Lean Startup evangelist Eric Ries

Recently, I’ve seen several critiques (including here and here) of the Lean Startup methodology.

For those unfamiliar, Lean Startup outlines a scientific approach for entrepreneurship that advocates build, measure, learn loops; launching early and failing fast; using minimal viable products to test assumptions; continuously deploying and getting feedback from your market; ongoing improvement; and other tactics designed to find product-market fit in less time, with less waste.

As someone who has wasted far too much time and money on digital initiatives before discovering Lean, only to find far better, faster and cheaper success when using the approach, I’m a convert. But, as Lean Startup promotes, feedback is essential to test assumptions. So criticism is certainly welcome in order to evolve and improve the Lean Startup approach.

Meet the Lean Straw Man

But most criticism I’ve read creates a straw man misrepresentation that critics then easily defeat.

Others have pointed this out and defended Lean (including here and here). So I won’t repeat their points. But I do want to address one of the common criticisms of Lean that are also made of another favorite tactic of mine, optimization through split- and multivariate testing.

This criticism accuses Lean and other continuous-improvement approaches of incrementalism, claiming that they can never reproduce true genius of which only real entrepreneurs (enter your favorite here: Steve Jobs, Henry Ford, etc.) are capable.

Repeat after me: Neither Lean Startup nor other optimization approaches are designed to generate the Big Idea. They are designed to test the idea, and the assumptions behind it, in order to determine whether the idea is viable or better than other ideas.

Don’t abandon science for voodoo

The analogy is that of a scientist. Scientists generate hypotheses, conduct experiments, measure results, analyze results, and generate conclusions based on the data. Those conclusions often contain additional assumptions and lead to new hypotheses. And the process continues.

The process of generating novel, creative ideas is beyond the purview of Lean Startup. Lean Startup describes the process you should take once you have an idea and want to test its viability. Similarly, optimization processes like split- and multivariate testing help you determine whether a new idea, incremental or radical, is better than an existing idea.

I think part of the reason critics misrepresent this is that Lean Startup threatens the traditional image of an entrepreneur. We’ve long thought of entrepreneurs as being uncannily brilliant, charismatic, or at least eccentric, and people who define themselves as entrepreneurs benefit from that.

Many entrepreneurs certainly fit that description. But many others, especially now, simply have one or more ideas that they methodically refine into killer businesses—businesses that often look very different than the original idea they began with.

To state that entrepreneurship can be made more scientific, however, and thereby opened to anyone with a good idea, is threatening to people who have long thought of themselves as special, and had exclusive access to investors who thought so as well. (It also threatens investors, since people can start businesses for so little, they may not need them.) So as Lean Startup gets further embedded in entrepreneurship culture, I anticipate a few more last gasps from those who benefit from the status quo.

Image credit: Jared Goralnick

As VC Fred Wilson noted recently, these trends include (1) the rise of crowdfunding, and now crowdfunding in exchange for equity; (2) the rise of angel investors, with many more internet millionaires now dwelling in Silicon Valley and elsewhere; and (3) the increasingly poor performance of venture capital investments relative to the stock market, as reported recently by the Kauffman Foundation.

Wilson, who is also a prolific blogger and generally insightful guy, says these trends may force venture capitalists to change their approach, perhaps by offering advisory and advocacy services to crowdfunded companies in exchange for equity.

I’m not sure even that will be a good value proposition, as several online services are poised to help startups without the need for intervention from VCs. AngelList, for example, connects startups directly with angel investors, while Wahooly exchanges equity for advocacy by influencers.

It all reminds me of the pressure traditional publishers have faced from all sides with the rise of digital media. I similarly anticipate that many venture capital firms will shut down, exit the venture business, merge, change their model or go into under-serviced niches (like pharmaceuticals and biotech) that require specialized knowledge and have other barriers to entry for the common crowdfunder (for now, anyway).

All in all, as Wilson notes, it’s a good time to be an entrepreneur, given all the new funding options, but a tough time to be an institutional venture capitalist.

Image credit: apec2011ceosummit

Think you're being watched offline? Just wait until you fire up your browser.

I just invaded your privacy. Well, not me personally. On my website I use a social sharing tool called AddThis. It generates the Facebook Like and Twitter buttons you see. It knows a lot about you. And now that you’re reading this article, it knows that too.

You’ve probably seen these buttons all over. AddThis and competitor ShareThis package social sharing buttons into an easy-to-use widget that publishers can add to their websites. By May 2011, the AddThis widget was on nine million websites, reaching a billion unique users worldwide.

How do they make money? Let me tell you a story that I’ve seen few mainstream publications report. It’s a story that should make you appreciate how controversies about Google and Facebook privacy changes are mere details. The big picture: privacy is dead, and even Google and Facebook disappearing would do little to resurrect it.

How advertising is like the stock market

I work in digital marketing. It’s a world obsessed with performance (at the very least, superficial stats like impressions and clicks; ideally, more meaningful outcomes like conversions and sales). Performance tends to improve when you reach the right people at the right time with the right creative. You’ll hear many companies make that promise.

Increasingly, advertisers and their agencies are reaching the right people at the right time with real-time bidding. This effectively makes advertising like the stock market. Publishers dump their excess advertising impressions into exchanges. Advertisers and agencies then bid on those impressions in real-time. When they win the bid, they serve you their ad. It all happens in fractions of a second.

And there is a huge amount of excess advertising inventory. This is because few publishers sell out their inventory directly to ad buyers. Many will dump 50% or more of their impressions into exchanges. The result: impressions sold through exchanges cost advertisers pennies on the dollar compared to the same impressions purchased directly from publishers. Not great for publishers, but at least they make something off impressions that would otherwise cost them money due to ad-serving expenses.

Because of the cost-savings, and the centralized reach provided (advertisers can buy impressions across many websites from one exchange), ad exchanges and real-time bidding have taken off.

Your privacy is sold to the highest bidder

Now, real-time bidding by itself isn’t that great. It’s like randomly buying stocks on the stock market. All else being equal, advertisers prefer to know where their ads show (on what sites, and where on those sites) and who they show to.

For example, imagine you’re Honda. You have the option of buying a highly targeted click on Car and Driver’s website for $1. Or you could buy a click on less targeted websites through an ad exchange for $0.10. If Car and Driver visitors are 10 times more likely to buy a car, it’s worth the extra investment.

But now imagine you’re Honda and you can target people interested in buying a Honda within one month through an ad exchange on any website. While the contextual environment of Car and Driver might be important, what’s more important is hitting the exact audience you want to reach. Suddenly, you might pay double what you previously bid on the exchange; it’s still five times cheaper than buying directly from Car and Driver, and you’re likely to see better results.

In a nutshell: the more targeted the ad, the more an advertiser will bid and the more a publisher will receive.

You can block, but you can’t hide

Which brings us back to AddThis.

Along with real-time bidding platforms have emerged data management platforms, with BlueKai (through which ShareThis offers data to advertisers) being one of the most well-established. These platforms allow advertisers to target audiences through ad exchanges. And they allow publishers to contribute data to facilitate that targeting, both directly from their own databases, and indirectly using third-party tools like AddThis.

For example, let’s say Honda wanted to reach people interested in buying a Honda within a month. First, they would create a profile of users who fit that description; for example, users who (a) read reviews of a Honda Civic and (b) use an auto loan calculator online. Second, they would target those users online by combining the targeting capabilities enabled by data management platforms with the impressions purchased through real-time bidding.

The advantage for advertisers is clear: while they may pay more for highly targeted clicks, they also get better results. So it’s worth the investment. But there’s also an advantage for publishers: the more data they provide, the better advertisers can target their audience, and the more they’ll make from ad inventory dumped into exchanges because advertisers compete with higher bids.

And if you think you can avoid it, such as by using ad blockers or denying cookies, don’t count on it. Technologies are being developed to track your activity based on a “fingerprint” assembled from various bits of information such as your browser, operating system and internet service provider. No cookies required.

What we need: transparency and control

Is all of this evil? Am I a bad person for working in this industry? Am I being deceptive by using AddThis on my website?

First, I should say that, as you’ve probably noticed, there’s no advertising on my blog. That may or may not change in future, but I would lose too much (like credibility) by slapping up the wrong ads than I’d gain. So there’s no advantage to me of using AddThis, except that it makes incorporating multiple social sharing tools easier.

But more importantly, I’m not opposed in principle to the so-called erosion of privacy happening online. Ask anyone in a small town (or, if you had a time machine, our ancestors living in caves) whether they have privacy. Anonymity is not an inalienable right.

Furthermore, I don’t think, all else being equal, people would choose annoying untargeted advertising over useful targeted advertising. Nor would they choose (clearly) to pay for subscriptions to online newspapers rather than have them be advertising supported. Losing a bit of privacy is, in my opinion, a small price to pay for many modern marvels and conveniences.

However, that’s not to say I’m in favour of some dystopian, Big Brother, panoptican future. Rather, I think that transparency and control are key. We should know who is gathering our data and how they’re using it. We should be able to review that data. And we should be able to control what’s gathered, and who has access to it. (See, for example, what Personal is building.)

But the idea that we can be completely anonymous online, or go back to the brief era of extreme privacy when large cities existed and social networks didn’t, may be wishful thinking, and a distraction from the goal of empowering people to have control of their data and an understanding of how it’s being gathered and used online.

If you agree with me, maybe you’ll share this article with your friends. Just use the AddThis widget.

Image credit: Taz etc.

Yesterday, I reviewed a number of the year’s “best graphs,” published by The Atlantic. One of the most striking, further inciting this post, was a graph showing how US GDP has effectively recovered from the recession. Shocking, right? Because jobs haven’t. In fact, the US is pumping out a pre-recession GDP with 6.6 million fewer jobs.

That chart supports another that I reviewed recently in The Lean Startup by Eric Ries, showing how manufacturing output in the US actually hasn’t diminished the way some pundits claim. Nor have the jobs all been sent offshore. Rather, factories are outputting more product with fewer people thanks largely to productivity improvements and, critically, automation. In fact, I’ve read that Foxconn, maker or Apple products, plans to start further automating its factories, eliminating jobs from its massive workforce. Capital flows downhill, and eventually flows into computers and robots whose labor is effectively more profitable than even slave labor.

Economists would argue that’s okay, because you need people to make, service and program the computers and robots. But (a) it takes far fewer people to program an iPhone app than manufacture an iPhone and (b) those people need a higher level of education than someone working on a repetitive assembly-line task.

Just compare “new economy” companies like Apple and Google with “old economy” companies like Ford and GM. The former make up to 10 times the profit per employee of the latter, despite having high-priced engineers on their payroll. Put another way, it takes these companies up to 10 times fewer people to produce every dollar of profit. Looking at those numbers, it’s no surprise you have a pre-recession GDP with 6.6 million fewer jobs.

Old economy versus new: "New economy" companies like Apple and Google make up to 10 times more profit per employee than "old economy" companies like GM and Ford (all data from Wolfram|Alpha)

And that trend will only continue. As Marc Andreessen has pointed out, an increasing amount of stuff is becoming software. Everyone from dedicated hardware manufacturers to toy companies are seeing the trend, with do-it-all gadgets like the iPad eating into their physical product business. When 3D printing goes mainstream (I guesstimate around 2013), that trend will only hasten the decline of traditional manufacturing. Combine that with the trend of collaborative consumption, with services like Zip car and AutoShare, and the number of factories and manufacturing jobs will only plummet further.

I’m not sure what this means for the economy and employment, but I’m pretty sure that business-as-usual and government-as-usual is not the answer. The fruits of productivity gains need to be shared more broadly, and more people engaged in the new economy in some capacity, or things like Occupy Wall Street will seem quaint and cute in comparison to the more violent protests of hungry, bored young people (particularly unemployed young men) who have nothing to lose.

Fundamentally, this isn’t your grandparents’ recession. There is a structural change going on here, and 1920s solutions won’t cut it. The cloud of political rhetoric around tax breaks and spending cuts is mostly a distraction. The economy is shifting beneath our feet. The signs are there for anyone to see if they’d simply look.

It’s not an easy question to answer. After all, it depends on who’s valuing the time. Each of us will tend to value our own time more than others, since we can’t use other people’s time to extend our lives. Until, of course, we find ourselves in a situation where someone else’s time can save us time, in which case their time becomes valuable in relation to our own. Or perhaps, in the case of a doctor, their time can extend our lives and our time, and therefore a minute of their time could be literally worth years of ours, and we’re willing to pay accordingly.

This isn’t mere angels-on-the-head-of-a-pin musing. In our information-based society, and despite coming out of a recession, our time and attention are becoming increasingly more scarce and valuable than money. After all, even those who unfortunately find themselves unemployed must wade through reams of information online to find the best, most trusted source of recommendations in order to take action and improve their financial situation. In an information-based society, knowledge precedes action. And with the pace at which that knowledge grows, and the increasing ease with which people can publish, filtering that knowledge becomes harder and harder.

All of which leads me to the concept of an attention tax. Just as we now all look at our sales receipts and income statements to gauge the extent of our financial taxation, and use strategies like registered savings plans to reduce our tax burden, so too must we start as a society paying attention to taxes on our attention. How many aspects of our societies are non-optimized for attention, even if they’re optimized for monetary value? In the private sector, for example, telemarketing may raise GDP by employing lots of people, but it decreases our GDA (“Gross Domestic Attention”) by distracting us. And cutting taxes won’t feel so good if it results in a reduced bureaucracy that increases the amount of time and attention we must spend on even the smallest task, having few experts available to help us.

So, now that financial tax season is largely behind us, maybe we can all take a bit of time to think about our attention, and what it’s worth. And for things that are distracting us, maybe we need to find some good tax strategies to minimize unnecessary expenditures.

Image credit: Dave Dugdale,  learningdslrvideo.com

Over the past decade, digital marketing has changed a lot. But one thing has stayed fairly consistent: the extent to which people obsess over tactics at the expense of strategy. More specifically: the extent to which people obsess over the latest hot tactic—search, social, email, local, mobile, whatever—and seek related gurus to show them the way.

It’s hard to change people’s orientation to think strategically, to define a plan with measurable objectives, then implement tactics and analyze the results. To help, I’ve been increasingly referring to a more holistic approach to digital marketing as a “digital ecosystem.” I think the analogy is fit. Here’s why.

In an ecosystem, nothing survives and thrives in isolation. Lions can only be king if they can eat smaller mammals that in turn eat vegetation. And that’s a gross oversimplification, as ecological networks are extremely complex (lions, after all, can also be eaten by vultures when they die).

Digital marketing is similarly complex. Search marketing may drive customers to a landing page where they complete an order. But if those customers have been exposed to a display ad in a premium environment, they will be far more likely to convert, thereby driving down your cost of acquisition. And if your website has a high search ranking, because you filled it with great content, your quality score will be higher, and therefore your cost per click (and, again, cost per acquisition) will be lower still.

I could go on, but I think you get the point: too many people pick a pet tactic and obsess over it. But digital marketing isn’t about having lots of pets in cages. It’s about cultivating an ecosystem of tactics united by a common strategy that delivers measurable results.

I write this from my iPad (hence no formatting or links), on which I recently installed an amazing app called Zite. It’s kind of like Flipboard, or so I’ve heard; I never installed it because I tend to already fear the deluge of social spam that sites like Facebook now generate.

Zite is different. It’s a “personalized magazine” that brings me information I’m interested in, kind of like Pandora but for readable content. I tell it what articles I like (and assume it also picks up on cues, like what articles I share), and it brings me more of them. And it brings them from quality sources I might never otherwise discover, unlike RSS, which is fairly fixed once you set up your reader.

Working in a digital marketing and publishing business, I can say that this feels significant. Publishers are rushing to get apps out the door, perhaps delayed only by fears of Apple’s subscription cut. But I think it’s unlikely most users will subscribe to dozens or hundreds of apps on their iPad, taking up all that space, and cluttering their life. I think it’s far more likely that tablets will be dominated by the growing number of aggregation and curation apps.

What does that mean for publishers? It means a different model than the standard approach to advertising. I think it means more content sponsorship, where an advertiser pays to sponsor a subject area and has their brand associated with content on that subject (but doesn’t influence the content, at least not any more than existing forms of advertising). Mashable does this well, and is a model to follow.

I think it also means other forms of compensation, such as that offered by Readability (thanks to Pramesh for the correction), which is distributing subscription revenue to the creators of content that users save to that platform.

Will this “save” journalism as we know it? Hard to say. Who would have ever guessed that we could crowdsource an encyclopedia from latent talent and spare time? I do feel, however, that publishers are better off investing in low-cost sponsorship experiments than high-cost app-development experiments. More generally, I think this is a safe strategy to follow: create great content, find a related sponsor, embed their sponsorship in your content (in a way that respects editorial integrity), and distribute your content as widely as possible, to every app and website you can think of. Including Zite.

To anyone who’s actually run AdSense ads, attempted search arbitrage (getting clicks on Google for less than you make from them on AdSense), or generally been involved in digital advertising and publishing, this criticism rings hollow. Not because Google is morally absolved because it strives to “not be evil.” But simply because:

• Google pays publishers a percent (reportedly 68%) of every click generated from AdSense
• Google does not pay this for clicks on ads from its search results
• Delivering poorer search results to drive AdSense revenues from spammy publishers sites is therefore a very bad long-term business decision

It also misses what’s probably a bigger threat to the open internet: Google turning its search index into a non-spammy but Google-controlled experience. For example, when you conduct a local search for something like “Toronto pizza”, you get what’s largely a Google Places page index. Good for users, perhaps, but results from sites like Yelp receive lower billing. And Google Places is a paid product (although there’s a free version).

So while we should be vigilant about a spammier index, competitors are helping to apply pressure that should keep that largely in check. Meanwhile, we should also remain vigilant about a very clean but totally biased index that gives the appearance of neutrality and openness.

But as an entrepreneur who obsessively follows the world of entrepreneurship, I’m starting to feel a new symptom of the singularity or, at the very least, of the quickening pace of technological development. It is the unprecedented scale with which incubators, venture capitalists, governments and tech companies are launching incubators and funding programs to support the growing number of startups sprouting from ideas and ambition.

Certainly, this makes economic sense, as startups fuel innovation and create jobs, so everyone wants in. But I think there’s something more, because I’ve seen this hype before, working in an incubator in early 2000 during the dot-com boom, and this is different. Now, more, and more diverse, people are developing ideas and bringing them to market. It’s much more democratic and much less centralized. There are many reasons. But subjectively, overall, it feels to me that as a society, we’re both leveraging and coping with rapid technological change by expanding the pool of people who can create the next big thing. Entrepreneurial mechanisms like incubators act like society’s immune system to ensure we can keep pace with our creations.

So it is with human affairs. The “rat race” is nothing more or less than an extension of competition for scarce resources, whether it be oil or, increasingly in my industry, people’s time. It’s evolution. Stasis is death.

But change is stressful. And I bet one reason we’re so stressed as a society overall is that we’re forced to evolve at an unprecedented rate, upgrading our skills to keep pace with product lifecycles, like the iPhone’s, on overdrive, and beyond anything biology has seen before.

Yet while too much stress sucks, I’d rather be a stressed amoeba than an obsolete proto-cell.