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Updated: 6 months 16 hours ago

3 Knockout Pitches From Y Combinator's Demo Day

March 26, 2014 - 5:31pm

The tech accelerator's latest class had plenty of business ideas aimed at making the world a smarter, more efficient place. Here are three startups to watch.

Paul Graham may no longer lead Y Combinator, the tech accelerator he founded in Silicon Valley, but his legacy of launching startups lives on in the form of Demo Day. On Tuesday, 68 young companies gathered at the Mountain View History Museum to present their ideas to some of the Valley's most prestigious investors. Here's a look at three that stood out:

1. Pushbullet

The pitch: A Google Chrome/Firefox extension that lets customers view push notifications wherever they're working, not just on their smartphone.

The sell: Pushbullet tamps down the clutter in your life by enabling you to check a push notification without having to toggle between two or more devices. It can sync to your desktop or your tablet. As a bonus, you can use Pushbullet to send a file to another person's device, which the recipient can open right in his notification tray.

Business so far: Pushbullet handles 10 million notifications a day for 100,000 weekly users and 60,000 daily users, according to TechCrunch.

Inc.'s take: Scaling doesn't come easily and while 100,000 weekly users is a promising start, Pushbullet will certainly need to add more. And because not everyone is glued to their desktop, many people will have to be convinced of the extension's usefulness.

2. AirHelp

The pitch: A service that helps fliers get compensated for air travel problems.

The sell: With airlines scrapping more than 75,000 domestic flights since December 1, Americans have plenty to be angry about. In one week in February alone, 14,000 flights were canceled. On AirHelp's site, fliers enter the reason for their claim, where they were headed, and when the journey came to a stop. From there, the startup assumes the role of consumer advocate, fighting for compensation (up to $800) for a delayed, canceled, or overbooked flight.

Business so far: Founded in 2013, the startup has teams in London, San Francisco, Hong Kong, Warsaw, and several other places. But it has released little information on how well it's doing.

Inc.'s take: A clever idea for a serious problem, but it's hard to tell how this will scale.

3. One Degree

The pitch: The Yelp of social services for families in need.

The sell: With 49.7 million Americans living in poverty, or 16 percent of the U.S. population, according to Census Bureau data, there is clearly an incredible amount of work to be done.

Business so far: The nonprofit has already partnered with many organizations to ramp up the kinds of services people can search for. On the site you'll find sections for low-cost dental care, paid internships, taxes, and student aid.

Inc.'s take: A worthy cause with a couple of big flaws. Those without access to a computer probably won't use it, and those who do have computers may need to be persuaded to seek outside help. The main issue will be spreading the word beyond Silicon Valley.

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Tech Company Deals Skyrocket in First Quarter (Thanks, Facebook)

March 26, 2014 - 5:09pm

Merger and acquisitions in the tech sector are off to a roaring start this year.

With GoPro and Box looking to go public, technology IPOs are having a banner year in 2014--and so are mergers and acquisitions, which might bode well for startups angling to get aquired in the near future.

Driven by record acquisitions by Facebook and Google, which are pushing startup valuations ever upwards, the number of tech deals launched in the first three months of 2014 has shot up. Dozens of other more modest merger deals for startups are also in works, according to new research from Thomson Reuters.

Facebook's acquisitions of WhatsApp for $19 billion and its most recent acquisition of Occulus for $2 billion, are pushing merger and acquisition activity to new heights. Google's recent purchase of Nest Labs for $3 billion is also helping.

The dollar value of tech mergers and acquisitions year to date--$65 billion--is nearly double what it was for the same period in 2013. Similarly, about 400 deals are in the works or have been completed this year, compared to 200 through March of last year.

But the current year-to-date levels are nowhere near activity in 2000, Thomson Reuters reports, when there was $159 billion in deals, a year that ended with nearly half-a-trillion dollars worth of deals and close to 2,000 by number. Actually, the current numbers have a way to go before they even reach 2007 full-year levels, with $200 billion in dollar volume and 1,000 by number of deals.

This Geeky New Device Is a Literal Thinking Cap

March 26, 2014 - 4:26pm

Could this new technology help stimulate your thinking?

Facebook can have its Oculus and Google its Glass. Here's some wearable tech that will make you smarter.

New research from Vanderbilt University suggests that electrical currents can enhance or depress a person's thinking ability, according to content network PSFK.

The currents were sent using an elastic headband. When one current--one running up the head--was applied by researchers, subjects displayed higher brain activity during thinking exercises. The current, running in the opposite direction, hurt their thinking ability.

Is this useful from a management perspective? Well, ethical issues would probably abound if you were to strap one of these babies onto each of your employee and send them a creativity current throughout the day. You could go ahead and knock yourself out, though.

More importantly, the research is indicative of the powers that wearable tech could carry down the line that extend beyond visual and social.

A text-messaging watch? Glasses that hook you up with driving directions? A trip to the doctor by putting video game hardware on your face? Sure, those hit on varying levels of excitement.

But a real live thinking cap with potential uses, as PSFK reports, "in the treatment of conditions like schizophrenia and ADHD"? Now we're really talking.

A Tribute to Ralph Wilson: An Unlikely Role Model for Entrepreneurs

March 26, 2014 - 4:26pm

What would you think of an entrepreneur who took a risk in 1959 and saw it pay off by a multiple of more than 30,000? That's what happened to Ralph Wilson, who bought the Buffalo Bills football team for $25,000.

In 1959, $25,000 went a long way. You could buy a home or two, outright, with that loot. You could also buy about five Lincoln Continental cars. Ralph Wilson, who died yesterday at the age of 95, used that sum to buy the Buffalo Bills football team.

Today, the Bills are worth $870 million. Wilson's ROI is so preposterously huge that it's easy to overlook what a visionary entrepreneur and risk-taker he was in 1959. History could (wrongly) judge him as someone who jumped on the National Football League bandwagon at the right time--rather than someone who had a shrewd eye for an undervalued entity, and the guts to buy it.

Challenging the Big Guys

The truth is, buying a football team was no sure thing in 1959--especially the team that Wilson bought, which was not a part of the NFL. Read that last sentence again: When Wilson bought the Bills, they were not a part of the NFL, which was already America's marquee league for professional football.

In fact, the Bills were part of an upstart eight-team league--the AFL--that sought to challenge the NFL's dominance. Then, as now, you were largely ridiculed if you even considered battling the market might of the NFL. The eight original AFL owners even dubbed themselves "The Foolish Club." Veteran football scribe Peter King explains why in his Wilson tribute for Sports Illustrated's MMQB site:

Few thought there was an appetite for two football leagues. A foolish investment, many thought...particularly when Wilson had to subsidize one of the teams in the league with a $400,000 loan in 1962. That team was Oakland. Imagine the Oakland Raiders folding. Imagine the Raiders not getting resuscitated. That'd be like telling the history of rock music without the Rolling Stones. Without Wilson's intervention, the Raiders might have been a Polaroid memory, a modern-day Providence Steam Roller.

All this was four years before the term "Super Bowl" was even coined as a catch-all term for the title contest. From 1962-1966, both leagues had separate finals that were simply known as Championship Games.

In short, at a time when many could've purchased an AFL team for a five-digit sum, Wilson actually did it. And that's not the only reason you should remember him.

Wilson's Leadership Lessons

From the dozens of tributes written on behalf of Wilson in the last two days, a picture emerges of a man who was the consummately respected business owner and company leader. Here are four testimonials:

  • He was a trustworthy man of integrity. "A really good man, a decent man. Very important for the NFL--kept the Bills in Buffalo when he could have had very much better deals in many other places," notes Bill Polian on ESPN.com, who was the Bills' GM from 1985-1993. "But always said the Bills in his lifetime will never leave Buffalo, and he kept that word. He was a man of his word; you could take his word to the bank. You didn't need a contract with Ralph Wilson."
  • He believed in loyalty to fans and cities. "He never voted in favor of a franchise relocation. He said owning a sports team isn't like owning a car dealership," writes King. "If the car dealership founders, it can be closed and consumers will find another place to purchase cars. But an NFL team--that's a public trust."
  • He passionately paid attention to details. NFL Network reporter Ian Rapaport tweeted the following about Wilson, shortly after the news of his death: "Ralph Wilson called #Bills CEO Russ Brandon four days ago about a safety prospect he believed was a 3rd or 4th rounder. Amazing." You could argue that owners shouldn't meddle in personnel matters, but there's no denying that this tidbit illustrates Wilson's passion for his team.
  • He was humble, and he treated everyone with respect. "One of the must humble guys that I ever met in my life," Bills running back C.J. Spiller told the NFL Network. "Down to earth. Doesn't matter if you're the starting quarterback or a backup. He always treated everybody the same. That's the thing that really stood out to me."

How to Disarm Job Candidates With 4 Questions

March 26, 2014 - 4:20pm

Want potential hires to show their true selves? Ask them these unusual questions.

Want to always hire the right people--engaged, productive and loyal folks who will stick around long enough to do good work? It's all about asking the right interview questions, says Patrick Brandt, CEO of Zimbra, an open source collaboration software company that boasts more than 200,000 customers worldwide.

It sounds like simple, obvious advice but the kinds of questions this CEO poses are unconventional and intended to foster a conversation that does away with rehearsed responses. The goal: an honest dialogue about who the person really is so as to ascertain how well his or her values align with company culture.

After a hiring team has determined a candidate has the skills to perform a job well, Brandt himself interviews the person. This is no small commitment considering Zimbra has hired around 70 people in the last five months. Here are the questions he likes to ask.

What was your first job? How old were you? How much did you make? What did you learn from it?

Usually employers want to hear about a candidate's relevant and recent experience but going farther back can be telling.

"You learn a lot about someone's work ethic, maybe the way they grew up [and] lessons they learned," Brandt says. "You get things from 'I was 12 years old and I started a paper route and the reason I did it was because I wanted to buy a guitar' or whatever. So you start to learn a lot about those people's values and background and maybe even their upbringing a little bit."

What book has had the biggest influence on you?

The books people read speak volumes, particularly about how well-rounded they are.

"I've had people say 'I read a lot about the Civil War' and I've had other people say 'I read romance novels every day, all day' and I've had other people say 'I haven't read a book since college when I had to,'" Brandt says, in which case he suggests following up by asking a candidate what he or she does for fun. By doing so he learned a soon-to-be employee was a professional Frisbee player who travels around the world attending throwing competitions.

"I didn't even know that existed," he says.

When was the last time you failed to deliver on a commitment?

With this question Brandt is looking to see that not only can a person empathize with whomever she let down, she readily takes responsibility for doing so.

"If someone says 'never' they're not getting hired because they wouldn't map to our core values," Brandt says. "They're not being honest and transparent because we all do that."

What questions do you have for me?

Brandt says giving people the opportunity to put the CEO on the spot is a good way to make them feel valued.

"One thing that I found fascinating, and it ended up being a very good recruiting tool, is probably 50 percent of the people say 'I just feel so privileged that the CEO took time to do this.' A lot of times it's almost like 'I can't believe the CEO of this company is spending time talking to me and I haven't even joined the company,'" he says. "If building a corporate culture is important to you there's a lot of value in connecting to the employees."

Want more great interview suggestions? My Inc. colleague John Brandon interviewed The New York Times reporter Adam Bryant, who stumbled upon some good interview questions while writing "Quick and Nimble: Lessons from Leading CEOs on How to Create a Culture of Innovation."

How CEOs Waste 70% of Their Time Each Day

March 26, 2014 - 3:30pm

First Round Capital Partner Bill Trenchard says that CEOs spend the majority of their workdays inefficiently. These nifty tips can help.

More than half of your workday could be spent more effectively. While that's hard a hard pill to swallow, you're not the only one who can stand to gain from a little schedule revamping.

"Looking at the schedule of a typical CEO, a full 70 percent of that time is sub-optimal, and I'll back that up with my own experience," First Round Capital Partner Bill Trenchard wrote in a recent blog post. Trenchard served as the CEO of three different companies before joining the San Francisco-based venture capital firm.

Now he spends his time meeting with dozens of CEOs regularly. Recently, he asked those of them who he considers to be "superhuman" time managers to share some of their best strategies. Here's a summary of the results from those interviews.

1. Create "no" email templates

One of the most effective ways to protect your time is to say "no." It's not easy turning someone down, no matter what the situation. Additionally, declining an invitation tactfully takes time. For these reasons you should create email templates so that saying "no" is just a little bit easier.

"This lets you put the time and attention you want into crafting a response," Trenchard said. "The most important thing is that you close the door to further communication. Do it nicely in a way that truthfully explains the situation, but don’t leave things open-ended."

2. Adopt one of three email strategies

You need a plan of attack in order to effectively manage your emails. The best strategy simply depends on your personal work style and preference. There's the "all day" strategy, meaning that you're quick to respond to emails right as they come in. This can be efficient, but it can also be incredibly distracting.

"Batching" emails involves looking at your inbox two to four times a day and responding to everything then. The third approach is to enlist help. If you can afford to hire an assistant, it can turbo-charge your whole life, Trenchard said.

3. Write playbooks

A good way to avoid getting held up by someone who needs your assistance is to hand them an instruction manual, if possible. That's not to say you should spend your time writing step by step how-to guides.

Instead, create playbooks just for those processes that you've performed more than three times. Then hand the guides off to someone else so they can see exactly how you did it.

4. Optimize (or eliminate) the internal meeting

In general startups have too many meetings. Status meetings can be completely eliminated by using Google docs as an alternative. Just have everyone update and read the document once a week.

'As an Innovator, I Want to Make Apps': The Onion's Latest TED Spoof Is Hilarious

March 26, 2014 - 3:00pm

Let's all take a break for a laugh, shall we?

TED 2014 just wrapped up last week. Which means you've likely had your fill of high-minded speakers talking about everything from leadership strategy to ingestible learning.

And while TED never fails to deliver an all-star lineup, the event has drawn some hate from critics in recent years. It's difficult to pinpoint the source of their collective irritation, but some have said it's not the ideas themselves, but the way they're presented that they find so exasperating.

"The genius of TED is that it takes capable-but-ordinary speakers, doing old talks they've performed many times elsewhere, and dresses them up in a production that makes you feel like you’re watching Kennedy announce the race to the moon," columnist Martin Robbins has written for the NewStatesman.

Whether you love them or hate them, let's all check out the The Onion's most recent TED spoof. Call it a mental health break.

The Taxman Cometh, For Bitcoin!

March 26, 2014 - 2:45pm

At least the IRS knows what it thinks of the virtual currency. (For now, anyway)

When it comes to virtual currency Bitcoin, there's a lot of confusion about what it really is. Some say it's a commodity. Others think it’s a currency. Now the Internal Revenue Service has weighed in.

Prompted by concerns over how to tax the fledgling virtual currency, on Tuesday the IRS indicated that that Bitcoin isn't currency--at least for tax purposes. Instead, the federal agency declared it property. So if your business accepts payment in Bitcoin, trades it, or sells it, there's a new set of regulations you need to follow.

The IRS is adding its voice to states and municipalities struggling with how to regulate the currency for businesses and consumers, and the ruling may help to legitimize the cryptocurrency for the many businesses rushing to embrace it.

"There are no free rides, and this is similar to how the IRS taxes people on the barter system," says Scott Cheslowitz, a partner at accounting firm Rothenberg & Peters in Great Neck, New York.

How the IRS Sees It

Here are the main points: The IRS has decided that, for tax purposes, it will not treat Bitcoin like currency, which similarly depreciates or increases in value. Instead, the IRS will tax Bitcoin as either a capital asset or tangible asset. Capital assets are things like stocks, bonds, or investment properties. Tangible assets are things like inventory, machinery, or your company's buildings.

While the value of both types of assets can rise and fall, the tax rates are pretty different. Generally speaking, you'd pay the ordinary tax rate on the sale or exchange of Bitcoin held as a tangible asset--say you were paid in it. By contrast, you'd pay the lower capital gains rate of about 15 percent to 20 percent on transactions for Bitcoin held as an investment, for example if you obtained it on an exchange.

The same treatment goes for losses. If your Bitcoin has depreciated since you've held it, you'd get a tax write off.

That's pretty important for owners of Bitcoin, whose value is currently around $600, but which has traded over $1,000 within the past few months.

The Business Perspective

Remember, if your business pays people in Bitcoin, you'll also have to issue a 1099 for any contract work you pay for worth $600 or more.

Similarly, if your business, or part of your business, mines and trades Bitcoin, you'll be liable for self-employment taxes on earnings. And if you're paying your employees in Bitcoin, the IRS says that pay is now subject to withholding taxes based on the virtual currency's fair market value.

The IRS also says its rules are backward looking, so you could be subject to penalties for improper tax treatment of Bitcoin income in prior years.

"The IRS is interested in collecting revenue and regulating and creating rules and laws for people who want to avoid taxes with Bitcoin," says Ed Mendlowitz, a partner at WithumSmith+Brown, an accounting firm in New Brunswick, New Jersey.

Nobody likes the taxman, but for entrepreneurs and consumers eager to validate Bitcoin and bring it into the mainstream, the IRS notice goes a long way toward achieving those goals.

"The IRS is legitimizing and recognizing Bitcoin," Mendlowitz says.

How an IPO Can Turn Against You

March 26, 2014 - 2:27pm

The Irish game maker had high hopes for a U.S. IPO, but its dreams were dashed today.

A crush it isn't.

Wall Street is giving King Digital, the company behind the popular mobile game "Candy Crush Saga," the cold shoulder in its public trading debut.

King's stock priced at $22.50 on Tuesday, valuing the company at $7.1 billion. But it opened on Wednesday at $20.50, down almost 9 percent, and lost more ground by early afternoon.

King Digital Entertainment PLC had $1.88 billion in revenue last year. That's more than 10 times its 2012 revenue of $164.4 million.

But some analysts have questioned whether King would be able to repeat the success of "Candy Crush," which has been far more successful than any of its other games. Its other top games include "Pet Rescue Saga" and "Farm Heroes Saga."

"It's a one-hit-wonder," said Francis Gaskins, director of research for Equities.com and president of IPOdesktop.com. "The history of game companies is that none of them can prove that they can consistently introduce new products to grow revenue. They say they can, but they can't."

"Candy Crush" has been immensely popular but Gaskins said it is a maturing product that consumers are growing tired of. He pointed to a slowdown in revenue and profit between its last two quarters as an indicator. Its current quarter wraps up Monday and he thinks investors may be anticipating another dip in revenue. He suggested the company may have fared better if it had gone public in September at its peak.

King's debut has drawn comparisons to another game maker, Zynga Inc.

Zynga had a much-ballyhooed IPO in late 2011, but the company faltered after having trouble transitioning into a mobile company from one whose games are played mostly on a desktop computer.

But Ricardo Zacconi, King's co-founder and CEO, told CNBC Wednesday morning that the company is "not just a one-hit wonder" and pointed out that it has three games in the top 10 on Facebook.

King may also be faring better than other high-profile IPOs when it comes to its financial health. Rapid Ratings, which analyzes companies' financial efficiency, gave the Ireland-based company a score of 86 on a scale of 0 to 100. In comparison, the firm rated Twitter Inc. 16 at the time of its IPO last November. Facebook Inc., meanwhile, scored 73 when it went public in 2012 and Google Inc., 80 at the time of its 2004 IPO.

Rapid says 90 percent of companies with a rating below 40 defaulted on their debt at some point.

King had 665 employees at the end of 2013. Zynga, meanwhile, is cutting jobs but still has about 2,100 employees, down from a peak of 3,300 in 2012, at the tail end of the "FarmVille" craze.

King is trading on the New York Stock Exchange under the ticker symbol "KING."

By early afternoon Wednesday, the stock was down $2.70, or 12 percent, at $19.80 per share after trading as low as $19.08 earlier.

--Associated Press

8 Ways to Manage Someone You Don't Like

March 26, 2014 - 2:00pm

In business, you are bound to cross paths with people you don't care for. Here are some tips on how to improve your working relationship with them.

As a manager, you ideally want to work with employees who are pleasant and agreeable, but of course you're going to have some you simply don't like.

If these employees have proven their worth, then you're going to have to adjust your management style for your sanity and your team's overall productivity.

Here are eight ways you can establish a better working relationship with even the most annoying employee.

Accept that you don't need to be friends with all of your employees.

Understand that there is a line between business and your personal life, and it can actually be helpful to put some emotional distance between you and the people who report to you. As Stanford University professor Robert Sutton told the Harvard Business Review, "From a performance standpoint, liking the people you manage too much is a bigger problem than liking them too little." Some friction can even allow your team to rethink the way it functions.

Figure out why they bother you.

Do they irritate you because of how they communicate? Are they too aggressive or maybe not aggressive enough? Once you determine exactly what makes them so irritating to you, you will be able to determine how to properly manage them. It's important to remember that you can't change an employee's personality, but you can change the way you deal with that personality.

Remain positive with them.

Employees want their bosses to like them. Maintain a professional, cordial relationship with even the most irritating team members. This will help maintain your focus on the task in front of you, as well as help prevent further conflict.

Focus on how they benefit your team.

If you've already determined that this employee is talented enough to retain, then focus on what makes them valuable rather than how annoying they can be. If their quirks have been clashing with their current role, then figure out if they can be serving you better. For example, over-achievers who get caught up on perfecting their work can probably handle more tasks.

Don't let emotions hinder your leadership.

Do not let their irksome habits influence the way you treat them or evaluate their work. You can help your objectivity by trying to understand where they are coming from, management expert Victor Lipman writes on Forbes.

Be upfront.

Only accept an employee's bothersome traits to a point. Do not let your kindness cause them to push you around, says Fast Track columnist Anita Bruzzese. If this employee's brash attitude or tendency to whine about assignments, for example, is bringing down the team, then let them know. Be specific about the problematic behaviors, and suggest some alternate ways of doing things.

Work closely with them.

While counterintuitive, studies show that working on difficult projects can build affinity among coworkers, Sutton told Harvard Business Review. If you give your problem employee the chance to prove their worth, then you may be less inclined to become annoyed with them at work, even if you still won't be inviting them to a barbeque anytime soon.

Observe how others handle them.

Watch how others in the office deal with this employee. You may realize that you are clashing with them because of your particular style of communication. Then you can adjust accordingly.

What Entrepreneurs Wish They'd Known Before Their First Startup

March 26, 2014 - 1:26pm

Regrets? These founders have had a few, but they're grateful for all the hard lessons.

Some people live to regret staying in a job too long or not spending enough time with loved ones. But the decisions entrepreneurs regret tend to be ones that cost them their company, or their well-being.

In a recent thread on Reddit's /r/Startups section, a user named josephwesley asked commenters to share what they wished they'd known before their first startup. The answers were insightful and brutally honest. One example: "Never take advice from anyone who hasn't done or isn't doing what you want to accomplish," warned gretzky486. Read on for more of their wisdom:

On Taking Advice

"I think it's better to evaluate the advice before accepting it blindly (whether or not it is coming from someone who has done something or otherwise)," said football_wizard in response to gretzky486's comment. "People who have not worked in your field can provide amazing feedback." On the other hand, asking too many people for input could become self-defeating, leaving founders in decision paralysis. "Sometimes you just have to go with your gut," said munkianis.

The commenters also agreed that having an open mind was key if you wanted feedback on how to improve. You've got to "be willing to accept criticism, both constructive and otherwise," said kyndclothingdotcom.

On Finding Support

"They don't call them vulture capitalists for nothing!" quipped Dr_Dudley_Dabble. According to another commenter, Popperian, many venture capitalists are guilty of seeking out "altruistic true believers," or those who really believe in their vision and are willing to do anything to achieve it. These investors will support you in the beginning, then find a way to squueze you out when the paperwork comes. "It falls under 'get everything in writing,' but there has to be a modicum of good faith in relationships for them to function in a healthy manner and they use that aspect of things against you," Popperian warned.

Another Reddit commenter, badxmaru, said the same rule applies to cofounders. "If they seem totally onboard with what you want to do and want to chase your vision and make it their own, but then their regular day-to-day or interpersonal activities are in stark juxtaposition with said vision--e.g., your startup wants to help people, but they seem to be heartless--then this is a [red] flag."

Other Warnings

Popperian also shared insights on how to watch out for shady VCs. Above all, go with your gut and don't "rationalize away" when something seems off, he said. Beyond that, watch out for petty lies--"you say to yourself, 'Why did they just lie about that when they had no reason to?'"--and beware anyone who puts off signing a contract. You have the right to do things on your own terms.

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Step No. 1 to Fast and Focused Meetings

March 26, 2014 - 1:25pm

Deb Weidenhamer, founder of Auction Systems Auctioneers & Appraisers, explains her favorite meeting technique.

How to Choose the Right Cloud Services

March 26, 2014 - 12:54pm

With the rapid proliferation of cloud services, it's difficult to know which ones are a good fit for your company's needs. Here's an explanation of the different types of clouds to help you make the decision.

If the topic of cloud computing leaves you feeling a little confused, you're not alone. There are countless ad campaigns selling ambiguous cloud solutions and scads of analyst reports telling us which software publishers have a leg up on the competition. It's hard enough for those of us in the technology services industry to keep up with all the buzz, let alone for other business owners. But ready or not, your business inevitably will be impacted by the cloud, and understanding your options is half the battle. Let's cut through the technical terms and clear up some of the confusion.

Understanding the Different Types of Clouds

In "technology years," the cloud has been around for a long time. Flash back to the late 1990s when Marc Benioff launched Salesforce with a mission to "end software" by selling his customer relationship management (CRM) solution over the Internet. His Software as a Service (SaaS) model revolutionized the industry, and nearly 20 years later his message of cost savings and greater agility continues to have wide resonance. That's also the root of some of the confusion though, because the market is now saturated with different types of cloud services. But today we are still using one word to describe the initial concept from two decades ago.

Let's start with the fact that there are business applications in the cloud typically referred to as SaaS. You can also purchase the infrastructure that supports those applications in the cloud, which is typically referred to as IaaS (Infrastructure as a Service). Two examples of IaaS are Microsoft's Windows Azure (soon to be rebranded Microsoft Azure) and Amazon Web Services (AWS). Both SaaS and IaaS can be delivered in a public, private, or hybrid cloud. So how do you know which cloud is best for you?

The Public Cloud: Low Cost

In a public cloud, you share the business application software, hardware, data center, and operating system with all of the other users. As a result, it is a very low-cost option. You take advantage of the provider's infrastructure and best-of-breed processes, which lowers your capital spend and alleviates the pressure on your IT department. Amazon, Google, Microsoft, Salesforce, and others have used the public cloud concept to give smaller companies a competitive advantage with direct, affordable access to leading software and services that might otherwise be unobtainable.

The Private Cloud: Greater Performance, Security, and Flexibility

The public cloud model has many business benefits, but one downside is potential security and performance risks. In a private cloud, the only shared component is the provider's infrastructure. A company's business applications and database are stored on its own virtual layer, essentially creating a protective bubble around your data. The virtual layer is software that allows the application to use shared hardware and still remain protected.

When an application goes down in a public cloud, typically all customers using that cloud experience a service outage too. In a private cloud, if one customer's application goes down it doesn't affect other users. In addition, in a private cloud, each customer can have its own unique security model, allowing stricter access to more sensitive data and applications.

This is why the private cloud market is exploding. Although private clouds cost more, increasing numbers of businesses are selecting them to host and manage their critical workloads and sensitive information such as financials, regulated data, and intellectual property that would wreak havoc if breached. Organizations also like the ability to customize and integrate software, making the private cloud model attractive to companies that need flexibility.

The Hybrid Model: The Best of Both Worlds

There is a lot of debate over public versus private cloud providers, and for every advantage the one offers, there is a counterpoint. My experience is that the application itself ultimately dictates where it should reside depending on an organization's needs, which means public and private clouds need to coexist in a hybrid model. According to Gartner's Top 10 Strategic Technology Trends for 2014, "enterprises should design private cloud services with a hybrid future in mind and make sure future integration/interoperability is possible."

The takeaway? Organizations need to seek out technology vendors and partners to help them develop a hybrid model that leverages the best of both public and private clouds, as well as legacy applications traditionally deployed on their own dedicated hardware (on-premises) that don't translate to the cloud. The decision of which application resides where should depend on a company's existing IT resources, its individual business or industry compliance requirements, and its future plans. We are already seeing large software publishers building tools to integrate applications across multiple clouds and on-premises.

Why Should You Care?

Back to being inundated by slick ad campaigns for the cloud and articles about the future of technology. Why are the big software companies targeting you, the business owner? Simply put, going to the cloud--and determining which type(s) of cloud is right for your organization--is just as much a business decision as it is a function of IT. And chances are, you will be making the decision sooner rather than later. The numbers speak for themselves: IDC predicts a 25 percent surge in cloud spending (software, services, and infrastructure) this year, reaching more than $100 billion.

The cloud is empowering entrepreneurs and executives to take the reins and control how and when they consume data. Rather than buying hardware or full suites of products that will likely go unused, we get to pick and choose the processes that work for us. The number of providers, software publishers, and deployment options out there can be overwhelming. But having a basic understanding of the different types of cloud models available will enable you to ask the right questions and make the right choice for your business.

Why Facebook's Billion Dollar Bets Are Bad for Innovation

March 26, 2014 - 12:53pm

Facebook's acquisition of Oculus VR is good for its founder Palmer Luckey. But is it good for the technology he created?

It was less than a decade ago that Mark Zuckerberg, a young, idealistic entrepreneur, turned down a $1 billion buyout offer from Yahoo, a tremendously powerful, but growing-stale technology giant. Zuckerberg turned it down not because of future earnings potential. In fact, Peter Thiel, one of Facebook's early investors, recently recalled Zuckerberg saying at the time, "I don't know what I could do with the money. I'd just start another social networking site. I kind of like the one I already have."

No, Zuckerberg declined Yahoo's offer because he knew that Facebook could never become what Facebook has become while under Yahoo's wing.

And yet, just eight years later, it seems Facebook may be turning into the very thing its founder once rejected: a still important technology company that's growing a bit long in the tooth and fighting to stay relevant by throwing stacks of money at whatever just might be the next big thing. The most recent example, of course, came on Tuesday, when Facebook announced a $2 billion acquisition of the virtual reality startup Oculus VR, but it's just the most recent in a string of Facebook's recent buyout offers, from it's failed $3 billion bid for Snapchat to its jaw-dropping $19 billion acquisition of WhatsApp.

With rare exception, these offers are too good for even the most devoted entrepreneur to pass up. Making money, after all, is one big reason why building a business is appealing. But while these massive acquisitions may be good for the entrepreneurs, the question remains, would Facebook have become Facebook under Yahoo's leadership? Would Netflix be what it is today had Blockbuster plucked it from Reed Hastings' hands?

When "the last big thing" acquires "the next big thing," is it ever good for innovation?

The Promise of the Deal

Facebook, for one, has said that it intends to develop Oculus's virtual reality technology, which is currently only used for immersive video games, into a new type of social platform. As Zuckerberg wrote in a Facebook post:

After games, we're going to make Oculus a platform for many other experiences. Imagine enjoying a court side seat at a game, studying in a classroom of students and teachers all over the world or consulting with a doctor face-to-face--just by putting on goggles in your home.

This is really a new communication platform. By feeling truly present, you can share unbounded spaces and experiences with the people in your life.

And in a Reddit post, Oculus's own 21-year-old founder Palmer Luckey wrote, "This deal gives us more freedom to make the right decisions, not less! Facebook has a good track record for letting companies operate independently post-acquisition, and they are going to do the same for us. Trust me on this, I would not have done the deal otherwise."

The Reality of Acquisitions

The problem is, in a typical acquisition, the acquirer uses the new toy to support the existing business, which tends to stymie innovation. It's new technology being stuffed inside an old business model. It's happened time and again--just take a look at traditional media outlets struggling to create something new online, while ground-up approaches such as Buzzfeed and Upworthy soar. Remember what happened to MySpace once News Corp. snapped it up?

That's one reason why Reddit is already littered with comments lamenting the news. "They are trying to buy up any tech startup that gets buzz so when Facebook becomes irrelevant (and it is) they have a big grab bag of backup plans and patents to pay the bills with," wrote one Redditor. "There is no rhyme or reason to the acquisitions other than if it looks cool buy it."

"A company [that] has a core business model of spying on people for advertisers buying a gaming hardware accessory company instills about as much confidence as the NSA installing your television," wrote another.

Meanwhile, Markus Persson, creator of the game Minecraft, has scrapped a deal to bring his game to the Oculus Rift headset. "Facebook is not a company of grass-roots tech enthusiasts. Facebook is not a game tech company. Facebook has a history of caring about building user numbers, and nothing but building user numbers," he wrote on his website. "People have made games for Facebook platforms before, and while it worked great for a while, they were stuck in a very unfortunate position when Facebook eventually changed the platform to better fit the social experience they were trying to build."

Of course, none of this means that Facebook can't do something cool with Oculus's technology. I, for one, would be very interested in strapping on one of those geeky-looking headsets if it meant I'd feel like I had a front row seat at, say, a Justin Timberlake concert (yeah, I said it). But the question still remains: how much cooler, how much more important, how much better could the technology be if it remained in the hands of its creators?

3 Ways to Be More Likeable on Video

March 26, 2014 - 12:49pm

It's much harder to make a good impression in a video conference than it is in person. How to come across as the friendly genius that you are.

You may love using Skype. But chances are, Skype isn’t giving you any love in return.

A recent story in the Wall Street Journal has some sobering news for anyone who has turned to videoconferencing in an effort to cut travel days, work from multiple locations, or allow their staff to work remotely: Coming off as “likeable” is much harder via video than it is in person.

Job candidates who interview via video conference receive lower likeability ratings, lower interview scores, and are less likely to be hired than those who interview in person, according to a study cited by the Journal and published in Management Science. And the story says that people watching a speaker on a video conference are “more influenced by how much they like the speaker than by the quality of the speaker’s argument.”

Likeability and competence have long been shown to be at odds with each other. The more likeable someone is, the more apt we are to think he or she is weak and therefore not particularly competent. When someone is viewed first as highly competent, on the other hand, we tend not to trust him or her and even to feel threatened. Asked to choose between a lovable fool or a competent jerk, we tend to go for the lovable fool.

Recent research suggests the best strategy is to connect, then lead. In other words, get people to like you, trust you, and feel comfortable with you first. Then and only then are you free to bowl them over with your brilliance.

In your quest to become more likeable, here are a few simple mistakes that could crush your efforts:

Don't stiffen up or refuse to show emotion. It seems that some people react to video conferencing the same way the would if they were going on television or onstage. They get nervous and stiffen up. But a videoconference isn’t usually a big event like that. There will probably only be a few other people in the room, and you probably already know most of them. So relax.

Avoid overacting or exaggerating. This is the other extreme, and like the first, is most often a result of anxiety.

Skip playing the class clown. It’s already harder to communicate via video, because you’re not getting all the nuances you get in person. Joking around is even more fraught when you can’t easily read the reactions of everyone in the room. Don’t try it.

So what should you do?

Make eye contact. Look into the camera. This can be difficult, because in person, no one spends an entire conversation looking directly into someone else’s eyes. On video, you want to talk directly to the camera.

Smile naturally when you talk. Try to get yourself in a good mood before the video conference, even if that means thinking about something completely unrelated. Physically, force yourself to smile. Smiling affects the way our brain processes stimuli, and actually stimulates the "happiness centers" in our brains.

Vary the tone of your voice. It can be a bit hard to do this without veering into overacting, but remember, your conversational partners are relying only on your voice and face, without any other cues to guide them.

It’s hard to find the line between being upbeat and being annoying, but a little practice helps. You can get an idea of how you’re doing by having a pretend conversation with a client in front of the camera, and then playing it back without the sound.

Acknowledge other’s emotions. If someone seems to have a strong reaction to something you’re saying, ask for his or her opinion. Show some curiosity about what he or she is saying, thinking, or feeling. Don’t just barrel through, as if you’re up on stage with a carefully rehearsed presentation you have to get through. Being genuinely interested in others is a sure way to be more empathetic and likeable, no matter what the medium.

The Simple Communication Error That Will Cost You Employees

March 26, 2014 - 12:49pm

Companies know employees value the opportunity for career advancement. They just don't know how to show those opportunities off.

There have been a number of recent surveys and reports showing the value top talent puts on the opportunity for career advancement in their organizations--and how a perceived inability to do so drives them to leave their companies.

LinkedIn recently released another data point showing much the same. In a survey of more than 7,500 employees who had recently left their jobs, respondents cited greater opportunities for advancement as the number one reason they took new gigs. (Better leadership from senior leaders and better compensation were the second and third most common reasons.)

Yeah, yeah, you get it. The horse is beaten well enough. Your employees want the opportunity to advance, and you're moving to address that need. Or maybe you already have.

A Breakdown of Communication

But the LinkedIn survey carries a certain tragedy with it. In a previous LinkedIn survey last year, 69 percent of U.S. HR professionals said their internal mobility program is well-known among employees. But the new survey shines light on a serious disconnect, as only 25 percent of employees said they were aware of their employers' internal mobility programs.

In other words, companies may well already know employees want career advancement opportunities, but they're still failing to retain talent because they aren't showing thosee opportunities. It's not enough to offer leadership development programs and an internal job board; you need to market them to your team as well.

In an interview with Inc. earlier this month, Josh Bersin, principal of Bersin by Deloitte, told the story of a company that had experienced this problem. The company saw a high rate of attrition among entry-level employees right about 10 months into their tenure with the organization.

To combat the problem, the company went a step beyond simply directing employees to a job listing page. Instead, it analyzed the career path of a number of veterans at the company to see how their rise through the company developed. They were then able to create a site that drew on that data to show how any given employee might be able to move in the organization based on their experience to that point. Employees were given access to the site after their first few months at the company. Bersin says that company's attrition rate dropped quickly after introducing the site.

That solution might be a little more high-tech than necessary, but you need to do something beyond simply providing career opportunities to your high-potential talent. You need to let them know all about their options within the organization--and how those opportunities stand to advance their careers. Otherwise, they'll look to advance them elsewhere.

Why Internal Ventures Are Different From External Startups

March 26, 2014 - 12:45pm

When companies set out to innovate a new business model, they are signing up to fight a battle on two fronts. Here is how they can succeed.

Henry Chesbrough is known as the father of Open Innovation and wrote the book that defined the practice. Henry is the Faculty Director of the Garwood Center for Corporate Innovation, at U.C. Berkeley in the Haas Business School. Henry and I teach a corporate innovation class together.

----

Thanks to Steve for the opportunity to share my thoughts with you all. This post follows directly on Steve's earlier excellent post, Why Companies are not Startups.

The question of how corporations can be more innovative is one I have wrestled with for a long time. For those who don't know, I wrote the book Open Innovation in 2003, and followed it with Open Business Models in 2006, and Open Services Innovation in 2011.

More recently, Steve, Alexander Osterwalder and I have started sharing notes, ideas and insights on this problem. We even ran an executive education course last fall at Berkeley on Corporate Business Model Innovation that helped each of us understand the others' perspectives on this problem. In this post, I want to share some new thoughts that build on Steve's post and connect them to Lean Startup methods. I will then, however, argue that while these methods are necessary to managing new ventures inside a company--they are insufficient.

First, let me recap a key insight for me from Steve's post. A startup is a temporary organization in search of a repeatable, scalable business model. A corporation, by contrast, is a permanent organization designed to execute a repeatable, scalable business model. While a simple statement, this is a profound insight. When companies want to innovate a new business model (vs. innovating new products and services within an already scaled business model), the processes that companies have optimized for execution inevitably interfere with the search processes needed to discover a new business model.

This has serious implications for corporate venturing, for innovating new businesses--and new business models--inside an existing corporation. The context for an internal venture inside an existing company is dramatically different from the context confronting an external startup out in the wild. The good news is that corporations have access to resources and capabilities that most startups can only dream of, whether it is free cash flow, a strong brand, a vibrant supply chain, strong distribution, a skilled sales force, and so on. The bad news is that, as Steve reminded us above, each of these assets is tailored to execute the existing business model, not to help search for a new one. So what seem like unfair advantages for corporate ventures become inflexible liabilities that block the search process of the venture.

But the contextual differences go even beyond these substantial differences. A corporate venture, struggling to search for a new, repeatable and scalable business model, must wage that struggle on two fronts, not just one. The external startup has to work long hours and make many pivots to identify the product-market fit, validate the MVP, and articulate a winning business model that can then be repeated and scaled. The internal venture must do all this, and more! The internal venture must fight on a second front at the same time within the corporation. That second fight must obtain the permissions, protection, resources, etc. needed to launch the venture initiative, and then must work to retain that support over time as conflicts arise (which they will).

Knowing Steve's fondness for military metaphors, think of the corporate venture as fighting a war on two fronts at the same time. Just as Germany's domination of Western Europe in World War II was eventually undone by its decision to launch a second front by invading Russia, so too unlike a start up, corporate ventures cannot focus solely on winning in the external marketplace. This leads to two key points:

Point one: You have to fight--and win--on two fronts (both outside and inside), in order to succeed in corporate venturing. As Steve would say, this is a big idea.

One memorable example of this was Xerox's internal venture capital fund, Xerox Technology Ventures (XTV). Launched by Robert Adams in 1989, this $30 million fund grew to over $200 million in the next 7 years, as it launched companies like Documentum and Document Sciences out of Xerox's fabled Palo Alto Research Center. This financial performance was extraordinary and put XTV in the top quartile of all VC funds launched in 1989. Ordinary VCs would use this success to raise an even larger fund, and try to create the magic once more.

But Xerox instead chose to shut XTV down in 1996, despite its external success. Why? XTV's success created lots of internal dissatisfaction within Xerox. The success of Documentum and Document Sciences, they felt, came largely from Xerox technology and customers, yet the startup companies XTV funded got all the credit. Worse, Robert Adams and his two partners got 20% of the carried interest in the fund, resulting in payouts of $30 million to the partnership. This was more, far more, than the Xerox CEO was paid in those years. So XTV won in the market, but lost inside the corporation.

This leads us to:

Point two: Corporate ventures may need to pivot to obtain and retain internal corporate support for the venture. This is likely to be controversial for adherents to Lean Startup thinking because we traditionally think of pivoting to improve the product-market fit in the external marketplace. But astute corporate venture managers, realizing that they must fight the war on two fronts, will also be alert to the need to pivot if needed in order to keep the internal support they require in order to succeed. For example, the new venture might pivot away from current customers of the corporation in the early days of the venture, in order to reduce friction with the established sales force (who want to sell large quantities of the current product, not test minute quantities of some future product that may or may not ever be built in volume. Worse, the potential new product might give customers a reason to delay the purchase of today's products).

This also suggests that the internal organization must be carefully designed and prepared in order to sustain internal support for ventures over time. Ventures that launch without this preparation are at great risk as soon as the initial enthusiasm for innovation begins to wane. One bad quarter for the company, or one transition for a key internal champion, or the arrival of a new CEO who wants to clean house, any of these unforeseen changes could spell doom for an unprepared internal venture program.

This suggests a further modification to Lean Startup: Get Upstairs in the Building. You will need strong, sustained internal support for successful internal venturing. You will need to get the bigwigs upstairs to sign up to the risks, and put structures in place to insulate and protect the ventures from the execution processes in a large company that will attack the new venture. Think of it as internal political product-market fit, and prepare to pivot in order to increase that fit (and your support).

We will continue our conversations, and I fully expect that Steve, Alex and I will have more to say about how best to structure and support new ventures inside a large corporation in future posts.

Lessons Learned:

  • Internal ventures face a different context than do external startups.
  • Venturing inside a corporation is a 2-front war.
  • Lean Startup Methods are necessary, but insufficient, to fight this war.
  • An internal venture may need to pivot to gain or maintain internal support. Get Upstairs in the Building, to generate this support.
  • Stay tuned, as Steve, Alex and I have more coming….

When Should You Leave Big Decisions Up to Fate?

March 26, 2014 - 12:37pm

A recent study took a look at the relationship between tough decisions and the belief in fate.

Recent research from Duke University suggests that when decision makers are ambivalent about a set of tough choices, they tend to be comfortable pinning the outcome on fate.

The researchers defined fate as "the belief that whatever happens was supposed to happen, and that outcomes are ultimately predetermined." They conducted their study by asking 189 participants about their presidential candidate choices during the 2012 election. Those respondents who said they were stumped over their decision were also more likely to indicate that they believed in fate.

If you're thinking that such a philosophy is a little reckless, especially in a business setting, consider the upside. Difficult decisions are stressful and aversive, especially when they're important and need to be made quickly. However, "deferring responsibly for complex issues and attributing events to external forces, such as governments or other powerful forces, can be psychologically palliative and can reduce stress," the authors wrote, citing other researchers in their paper.

But despite the fact that a belief in fate might result in better mental health, the authors conceded that the mindset could short-circuit a good decision-making process. Nobel laureate andpsychologist Daniel Kahneman has written about the pitfalls of mental shortcuts in his bestselling book Thinking, Fast and Slow.

In the book, Kahneman describes two different kinds of mental processing: System 1, which is quick and based on intuition, and System 2, which is slower and based on reasoning. The mental shortcut of invoking fate falls under System 1.

In an interview with Inc. Kahneman said that, while you don't have control over all outcomes, that's no reason to rely on System 1 for tough decisions.

"Not all mistakes are avoidable," he said. "But there are some mistakes that if you brought System 2 to bear, if you slow yourself down, you could avoid."

Relationship Science: Harnessing Big Data for Power Networking

March 26, 2014 - 12:30pm

Relationship Science founder Neal Goldman has built what he likes to call "the Death Star of business development."

Maybe you know Neal Goldman. Or maybe you know someone who does. A minor celebrity in both Davos and Big Data circles, Goldman sold his first company for $225 million, back when less than a billion dollars was actually worth something. Tonight, I am meeting him for the first time, sharing a train ride to Philadelphia, where I'll get to hear him pitch his latest company, Relationship Science.

While waiting in the maelstrom of NYC's Penn Station, I run through what I've learned about him: where he went to school, where his sister-in-law works, and how much cash he donated to Rudy Giuliani's presidential campaign ($6,900). I also go over a mental list of people in his circle--including, crucially, the ones we have in common.

I've learned all of this because before I met Neal Goldman, I stalked him, using his own software. So when I finally pick him out of the swarm, I'm able to drop the name of a mutual friend: "Parag Khanna sends his regards," I say, referring to the foreign-policy wonk and author. Goldman, wearing the tech exec's standard-issue scruffy beard and horn rims, rocks back on his heels, eyes vaguely searching, trying to put the pieces together. And the fact is, I don't have a clue whether my old friend Khanna and Goldman are drinking buddies or mortal enemies. I'm about to find out.

Relationship Science--or RelSci--is an online platform built with profiles drawn from the 1 percent. It's not some free-for-all social network full of selfies and botspam, like Facebook or Twitter. Nor is it LinkedIn, whose metastatic expansion threatens the integrity of the entire system. And unlike net-worth-obsessed virtual clubhouses such as A Small World, RelSci isn't for swapping houses in Gstaad or getting tips on a fabulous butler in Ibiza. In fact, the point of RelSci has nothing to do with expanding your circle of friends. The point is to use the people you do know to find a pathway to the rich and powerful ones you don't.

Goldman likes to call RelSci "the Death Star of business development." The company's software gives users a simple, graphical view of how members of the Establishment are connected and how those people may be connected to you. The enterprising Machiavellian can then use that map to plot a route to new relationships. And new customers.

RelSci says it already has three million-plus people in its database, but that number is less important than expanding the number and quality of links among them. "We've chosen not to be user-generated," Goldman insists en route to Philly. "Users can fluff anything." That's why you don't join RelSci, you can't quit, and there are no endorsements. RelSci--not you--decides who's in and who's out. If you're one of the thought leaders, decision makers, or entrepreneurs who matter in RelSci's world, you might have a profile on its database and never know it; Larry Page, Marc Andreessen, Jeff Bezos, and Tony Hsieh are there whether they want to be or not.

And odds are, you aren't there: Pay your individual $3,000 annual access fee and you'll likely find you don't even rate a spot on RelSci's list. (For-profit enterprise fees begin at $9,000.) "We're not a social network," Goldman explains. "We've built a matrix of how the world really works."

RelSci uses the people you know to find a pathway to the powerful people you don't.

Already, universities and nonprofits are using the system to identify new donors; bankers, lawyers, and headhunters prefer it for burrowing into prospective clients; and investors scour it for insiders who can satisfy due diligence ahead of deals. The model is apparently so enticing that Goldman won hundreds of clients and, the company says, nearly eight figures' worth of business in 2013, which was RelSci's first year since coming out of stealth mode. Equally impressive, he raised approximately $90 million from such old school moguls as Henry Kravis, Ron Perelman, and Home Depot co-founder Ken Langone--men whose deal-making prowess is largely a function of their contact lists.

Much of what RelSci is selling is the accuracy and objectivity of its data. RelSci isn't built from the kinds of self-reported delusions or exaggerations that lie at the core of social nets. Instead, Goldman and his team of several hundred engineers, editors, and data scientists (many based in India) have quietly spent years constructing their network using only publicly verifiable information. This not only requires constantly scraping the Web for updates but also building rich profiles from tens of thousands of databases, ranging from SEC filings to paparazzi photos to tax records. These pieces have in turn been joined to link everyone through past and present employers, board memberships, investments, donations, politics, and even siblings, children, and spouses.

Relying on news reports and databases--rather than the users themselves--has obvious strengths and weaknesses. At its best, RelSci is a fine-grained, fact-checked compendium of the world's most influential people and the web of affiliations that binds them together. In practice, however, relying on editors and public documents leaves the database riddled with holes, especially in areas outside its core of finance.

RelSci may have the full measure of a man like Ken Langone, but luminaries in Hollywood or Manhattan media circles may have skeletal profiles, if they exist at all. Goldman counters that the database is gaining resolution all the time. He's betting he can digitally reconstruct the interpersonal links, upload them to the cloud, then leverage Big Data's ability to connect dots invisible to the naked eye. He sees his software as a tool for mining the value buried in our latent connections. If Big Data is the new oil, Goldman likens RelSci to fracking: "We knew it was there, but we couldn't tap it. Now we have the technology to bring it to the surface."

Using RelSci is a bit like using the New York City subway map. When you've identified your destination--in my case, one Neal D. Goldman--the software produces a color-coded schematic of the various routes to get there. Each station represents a person, and each line between people defines their relationship. For Goldman, RelSci presents me with 300 choices, all within three degrees of separation. Its proprietary algorithms sort each link into strong, medium, and weak ties; mousing over a name or track reveals the details of our connection.

There is no contact information on RelSci. If I have to ask how to find my friend Khanna to get an introduction to Goldman, then I don't really know Khanna. This last point is crucial: RelSci doesn't open any doors. It doesn't make introductions. It makes clear the connections you might exploit, but leaves the exploitation up to you--which explains why even Goldman's backers are equally horrified and gleeful about his product. "Most of them told me, 'I hate it! I love it! I have to have it!' " he says.

"What he's selling here is that we're all interlinked," says Langone, who sits on the board. "And damn it, it's scary! What used to take two or three days of calling around now takes 15 minutes. And all of the information is totally public, so if you have a problem with how I got to you, don't bitch at me; bitch to the SEC."

As with any network, RelSci's utility rises with the breadth and depth of one's connections. Machers with a vast global web, such as Langone, are much more likely to find a short, strong path to their prey than the poser who lofts a Hail Mary on the basis of a shared alma mater or long-ago internship. The Chinese call it guanxi; we might call it juice (or Klout). And as quickly becomes clear, I have very little of it.

One exec challenged Goldman to get her kid into a private school. With one click, he delivered.

To put the RelSci software through its paces, I decide to use it to find Reid Hoffman, the semi-reclusive LinkedIn co-founder and Greylock partner. The software charts an easy path for me through Mark Gilbreath, the amiable CEO of an office-space startup called LiquidSpace in which Hoffman is an investor. Gilbreath is happy to help, but his emailed introduction is promptly batted away. It doesn't matter that Hoffman trusts Gilbreath; there's still no upside in talking to me. So I try to track down Y Combinator's Paul Graham. Again, RelSci illuminates an easy line, this time through PopTech impresario Andrew Zolli. Alternately amused and aghast by my call, Zolli confirms he knows Graham, but declines to help anyway, as passing me along would draw down his own stock of juice.

"It's not about who I can introduce you to," he says, "but who you genuinely know. I think [YouTube comedian] Ze Frank said it best: I think about someone who has 2,000 friends on the Internet the same way I think about people who have 2,000 sexual partners."

Goldman has come to Philadelphia this morning to address his peers in the information business, those whose databases form the backbone of RelSci. Dressed in his backwoods preppy uniform of a down vest over khakis and a rumpled shirt, he starts by wishing for "a tool that would exponentially increase my ability to sell." Then he lists the challenges facing professional networkers like himself: "Who should I be talking to? How do I create serendipity?"

At breakfast, our conversation had quickly veered toward serendipity, a current Silicon Valley obsession. And it turned out that Goldman had profited from it once before. He had been a junior investment analyst at Lehman Brothers, killing nights filling spreadsheets, when he decided there must be a better way. In 1998, at age 27, he quit to start Capital IQ, peddling what amounted to an analyst-in-a-box to his former employers. A few years later, he sold the entire company for $225 million to Standard & Poor's after a routine sales call.

But when it comes to meeting people, Goldman believes that what we call serendipity is merely the random expression of dormant connections all around us. To make the most of those possibilities, networking must become systematized and ultimately productized. "It's all about the combinatorial possibilities emerging from these unknown but already existing relationships," says Josh Wolfe, a managing partner at Lux Capital and personal investor in RelSci who's also a complexity-science maven. "I guarantee you and I probably have five things in common we're really passionate about." (One of them, it turns out, is our mutual friend Parag Khanna.) "If I have a tool that helps me discover those things...that's immensely valuable."

Talk to Goldman long enough, and it's clear that for all the hype around "social business," we've barely begun to visualize, much less methodically exploit, the social networks everywhere around us. In one survey, nine in 10 of the executives polled agreed that the strength of customer relationships was essential in hitting revenue targets, but only a quarter bothered to track them, and less than 5 percent pursued them strategically.

Stalking Reid Hoffman

The author doesn't know Hoffman. But Relationship Science quickly showed him many people he knows who could connect him. Click here to enlarge.

If every business is now a relationship business, then of course Goldman hopes that every company will ultimately need Relationship Science. He likes to illustrate that point to prospective customers by taking them on a scavenger hunt through his database. His favorite was the skeptical private equity exec who challenged him to get her kid into a particular private school. Goldman obliged, delivering with one click all the paths between her, her company, and the school's trustees, as she furiously scribbled them down. Her firm signed on, joining Guggenheim Partners, Jones Lang LaSalle, Perella Weinberg Partners, Nasdaq, Yale, and Duke as just a few of RelSci's first 300 customers last year.

RelSci suggests the future of networking--and of social networks--will radically reduce the role of luck. If social media today, a decade after Facebook's founding, presents a warped, cracked reflection of the world around us, RelSci is trying to map that world, especially the professional part of it, with increasing detail, precision, and context. One crucial early step--although possibly an unsettling one--is to collectivize our individual Rolodexes. RelSci already does this: Companies with multiple subscriptions can run searches against all their users' connections, vastly expanding the likelihood of extracting some value from the network. The more rainmakers whose frontal lobes are uploaded to the cloud, after all, the more paths emerge at that click.

Networking's next logical step is to move beyond purely public information into richer troves of private data. In one of our conversations, Goldman mused about asking subscribers for permission to passively read their emails in the hope of more accurately gauging the strength of their relationships. And once the algorithm knows you better than you know yourself, the step after that is to let the software quietly mine those "combinatorial possibilities," engineering serendipity for you--even while you sleep.

As a growing body of research demonstrates, we usually can't even tell who the most important person in the room is. Not even RelSci has cracked that one yet, but it has come the closest and is still improving. One feature, for example, is a helicopter view of entire companies as the sum of their relationships, and how those relationships lead to people in other companies and industries. Where are their connections strong? Where are they weak? And where are the strategic opportunities 95 percent of corporate executives overlook? If they can't see them, perhaps RelSci's algorithms can.

Goldman's focus on fine-grained "medium data" is what sets RelSci apart from its biggest and most obvious competitor, LinkedIn. With more than 277 million profiles worldwide, LinkedIn is nearly a hundred times RelSci's size and intends to get bigger. Its long-term goal, according to senior director of data science Jim Baer, is to build the "economic graph," a totalizing representation of "every opportunity in the world, and every worker, every school, and every entity."

LinkedIn's size is RelSci's opportunity, as expansion drives LinkedIn's increasingly iffy signal-to-noise ratio even lower. Casual users like me roll their eyes at the random friend requests and misleading endorsements that are hallmarks of the site these days. "None of that shit," mutters Langone. "I have guys emailing me every third day with LinkedIn requests." (Users will fluff anything.) Still, not everyone is on LinkedIn. Goldman says that half the names in RelSci's database have no presence on social media.

Former Thomson Reuters CEO Tom Glocer, also a RelSci investor, believes LinkedIn and other large public gardens will get better at filtering, and that more niche competitors will inevitably spring up. (Bloomberg, for example, has long talked up the idea of a "people index.") But Glocer is confident RelSci has a three- to five-year lead, thanks to what he sees as the depth and elegance of its database.

Goldman expects that most customers will eventually experience the service as an integrated feature of Salesforce (another investor) or some other CRM system. But that's thinking small. Imagine adding Google Glass to the picture, with a RelSci-powered facial recognition app matching the wearer's profile against people in the room, suggesting targets for sucking up to, along with the optimal pathways.

If RelSci's model of reality has a crippling flaw, it's in encouraging users to assume that the name on the door is the one with all the juice. Mapping true influence isn't that simple. Ronald Burt is a sociologist in the University of Chicago's Booth School of Business who for more than 30 years has studied the phenomenon of "structural holes," i.e., gaps within organizations. Those who bridge these holes, he has found, produce more ideas, make better decisions, and prosper accordingly. But they aren't necessarily the ones in charge.

To demonstrate, Burt brandishes a network map of one of the largest pharmaceutical companies in the world. Among its top executives, he explains, a single person is all that ties the group together. The irony is that he's a relative nobody--several tiers below the CEO and the heirs apparent. Burt's point is that the boldfaced names are not always the ones we should be chasing. "RelSci doesn't answer the question of 'why them?' " he says. "It assumes you know." That assumption, he makes clear, is often wrong.

The combination of ubiquitous sensors, Big Data, and social networks means we'll soon be able to spot and seal structural holes in something close to real time, in line with Goldman's dream of fracking our networks' full potential.

MIT's Alex "Sandy" Pentland is the leading prophet of relationship science, which he calls "social physics." By understanding how ideas and information flow, Pentland says, "you can reinvent organizations to make dramatically better decisions." A few years ago, his team in the Media Lab's Human Dynamics Laboratory invented "sociometric badges" that record a person's movements, posture, and conversation patterns. Using these badges, organizations can not only tell who's working together, where, and for how long, but also how seemingly banal measures like face-to-face conversations correlate to performance and creativity. He also found the natural "charismatic connectors" who straddle Burt's structural holes.

If Burt and Pentland are correct that the social dynamics of business are becoming subtler and more formalized, the inevitable next step is to try to make them automatic. A pioneer in this area is a Silicon Valley-based startup named Ayasdi, which has developed an entire subfield of mathematics--topological data analysis--that renders any Big Data set as a network derived from hidden patterns. CEO and co-founder Gurjeet Singh calls the emerging surprises "digital serendipity." The software works just as well examining promising drug compounds or cancer research, but the most interesting uses are in social networks. Just ask Ayasdi's incubators, the National Science Foundation and DARPA.

Maybe the clearest and most dystopian glimpse of where all of this is headed comes courtesy of Tim Hwang, who breeds artificially intelligent "socialbots" as co-founder and chief scientist of the Orwellian-sounding Pacific Social Architecting Corporation. In 2011, he and his co-founders trained fake Twitter accounts to tweet at several thousand humans, deceiving them into tweeting back at the bots and eventually at one another. When the experiment ended, they found the bots had effectively wired their human targets together.

Now Hwang is teaching his socialbots to translate online influence into real-world influence. He's working with clients in public health and politics to put his experiments to work, whether that means fighting disinformation about vaccinations or selling a candidate. In the case of the latter, that entails identifying the most influential supporters in a target's circle, then nudging them via socialbots to steer their friends on a particular political race or issue.

All that's holding socialbots back "is that [online] social networks haven't become important enough to established politicians and policymakers," says Hwang. "But as an entire generation grows up on these networks, you're going to see a much broader impact." After social media comes social engineering.

Goldman is way ahead of Hwang: RelSci's data scientists are already filling in the next quadrant on its map of the Establishment: Washington lobbyists. Following his speech in Philadelphia, I bump into his principal supplier. Bruce Brownson runs a database called KnowWho, specializing in politicians all the way down to the county level, with histories going all the way back to high school. His data power Facebook's and Microsoft's own lobbying campaigns. "We're all lobbyists now," he says, "we just won't admit it. We lobby people while watching our kids on the ball field; we lobby in the PTA."

Brownson has a point. And as Big Data grows inexorably bigger, we'll spend less time stumbling in the dark, searching for a connection, and more time actually connecting. But there is an obvious pitfall: An algorithmic arms race is already under way. As Glocer, the ex-Thomson Reuters CEO, puts it, "the danger is that the tools get to be so prevalent, everyone is on the tools." And that will be the last time anyone talks about forging a genuine human bond.

Even now, using RelSci is not without its perils. It's tempting to do what I did with Goldman in Penn Station--just take whatever names the database offers and throw them around, hoping to capitalize on any legitimacy they provide. But the software doesn't know everything. The flip side of using public information is an inherent degree of uncertainty. It can't tell me if my friend Khanna, who travels in the same Davos circles as Goldman, recently crossed him in a business deal--or dated his ex-wife. (At one point, RelSci's editors considered adding an Adversaries button, before realizing they could never keep up.)

Feeling a little guilty, I finally confess to Goldman that the first words out of my mouth were a lie. He's more amused than disappointed, pointing out that I only went astray by passing along Khanna's non-existent regards. A more truthful way of phrasing it would have been simply, "I think you know my friend Parag."

And that's more or less exactly what happens with Lux Capital's Wolfe a few weeks later: Moments after hanging up, he calls back to tell me excitedly we have Khanna in common. We bask for a moment in a sunbeam of engineered serendipity, but I can't help thinking: I really wish I'd known that before we talked. From now on, I will.

How College Talent Learns About Your Company

March 26, 2014 - 12:07pm

Word-of-mouth still matters the most.

Big companies put a lot of money into on-campus recruiting, and small companies with smaller budgets stake out digital space to try and reach college talent as it funnels into the workforce. So it's somewhat surprising to see that college students still rank word-of-mouth as the number one way they learn about companies.

According to Sanjeev Agrawal, CEO of career platform Collegefeed, in a post on the HBR Blog Network, more than 70 percent of students and recent grads cited friends as one of the top three ways they learn about companies. Job boards came in second, at just under 70 percent, and campus visits ranked third, with less than half of students responding with that answer.

About 15,000 students and recent grads responded to the Collegefeed survey.

Those responses might raise eyebrows in a digital age that affords companies every opportunity to get their name out there through social media and other digital opportunities, not to mention the inroads they look to make on campuses.

"These results blew us away," Agrawal writes. "Most companies (almost 100 percent of the large ones we spoke to) say that they have an on-campus recruiting plan and that is where they focus their sourcing and branding efforts. Many also have dedicated organizations to build relationships on campus."

That isn't to say they're looking to follow their friends into their companies, however.

The same group of respondents ranked "alumni and friends" at a company as the last thing students were looking for at a company, even if friendships serve as the top way they learn about companies. (The top choice in that category was cultural fit at the company. Career potential, followed by work/life balance, followed.)

That presents a little bit of a convoluted scenario. The survey shows that students learn about companies they might want to work for through friends, but that they don't really care about working at the same companies as their friends. They also want to work for companies with great cultures.

Connecting the dots, this might indicate more than anything the sort of chatter that is going on among job-seeking millennials. It might be that they're talking about the culture at their companies, and that sort of word-of-mouth is enough to turn a recent grad's eyes toward the career section on a website.

If so, that speaks volumes to the importance of growing a happy, healthy culture not just for the sake of the employees you already have in the door, but for those you might want to eventually bring through it.

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