1. Wayne Ting, a guy who started a Facebook-like app at Columbia University around the same time as Facebook explains how they lost to Facebook: they had too many features.

“A good website should have functionalities that 70 or 80% of users want to use. We had functions that only 10% wanted”

2. Marc Hedlund, a guy who started Wesabe (a competitor which lost to Mint.com) thinks they lost because they gave users too much work.

Mint focused on making the user do almost no work at all, by automatically editing and categorizing their data, reducing the number of fields in their signup form, and giving them immediate gratification as soon as they possibly could

3. Netflix’s Chief Product Officer summed up the entirety of his years of testing various designs in just 3 words.

If I had to summarize our learnings in three words: “simple trumps complete.”

I think we’re seeing a pattern here.

I jotted down some notes from the talk which I thought were interesting.

• Intensive vs. Extensive
  He spent a bunch of time comparing these two types of innovation.  Intensive is building something new and truly innovative.  An example would be the Macintosh or Paypal – both blazed a trail to create something that had never been created before.  It’s carries a higher risk of failure but also greater rewards.  Extensive is building on ideas which are already in place.  It can be  a safer way to build a company, but not as lucrative.  An example would be putting accounting software online.  Or doing another social network.
  
• China
  He compared China and the U.S. saying that China’s next 20 years of growth are clearly extensive.  They can simply copy the model which is the U.S. and grow rapidly (build this many airports, this many steel mills, etc).  The U.S. can’t afford to do that and has the much harder job of pursuing intensive growth.  We can’t just make more doctors, lawyers, bankers, and houses.  To grow we need to build stuff the world has never seen (technology).
• There is a lack of focus on intensive innovation
  It was clear from his talk that intensive is where he’d like to see more focus in the U.S.  Especially Silicon Valley is full of too many people copying old ideas, and not breaking new ground.  He said this field of tech startups (their current generation) feels saturated and there are too many people making clones, or investing in poor ideas.
• The car industry 1920 – 1960
  The 1920′s saw a boom in automotive  with 300 U.S. car companies.  By 1960 there were only three.  This boom and consolidation is a natural cycle with new industries.  He said the internet and web companies aren’t quite to 1960 yet, but we certainly aren’t in 1920 any more.  He feels while there will certainly be successful web companies started in the next 10 years, but more and more of the profits will go toward the established players (Google, Facebook, Amazon, etc).
• Emerging Categories
  So if the web is maturing, where should entrepreneurs focus?  He said there is a boom yet to come in a number of emerging industries – artificial intelligence, bio-tech, energy, space stuff, etc.  But this isn’t the right way to think about it – don’t think in categories.  Think about something you are passionate about or something that would be cool & useful – then build that.  The passion is what’s important, not the category.
• Mobile is not the next big thing
  Internet was a big thing because established media companies (New York Times, Disney) could not make the jump.  It was just too different for them to adapt.  This left the field wide open for startups.  But he thinks mobile internet is similar enough to other internet that todays companies will make the jump.  The #1 social network on mobile will be Facebook, the #1 ad network on mobile will be Google, mobile payments on Paypal, and on down the line.
• CEO Salary = best predictor of success
  If CEO makes < $120k  he likes their chances.  If CEO makes > $160k he doesn’t like their chances.  When management is working for equity, incentives are aligned.
• Redundancy = Conflict
  People and relationships (investors, employees, etc) were the hardest problem for him and where he made the most mistakes.  One thing he learned, many sources of problems come from two people (experts) working on the same thing.  So find people with complementing skills and don’t duplicate people’s skills.  Redundancy will lead to conflict.
• Go where there isn’t competition
  Everyone is doing web startups now.  Go work on quantum computing – you will have almost zero competition.  Key to success: you’re passionate about it, few others are working on it, and it matters if you solve it.
• Social Entrepreneurship Doesn’t Work
  Somebody asked about social entrepreneurship.  He gave a candid answer: he doesn’t believe in it.  He said non-profits can be excellent, and for-profits can be excellent.  The intersection is small.  If there are starving kids in Africa, there is no profitable business there – you just need to get them food.  (Interesting I wrote something similar a while back.)

It was thought provoking overall.  I’ve got 3 business ideas I’d like to bounce off him given the opportunity, but he got bum rushed after the talk.  Peter – if you’re reading this message me, would love to do a quick call.

What do you think?  Agree or disagree on the state of tech entrepreneurship?

Leave me a comment below.

Until next time, keep breaking free!
Brian Armstrong

1,400 videos later it is now the largest open courseware project in the world with more views than MIT, Stanford, Berkeley or any other school – and 200,000 monthly users.

Here is a video of Sal Khan’s talk where he discusses what the “Khan Academy” has turned into.

It’s easy to dismiss this as just a web phenomenon that isn’t comparable to regular education.  After all, there is no interaction in a YouTube video so you can’t ask the teacher a question.  There are no discussions amongst students, no written papers, and no grades.

Yet it also comes with some non-obvious advantages.  For example, each student can go at their own pace, there are fewer distractions (each video features just a simple blackboard), and students can easily review material several times without needing to take notes.

Perhaps more importantly, a truly great teacher can now reach 200,000 students a month instead of 20.

It’s hard to overstate the importance of this last point.  Imagine how many students are sitting right now, bored out of their mind, in a classroom with a sub par teacher (or worse, in a developing country without a teacher at all)?  What if they instead had access to one of the best teachers in the world?

The implications of that are really staggering.

Sal Khan is one of those people with a natural gift for teaching.  After watching the video above, I went to check out his page on YouTube.  What’s amazing is that I actually found myself engrossed in several topics that I hated in school.  Watching YouTube videos is just too easy!

And he is great at breaking complex ideas down into simple parts.  Just as an example, check out his series on banking and the fractional reserve system.  In just 10 minutes I feel like I understand our current financial crisis more fully.

What do kids like to do when they aren’t doing their homework?  Watch YouTube videos.  Now they may be one and the same.

Sal Khan may have just done the impossible: made learning fun.  And I’ll make a tall claim: his simple YouTube videos could actually be more effective than the vast majority of public school education that is being delivered today.

Yes, it’s still a new technology and not a drop in replacement for schools…yet.  But I think we’re witnessing the birth of something big here, and I’ll be watching it closely.

Until next time, keep breaking free!
Brian Armstrong

P.S. In other education related news, check out this math teacher’s novel approach.  The education space is evolving rapidly.

The book is titled “Built To Sell” – which actually turned me off a bit at first.  It reminded me of “Built To Last”, the famous business book by Jim Collins, except quick flips have a negative connotation to me.

So I started it with a bit of skepticism.  But this quickly disappeared as I got into the story.  Built To Sell is told in a parable format (somewhat like Rich Dad, Poor Dad or The E-Myth Revealed) which made it really easy to read and very engaging.  I finished it within 24 hours.

The book goes through the story of Alex, a small business owner who decides he wants to sell his company one day and realizes he can’t because he has built a service business that is dependent on him.

Luckily he has a mentor named Ted, who takes him through the process of converting his company to one that can be sold.  This is based on mentors the author has had in real life, and it was clear from reading it that he has walked the walk.

It covers a bit of accounting, negotiation, business brokers, cash flow, etc.  I guess I left with the feeling that this kind of information could only have come from long meetings with lots of real mentors.  These are the kind of mistakes I wouldn’t want to have to learn the hard way.

Check it out if you get a chance.  After reading it, I mailed it to a friend of mine in Houston who runs a service business.  It was the kind of information I wanted to share.

Here are a few graphs that I have auto-generated each week to see what’s going on.  I really like the idea of having a “dashboard” for your business like this to help you see the cycles and spot anomalies early on.  If you can’t measure it then you don’t know how close you are getting to your goal, so I recommend having something like this for your business if you don’t already.  These I custom programmed but you could have your programmer do something similar or make them in Google Analytics or Excel.

These show daily totals for a bunch of different metrics that I track, and a cumulative total for number of paying subscribers.

The last month:

The last quarter:

A few points…

• If you are wondering what happened around Jan 1st to cause subscribers to go up, I don’t really know.  I think it was just the new year.  December was sluggish.
• I did do some marketing to get new tutors (hence the spike in the yellow line) but I don’t think this  is what caused the whole subscriber increase – it was probably just from tutors starting the new year and wanting to get new jobs.
• At $10 per month, the subscribers is the main metric I watch.  To get an idea of the business model you can check out the tutoring jobs page.  So you can multiply $10 times the number of subscribers to get an idea of the monthly revenue.
• The expenses are almost nil, about $70 per month in web hosting cost and sometimes I play around with different marketing expenses but these aren’t much.  So the profit margin is high and it’s been cash flow positive since almost the first month I launched it.
• It is now two years ago that I started this project and I have to say I thought it would have grown much faster than it did.  Two years is a long time!  But then again I’m always impatient and there were some failed experiments along the way which slowed things down.
• On the plus side, it is truly passive at this point (I spend probably an hour per week on it) and it is growing nicely so it could become a popular site and valuable asset over time.

Probably the best thing that can help the site grow at this point is to start ranking better in search engines for some tutoring related keywords (to draw in more parents and students).  The site ranks really well in some cities, but not so well in others, so hopefully as it continues to garner new links it will build reputation with Google.

Hopefully this helps give you get an idea of what goes on behind the scenes in a business like this.   If there is anything else you want to see, just let me know in the comments.  And if you have any ideas on how I could take it the next level, I’m always curious to hear people’s feedback on the site.

Until next time, keep breaking free!
Brian Armstrong

Read on future King and Queens!

First Of All, Why Would You Want To Start Your Own Country?

This is usually people’s first reaction to the idea of starting a country, and rightfully so.

The simple answer is: you think you can make a better one.  Maybe where you currently live the government is annoying you in some way (like wars, taxes, environmental policies, oppression, extortion, etc – whatever you care about).  So after doing some strong letter writing campaigns that don’t accomplish anything, you start to look at what other countries are out there.  If you still haven’t found one you like, people eventually get the idea in their head that they could do better if they started one of their own!

But there is a more complex and serious answer to this as well.  Which is that there is a market for governments just like for anything else.  Allow me to explain.

When you go out for dinner you have to pick a place to eat.  You give the restaurant some money, and they give you some food and service in return.  If the food sucks you won’t go back, and if it’s great you tell all your friends about it and the restaurant thrives.  In short, there is a market for restaurants.  No surprise there.  This idea of “voting with your dollars” obviously works and encourages good restaurants.

But just like restaurants, there is a market for countries. You choose to pay money (taxes) to a government in exchange for some sort of services (military, roads, health care, etc).  And if you aren’t happy with the service, you can always leave and choose to patronize another country with your business.

But people rarely, if ever, choose to switch countries despite constantly complaining about the service.  Why is this?  Why doesn’t anyone seem very happy with their government, but you can find a pretty decent Italian restaurant in every city?  The answer turns out to be that the market for governments is inefficient.

We can see this by looking at two questions, and comparing the restaurant market to the government market:

• How easy is it to start your own?
  RESTAURANT: It’s relatively easy (get investors, incorporate, lease a space, hire some chefs).  Whether you will be successful or not is another story, but it’s at least not that difficult to try if you think you can make a better restaurant.   As proof of this you can see the thousands of new restaurants opening each year.

  COUNTRY: You need to discover new land (not possible anymore, every square inch of dirt on Earth is claimed by someone at this point), conquer another country by force to take their land, or pull off a military coup.  You could argue winning an election for president should be on this list, but that’s not really the same as having your own country – any country democratic enough to allow elections probably doesn’t give the president 100% power to do whatever they want in the same way an owner of a restaurant could.

• How easy is it to switch (as a customer) if you don’t like your current one?
  RESTAURANT: Easy.  Go down a few blocks.

  COUNTRY: Hard.  You’d probably have to quit your job, sell everything you own (house, car, etc), move away from everyone you know (unless you could convince them to come with you), and go through lots of paperwork to establish citizenship elsewhere.

What is the major consequence of this?   Well, it means that, on average, the service provided by governments is worse than the service provided by restaurants.  They can get away with it, because they know it’s such a pain for you to actually leave, and there are few other options even if you wanted to. Simply put, it’s an inefficient market.

To say “on average, it’s worse” may actually be too kind.  Indeed, governments on occasion actually murder thousands of their own citizens, so in some countries it’s not even close.  But even in the U.S. people have still occasionally gotten fed up enough to leave (when the draft was instated during the Vietnam war for example).  Compared to restaurants, the threshold is much lower.  I might not go back to a restaurant if the waiter was rude, or I just like the salsa at the other place.

So how can we make countries more like restaurants and get better service from them? Those two questions above hold the key.  Somehow, you’d have to make it easy for anyone to start a country, and easy for citizens to switch if they saw one they liked better.  Economists would call this lowering “barriers to entry” and reducing “switching costs”.  This is, at the risk of oversimplifying, what makes markets more efficient.  And more efficient markets make for better service because they have to compete against each other to win your business.

Now, you could easily say “but countries will never be as efficient as restaurants, they are far apart, natural barriers, etc, etc…”.  And I agree with you.  But efficiency exists along a spectrum, and the closer we get to the ideal, the more improvement we’ll see in government service.

To prove this to yourself you can take a quick look at cable companies.  They exist somewhere in between restaurants and governments on that spectrum (both in efficiency and service).  It’s harder to start a cable company than a restaurant (more capital required) and consequently fewer of them.  It’s also more difficult for customers to switch if they don’t like their cable company, because there are contracts and only one or two options in most neighborhoods.  It’s no accident that service provided by cable companies is far inferior to restaurants (“your food will arrive somewhere between the hours of 8am and 6pm tomorrow…”) but not nearly as bad as governments (cable companies haven’t murdered anyone yet, that I’m aware of).  My point here is that there is a range of efficiency in markets and it seems to correspond with a range in quality of service.  Any gains in making government markets more efficient would have some benefit, even if they don’t get all the way to restaurant levels.

So now that we’ve seen why someone might want to start their own country, you might be wondering…

Ok, So How Would You Actually Start One?

Let’s look at the three main ways people have tried over the years, with varying degrees of success, and a real life example for each.

1. Build Up A Man-Made Island

Ok this one is pretty hilarious.  In the 1970′s, a group of people (led by Las Vegas real estate millionarie Michael Oliver) took over this “island” that was just below sea-level (and thus unclaimed by any nation).

They brought in some barges of sand to bring it above sea level, and declared themselves the proud new owners of a country, which they dubbed “The Republic Of Minerva” because it was located on the Minerva Reefs in the Pacific.

They even made their own currency!

Unfortunately, the nearby nation of Tonga was not too happy about this new nation popping up in their back yard, and the Tongan King issued the following (very uncool) proclamation:

PROCLAMATION

His Majesty King Taufaʻahau Tupou IV in Council DOES HEREBY PROCLAIM:-

WHEREAS the Reefs known as North Minerva Reef and South Minerva Reef have long served as fishing grounds for the Tongan people and have long been regarded as belonging to the Kingdom of Tonga has now created on these Reefs islands known as Teleki Tokelau and Teleki Tonga; AND WHEREAS it is expedient that we should now confirm the rights of the Kingdom of Tonga to these islands; THEREFORE we do hereby AFFIRM and PROCLAIM that the islands, rocks, reefs, foreshores and waters lying within a radius of twelve miles [19.31 km] thereof are part of our Kingdom of Tonga.

Tongan troops (I can only imagine their military prowess) eventually came and took over the island, taking down the Republic of Minerva flag.  The founders were unwilling to defend the island (or to hire mercenaries like the next group described below), so they left and the island was eventually reclaimed by the sea :(

Whatever your thoughts on these guys, you at least gotta give them props for execution.  For all the people crazy enough to have this idea, how many of them actually went out and dumped sand into the ocean?  Well they did, way to walk the walk guys.

You can read more about the Republic of Minerva on wikipedia.  But in general, the idea of using a man-made island has a major flaw:  most “just below sea level” atolls are quite close to other countries and even if they are technically in international water, that country is quite likely to get jealous of your micro-nation and come kick your butt.  Be warned, if you decide to go this route, you should probably bring guns.

2. Take Over An Abandoned Sea Platform

This micro-nation, affectionately known as The Principality of Sealand, is stationed on a abandoned sea platform off the coast of Britain.  It is arguably, the most successful attempt to date to create a new country.

Back in the 1960′s, a guy named Roy Bates got fed up with the British government and decided to occupy it (it was abandoned after World War II when the British built it for naval defense from the Germans, and it resides in international waters also – a recurring theme here).  Roy was doing a bit of “pirate radio”, which is where you broadcast songs on your own radio station (without paying royalties).  The British government decided to crack down on his radio station, so he took the rather drastic step of moving it off shore and starting his own country while he was at it.

Here is a great little video on Sealand, if you want some background.  They even have a Facebook group you can join.

What makes Sealand perhaps the most successful micro-nation to date, is that it’s been around so long, and a hilarious story of a takeover attempt which led to the German government giving them a defacto recognition as a real country!

This story is almost too funny to believe, but apparently it really happened:

In 1978, while Bates was away, Alexander Achenbach, who describes himself as the Prime Minister of Sealand, and several German and Dutch citizens staged a forcible takeover of Roughs Tower, holding Bates’ son Michael captive, before releasing him several days later in the Netherlands. Bates thereupon enlisted armed assistance and, in a helicopter assault, retook the fort. He then held the invaders captive, claiming them as prisoners of war. Most participants in the invasion were repatriated at the cessation of the war, but Achenbach, a German lawyer who held a Sealand passport, was charged with treason against Sealand and was held unless he paid DM 75,000 (more than US$ 35,000). The governments of the Netherlands and Germany petitioned the British government for his release, but the United Kingdom disavowed his imprisonment, citing the 1968 court decision. Germany then sent a diplomat from its London embassy to Roughs Tower to negotiate for Achenbach’s release. Roy Bates relented after several weeks of negotiations and subsequently claimed that the diplomat’s visit constituted de facto recognition of Sealand by Germany.

You can read more in the Wikipedia article.

Roy Bates didn’t make the same mistake as the group above: we was willing to defend his land, and hired mercenaries to do it!

There are lots of other funny stories about Sealand, like the time ThePirateBay.com tried to buy it to store their web servers outside of any country’s jurisdiction, or the time Red Bull sponsored a sporting event there.  But despite Sealand’s success, there aren’t many of these abandoned platforms around for people to inhabit, so let’s take a look at one final solution people are proposing.

3. Buy A Floating Sea Colony

This option is known as “seasteading” – building a permanent residence on the sea which is somewhere in between an oil platform and a cruise ship.  It’s stabilized like an oil platform and is on piers to keep it above rough ocean waves, but has ballasts like a submarine so if necessary can float up a bit and be moved around (like if the King of Tonga comes after you).

If you think this is crazy (and it is), just keep in mind that both oil platforms and cruise ships prove something like this is already possible technology wise.

While these haven’t actually been built yet, there is a VERY good chance that they will in the near future.  The Seasteading Institute has received half a million in funding from one of the founders of Paypal to build a prototype – that’s serious money, and shows they aren’t just a couple of nut jobs posting ideas on the internet.

If you want to read more about it, they have a book (currently in draft form, freely available online) which lays out their ideas in more detail.  They seem to know what they’re doing.

So what will one of these cost?  Hard to say at this point – maybe $50-$100 million in total financing.  But you could buy a piece of land on it for less.  It’s likely these sort of countries will be funded early on by specialized industries like medical tourism, gambling, free trade ports, etc.  Something where their independence (low taxes, free trade, no regulations, etc) will give them an advantage.

You might think a country with no natural resources, a small land mass, and additional cost of importing all their food would be at a major disadvantage.  But then again, that is also a good description of a region like Hong Kong, and their economic growth rate over the last 25 years has left most other countries in the dust.  Freedom, it seems, might be sufficient for stellar economic growth, even if you have no natural resources.

Conclusion

So there you have it.  A quick overview of micro-nations and a glimpse of how we might start to see new countries pop up in the future.  It would be an interesting world to live in if anyone with $50 million bucks could start their own country (legally, and without killing anyone).

If you were into environmentalism, there would be a country for that.  If you cared about privacy, there would be a country for that.  If you wanted free health care or lower taxes or whatever, there would be a country for that.  It would be like new restaurants popping up all over, each trying to capture your heart and mind (and tax dollars) with the next great innovation in government.  There would be something for everyone, and innovation would take off at an incredible pace as all sorts of ideas were tested in the real world, instead of being relegated to “what if’s” in presidential debates.

It would be nice to see ads from all these countries, trying to win your business with the best service possible.  And if they didn’t live up to their promise, you wouldn’t be stuck – you could just float your house over to the next one.

Even if I never actually live on an island or platform in the ocean, I still think they are a good idea, just because they will put pressure on current governments to start shaping up.  It will lower that threshold where people get fed up enough to leave.  And the more competitive we can make governments to keep their citizens, the better service we’ll all get.

Until next time, keep breaking free!
Brian Armstrong

OnlineProfits.com just re-launched their site.  I told people about this last year and it seemed to have pretty good feedback.

The people who teach this are pretty top notch in their industry, check out the contributors.  A few of these folks I’ve met and have helped me out with my own businesses.

Click a profile to read more on their site (they have a free newsletter on the reports page too).

Here is an email he got from a reader…

“I want to earn more (I know, who doesn’t)

I keep reading all these finance books and like any other lazy American, I haven’t done shit. I’m 30 and a little behind on saving for the future, plus my boyfriend is a post-doc and not making a ton, so I’m kinda saving for both of us… yadda yadda) Essentially, I love the automation idea, I am just not sure how to start automating my life…

I have the (Roth) 401K, I also have a Roth IRA, but haven’t set up an automatic deposit into that – I know I should, I’ve just been sending in the lump sum every year… bad Leah, bad! Other than those two, I have no idea what to invest in. I like the idea of keeping a close tab on the 401K but let’s face it, I just put it in a lifecycle fund and haven’t touched it since. What else do I invest in? Basically, I just want out of the rat race.”

If it sounds familiar then check out what his response was.  Financial education is too important to be left to chance.  Speaking of which, have you done your financial statements for October?

Until next time, keep breaking free!
Brian Armstrong

http://www.startbreakingfree.com/go/ignition/

Or here is the video link:

You can get a free ticket to a 90-minute webinar called: ”10 REAL Online Businesses You Can Start From Home RIGHT NOW.”

Eben has started several multi-million dollar businesses – ALL from his home. So he’s the real deal.  You’ll want to see this (it’s free).

Register while they still have free seats available!

Until next time, keep breaking free!
Brian Armstrong

According to Google, over 33,000 people used something that I built last month.  That’s a drop in the bucket compared to many sites online but for me it still feels pretty good.  It’s way more than I could have talked to in person, for example.

Remember, the only way to build wealth is to help other people.  If you want to earn more you have to either:

1. provide something of greater value
2. provide it to more people

Most people focus on #1 – for example, a doctor earns more than a barber.  When you need a heart transplant you really need it, whereas a haircut can wait.  There is almost no upper limit on the amount you’d be willing to pay to get a heart transplant done right (after all, what use is your money if you aren’t around to spend it).  But a botched haircut isn’t going to hurt much other than your social life for a few weeks.  The principle of scarcity is also at work here.  There are plenty of people qualified to cut hair but fewer who are qualified to perform heart surgery.  You could say there is a higher barrier to entry into that market (medical school, intelligence, etc).  So clearly, one way to earn more is to provide something of great value that people can’t get anywhere else.

But I think it’s a mistake to focus only on #1.  You miss out on scale.  Even if what you’re providing is 100 times more valuable, you’re limited in that you can only help a fixed number of people in a day (indeed, a doctor and a barber see about the same number of people in a day).  Technology is the key that allows you to scale.  It allows you to help not hundreds, but thousands or millions of times more people.  Now we’re not talking doctor rich, we’re talking Bill Gates rich.  Technology lets you build a water wheel instead of carrying buckets.

Even if you are helping each individual person less, scale makes up for it.  Each of the 33,000 people who came to my websites in the last month probably only got a little bit of help (nothing like the value of a heart transplant).  But if next month 50,000 people used it or 50 million, it wouldn’t take much more of my time and I would have drastically increased the amount of value I contributed to the world.  In other words, it scales.

There have been lots of technologies over the years that let people scale, and some of them still work.  Writing a book scales (you don’t have to sit and tell it to each person, they can read it on their own).  Having a television program scales (whether 10 or 10 million people watch it doesn’t change what you do).  But I think technology in the modern sense (specifically software and the internet) is perhaps the best one around today to get rich.  It’s probably the one with the biggest untapped potential because it’s the newest and still evolving.

So see if you can build something that helps people AND is scalable.  It’s definitely more work up front to do that.  In the beginning maybe nobody will use it and you could have earned more giving haircuts.  But in the long run if you keep growing the number of people you help each month, then people will find a way to compensate you for it (whether it’s flat out paying you, or clicking some ads, or whatever).  If there’s no limit on the number of people you can help then there’s no limit on how much you can earn.