Monetizing your Knowledge – Convert Knowledge into Money

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It is amazing the number of people  I meet on a daily basis who have all kinds of knowledge stored in their brains but still have not figured out yet how to convert all this knowledge into money.

Can this be achieved? … Well, here are my personal thoughts.

  1. Knowledge does not convert into money. Knowledge is the multiplier for work. Work converts into money. It is only challenging to say the least to convert knowledge into money if one is not willing to put any work to support their knowledge with. So for all the day dreamers out there, it all starts with “smart work”.
  2. Work is not translated into dollars until you find people willing to embrace your product or service. In other words, unless you have knowledge that others 1) need in its raw form, 2) cannot acquire on their own, and 3) are willing to pay for, then knowledge by itself is just potential. Like a car with no gas. Combine knowledge with the energy/effort needed to apply it to a purpose, you might get somewhere.
  3. Stop thinking and start doing. Most people would rather talk and not perform any actual work. They’re thinkers, not doers. Or, it could be that they are scared to fail, or find out that their knowledge isn’t all that unique or important.  Start executing and lose the fear.
  4. Be realistic. One cannot expect to make it rich by writing a book on the fact that the earth is egg-shaped, or photosynthesis. People know that already. So unless you write very well, or become a teacher, or something of the kind, you will not convert knowledge into money.
  5. Master networking. At the end of the day, unless you have an insane amount of practical knowledge, you’re going to be less successful than the people who are really good at networking. Big businesses these days are shifting towards looking for people who can network, rather than people with theoretical knowledge about their business, because they figure that when you’re doing a degree in higher education you don’t actually learn to work for someone, and you don’t necessarily learn the skills that you’ll need for the job they want you to do; so the idea is that they take someone who has a personality suited to generating contacts and networking between businesses (which is not something you can easily teach) and teach them the skills they’ll need to work the job (which is something that is easily taught).

Bottom Line: Knowledge is the application of intelligence.  There are some smart people who can rattle off facts and figures but can’t think their way out of a wet paper bag.  Most investors have the facts and figures of the stock market which are readily available but how do you put that together to formulate a winning strategy and do so more often than not?  That takes knowledge of the broader environment to understand how a product might be received in the general buying public and take off when the raw numbers might indicate just a so-so reaction.  That kind of knowledge comes with time and experience.  You need to learn from those that possess such knowledge and learn the skills yourself.

Every type of knowledge is not born equal. Their value fluctuate according to the times, and according to each situation. You may either flow towards areas of knowledge which are known to generate money or figure out a niche where your knowledge is considered to be of value to other people.

Money is only one of the values knowledge can be turned into, either directly or indirectly, through monetizable activities. Those activities which bring material wealth are mostly of concern to the poor or greedy, because they depend so much on it. Once our basic needs are taken care of, most of us will be on the lookout for those values which have little to do with money, but can sometimes be acquired in exchange of it. Since material wealth is a socially constructed phenomena, knowledge ought to be subjected to market trends, as a tool, a service or a product, in order to be transformed into numbers in a bank account. (Oddly so, money can be one of the less tangible and most fictional of values created by knowledge. Such monkeys we are…)

To sum it up, look around you. Ask yourself how you and your knowledge can be of service to others. Develop a business model around an area of activity which can sustain itself through the value it brings to others. Learn to enjoy knowledge for itself and never forget why people are willing to pay for it.

Share your thoughts…

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Making the Capital Markets Smarter Some Food for Thought

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I have finally come to the realization; after 30 years on Wall Street and Silicon Valley, that our capital markets are simply obsolete and that it’s high time for a new technology that allocates money and other resources far more efficiently than both our actual technology and government. The current VC/entrepreneurship worlds are in a mess, and to their credit, the players are doing some serious introspection. But mostly, it is still business as usual.

I have nothing against VCs and angels. Most are extremely smart people. But the world of problems and opportunities is now so complex and fragmented that any system that relies on “bottleneck star-spotting talent” is doomed to hit its limits in short order. Peer investing, crowd funding, the transparent processes of Angel List, and bootstrapping are the beginnings of alternate models, but they simply don’t move enough money around yet. This is the reason Silicon Valley seems like such a messed up place to outsiders: the world’s highest concentration of extraordinary talent is being funneled towards some of its most unimportant problems (and in fact, towards work that exacerbates rather than improves things).

People in the Valley, I find, believe in the myth that theirs is an efficient free market economy of investment and that attempting to “direct” the entrepreneurial energy will kill it. This is laughable. The system is explicitly set up to direct entrepreneurial attention in extremely non-free ways. The entire region is wired to the capricious opinions of a few key people, who drive not only their own investments, but via imitation, the money of  lazier thinkers. Even if these people were 1000x geniuses with wonderful intentions for the world and preternatural ability to direct money in the right ways, there would still be a huge shortfall in the diversity of intelligence needed to make the money they control truly “smart” money. The money may be smarter than average investor Wall Street money, but it is nowhere near as smart as it could be.

A very simple measure of this is simply the high degree of localization of investment. Ghemawat in World 3.0 tracks liquidity and global flow of venture capital and estimates that the lion’s share of investment happens within 20 miles or so of the investor. This happens because the investors mitigate the risks of their own limited knowledge by only investing in companies that set up shop locally, down the street. To get the money, entrepreneurs flood to the location of the money rather than the location of the markets/problems to be solved. Some justify this by pointing to the advantages of high concentrations of talent. While this is certainly valuable, there is a very high cost paid in not being close to the problems and market opportunities. People who have the market intelligence to solve water management problems are not going to emerge out of water-rich Northern California. They are going to emerge in Southern California, Nevada and Arizona. If you try to put out a call for “water management ideas” in Silicon Valley because all the 10x engineers and serial entrepreneurs are located there, you will get brilliant ideas for social networks where water-technologists can interrupt each others’ attention, rather than ideas that actually help manage water better.  So simply creating a technology that lowers the geographic distance risks of investment would be a huge plus. If a Valley VC firm could invest in an Africa-based entrepreneur with only 10x the risk of investing in a University Ave. firm, instead of 1000x, money flows would change DRASTICALLY.

The misutilization of talent is in fact so extreme I would rather invest in an average hustler and a non 10-x engineer team who are near an actual important market/problem than in a 10x super-star team in Palo Alto. Sure the latter would execute far more brilliantly and with all the latest technical tricks. But they are at a far higher risk of solving the wrong problem and then struggling to find a market. We are reaching diminishing returns from investing in the right team in the wrong place. Investing in even mediocre teams in the right place should provide good returns by comparison, on problems that actually matter and map to interesting markets.

There is a just-so excuse I’ve heard in the Valley lately, that you can’t figure out a market before hand, and that a startup is an organization designed to “search for a business model.” True, but in a way, we’ve had to invent this whole Lean Startup process to efficiently “hunt” for markets primarily because startups are in the wrong place.

In a way the Lean Startup is a Californian solution to a problem created by trying to do everything in California in the first place. I believe that at some point you should get out of the building to be an entrepreneur. I think that’s WAY too weak. You have to get out of California. If you’ve ever tried literally “walking out of a building” in SoMA or University Ave., you know that you’ve basically not left the building at all.

Much less efficient models may end up working well if you simply made the “hunt” part easier by NOT trying to solve every damn problem while sitting in some coffee place at University Ave. It seems idiotic that I actually have to explicitly argue that a startup focusing on making money by delivering mobile banking services in Africa should…. be located in Africa. No amount of screaming that “all the 10x engineers are here!” will convince me that Silicon Valley is the right place to solve that particular problem. By extrapolation, I refuse to believe that most of the important business opportunities are somehow magically accessible to people sitting in California. 90% of the opportunities require you to leave the building…. California I mean.

Better geographical distribution of entrepreneurial talent and money near markets and problems is merely one way to make the capital markets”smarter.” There’s tons of others.

Please share your thoughts.

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Coming out with “Out of the Box” Ideas for your Non-Profit

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Having as of today been involved in founding and running the Financial Policy Council for four years now, I am often asked how to come out with the most innovative ideas to turn a nonprofit into a truly unique organization.

The answer is simple… It all boils down to how you generate your ideas and then going about executing on them.

After all, coming up with good ideas is not hard. It just takes focus. So how do you acquire this focus?

Here’s some food for thought…

  1. Find a problem you’re obsessed with solving or you’re passionate about improving and delve in it in full force. After all, building a nonprofit is an obsession, an occupation, a disease, an addiction, a fascination, an absurdity, a fate. It is not a hobby. Those who do it must do it. Life has taught me that the most miserable people I know are those who are obsessed with themselves; the happiest people I know are those who lose themselves in the service of others… So by and large, I have come to realize that if we complain about life, it is because we are thinking only of ourselves. If we are happy it is because we are fulfilled with a cause bigger than us.
  2. Read a lot. This process of thinking about things will build new connections and your brain will start seeing patterns and synthesizing new thoughts around it. On the same note, start writing any ideas you have down. This will force you to organize your thoughts and think more deeply about them. During this process, you will find more ideas are generated as well. Come to think of it deeper, the brain is an interesting thing. As you begin to learn about new ideas, it will start firing neurons around related ideas as you learn to remember these ideas. I think of it as an encoding engine. Many ideas might have similar patterns, and rather than remembering each idea separately, your mind will forget most of the details, but instead will “encode” the differences/similarities of this particular idea to another idea. In fact, it’s almost like none of these ideas are completely unique, but it is the synthesis of thought and ideas that leads you to seemingly “out of the box” new ideas.
  3. Brainstorm extensively. The first and only rule of brainstorming is that there are no bad ideas. You can always strike down an idea and refine your strategies after coming up with several possibilities, so don’t set limitations from the get-go, it’ll ruin the mood. Brainstorming when done right automatically begets more brainstorming, so you want to keep the environment as open as possible. Whether you’re alone or with a group (preferable)…. Some ways to go about it:
    * Give everyone a pad and a writing utensil, present them with the prompt, and give them a limited amount of time (1-2 minutes, pressure works wonders here) to generate as many ideas/solutions as they can, writing each one down on a single post it (no details as to execution of said idea necessary at this point–that’s later). Once time’s up, throw all the post-its on a wall and start sorting them by whatever category system you like. You’ll start noticing that multiple people will often have the same idea, and this should be a sign that these are either a) too easy and not worth it or b) smart. By the way, it’s pretty common for people to have more ideas while in the process of sorting–write those down and throw those up too. By the time you’re done, you should have an awesome, pre-sorted springboard of possibilities to discuss and refine.
    * Think outside the box. Get stupid, gross, impossible, whatever. Then take those ideas, and figure out how to make them work no matter what. You’d be amazed what a group can come up with once they get past the notion that something’s not possible.
    * Engage in a deep multi-faceted dialogue. Why? Because no idea is really completely new – so a solid, unique idea really means combining a range of perspectives into a one coherent one.
  4. Collaborate. I understand the pride behind the origination of ideas. You allow yourself to be that frustrated for that long because you want the recognition as “that guy” or “that girl” who came up with the brilliant new idea. The thing is, that shouldn’t matter. All it is is another obstacle for the birth of ideas. Collaboration provides an extremely powerful tool, another perspective. Discussion and outside perspective can open your eyes to new avenues. Bouncing around ideas with a colleague is a refreshing, encouraging, and exciting process. Don’t think that you have to go it alone when it comes to producing ideas. As long as it gets created, who cares who gets the credit?
  5. Put on someone else’s shoes. When you’re stuck coming up with ideas and have no one to collaborate with, it would serve you well to try adopting someone else’s perspective, and “put yourself in their shoes.” Figuratively. Choose an individual you admire most, and deeply consider how they might approach your particular problem. Really, all you’re doing is attacking your problem from a different mindset, but imagining yourself as a different person makes it easier for your brain to make a change in thinking.
  6. Never censor yourself. Run with crazy permutations in your mind a step or two past where conventional considerations would have eliminated them… they might veer back into practical territory.

After all is said and done, I believe that just about every successful organization is based on an unoriginal idea, beautifully executed.

I will share with you in my next blog how to best execute on ideas.

Stay tuned and in the meantime share your thoughts.

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Whatever happened to Integrity

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With a world going haywire and people from all walks of life losing “integrity”, have you ever asked yourself why is integrity so rare these days and what to do to restore it?.

In the first place … What does integrity really mean?

Without looking in a dictionary, but just going on my own experience . . .

Integrity means a person is honest and honorable, keeps his promises, tells the truth, and can be counted on to do the right thing, even when it is hard or uncomfortable. Such a person does not betray friends or let down people…. But it’s about more than just telling the truth.

Integrity is about keeping promises and doing what you tell others you’re going to do, as well as what you tell yourself you’re going to do.

People with integrity show up and follow through. Their word is good.

They are the people who maintain sanity in their brain, heart and body at the most insane times of Life and basically never compromise on their principles and values even in the toughest times. One clearly needs to be strong both emotionally and mentally to maintain his/her integrity. It is quiet hard indeed.

Why is integrity so rare these days?

I personally believe it is because of the lack of trust ever pervasive in today’s world.

Communications and expectations are clearly two vital elements in measuring trust.

To an extraordinary extent, the age in which we live in today is requiring us to redefine trust and the degree to which communication and expectation contribute to it.

Consider simpler times a few years past (say 50). Trust was necessary in many venues as a means of survival on a day to day basis. We relied on others extensively for our well being from our local store to our banker, from the policeman to the politician. And we knew them all better, we could reach out and touch them and we were not viewing them in sound bites and web sites, nor were we being bombarded with multiple forms of input to digest about them.

Mass marketing and communications has created expectations beyond reality in venues from romance web sites to building wealth. We must come down to earth and become much more sophisticated in the manner with which we view all this input and sift it in a meaningful way to have true trust. If we do not, we run a high risk and that fact is inescapable.

Taking it from a different perspective…. Every day, millions of people drink tap water without fearing for their lives. The incidence of people dying from this is virtually zero. If somebody does, it’s a huge deal, making national news.

Every day, millions of people commute to work. The chances of any given person dying during any particular commute the way is so absurdly low that nobody makes any contingency plans for it or even believes it is possible. There are accidents every day, but given the total volume, they are rare.

Your car consists of tens of thousands of finely engineered parts, each one of which has extremely precise tolerances. A defect rate of 1% in these parts would mean your car probably wouldn’t even start. Most cars, if reasonably maintained, will drive for over 100,000 miles.

Your computer has millions of transistors. A single grain of dust landing on the chip during the manufacturing process would mean that it simply wouldn’t start. Most computers work fine out of the box.

In short, modern life is only possible by millions of people making millions of decisions correctly and with integrity, every day. If people failed in their duties even 1% of the time, modern civilization would come to a screeching halt almost immediately.

So why do we perceive integrity to be rare? I guess because we know how much we depend on it, and we make a really big deal out of it when its lacking. We see all the cases where things go wrong, and never think about the vast number of situations where it all goes right. Nobody thanks the electric utility when the lights stay on.

So what is there to do to restore integrity around?

To a very large degree this is a personal responsibility.

Integrity is in a way very costly thing to maintain, requires boldness, needs mental strength, ability to withstand tsunamis in your career and you should keep large lock on your mouth.

It’s like being happy with what you have got and follow certain rules and regulations without any compromise. You should believe in yourself and on your capabilities. You should not have fear or do anything which causes fear.

Your hands should be clean, you should be in a position to throw your accounts on any one for checking and come back and do your work.

Bottom Line: Never try to act loyal and plan to kill someone’s career. Never befriend someone for ulterior motives. Never undermine someone’s development. Go the extra mile when you approve a bill of a needy person. Work an extra hour to bring some profits for the organization, and when something wrong is being done in your presence – try and stop it.

It is clearly important to have leaders that are incorruptible. Nothing destroys the faith of people and nations faster than seeing the leaders we gave this faith to abuse and misuse it. If we cannot trust our governments, businesses, communities or any other organizations, we often turn inwards. As a result, when people are perceived to be less trustworthy and possessing less integrity, they often turn out to be so. In the end paradoxically, we can then only trust that our fellow man cannot be trusted

“Can I trust you 100% of the time?”

If someone says yes, he is most likely lying. Be careful!

If someone is honest enough to say no, then maybe you have some reason to trust him/her.

At the end of the day, only the most honest person can admit that he/she is not perfect and we all have moments of vulnerability.

Share your thoughts.

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Building a Crisis Resilient Financial System

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I consider the Financial crisis of 2007–2008 to be an inevitable consequence of “Moral Hazard” in the finance industry. Banks made profits on risky investments during the boom but taxpayers shared the losses when the investments went bad, thus encouraging riskier behavior.

In my view:

Capitalism generates wealth by allowing the free market to reward the good and punish the bad. If that can’t happen, capitalism does not work. Ideally, the banks which had lent irresponsibly and the individuals and businesses which had taken loans they could not afford would have all gone bankrupt and everyone would have learned their lesson.

Unfortunately, the financial system was characterized by Moral Hazard. The banks convinced themselves they could write bad loans and still make money, because they had devised complex financial instruments which spread the risk so widely that almost every bank in the world was exposed to it. The system became so interconnected that it wasn’t possible to let the “bad” parts of the system fail because they could not be distinguished from the “good” parts. Faced with the possibility of all their banks going bust or bailing them out, many national governments felt obliged to do the latter. This is textbook moral hazard because the entity bearing the losses is not the entity profiting from the original transaction.

The financial system may well have recovered more quickly if the bailouts hadn’t happened, but the suffering in the meantime would most likely have been unacceptable. Everyone who had savings would have seen them wiped out and a great many businesses would have ceased trading because they depend on credit for their cash flow, resulting in mass unemployment. Military coups in previously stable democratic countries could not have been ruled out and the prospect of extreme left or right wing groups taking control would have been a real possibility. The global economy was able to absorb localized banking collapses such as that in Iceland or of Lehman Brothers, but the human cost of a wider collapse would have been far worse.

The bailouts have been “successful” in the sense that some stability has returned, but they have not solved the underlying problem. Despite commitments in some areas to split up retail and investment banking and to improve capital ratios, the moral hazard remains because banks know they are too big to fail and will be bailed out again should the need arise. Only a total, irreversible disengagement of government from the financial sector could resolve this, and that is politically unrealistic. The main issue remains that the real cost of the bailouts is that they have reinforced the promise which was the root cause of the problem, that governments are there to rescue the banks when they fail.

How can we avoid another 2007-2008 type Financial Crisis in the Future?

I believe:

  • The section of the Glass-Steagall Act of 1933 repealed in 1999 which separated Commercial Banking from Investment Banking and from Insurance must be reinstated, because the Volcker Rule is too hard for regulators to operate/enforce. The bright line rule was much easier to enforce because the lines were very clear. Need to do something special across disciplines? Syndicate it. Money’s too fungible to rely on anything other than legally separate corporate entities, and having Bank Deposit Insurance (i.e. FDIC) on one side of the same house invites cross-subsidization of risk (i.e. abuse, moral hazard).
  • Too big to Fail Financial Institutions must not be allowed to exist – the “living will” requirement is silly nonsense, and will be found to have not been properly updated for a given such institution that gets in trouble in the future. If it’s too big to be allowed to fail, it’s too big to be allowed to exist at all, and the current ones must be cut down to size. This means setting hard limits in law, like the law that prohibits any single deposit-taking bank from having more than 10% of the deposits of the USA (Bank of America is just under the limit, and we might want to think about lowering that one to 5%). The limits must be stated in percentages of economic measures (e.g. GDP) rather than particular dollar amounts. This can be viewed as in the same economic policy vein as Antitrust Law: require a minimum number of entities (prevent cartels, oligopolies, and monopolies) to ensure competition and resultant efficient allocation of capital.
  • Once they’re separate again, Investment Banks must be prohibited from being Public Companies, i.e. selling shares of stock on the public markets to all comers – they must be legally restricted to being Corporate Partnerships. Investment banks walk on the high wire, taking lots of risk, and that risk shifts around much too fast for uninvolved investors to monitor the management – that’s a straight Principal-Agent Problem. I don’t want to restrict their ability to leverage to the skies if they want to – I just want to be able to not care if they screw up & go bust in so doing. If the managers are required to be the owners, the problem goes away. Hell, the managers have every incentive to monitor each other!
  • Credit Default Swaps are insurance, and must be regulated as such. I’m sure that a review of all financial instruments will find very little is actually new under the sun – just the names have been changed to avoid existing regulations (which are usually born out of hard-won experience). That has to stop, which is to say, again, bright line rules for what things are being bought and sold in broad categories, with established regulations on them.

The Dodd-Frank Wall Street Reform and Consumer Protection Act fixed exactly none of these problems – it papered them over. Paul Volcker is a very, very smart economist and legendary former chairman of the U.S. Federal Reserve, and his rule as he states it is the right thing in principle, but the regulations they wrote to define all the terms & conditions are so grey and messy (and probably pliable or go-around-able) that I think the point is probably lost. That’s why I want legally separated corporations in these differently regulated businesses back. Easy, obvious, bright-line rule.

Share your thoughts.

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