere else obvious to go. I was getting tired of the managing, but I did have somewhere I wanted, badly to go: the writing, speaking, etc. I still love the company I started, just not the day-to-day management of it. I liken my new job here to the concept of a safe harbor. It’s different, it’s easily separable from what I did for years, but it’s still the same company, same industry. And it also keeps me away from meddling with the new management, which (I’m pretty sure) is a relief to them.

Apparently I’m not the only one. I just read Steve King’s Greying of the Workforce post on Small Business Labs. Lots of grey-haired folks are staying on longer. And that’s because they want to, not because they have to.

And then there’s this, which turned up last week in Why Retirement is Bad For You, on Forbes.com

Studies show that men who retired from corporate jobs, donned their gold watches and lazed about at a resort lived measurably shorter lives than those who sought productive work (e.g., volunteering for organizations like SCORE, the Service Corps of Retired Executives). In fact, plenty of retirees who traded productive work for sunshine and early-bird dinners dropped dead surprisingly soon after making the transition.

That seems like a variation on the same theme. Those older people in the work force are probably way better off for it, at least if they figure out how to be in jobs they like. Maybe that’s the best answer to an aging population?