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 BLOG >> February 2015

Startup Design Systems [Design
Posted on February 25, 2015 @ 08:13:00 AM by Paul Meagher

Lately I've been immersing myself in my Permaculture Design Certificate (PDC) course in an effort to fullfull the design project requirement.

In an effort to get myself motivated I purchased a DVD that consists of audio recordings of Bill Mollison delivering the lecture component of a 1983 PDC course. This was apparently when Bill was at the height of his powers, deeply involved in writing and consulting projects and passing on some of his knowledge and insights. The audio quality is not great, and all his lectures might not be equally interesting to you, but it is consistently sprinkled with interesting and provocative ideas.

Bill Mollison wrote the main book for a PDC course, Permaculture: A Designers Manual, in 1988. Now any time you have to read a 574 page book densely packed with information and need to potentially agree with much of it, you have to ask yourself if you are joining a cult or this is the real deal. I started to have my doubts if it was, but after listening to Bill's lecturing I have to concede that he is someone I want to learn from. Now that this barrier is broken down, I can proceed to get more involved with the book as a source of practical and design insights.

Everybodies journey through Permaculture will be different but if you take the PDC you are at least required to learn a design system for designing landscapes, food production systems, housing, and communities. I'm not saying this is the best design system in the world but I do find it interesting that many of us don't specifically try to learn a design system that would provide us with directives to use so what we might design landscapes, food production systems, housing, and communities better.

The Permaculture design system cannot be explained in a single blog and I doubt you want to hear it from me. I can tell you that learning the design system involves every PDC student knowing how to draw a Zone Map and a Sector Map. Drawing maps exercises parts of my brain that I don't often use - the more visual right-side brain. This is probably a good thing because my left brain works better and gets too much exercise. A design system needs to utilize the right brain.

A Zone Map breaks down a landscape into 5 areas defined by their proximity to your house. The zones are also defined by energy storages (e.g. wells, ponds, streams, animals, trees, shurbs, grasses, vegetables, etc... ) on the landscape and how often you need access to them. So in zone 1 you have your garden and nearby outbuildings and in zone 5 you might have wild forest area meant for observation and learning from. In between you define other zones that don't have to be arranged concentrically around the house, but logically given the form and energy storages on your landscape. The map below is a Zone Map for my farm. Zone 4 is where hay and some wild fruit storages are that I visit infrequently. Zone 3 is where the vineyard and orchards that I visit more frequently are (aeriel map is before they were installed) and so on.

A Sector Map identifies how energies of various types flow through your landscape (e.g., sun, wind, water, wildlife, heat, contours, people, etc...). Whereas a Zone Map is more about energy storages and access, a Sector Map is more about energy flow so that you might design ways to capture or deflect those energies.

The ideas of mapping energy storage and energy flow are sufficiently abstract that you could ask yourself if you can create zone maps and sector maps for an office, for a business, or for a city. Zone and sector Maps work well for planning a farmscape, and increasingly, cityscapes, but what about yardscape, the officescape, or the marketscapes?

So when we start a business or plan its growth, is there are any benefit to adopting a specific design system that would provide guidance to our practice? In the case of startups, one design system that is increasingly viewed as providing guidance is Lean Startup theory. Like Permaculture, there are some foundational Lean Startup theory texts that provide guidance in designing startups. Like Permaculture, knowing Lean Startup theory is no guarantee that you will be successful in your practice (e.g., climate and weather can play havoc) but it probably increases the odds of success versus having no startup design system.

The Lean Startup design system is one that you could specifically try to follow, just like many programmers often try to follow Agile Methodology of one type or another based on some foundational texts.

One question that nags at me however is that maybe some design systems are better than others (or more suited to your personality). Some Lean Startup theory is definitely useful but I also see some of it as derivable from Permaculture design principles (but not vice versa). I see the Permaculture design system as more general probably because the principles try to abstractly identify what makes sustainable systems work and how to design them.

That being said, Lean Startup theory is currently the preferred design system for startups (taught as the startup design system in many business courses) but I think you'll be seeing more about using Permaculture design principles for startups as a result of the upcoming Permaculture Voices convergence (March 4-8). One design system does not have to succeed at the expense of another, learning both may be better than only learning one.

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Strategic Small Monopolies [Startups
Posted on February 23, 2015 @ 06:54:00 AM by Paul Meagher

In his 2014 book Zero to One (which I reviewed last week), Paypal co-founder Peter Thiel argues that a startup business needs to aim first at becoming a small monopoly.

By small, I mean that the type of customer a startup business seeks to serve is identified as belonging to some unique class that no-one else is specifically serving, or there is very little competition for. In the case of PayPal, it became servicing the payment needs of Ebay users, specifically, the top sellers in the Ebay market. At the time, no financial services company was specifically catering to their needs. PayPal targeted a small monopoly consisting of Ebay PowerSellers that it would base its early growth upon.

For many companies, serving a small monopoly may be its ultimate goal. It is a good place to start a company and it could be a good niche to continue to operate your company in if you have a good subscription model figured out.

For some startups, such a PayPal, they select the small monopoly very strategically so that they can grow as fast as possible from that base. By targeting Ebay PowerSellers, PayPal found a way to increase usage of its services by an influential nucleus of users that could help it grow. The PayPal service depended on network effects, the more people using it the more people would want to use it. PayPal knew that for it to become ubiquitous they had to enlist users as fast as they could to their service. The starting point would be Ebay users and after that they would even resort to paying users $10 for enrolling to their service (this was a good inducement). They felt that over the lifetime of the user they could recoup the offer cost. This, incidentally, is an example of a crazy business model (pay your customers to join) prevalent during the dot.com days that worked out.

For PayPal to grow as it did it needed to be strategic in which market it tackled first, which market it would try to become dominant in first. Had it failed in the attempt to dominate the Ebay financial marketspace, it would probably not be here today. Ebay could have come out with it's own payment gateway for its users, but PayPal may have had too much of a lead by then or the service was so in demand that any wait for Ebay to deliver a service would have been too much delay. There is no guarantee that you will achieve your small monopoly once you set out to attain it. You may also come to realize that your small monopoly might not be so distinct as you think it is as you discover significant competition for the same customer. Perhaps your delination of the ideal customer is too broad, and narrowing it further in some way might help to better identify a small monopoly that might work better to begin with. Thiel sometimes uses a Venn diagram, and other times, unions and intersection symbols, to illustrate how to segment your customer. As an example, here is how the universe of big data customers might be delineated. This would still be too big (maybe a further breakdown by preferred software) but it illustrates how Venn diagrams can be used to identify a set of customer segments and the one you might want to initially target.

Perceived competition can be a signal telling you that you have not delineated the scope of your monopoly properly. When properly delineated, you should feel like you don't have any significant competition for your type of customer and that the customer actually exists in sufficient quantities to be worthwhile and would be interested in your product or service. When all these things come together you have the basis for starting a company. Thiel comes out strongly against the idea of "competing" as the basis of starting up a company. He does not think a company should consciously try to disrupt a large marketplace because this strategy is likely to fail. Better to start by cooperating and find your niche than competing against established businesses in a bigger market.

When starting your small monopoly it is can be very rewarding if your market is also a growing market (the Ebay marketplace) so that ongoing growth is assured. Paypal was able to say that they had 30% of the PowerSeller market enrolled after 3 months. They knew who they were targetting and could measure how much of the target market they were enlisting. They could also measure the growth rate of their market to verify that it was a potentially durable market.

In chapters 3 to 6, Peter Thiel has alot of interesting things to say about monopolies as good for business and competition as bad for business. The idea that startups can be viewed as strategic small monopolies comes from these chapters. I have also written about the importance of finding your niche but used a different set of arguments to arrive at similiar conclusions regarding the importance of avoiding competition.

I want to leave the last word with Peter on why starting small and monopolizing is important (p. 53):

Every startup is small at the start. Every monopoly dominates a large share of its market. Therefore, every startup should start with a very small market. Always err on the side of starting too small. The reason is simple: it's easier to dominate a small market than a large one. If you think your initial market might be too big, it almost certainly is.

On an unrelated note, Christina Martin has a new record out. You probably don't know who she is but I got to see her 4 months ago (at a Music Week festival) so was interested in hearing some of her new stuff. The record is called "It'll Be Alright" and this is a song by the same name. They are touring Europe for the next few months.

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Marijuana Industry Services [Agriculture
Posted on February 20, 2015 @ 07:58:00 AM by Paul Meagher

The legalization of marijuana in Colorado and Washington is providing some lessons for what we might expect in other jurisdictions that are liberalizing their marijuana possession laws. The Reason.tv video below discusses one problem that the industry has to deal with - the amount of cash transactions involved and trying to get banks to accept all that cash without triggering laundering laws or or the ire of the US federal government who is not fully on board with these liberalized state laws.

Many private investors are interested in getting a piece of the legal marijuana action and when you see the mounds of cash in this video you can see why. Of course there are many legal and financial risks that these companies face but dealing with these risks is also an opportunity for service providers that are popping up around the legal marijuana industry. One of these service providers, Blue Line Protection Group, looks like it has an equally bright future as the Brinks of the legal marijuana industry - handling delivery of cash and marijuana in a safe, secure, and compliant manner.

Another group of emerging service providers are sites dedicated to tracking the marijuana industry as a financial market on par with any other financial market. You can, for example, go to the MarijuanaIndex.com to get up to date news on Cannibis-related stocks, news, and investing.

As this young legal marijuana industry starts to become more established we can expect to see a host of service providers coming in to target the needs of the industry. When considering investing in legal marijuana it is easy to think that all of the money is in the production and distribution of marijuana, but if the Oil & Gas industry is any guide, there is alot of money to be made in the provision of services to the legal marijuana industry. They have to spend all that cash on something.

I'll conclude this blog with the observation that purchasing legal marijuana appears to mostly done on a cash transaction basis as those wanting to purchase marijuana product do not want to be tracked. Will this industry remain as a mostly cash-based industry or is the industry in need of a better transaction system - one that ensures privacy while also giving the user the convenience of a credit card.

There are many pain points in a new industry and a corresponding number of opportunities for entrepreneurs to start up new businesses to address those pain points.

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Creating Ecotopia [Trends
Posted on February 18, 2015 @ 07:36:00 AM by Paul Meagher

Ernest Callenbach wrote an influential future-fiction book in 1975 called Ecotopia.

References to the Ecotopia concept are popping up more often in some of the Permaculture reading I do. In Sweden, Permaculture is almost synoymous with Ecotopia. The concept of Ecotopia has the power to encompass many diverse movements from permaculture, to bioregionalism, to transition towns, to ecovillages, to urban gardening and beyond. In many ways these movements are attempts to create utopias according to ecological principles. Are we just engaged in these activities to produce food, protect watershed, live communally, etc... or are these diverse activities rooted in a deeper striving towards Ecotopia? The concept/vision of Ecotopia provides a strong counter-narrative to the prevailing narrative that we must grow our economies at all cost (Ecotopians prefer a steady-state economy instead). Ecotopia also provides a concrete vision for where society must move to in order to be more sustainable, more worthy of our toil, and more enjoyable. You can judge for yourself by watching an excellent 1982 interview with Ernest Callenback in which the Ecotopian vision is discussed. It is amazing to see how relevant his ideas still are - not just a few of them - but most of them.

The point of this blog is not to get all mushy and do-goody, although there is nothing wrong with that. It is also to identify a trend or wave to watch out for or to facilitate. I would argue that without knowing it many parents today (and our educational system) are trying to raise kids to be good Ecotopians even through they live in a world of contradictions (e.g., driving to work in oversized vehicles, eating too much processed food, creating too much waste, living in unsustainable housing arrangements, poor land use, etc...). Eventually the generation that supports and sustains these contradictions will die off (and is dying off) and a new generation, generation-e, will take over. That will be a good thing (ecologically-speaking) and it will also be a world that we can help lay the groundwork for by providing parents with better gen-e products and services at affordable prices. This may sound like I'm commercializing this, and I am, but gen-e products and services will be worth buying if they exemplify or allow for better Ecotopian living.

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7 Startup Questions [Entrepreneurship
Posted on February 12, 2015 @ 08:54:00 AM by Paul Meagher

I have just finished reading Peter Thiel's new book Zero to One (co-written with Blake Masters). Peter was cofounder of PayPal, cofounder of Palantir, and a venture capitalist. The book is a recent best-selling business book owing, in part, to Peter's stature in the startup and venture capital community. It is quick and easy to read, interesting throughout, opinionated at times in an Ayn Rand sort of way, and filled with insights on venture capital, the keys to startup success, the Silicon Valley boys club (or the "PayPal Mafia" as he calls them), and his recipes for saving the economy and the planet (will depend on startups with insights into truths that are not commonly accepted).

When I read Peter Thiel I am cautious as Peter's advice is often directed towards providing insight into how the top .01 percent of companies achieve that level of success (see YouTube videos featuring him). He is not interested in companies that make incremental improvements in already established markets (1 to N companies), but rather companies that develop products or services that are sufficiently ground-breaking that they can monopolize a market (0 to 1 companies). These are the companies that allow venture capitalist to stay in business and make money when most of their other companies under perform. Sometimes I wonder if Peter's advice is pertinent to the majority of incremental companies that exist. Sort of like thinking that your kid is going to play in the major leagues when their sports career will be much less stellar. The advice in the latter case might focus more on fun, balance, and sportsmanship. Many parents, however, want to hear advice telling them what it will take for their kid to be a superstar. Peter Thiel's book appears to be more directed towards entrepreneurs that want their startup to be the next PayPal, Facebook, Uber, Spotify, and so on; not those entrepreneurs who want to make an above average income and gradually grow a company.

That being said, I did find that chapter 13, Seeing Green, had a very useful framework for analyzing the keys to startup success that has general applicability. In that chapter, Peter suggests that companies should address 7 questions to determine how successful they will be (pp. 153-154). These questions are:

  1. The Engineering Question: Can you create breakthough technology instead of incremental improvements?
  2. The Timing Question: Is now the right time to start your particular business?
  3. The Monopoly Question: Are you starting with a big share of a small market?
  4. The People Question: Do you have the right team?
  5. The Distribution Question: Do you have a way to not just create but deliver your product?
  6. The Durability Question: Will your market position be defensible 10 and 20 years into the future?
  7. The Secret Question: Have you identified a unique opportunity that others don't see?

These 7 questions summarize the themes that Peter discusses in more detail in earlier chapters of the book and in chapter 13 he uses them to analyze why cleantech companies in the last decade imploded (poor answers to most of these questions) and why a company such as Tesla Motors is very successful (good answers to all the questions). For me, chapter 13 was the most useful part of this book and one that most entrepreneurs would benefit from reading. These are some good questions for startups to ask themselves.

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New Venture Finance [Education
Posted on February 9, 2015 @ 07:43:00 PM by Paul Meagher

Coursera sent me an email alerting me to a new course I might be interested in called New Venture Finance: Startup Funding for Entrepreneurs. Turns our Coursera was quite correct. I just registered for the course, watched a few of the lecture videos, and examined the assigned reading materials. Everything looks solid and well done so I'm giving it my two thumbs up so far. The instructor Micheal R. Pratt from the University of Maryland has been involved in raising around $100 million in early stage funding so has some practical experience to go along with his academic background.

The assigned book for the course is by Andrew Sherman and is called Raising Capital: Get the Money You Need to Grow Your Business, 2012, 3rd Edition. The Amazon link to the book above gives you access to the first few chapters if you want to check it out. Also, the second lecture in the course is a 24 minute interview with the author.

One final note is that the course is fully available now. Unlike some Coursera courses where new lectures, assignments, readings are made available each week, this one has everything available so you can dive in and binge learn or sample what interests you. This is a great resource if you want to learn more about how to raise capital. It just started on Feb 9th, 2015 so any time this week would not be too late to start.

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Japanese Vending Machines [Creativity
Posted on February 6, 2015 @ 11:29:00 PM by Paul Meagher

Japan has 5.2 million vending machines! Why do they have so many vending machines? I'm no expert on Japan but it would appear that one of the reasons is simply that they keep innovating upon the vending machine concept and these innovations keep people wanting to buy from them. The documentary below offers a fascinating tour of the history of vending machines in Japan and some of the modern innovations they are adding to the vending machine concept.

It seems that in North America we have more "functional fixedness" when it comes to imagining what a vending machine might be or do. To counteract functional fixedness it might be useful to study the adaptations and roles of common objects in other cultures. Seeing these differences might free our minds to reimagine what a common object might be or do.

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Urban Farming Reimagined [Agriculture
Posted on February 3, 2015 @ 10:16:00 AM by Paul Meagher

I went surfing for info on small scale anaerobic digesters and came across a popular video on the topic by The Urban Farm Guys (UFG).

UFG is a non profit organization based out of Kansas City that has done alot of amazing stuff since releasing this early video. Urban farming for UFG is a platform for much more than growing food. They are changing the economic and social fabric of their local community through their good works and the skills they are sharing and helping to develop in their local community. Below is a crowdfunding video that explains some of what they are up to now.

Creating a farm in urban areas is probably never simply about growing food. UFG is reimagining what services urban farming can provide to local communities. You can watch more of their videos to see what community services might be provided as part of an urban farm concept.

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