Internet is Making People Stupid– Less Creative, Less Thought: Click-Bait, Pawn of Commercial Interests…

The internet is changing the way people– think, behave… But does it make people– smarter or stupid? Stronger or weaker? Freer or more enslaved? Do people control it, or does it control people? Does it change the way people think and process information? According to Nicholas Car; people don’t think the way they used to think; they are deeply dependent on networking technology, and it’s changing not only the way people think, but also it’s changing the structure of the human brain… People don’t write down or memorize detailed information any more, they just do an internet search to retrieve it…

The internet is a global prosthesis for collective memory. According to some; that means people are losing some capacity for contemplative thinking… and as people get better at hopping from page-to-page, link-to-link… they become less creative in their thinking... However, the idea that the brain is a kind of zero-sum game, where engaging the internet is somehow diminishing the ability to think creatively may be a little far-fetched… In fact, it may be complete opposite where the internet stimulates people to think and act more creatively because they are exposed to new and different ideas and experiences…

In the article Internet Makes People Stupid by Kabir Sehgal writes: The internet enables a dizzying array of decisions, e.g.; click here, watch this, share that… These may seem like trivial decisions but it means that the human brain is consequently reshaping itself on how it learns, reads, thinks… According to UCLA study; researchers found that people who are more experience with the internet have heightened mental activity, particularly in part of the brain that affects decisions…

But there is a downside; when people encounter distractions, such as; hyperlinked text… the brain asks the question: To click, or not to click… And since a person is constantly being interrupted to make these decisions they rarely concentrate on content, consequently they don’t retain information as deep knowledge… According to Nicholas Carr; the constant redirection of a person’s mental resources from reading to making judgments may be imperceptible but its been shown to impede comprehension and retention when repeated frequently…

In the article Internet Changing People’s Brain?  by Sarah Churchwell writes: Not surprisingly, internet usage rewires the brain and even a little usage changes the neural pathways of the brain… Hence some people become mindless consumers of information… According to Geoff Dyer; people’s ability to concentrate is being nibbled away by the Internet… But does that really matter? Possibly. Human creativity is predicated on engaging the long-term memory, in order to create new neural pathways and associations.

But by reading ‘snips’ of information, incessantly, on the internet, the mind is scattered and has less focus, which diminishes creative thinking… According to Bidisha; the internet is definitely affecting the way people think… it means people are constantly being distracted, interrupted… They are being pushed, pulled in different directions and, literally and metaphorically, they can be anywhere in the world through a simple click…

In the article Internet is Making People Stupid by Richard Bennett  writes: Click-bait is making people stupid. This isn’t a new fact, it’s a reality and it’s increasingly harder to ignore… But  people are getting smarter because they have  easy access to an ocean of information: These are the realities of the internet. Yes, the internet makes more information available but most of it is ‘click-bait’ because that’s where the money is… The more people surf the internet– the more links are clicked, more pages are viewed… that means more companies collect more information about the habits and behavior of more people… So they can feed more advertisements to sell more things.

It’s in an organization’s best commercial interest to collect crumbs of information about people as they flit from link-to-link and drive people to distraction. But it’s not in their commercial interests to encourage a leisure read or slow concentrated thought… According to Walter Quattrociocchi; this creates an ecosystem in which the truth value of information doesn’t really matter… All that matters is whether the information fits in a specific narrative… Finding information that fits in the narrative makes a person a good candidate for commercial engagement…

In the article Internet Making People Stupid by David Weinberger writes: Suggesting that the internet is making people stupid is a relative notion, i.e.; it’s a matter of whether it makes ‘you’ or ‘other people’ stupid… We all, or maybe most people, spend time bouncing around the internet as if it were a global pinball table. One link leads to another and then to another… Sometimes topics are worth knowing about and sometimes they’re just mental itches that spawn more itches every time scratched. Often people can’t remember how they got there and sometimes they don’t even remember where they started and why…

But it’s undeniable that the internet is immeasurably powerful, it’s the conduit for much of the information that flows to people’s minds. The advantages of having immediate access to incredibly rich store of information are many and widely described and duly applauded… According to Clive Thompson; its huge boon to thinking: But does this boon come at a price? According to Marshall McLuhan; it’s not just a passive channel of information, it supplies stuff of thought and shapes the process of thought… chips away at the capacity for concentration, contemplation, creativity…

People who read text studded with ‘links’ comprehend less than those who read words printed on pages. People who watch busy multimedia presentations remember less than those who take in information in a more sedate and focused manner. People who are continually distracted by emails, updates, messages... understand less than those who are able to concentrate. And people who juggle many tasks are often less creative and less productive than those who are focused…

The more people use it, the less they are engaged in quieter, slower attentive modes of thought that underpin contemplation, reflection, introspection… it’s not that people’s habits have changed but it’s the way people ‘thinking’ has changed. One thing is for sure– the internet, with just a simple click, unleashes an unlimited wealth of discovery. And if that makes a person stupid, well then that person made a choice… 

 

Clueless Leaders – Many Organizations are Notorious for Picking– Incompetent, Arrogant, Dysfunctional Leaders.

Clueless leaders are like dirty socks, even though you really don’t want them around but you still keep them around, until the odor becomes too unbearable. Have you ever been told about or experienced a decision made by a leader and asked: Is that ‘leader’ on stupid pills? Or, have you ever asked: How could a ‘leader’ be so much out of touch? These types of leaders are clueless– they just don’t have any ‘clue’ about how things really work in their organizations…

Well you are not alone: According to Hagberg; many leaders make decisions with a highly distorted view of what’s really going on in an organization… And unfortunately many organizations hold onto these clueless leaders far too long to point of; disaster, destruction… Maybe this sounds a little too dramatic but clueless leaders have some very bad traits, e.g.; lack empathy, don’t listen, resist change, too bossy, wishy-washy, poor decisions… According to Abraham Lincoln; nearly everyone can stand adversity but if you want to test someones character, give them power…

 In the article Organizations from Hell: When Leaders Fails by Ronald E Riggio writes: Most dysfunctional organizations have big issues at the top; they have leaders that are clueless; they cause unnecessary disruption, they are unable to define a vision, they lack the insight to develop a productive workforce, they are unaware of the toxicity in their own organization… Clueless leaders are hoarders; they refuse to share power, delegation responsibility. The ability to wisely, effectively delegate is crucial for success– effective delegation is one of the keys to achieving goals…

A leader who insists on maintaining all control and full authority is insecure and actually fails to even meet the definition of a leader. A leader is an executive, a person who manages time, resources, people… A leader does not do everything themselves, they work to marshals all of these elements on a pathway to success… Many clueless leaders are byproduct of the Peter Principle, i.e.; people move up chain of command until they reach their level of incompetence. Although research has not established existence of the Peter Principle, in some organizations this does indeed happen…

In the book Why Business Leaders Fail by Sydney Finkelstein writes: Why do high-flying organizations fail… It turns out many leaders at failing or failed organizations are clueless; and often they have they have common habits-traits… and these traits are early warning signs:

  • Think they are fully in control: Leaders who vastly overestimate the extent to which they actually control events and vastly underestimate the role of chance and circumstance in success… Leaders who fall prey to this belief suffer from the illusion of personal preeminence…
  • Think they have all the answers: Leaders who are invariably crisp and decisive tend to settle issues so quickly that they have, in many situations, no opportunity to grasp the full ramifications. Worse, these leaders need to feel they have all the answers and they aren’t open to learning new ones…
  • Ruthlessly eliminate anyone who doesn’t get with the plan: Leaders who eliminate all dissent, contrasting views… cut themselves off from the best chance of seeing, correcting problems… Sometimes leaders who seek to stifle dissent only drive it underground. Once this happens, the entire organization is in jeopardy…
  • Stubbornly rely on what worked in the past: Leaders who revert to what they regard as tried-and-true methods, often cling to static, out-dated business model. They insist on engaging markets that no longer exists, or they fail to consider innovations in areas other than those that made their organization successful, in the past… Instead of considering options that fit new circumstances, their only point of reference are things that succeeded in the past…

In the article Distorted Views of Many Leaders by Dr. Hagberg write: Leaders live in a bubble and have special privileges and power due to their unique role… However, most fail to recognize consequences of their position’s power… Leaders are often out-of-touch with how their own behavior impacts the organization, and how it’s being interpreted by employees and other stakeholders… They fail to realize the extent to which they unconsciously shape organization’s culture. However, with power comes the potential for isolation and insulation…

Leaders who are not getting continuous, accurate information about an organization’s culture, values, attitudes, morale… have the potential to suffer distortions in perspective, which can negatively impact the quality of their decisions. A distorted view from the leaders can ultimately prove fatal. According to Gallup; only one-in-five (18%) leaders demonstrate a high-level of attitude for leadership, while another two-in-ten (20%) show a basic talent for it…

This means that many organizations are missing-the-mark, 82% of the time, clueless or near-clueless leaders are hired… According to Mike Myatt; because someone holds a position of leadership doesn’t necessarily mean they should; not all leaders are created equal… The problem many organizations seem to suffer is one of recognition; they can’t seem to recognize good leaders from clueless ones…

The basic flaw and inefficiency in picking leaders costs hundreds of billions of dollars, annually… It’s common practice for organizations to promote from within because– these are loyal people who paid their dues… because they supposedly earned it, deserve it… rather than because they have the talent for it… Many organizations waste a lot– time, energy, resources… hiring clueless leaders– either from within or outside the organization– then they attempt to train them to be who they are not. Nothing fixes– clueless leaders…

Re-Imagine the World’s Oldest Profession; Rethink How It Adapts to Age of Social Media: No, Not That One; Selling…

Contrary to popular belief, selling is the oldest profession in the world. Long before anything else– the serpent sold Eve on desirability of an apple; and its in ‘The Book’ right after the phrase– ‘In the beginning… Hence no matter what you do, it’s always about selling… According to Dave Ramsey; selling is about connecting and that makes the magic happens, and if you fail to connect there may not be another chance… Great leaders are also great sellers, who understand the power of connections and relationships… There is little you can do in this world without selling, and if you look a little closer at every situation there is always a seller and a buyer…

Nothing happens until someone sells something! Or better yet, until someone buys something! Selling has evolved and continues to evolve into something difference; internet and social media have completely disrupted traditional selling, putting the power of decision-making in the hands of buyers, rather than sellers… Many organizations have come to realize that they must sell the way customers want to buy… They have learned that for them to sell better they must understand customers better…

Knowing buyer behaviors and preferences are keys to success in selling and that means being actively engaged on social media and carefully– listening, observing… and understanding; How buyers want to buy! When buyers want to buy! What buyers want to buy! even before sellers engage buyers about buying…

In the article Future Of Selling is Social by Brian Fetherstonhaugh writes: In the era of Facebook, Google , Twitter… buyers have as much control over the flow of information as sellers. Buying, which was once one-way interaction between informed seller and curious buyer, is now conversation between equals. According to Ogilvy; social media has had an enormous impact on buying behavior with a majority of sellers seeing social media as critical to their success…

But many organizations are not adapting fast enough, 68% of sellers say that buyers are changing the way they buy faster than their own organizations are adapting to it… Nearly one-half of sellers surveyed say organizations lack the– understanding, knowledge, commitment... about social media and its impact on the selling and buying process… Sellers to be successful must align their selling ways to be in lockstep with those of buyers…

In the article Social Selling? Hasn’t Selling Always Been Social? Paul Teshima writes: The idea of being ‘social’ so as to build a trusted relationship has been around since the beginning of time… The whole notion of social media is about building and maintaining relationships, which has changed how people buy and sell things… However, the vast majority of sellers on social media are passive users and rarely if ever, posting creative content that shows passion experience, expertise…The key to better selling through social media is by creating– engaging, interesting, relevant, buyer related content…

In the article Social Media Is Changing The Way Buyers Buy Stuff by Ryan Holmes writes: It’s easy to miss how fundamentally social media has changed how people spend not just their time, but also their money… The way people learn about products, services, evaluate them, buy them, interact with sellers are all being mediated by social media… An old selling adage says; one happy customer will tell 3 friends, while an unhappy customer tells 10… But in social media those numbers are increased by orders of magnitude…

It’s easy to say that social media is changing how people interact and engage with organizations, but it can sometimes be hard to see it up close and personal… And for the organizations that haven’t, the clock is ticking… and if they cannot or won’t make the jump they stand to see their customer base erode as it becomes ever more social…

In the article Re-Imagine Selling for the 21st Century by Ayelet Baron writes: The most important currency of the 21st century is– trust, relationships, community… The days of the traditional sales pitch, for most organizations, is coming to an end… and the important question that sellers must ask themselves and also know the answer to is; Who do you trust? And most importantly; Who trusts you? 21st century sellers must know how to bring people together around a shared purpose; and the interlocking currency is trust… and through trust– sellers and buyers can connect based on shared experience, ideas, expectations…

Selling in the 21st century is about applying two critical resources; ancient wisdom and great technology… It’s about seeing customers through the lens of sharing… simply share and connect with buyers who can benefit from the ‘things’ you have to offer… It’s a matter of recognizing people as artists and co-creators of something delightful by the collaboration of seller and buyer.. and It’s about truly believing in what can be created and having a passion for sharing it… The days of the patriarchy are coming to an end. There is power in the sellers and buyers co-creating solutions, but it requires a deep desire to know, to listen, to engage…

The world is changing, if organizations keep showing up in the same places with the same solutions they will get the same results… The dynamic of selling and buying will continue to shift… In the future (and future is now), organizations will be created in the image of their customers… According to Scott Marker; selling is learning up front; How customers want to buy: If customers want to buy online, then offer that choice… If customers want a simple transaction, then don’t go through a long relationship mating dance…

 

Shark Tank– TV Reality Show– Epitomizes the Frenzy of Investors Vs. Entrepreneurs in Deals for Funding Ventures…

The Shark Tank (TV reality show) is a prime-time feeding frenzy where investors (sharks) compete among themselves over investing in aspiring start-ups, while ruthlessly chew-up the founding entrepreneurs who are often unprepared in pitching their business… It’s unscripted, real-life drama were neither the sharks (who invest their own money) or the entrepreneurs (who represent a wide range of ventures) are actors. Sharks are multi-millionaire, multi-billionaire angel investors who made their marks, achieved their own brand celebrity… According to Allen Taylor; Shark Tank is more than just entertainment there are real business lessons to be learned… 

First and foremost, even if you are not an investor or entrepreneur you won’t get anywhere in business if you don’t know your value… The best way to win in business is to be prepared. Entrepreneurs who get decent deals on Shark Tank are the ones who know their numberswho anticipate questions while in the hot seatwho respond truthfully, intelligently… and then just maybe they walk away with a deal… In the world of business it’s either– eat or be eaten… You may not be a predator but if you don’t ‘think’ like one, you may very will be next predator’s meal... Hence, if you think like a shark you can avoid serious mistakes and survive to conduct business another day…

In the article Fact-Checked Shark Tank Deals by Emily Canal writes: On Shark Tank, the deals that are made on camera often are not the deals that are finalized… Some entrepreneurs walk away with life-changing deals, but more often than not, those on-air hand-shake agreements change or fall apart after taping. FORBES found that 319 businesses accepted deals on-air in the first seven seasons of Shark Tank and interviewed 237 of those entrepreneurs and discovered 73% did not get the exact deal they made on TV. But tweaked terms or dead deals don’t necessarily spell doom for a business; for many contestants, just the publicity for appearing on the show ended-up being worth more than the deal…

About 43% of participates interviewed said their deals didn’t come to fruition after the show. They attributed this to sharks pulling out of the agreement or changing terms to ones that didn’t work for them. Others canceled deals after getting term sheets that included unappealing clauses… Another 30% of participates interviewed said the equity and investment amount offered on-air changed after taping, but they chose to take the deal anyway. They said that the changes often occur during negotiations or in due diligence– investigations into a participate or their business before signing a contract… The goal of entrepreneurs going on Shark Tank is to make a deal, but if it falls apart it’s not always a tragedy. About 87% interviewed that didn’t get deals are still operating, and the others either; closed, acquired, sold…

In the article Leadership Lessons from the Shark Tank by Executive Forum writes: Whether you’re an aspiring entrepreneur or a leader in the corporate world, there is so much to learn about leadership from the Shark Tank:

  • Have vision: Sharks receive pitches all day, every day. Sometimes they invest in a product but more often than not, they invest in a vision. They’re not interested in the short-term win of selling a million widgets, they’re looking for the opportunity to dominate a new market, revolutionize a process, change the world… They want to see the vision beyond immediate strategy. Vision must come first, and a mature organization is no different. Yes, a new product or service might help you hit your numbers, but what’s the vision for where the organization is headed by 2020? When the right vision is in place, strategy will follow…
  • Know numbers: No matter how cute, flashy, or funny the pitch, if you don’t know the numbers, you won’t get a deal. At least once per Shark Tank episode, someone enters the tank with a decent idea but with no financial acumen to turn that idea into a profit. How did you arrive at your valuation? What does it sell for? What is the cost to produce? How big is the market? What is customer acquisition cost? These would seem like basic questions that any entrepreneur seeking investments would have prepped, but they don’t. Do the homework and be ready with answers that inspire confidence…
  • Read body language: Keeping an eye on which shark(s) is leaning forward, who just crossed their legs, who is taking notes, and who is nodding or tilted their head to the side… that can make all the difference. In the game of boardroom poker, these can be ‘telling’ signs that you need to not only pay attention to, but use to adjust your presentation…
  • Be all-in: The sharks rarely invest in part-time entrepreneurs. The sharks always say that if you don’t believe in the product enough to take a full-time leap of faith, then they shouldn’t either. Hence, no one wants a part-time leader either; so if employees think that you are not fully committed to the vision of the organization, then they won’t either…
  • Show passion: Passion is contagious. While numbers and proven track record are important they are not the only influencing factors. Time after time, sharks invest in a person rather than a product. They invest in a person because they believe that with passion and drive, and even if the product itself fails, the person is worth the investment. They’re willing to take a risk just to see where that person can take them in the future… Hence, a truly inspiring leader can do the same thing. Employees will follow a leader who has– vision, passion, energy… because they believe that they can create an exciting future…

In the article Shark Tank Teaches About Negotiation by Jerry Jao writes: Sharks mostly ask thoughtful questions so as to challenge an entrepreneur to think about their business beyond the scope that they have already defined… During negotiations sharks are looking for how an entrepreneur thinks, their insight, willingness to think in new ways. Negotiation is key part of business; learn to judge value, make good decisions on the fly, know when/how to counter-offer…

Seeing people under pressure is what makes Shark Tank an exciting and educational show to watch. However as a professional, you’ve got to keep your cool… If you’re feeling the heat and think that taking the offer is the best decision, you’re probably wrong. Step back take a deep breath, then consider the offer(s) soberly… Ask: What’s wrong with it? What’s right with It? If there are red flags then think about possible alternatives, before turning it down… Business people who make rash decision under pressure never come out winners…

Appearing before an audience of millions while getting drilled by experts will force you to think on your feet… Business people who can’t plan on the fly while the heat is rising will drown… If you don’t like an offer make a counter-offer: You have nothing to lose. The saddest outcome that happens on Shark Tank is when entrepreneurs, passionately pitch ventures, but then turn down the offer(s) without countering…

 

 

 

Power of Word-of-Mouth (WOM) Marketing– Its All About Buzz: Holy Grail of Any Organization…

Word-of-mouth (WOM) is the holy grail of marketing. It’s a source of easy promotion and it comes from the most credible source possible; a super-satisfied customer. According to Nielsen; 92% of consumers said they trust friends and family above all other forms of marketing when it comes to recommendations about products, services. According to Word of Mouth Marketing Association; personal word-of-mouth drives 54% of purchase decisions, but it cuts both ways: According to Seth Godin; word of mouth happens when a customer is delighted, or when they are disappointed, angry… It’s the latter scenario that brings most troubling consequences for this form of marketing. 

The core principle of effective marketing is to create things worth talking about, e.g.; unleash word-of-mouth, which is then amplified by the internet, social media… It stems from a real emotional connection with a product or service– it’s meaningful… Whereas the concept of ‘buzz’ is just ‘hype’ usually based on superficial realities, and they don’t last very long… It’s not that buzz is bad; there simply is not enough substance… Effective marketing is about– truth and value, not just buzz…

In the article Why Word-Of-Mouth Is The Best Marketing Tool by Jon Tan writes:  Word-of-mouth is immensely powerful, in fact, before making a purchase, consumers tend to listen to what others have to say. That’s why 90% of consumers tend to search for reviews before purchasing a product… In fact, 59% of consumers enjoy telling others about their experiences, both good and bad…

Surveys show that customers that purchase through word-of-mouth spend 200% more than the average customer and also make 2x as many referrals themselves… A consumer is up to 50x more likely to buy a product or service if it’s recommended by close friends or family. The greatest thing about word-of-mouth is that it keeps spreading, and it can go viral… It takes just 1000 customers to generate half a million conversations about a brand…

In the article Disadvantages of Word-of-Mouth Marketing by Angela Ogunjimi writes: Word-of-mouth happens both when a customer is delighted or disappoint… It’s the latter scenario that bring about the most troubling disadvantages of this form of marketing… Simply put, your customer’s rave reviews about your product or service comes at that customer’s good will… Unlike paid advertising, through which you choose the channel, audience, timing… of messages, word-of-mouth marketing is largely a product of chance, but you can control the way you treat customers…

However, word-of-mouth marketing has its downsides when a single unsatisfied customers or competitors takes to air waves– internet, social media, blog… with negative messages. Satisfied customers may peg you as being the greatest, affordable… which can help influence the ‘story’ about your organization: Or, not…

However, word-of-mouth only works well when it supplements a full-scale marketing effort that tells complete the story through multiple outlets… And it’s only effective when the customers have a positive experience, and not trickery or abuse. Spark the ‘buzz’ by exceeding the customer’s expectations every time…

In the article Word-of-Mouth: Building a Strategy That Really Works by yotpo writes: The power of word-of-mouth recommendations is huge, but for it to be effective marketers must create something worth talking about and then actively encourage people to talk about it… Word-of-mouth marketing essentially seeks to kick-start an exponential referral chain that drives continuous traffic, leads, sales for the brand…

However, word-of-mouth often has a negative side… There’s no quicker way to destroy a brand than by dissatisfied customers who promote negative commentary… These unhappy customers are much more likely to post public warnings about bad experience than satisfied customers making positive recommendation... Hence take note; upset customers can be perilous!

In the article Measure Word-of-Mouth Marketing by Jacques Bughin, Jonathan Doogan, Jørgen Vetvik writes: Word of mouth influence is greatest when consumers are buying a product for the first time or when products are relatively expensive… factors that tend to make people conduct more research, seek more opinions and deliberate longer than they otherwise would…

And be assured that this influence will grow; the digital revolution and social media have amplified and accelerated their reach to the point where word-of-mouth is no longer just an act of ‘one-to-one’, but also ‘one-to-many’ and ‘many-to-many’ communications, e.g.; reviews are posted, opinions disseminated through social networks. Customers even create websites or blogs to praise or punish brands…

The starting point for managing word of mouth is understanding which dimensions of brand equity are most important to a product category, e.g.; the Who, the What, the Where... For example; in skin care, it’s the What. In retail banks, it’s the Who… Word-of-mouth-equity analysis can detail precise nature of a category’s ‘influentials’ (people who make a difference), and pinpoint highest-impact messages, contexts, networks…

Clearly word-of-mouth marketing is an effective tool, particularly with ‘mobile apps’ for smartphones… Think about it for a moment: How many apps have you recommend to friends, family, colleagues? How many apps have you started to use because somebody told you about them? Let’s face it, word-of-mouth marketing for mobile apps is a game changer… There are millions of mobile apps available on the market but you cannot try them all, so you rely on the experience of friends, family… and they rely on you…

It’s contagious, people communicate– one-to-one’ and ‘many-to-many’ everywhere; at home, commuting, on the street, at the office, at parties… on social networks, on forums, blogs, emails… According to Elif Çetin; if you have product, service, app, widget… to show the world; whether an   organization or solo entrepreneur… spreading the word through word-of-mouth marketing is an imperative…

Venture Capital Funding Model– Danger of Dying, Irrelevancy: VC Firms, As Asset Class, Have Utterly Failed…

The story of venture capital (VC) appears to be a compelling narrative of bold investments, excess returns… however, the reality looks very much different. Behind the anecdotes about– Apple, Facebook, Google… are numbers that show many more venture-backed start-ups fail than succeed… and VCs themselves are not much better at getting good returns… According to Fred Wilson; biggest issue is simply too much money– billions of dollars continues to flow unabated into venture-backed companies but venture capital firms as an asset class have not outperformed other investments, e.g.; the stock market… since the early 90’s and will probably deteriorate further...

Things look even bleaker when you add in the additional billions that angel investors dish out, and growing interest from places like– Russia, Middle East, China… and rise of accelerator programs like; YCombinator, TechStars… and financing options like; Kickstarter, crowdfunding… According to Kaufman Report; many  institutional investors continue to pour money into these funds despite VC’s abysmal track record… The traditional venture capital landscape is shifting and VC’s must begin to rethink their business models and herd mentality that dominates the industry…

In the article How do Venture Capitalists Make Money? by Draper writes: Venture Capitalists are money managers, they raise money and manage it for other people who are the ‘limited partners’… The normal venture capital (VC) firm will raise on the–  ‘2 and 20’ terms. The ‘2’ is in reference to the management fee, which means every year, 2% of the funds raised go toward operations of the firm… So if a VC raised $10,000,000 fund, the fund would have an annual operating budget of $200,000 for life of the fund (generally 10 years). The ’20’ is in reference to ‘carried’ interest… VCs make most money off of the ‘carried’ interest rather than management fee…

This basically means that the venture firm gets 20% of the upside after they have returned the money being managed… Which is why venture capital is built on moon shots and not safe bets. Safe bets might give you 3–5x return over 7 years, but something like Google, could give you 10,000x… These are the normal numbers that many funds use, but every venture firm is different, In summary, VC firms are  paid in two ways:

  • Management fees: 2%/year of funds under management is common; over the ~10 year life of a fund, that’s ~20% of the capital…
  • Carried interest: This is a share of the profits on the fund before the money is returned to investors. The typical number here is 20%…


In the article End of the Management Fee in Venture Capital by Paul Grossinger writes: The ‘management’ fee is going the way of the landline for all but a handful of top-notch VC firms… Since the advent of traditional early stage venture capital in the 1980s, the industry has been dominated by a dual-compensation model; a management fee, to pay for running the firm over its lifetime, and a profit ‘carry’, to give upside to the partners… However, a new crop of investors are seeking to end the dual-compensation model… and reduce or end use of management fees and instead rely only on profit ‘carry’…

This charge is certainly not absolute or applicable in 100% of cases. Many traditional venture capital funds have strong, long track records and have produced excellent returns and the earned right to continue operating under whatever model they see fit. But majority of funds under management do not have such sterling returns. In fact, more than half of traditionally structured VC funds actually lose money. Contrast that with the ‘returns’ of active angel investors, individuals, which are much higher…

In the article Venture Capital Salary & Compensation by WSO writes: Successful venture capitalists can make a very nice living with less risk, and less chance of burnout than entrepreneurs… From analysts and associates to managing directors, venture capital salary is traditionally heavily weighted toward the bonus portion of the compensation, as well as ‘carry’… Much like private equity, venture capital compensation has a broad range but it’s usually a function of the fund’s performance, and much of compensation is tied up in ‘carry’, which can be rather large payout… According to Wall Street Oasis; rough VC compensation ranges based on user registration data is shown as follows:

  • Analyst: $80K – $150K.
  • Associate: $130K – $250K.
  • Vice Presidents: $200K – $250K + $0-1MM ‘carry’ bonus.
  • Principal/Junior MD: $500K – $700K + $1-2 MM ‘carry’ bonus.
  • Managing Directors/Partners: $1MM + $3-9MM ‘carry’ bonus.

In the article Venture Capital Is Dead. Long Live Venture Capital by Erik Rannala writes: There are rumblings that the traditional VC business model could be in danger of extinction, threatened by more contemporary investment sources such as; crowdfunding, super angels… While it’s true that the early-stage funding landscape is changing, VCs are hardly on the demise, nor are professional VCs losing ground to– crowdfunding, angels… Rather than looking at the funding landscape as a zero-sum game with one model rising up at the expense of another, it’s best viewed more as a continuum, with investors across the spectrum matching up with companies at the right stage of development or maturity…

Venture capital as an asset class has utterly failed and some suggest more than 1/3 of about 790 venture capital firms have turned into living dead… However, the venture capital lobbying organization (the NVCA) feverishly attempts to dampen the demise of the reputation of venture capital by quoting nebulous IRR (Internal Rate of Return) statistics that often hide the fact that relevant absolute performance comes from just a small number of firms…  According to Georges Van Hoegaerden; venture capital in its current form and deployment is by economic principle incompatible with finding the outliers of innovation…

It’s ironic, VC firms position themselves as supporters, financiers, and even instigators of innovation, yet the industry itself has been devoid of innovation for the past 20 years. Venture capital has seen plenty of changes over time– more funds, more money, bigger funds, declining returns but VC firms have not changed– they are structured, capital is raised, partners are paid… just as they were two decades ago. The VC industry that purports to be the promoters of innovation are, in fact, being out innovated from outside their own industry…

It’s Oxymoron– Managing Risk and Uncertainty: An Organization Without Risk is Organization Stuck in a Rut…

Risk is a basic ingredient for innovation… Risk implies uncertainty and an inability to fully control the outcomes or consequences of an event… It’s an uncertain world and organizations must accept the fact that they operate in a world of unknowable risk… According to Donald J. Riggin; regardless of the nature of risk it’s impossible to manage; in fact, the expression ‘risk management’ is an oxymoron, because if risk was manageable it would no longer be considered risk…

However, understanding risks is a critical step to knowing how to deal it… According to Steve Tobak; the notion that– Big Risk beget Big Reward is nonsense… Whether it’s the world’s top– hedge fund traders, venture capitalists, real estate tycoons… these billionaire insiders look for opportunities that provide asymmetrical risk/reward… This is fancy way of saying that ‘reward’ is drastically disproportionate to ‘risk’…

In the article Decision-Making Under Risk and Uncertainty by Samia Rekhi writes: The starting point in decision-making is the distinction among three different states of a decision environments: certainty, risk, uncertainty. The distinction is drawn on the basis of the degree of knowledge or information possessed by the decision-maker… Certainty can be characterized as a state in which the decision-maker possesses complete and perfect knowledge regarding the impact of all of the available alternatives…

Often when making decisions the two terms ‘risk’ and ‘uncertainty’ are used synonymous… Both imply ‘lack of certainty’, but there is a difference between the two concepts; risk is characterized as a state in which decision-makers have imperfect knowledge– incomplete information but enough to assign a probability estimate to possible outcomes of a decision…

These estimates may be subjective judgments or they may be derived mathematically from a probability distribution… Uncertainty is a state in which the decision-maker does not have enough information to make a subjective probability assessments… It was Frank Knight who first drew a distinction between risk and uncertainty; risk is objective, whereas uncertainty is subjective… risk can be quantified, whereas uncertainty cannot… Uncertainty implies that probabilities of various outcomes are unknown and cannot be estimated… It’s largely because of these two characteristics that decision-making, in risk environment, involves primarily subjective judgment…

All business decision-making have common characteristics. The traditional approach requires precise information and thus often leads management to underestimate uncertainty and risk factors, which can be downright dangerous for an organization… According to Hugh G. Courtney, Jane Kirkland, and S. Patrick Viguer; making sound decisions under uncertainty requires an approach that avoids the dangerous binary view of risk…

Available relevant business decision information tends to fall into two categories… First, it’s often possible to identify clear trends, such as; market demographics… Second, it’s also possible to identify not so clear trends, such as; customer psychographics…The uncertainty or risk factors that remains tend to fall into one of four broad levels …

  • Level one: Clear enough future: The uncertainty is irrelevant and risk factors are relatively low for making decisions… hence, management can make reasonable precise decisions… Also management can use traditional information gathering, such as; market research, analyses of competitor costs and capacity, value chain analysis, Michael Porter’s five-forces framework, and so on…
  • Level two: Alternative futures: The future can be described as one of a few discrete scenarios… Although probability analysis is useful it cannot precisely identify which outcome is most likely to occur…
  • Level three: Range of futures: A range of potential futures can be identified… A limited number of key variables define the range and most likely outcome can lie anywhere within the range. There are no natural discrete scenarios for the outcome. Organizations in emerging industries or entering new geographic markets often face this uncertainty…
  • Level four: True ambiguity: A number uncertainties and risk factors create an environment that is virtually impossible to predict. And it’s impossible to identify a range of potential outcomes, let alone scenarios within a range. It might not even be possible to identify, much less predict, all the relevant variables that define the future. This situation is rare– black swan events– although they do exist.

Knowing how to assess risk is an organizational competency that must be fostered for long-term sustainability… To do so requires new language and tools to facilitate effective decision-making and decisive action. According to Ralph Jacobson; in developing business strategy it’s important to determine an organization’s ‘risk appetite’, i.e.; how much risk it’s willing, and can afford, to accept… This involves identifying and understanding the scope of risk required in a decision. Typically there are four options– avoid it, accept it, transfer it, share it…

But often decision-makers are confronted with unknowns– these are ‘unknown unknowns’… These unknowns are things that haven’t even been thought of as possible– black swan occurrence– rare but they do pop-up every now and then… situations where management tries to understand more about what they don’t know, than what you do know... These are precisely situations where innovation thrives– it’s when innovators push the edges, challenge status quo, break boundaries in the realm of uncertainty and risk taking. According to Dan Gregory and Kieran Flanagan; uncertainty suggests taking risks, going beyond the known and knowable– thinking scared, thinking stupid, thinking different…

Thinking scared is simply understanding that fear drives all decision-making– it might be the fear of taking action or fear of not taking action. These twin forces often govern negative behavior… but they can also be marshaled and used for positive motivation– the fear of missing out is perhaps most potent motivation in many organization. It’s human nature to resist change and this same nature can be used to drive innovation that embraces risk and uncertainty, and thinks beyond scared, thinks beyond stupid, thinks beyond different…

Subtle Shifts in Business, Leadership, Management, Organization, Strategy, Innovation– Bring Big Results…

Translate »