July 14, 2014
The logo of the Central Bank of Iceland (Photo credit: Wikipedia)
For those of us living in Iceland, the notion of living in a currency control regime that was instituted in Iceland after the financial collapse in 2008 is draconian. I understand why the currency controls are needed, to prevent capital flight to stabilize the fluctuations of the Icelandic Krona (ISK) and to ensure price stability within the country. The Central Bank of Iceland is caught between a rock and a hard place, on the one hand they want to release the currency controls and on the other hand they don’t feel that they have the tools to stop the flood gate if there is a capital flight, the risk is the overhang of ISK denominated Glacier Bonds that were issued by the Icelandic banks before the collapse. The hypothesis IMHO is that if the currency controls are released then the Glacier bonds will be dumped and whatever foreign currency reserves that the Central Bank of Iceland is holding will be utilized just to pay for that redemption pushing the Country back to the same state as it was in 2008. Iceland was not bankrupt it just ran out of foreign currency to pay for all the goods and services that Iceland imports. Yes, this is a legitimate concern and it could potentially happen. The problem with policies that are put in place like it was done in 2008, is that it is a one size fits all. We know that one size does not fit all issues.
That was a long preamble, but coming back to how to remove the currency controls. Lets think about what needs to be in place to release currency controls? In order for a free flow of currency there needs to be a balance of ISK to other currencies and we know for a fact that is not the case. When there is a mis-match with Demand and Supply of any underlying currency to ISK, the price of ISK will have to adjust to make the transaction happen. The Central Bank of Iceland has the power today to refuse to participate in a market transaction because of the currency control, in a regime that does not have the currency control the Central Bank cannot refuse to participate and has to allow the transaction to happen. Given the above premise, I have argued since the Currency Control policy was put in place that Iceland will have not leave this regime for the foreseeable future. I even wrote a paper about it and it was published in the University of Iceland annual journal.
So how are we going to release the currency controls in Iceland? I have a simple solution. Just inform all those institutions that hold on to the Glacier Bonds that they can redeem their bonds in Bitcoins, yes, I said it, in Bitcoins. How can the Central Bank of Iceland get Bitcoins you ask? well, we have the cheapest energy in Iceland, real estate is also relatively cheap, there are a number of Data Centers being developed. The Central Bank of Iceland and the Government of Iceland can mine Bitcoins and pay the owners of Glacier Bonds in Bitcoins. If my estimates are right we can do this with less than a $10m investment in gear and teams that could mine Bitcoins in Iceland. This will take the pressure off the ISK, allow the common citizen of Iceland to actually buy a book in Amazon and pay for it and get it delivered. It will be unprecedented and simple to execute. I think it is a relatively small investment to get Iceland back on even ground. What do you think?
July 8, 2014
I attended Premoney.co hosted by Dave McClure of 500 Startups in San Francisco and on the way back bought the book at the airport bookstore titled “Think Like A Freak” by Steven D. Levitt and Stephen J. Dubner of the Freakonomics fame. I thought it was quite interesting and makes you think differently about things and observations. I believe this is important in everything we do as we are trained by our environment to think the same way as everyone. Thinking IMHO is the most underappreciated, high impact and often neglected activity that we all do. I don’t know about you but blogging is my best tool to think, it allows me to frame my thinking. I think Brad Feld wrote about this a short while back.
I like the way the authors tackle small issues but use that to change your thinking for larger issues as well. I like the economic thinking given all the bad rap the profession of economics has been getting based on the financial collapse. A lot of what they write about is behavioral economics with data to validate the hypothesis, they are quick to point out that Correlation does not necessarily imply Causation, which I believe in. Correlation = Causation is a huge problem in our thinking process. In addition, they are plain to admit that they don’t know why some things work the way they do. To summarize, it is a good quick read and makes you want to think differently.
Here are some of the main take aways to think like a freak:
First, put away your moral compass – because it’s hard to see a problem clearly if you’ve already decided what to do about it.
Learn to say “I Don’t Know” – for until you can admit what you don’t yet know, it’s virtually impossible to learn what you need to.
Think like a child – because you’ll come up with better ideas and ask better questions.
Take a Master Class in Incentives – because for better or worse, incentives rule our world.
Learn to persuade people who don’t want to be persuaded – because being right is rarely enough to carry the day
Learn to appreciate the upside of quitting – because you can’t solve tomorrow’s problem if you are’nt willing to abandon today’s dud.
I think it is a good easy summer read. Check it out and let me know what you think.
June 30, 2014
If you have not read the article by Jill Lepore in the New Yorker titled “The Disruption Machine – What the gospel of innovation gets wrong“, I recommend you do and the rebuttal by the father of disruptive innovation Clayton Christensen. A number of people have gone on Twitter sphere defending the theory of disruptive innovation and others nostalgic to the romantic writing of Jill Lepore seem to take stabs at the whole notion of disruption. Given that I have written a lot about Clayton Christensen’s work and I have read most of his books from the Innovator’s Dilemma to Seeing what’s next, I think it is only a matter of time before I share my 2 cents.
When I read the article by Jill, I felt, she as an author was feeling disrupted and wanted nothing to do with it. She just wanted the whole business of journalism be left alone. The way to go about doing that is to take stabs at the narrative of the father of Innovator’s Dilemma, his methods, his data and his work. Fair enough, it is a free world and anyone can write what they want. However, she falls into the same trap of repeating the same mistakes that she accuses Clay of. What can you say? Journalists and story tellers are no different, actually if anything they are more inclined to build narratives based on anecdotal observations, yours truly included.
I do believe that the theory of Disruption holds water, we have seen traditional businesses disrupted due to advancements in technology, networks and software based services running on the cloud. Clay has been the only scholar to have tried to explain the transformation and also come up with some prescriptions to manage the changes. The most fascinating thing about his theory is that it is still being played out. The thing about theory is that it can be proven wrong. If Jill wants to prove that Clay’s theory is wrong the best way to go about doing that has been documented by my favorite author Nassim Nicholas Taleb through his thinking on the idea of Black Swans. The best way to prove that a theory is wrong is to show examples of cases where the assumptions of the theory are wrong. I don’t plan to go deep into this or talk about the assumptions but my attempt here is to say that the Theory of Innovator’s Dilemma and Disruption is live and kicking and playing out until we can see a Black Swan that shows that this is not the case I think we should continue to look for the symptoms and prepare for the disruptive technologies to displace incumbents.
There are many biases playing out on my taking the above stance, confirmation bias and selection bias, what can I say I am human and I am fallible. I reserve the right to change my mind about theories and things that I believe. IMHO, smart people that I have met usually are open to changing their mind when they see evidence or data or arguments that are compelling. I am not as smart as many of those people, but the best way to become smart is to mimic their models and behaviors.
June 25, 2014
It is painful to watch the obvious play out in the US. I don’t know if you have been seeing what is happening with legislation and regulations around all the innovations that Entrepreneurs and Startups have been doing and how the incumbents have been coming up with resistance through lobbying and permission raj. The latest is the FAA ban on drone technology to deliver packages. No-one knows if this thing is going to work but before that we need to go and get permission to experiment? Makes no sense to me… There a numerous accounts of this happening in the Hospitality sector vs Airbnb, Taxi services vs Uber, Privacy concerns, Net Neutrality and so on and so forth. I think as these debates play themselves out what is an entrepreneur to do? wait for the legislation to give them permission to innovate? I really do believe the machines have taken over, we just need to figure out a way to make this as easy as possible. I believe tremendous value can be created if one can innovate in a place where there is no need to get permission to innovate, say a place like Iceland, of course we have a legal system and regulatory bodies but I think value creating legal things can be built here and tested without causing any challenges to the livelihood of people or displacing a large population as it could do in some of the larger industries in the larger markets. Actually, innovation is needed in a small place like Iceland because there are not a lot of people here. Icelanders have innovated on many fronts, namely Energy, Education, Fishing and Home heating and Broadband (did I mention I get lightning fast broadband in my home through Fiber Optic Cables, and that is standard).
The biggest value is going to be in the field of Software that creates value on top of Networks. I think that makes a lot of sense in Iceland and I have enough case studies to prove that this works. I am not stopping with my arguments, I am putting my money where my mouth is. I am investing in all of these things in Iceland. So if you are scared about the legal ramifications of starting a business in Iceland with innovation as your core, just talk to me. We need to embrace change as change is coming… there is nothing we can do about it other than get ready and prepare and be well equipped to manage ourselves in the change.
June 20, 2014
So I am getting obsessed with Bitcoins now! I met with an Entrepreneur in Iceland, well he is a Computer Science Student and is more obsessed with Bitcoins than I am. I think there is a small community that is developing in Iceland that is building things around Bitcoins. The first step in all of this is to create an exchange for Bitcoins to Icelandic Krona, which is the first thing that he wants to build. I think it makes sense. As I wrote yesterday about how intermediation could really solve the Bitcoin adoption problem and also makes one focus on the value that is created by the Bitcoin or Crypto Currency exchange mechanisms. There are many resources that outlines the benefits of using Bitcoins. Here is a video from Bitcoin.org site
Bringing the context back to Iceland, I would like to fund a startup that does the exchange of Bitcoins to Icelandic Krona. The next obvious question is how does this exchange make money? The business model is similar to that of any payment service say a credit card company or Square or any other mechanism. Iceland is a small enough place that this payment service could solicit many businesses to accept Bitcoins as payment and the exchange can act as the intermediary. I am not the only one to think this works. There are a number of companies that have already set up Bitcoin mining facilities in Iceland. I think Bitcoin mining works in Iceland, as it converts the abundant renewable energy available in Iceland into a transaction currency.
I don’t believe in the doomsday scenarios played out by some of the folks as it relates to currencies and countries and sovereignties. I just think payment or transaction mechanisms that innovate on the two most important value in a transaction will win. What are those 2 things?
- Transaction Cost
Of course there needs to be a mechanism to convert the transaction to the underlying currency of the country in the case of Iceland it is Icelandic Krona or ISK. Iceland already enjoys T+0 transaction speed i.e when I transfer money from my bank account to someone in Iceland it is instantaneous, please tell me any other country that already has that? In addition, there is no transaction cost. This is another reason I believe Icelanders will not see a challenge in adopting something like Bitcoins as this community is already used to it.
The traditional credit card companies in Iceland should jump on this but they are stuck in the Innovator’s Dilemma and they will never innovate faster than a startup can. I think investing enough to get a small percentage of the local commerce into Bitcoins will create enough value in a Startup that it justifies investing in it.
Oh, Chris you still think no one will invest in Bitcoins in Iceland?
I love it when people think they know more than anyone else… yours truly included, no-one knows the future but those who can work on writing the future usually win. I like the tinkering aspect of Entrepreneurship, I will write why I believe in this cohort in another blog post soon.
June 18, 2014
Bitcoin Wallpaper (2560×1600) (Photo credit: PerfectHue)
I had a Twitter debate and discussion with Chris Dixon about Bitcoins in Iceland. I have to say I was rather disappointed by the lack of vision on the part of a Venture Capitalist and Investor who is much respected by the community. Here is what boiled my noodles:
Here is a list of tweets that I posted to counter that:
Coming back to my argument, I think Bitcoins work in Iceland. We need to accommodate the policy around that. There is Auroracoin which has been mined and distributed to all Icelanders, it could be the basis for conversion. We just need startups that interface with Auroracoin and Bitcoin thereby facilitate a transaction mechanism that could enable a Cryptocurrency and Digital currency in Iceland. I don’t predict the future, but one can see the value and cost associated with Bitcoins. I am pretty sure that Bitcoins will become one of the transaction mechanism on the internet.
Here is an open challenge to Chris Dixon, to counter his statement that no-one will invest in Iceland until a policy change is made about Bitcoins. I will invest in Iceland in any Startup that is focusing on Bitcoins and Iceland. I think he is wrong, Iceland is the best place for things like this. I remember in 2009, when I heard people saying the same things, Iceland will never recover and Iceland will have no investors after this financial collapse well what happened in the last 5 years? Iceland is the only country in the OECD nations to actually start growing again faster than any other country. Who invested in Iceland? Icelanders did and I pretty sure if a compelling case is made for Cryptocurrency I believe Icelanders will invest in it as well.
What do you think?
June 16, 2014
Marc Andreessen (Photo credit: jdlasica)
I have been meeting a lot of people about my new project, the feedback has been extremely positive. What is key in this new project is the fact that we are going to invest in People and Teams with potential. I have written a lot about this. I believe very strongly that investing in people with courage and genius works and it is not new. Marc Andreessen with a16z constantly writes about it. I just finished reading a blog post by Trent Griffin titled “A Dozen things that I’ve learnt from Marc Andreessen“, here is the quote from that post
5/ Venture capitalists “spend a lot of time talking about markets and technology…. and we have lots of opinions. …but the decision should be around people…. about 90% of the decision [is people].”… “We are looking for a magic combination of courage and genius .… Courage [“not giving up in the face of adversity”] is the one people can learn.” When you have a team of strong people in a startup, their ability to adapt and innovate gives the company and the investors optionality. Weak teams which can’t adapt to changing environments usually fail. Identifying the right people is all about pattern recognition.
I could not put it any better. We do this constantly as a community, however when you meet Venture Investor especially in markets where venture investing has not evolved you see the investors talking a lot about their knowledge of markets, technology and what they know, what baloney! No-one knows, the best strategy is always to invest in strong teams, be their resource and help them win. I draw an analogy to being a Coach to a Basketball team. The fund we are putting together will play the role of a coach, be there in every practise session, see what the team is unable to see, tell the star player that he needs to straighten her shoulder and elbow before shooting, watching winning games and adopting best practices in building the team and be in every game on the sidelines but the team takes the shot and makes the plays. The fund team is a resource for the team on the floor. I believe this model works. I believe very strongly that VC business is a “Service” Business. Here is a quote from that post
11/ “You spend most of your time actually dealing with your companies who are struggling and trying to help them. Because it’s the companies that are struggling or failing that actually need the most help. The companies that are succeeding are generally doing just fine without you. The companies that are failing are really the ones that need help and support. And so a lot of what you end up doing at the job is supporting struggling entrepreneurs. It’s kind of continuously humbling. You are a trouble shooter. There’s always something going wrong. Psychologically–we talk about this with our partners–you have to be psychologically prepared for the opposite. It seems like it’s going to be a life of glamor and excitement. It’s more of a life of struggle and misery. And if you are okay with that–because it’s part of the package–then the overall deal is pretty good.” Bill Gurley likes to say that venture capital “is a service business”. Venture capital isn’t sitting in expensive chairs “picking winners” and speaking at conferences, but rather day in and day out work in the trenches helping entrepreneurs succeed. An effective VC spends time on things like trying to recruit engineers for portfolio companies. This is not glamorous work for a venture capitalist, but it is essential work.
The above two more or less outlines the strategy for the venture fund that I am putting together. I think it works, I have enough data points to show that I have walked the path to see this through. The trick in this is to be humble and be open minded about what you don’t know. So if you have the courage, genius and doing something with Software on top of networks please email me. I would love to meet and learn.
June 14, 2014
Cover via Amazon
I have been listening to Clay Christensen and Michael E. Raynor‘s book “The Innovator’s Solution: Creating and Sustaining Successful Growth“. Really impressed with the systematic approach to innovation and why innovation can be categorized and built within existing companies or even in Startups. I believe this book is one of those classics that outlines how anyone from Venture Capitalist to Startup Founders to Managers of Businesses or CEO’s can bring a culture of innovation into any organization. This is clearly important given the changes that we are starting to see. I believe this way of thinking can really help entrepreneurs as well, there are some theoretical and empirical frameworks that suggest that Sustaining innovation is rarely the realm of startups and Disruptive Innovation is rarely the realm of incumbent businesses. One of the first question that I ask a startup founder or entrepreneur is if his idea or business is disruptive, if it is not then I suggest they do hypothesis testings to make it disruptive otherwise it is a fools errand trying to beat an existing business with a 10% or 15% improvement in the startup’s offering. For a startup to really disruptive it needs to be good enough but has dramatically different pricing, convenience or value being delivered to the customer.
The internet itself is a sustaining innovation, whereas Cloud Computing is a disruptive innovation. I believe what Elon Musk has done with Electric Car technology is also very disruptive. I think it will be not long before Electric cars become a main fixture of our culture.
I highly recommend the book and I think VCs, Entrepreneurs and Angel investors who are serious about investing should really read the book and try to understand the solution for the Innovator’s dilemma presented in this book. It has opened my eyes to transformational views of startups and investing in startups.
June 13, 2014
John is funny and says it as he sees it. Here is a story of John working on a book with a publisher and then working on another book by himself. The talk highlights whats wrong with the publishing business. I think it outlines the challenges most established businesses have with the advent of the new networked model of connected consumers, businesses and value drivers. I think we are on the verge of a break out in rethinking business models and the ways we do things.
To give more data to support the notion that the publishing business is broken, read this post by Brad Feld on why he launched a brand new publishing company called FG Press
June 12, 2014
I really enjoyed the talk by Ben Kepes, who travels extensively and participates in various conferences as speaker, evangelist and technology blogger and investor. His advice for Iceland made the headlines in the local newspapers. I think he is right, there is only one Silicon Valley and we should not try to create a community with a name that has “Silicon” in it. I like Startup Iceland :) as a name for the Startup Community in Iceland.
It was interesting to read the Twitter Argument between Mark Suster and Kara Swisher about the story that was written by Nellie Bowles on Silicon Beach to describe the LA Tech Community.
Mark hates the name and it was interesting for me to read that and relate it back to what Ben was saying. I think every community should have the Silicon Valley mindset i.e Anything is possible, failure is another way to learn and people willing to take chances on each other to create value. When there is a lot of money involved a number of these things gets skewed. I don’t know enough about Silicon Valley to comment on it but Ben does. Listen to his talk, there are wise words there.