Quickthink

From Fred Wilson yesterday writing about the Kickstarter funding of the Veronica Mars movie

Like the big gadget and video game projects that hit Kickstarter last year, this will likely open a lot of eyes to the power of the crowdfunding model. Financing your project via your loyal fans opens up a lot of possibilities to the producer, including creative control and distribution control. I suspect this will lead to a lot more creativity and experimentation than has been possible with the studio model. And that is a very good thing.

A while back, the Japanese made a rather abrupt policy change. They ditched austerity in favor of stimulus.

This is an experiment worth watching as it will add to the policy discussion whether fiscal austerity is a wise policy choice for any country in the current global recession.

It also may have currency valuation effects. BI reports that as a country that is heavily reliant on exports, Japan won’t mind if the yen depreciates against the dollar and Euro. Will that happen? Let’s see. And if it does? Well, the Germans will get another headache if high Euro valuations make their exports less attractive.That may call for a policy response. Ditch austerity? It seems far fetched … and yet ….

Leverage is hard to explain. But leverage is a very real factor in deciding on and implementing strategy.  You want to find leverage and use it. So what is it?

That is where things get a bit confusing. Saying that leverage is what moves things is like saying sex is body movement. You miss the magic of the thing. That magic can’t be seen because it affects things in time in an individual context. It can, for example, be a skill. Or a relationship.

Nintendo had incredible leverage a decade ago. Their game characters and games were the driving force in a rapidly growing market. But as NYT reports, Nintendo has far less leverage now.  It vanished very quickly as kids moved to other platforms to find fun.

My point here is that you need to use the leverage that you have or you will lose it. Don’t sit back and expect that things will stay the same. They won’t and you will lose out sooner or later. With that in mind, check out how Fred Wilson talk about how his firm leverages its investment successes. Very smart, I think. They are using their leverage while they have it.

From Nancy Folbre at NYT

… the way we currently reward corporate C.E.O.’s is roughly equivalent to rewarding football teams for exceeding expectations rather than winning games.

That is, they get more pay if they beat the expectations of the stock market.

Rewarding football teams for beating the point spread would give players perverse incentives to manipulate expectations rather than to win games. That’s one reason why the N.F.L. enforces strict rules against player gambling.

Ooops. So much for the shareholder value revolution that got going back in the 1980’s. And btw, mea culpa. In the early days, I was pretty enthusiastic about the idea that corporate raiders could unlock value by shaking up stodgy management. Like Boone Pickens claimed he was doing. I knew that in some cases this led to “asset stripping”. And things could get out of hand, like with Chainsaw Al over at Scott Paper. But weren’t those exceptions rather than the rule? I thought so then.

These days, I am more sensitive to the problem of overly intense focus on the short term. Warren Buffet got me started to change my mindset.

I went to a “going away” party last night at Illegaard which was a bit sad. A good friend is moving to Poland. As the party started roaring, things got much worse. I got into a discussion about economics. This is always dangerous in bars and more so after a few glasses of the red stuff. But on one point, I think I was on pretty solid ground.

My debating partner made the case that global economic growth potential is finite. In other words, we will at some point stop growing. Why? “Because” he said “the world’s resources are finite.” Isn’t it obvious? Stealing a phrase from Bill Clinton, I didn’t know whether to laugh or cry.

Let’s agree on one thing at least. One of the most important resources we have — if not the most important resource — is infinite. And that is value of our ideas. And btw, guess what the internet does to the expansion of value here? Woa!  And as we figure out how actually squeeze more value out of internet based exchanges of ideas? Look out! And is the internet the ultimate media for developing new ideas? We have no reason to think so.

And here comes the zinger. Value in economic terms comes out of exchanges — not out of resources themselves. A fully gassed up ferrari in the middle of the desert where no people are remotely within driving distance is worth zilch to the driver.  And remember that great line by Shakespeare about value fluctuation when exchange opportunities dwindle? “A horse! My kingdom for a horse!” Poor old Richard! He was just dying for an exchange. Errr … sorry for the pun. There is more. Johnson and Ridley inform us that exchanges are where new great ideas come from in the first place. So, the more we exchange, the more opportunities we have to learn from exchanges. We get better at it and we are exposed to new ideas from others that link up to our ideas.  In other words, we accelerate the rate of value added from exchanges simply doing more of them.  It is the ultimate virtuous circle.

Ok. And is the possibility of accelerating value added through exchanges finite? Of course not. As a species, we are just waking up to the idea that this is where value comes from. I expect that in the 21st century, our understanding of how to accelerate the rate that we exchange things and ideas will produce opportunities that we cannot dream of now.

Summing up, we get economic growth when we squeeze more value out of what we exchange. There are a lot of inputs whose value fluctuate in different contexts. But the pace of exchange is heating up (via internet and beyond) so is this the time to start worrying that our growth potential is finite? I don’t think so.

So who is spreading this idea that value comes out of things themselves rather than exchanges of things? I would like to meet this guy person and set him or her straight. Over a glass of chablis or a nice pinot would be just fine. Oh. and with some ricotta fritters, a few stuffed tomatoes, whipped mashed potatoes with celery root, and lemon thyme lamb chops … errr …  followed up with, oh, … why not a few slices of blackberry apple cake? Great idea! Where did it come from? From Saveur, my friend! Think of Saveur as a rather crude exchange hub for ideas about food … and perhaps more.

Now to a much more interesting topic - wealth creation … and drum roll please … we should savor the opportunities that exchange creates rather than be silly and just horde stuff. In the long run hording is a recipe for conflict. And btw, it creates storage issues and clutter. And it isn’t much fun anyway just to sit there staring at stuff that someone told you is really valuable. Nor is hording a great long run strategy to keep up with the pace of economic growth to come. Why? Even if you have lots of tanks, planes, subs, spies, security guards, laws and whatever else it takes to keep grubby fingers out of your enormous cookie jar, you won’t know what to horde.

Open Innovation thinking suggests that big corporations would do well to think about doing venture deals. Why? Even if these deals are high risk, they offer insights into what could come next. No way? Well, some of the big boys have got the point. Dealbook reports on the trend.

Paul Krugman gives his assessment today of the chances that Europe will reform the Euro. Nicht gut. Time to start thinking about a post Euro Europe? I ask the question only half in jest.

Of course, some people might say that. But they are people without plans for the future that require capital. If you have plans, you want many. So what about government? Well, by definition it has to have plans. It is responsible for things like defense and infrastructure and education, etc. So, Paul Krugman asks, why doesn’t it want money that is nearly interest free? Good question, I think.

Andrew Leonard wrote for Salon

I’m having trouble thinking of the proper simile to describe the news that Sandy Weill — the creator of Citigroup, the ur-mastermind of Too-Big-To-Fail banking, the man most responsible for repealing Glass-Steagall — now thinks that the big banks should be broken up.

Genghis Khan, on his deathbed, declaring that pacifism is the way to enlightenment? Karl Marx embracing the invisible hand of the free market as the best possible way to organize society? Ronald Reagan announcing that, guess what, government is the solution?

Am I exaggerating? You make the call.

Andrew, you are not exaggerating.  I am still trying to figure this one out myself. Sandy Weill was the single minded empire builder of Citibank. Now he says it was all a mistake.  What has happened? Things have changed. Huh?

The only thing I can figure is that Sandy is worried about his legacy. He wants to be known as the guy who at least repented and did the right thing.

I have been hoping that by 2013, the global economy would be looking more solid than it has over the last several years. Sadly, however, there are some trends working against this. New York University Professor Nouriel Roubini lays these out pretty well in an interview he gave to Bloomberg.

Don’t watch just before dinner. It will spoil your appetite.