Monday, September 30, 2002

It's a Chain Letter! ...As Mary Jenkins exclaimed to Jeff Greenberg in the HumanTech story. HumanTech's management formalized a  compensation system at the heart of most large companies - you're paid based on how many people you supervise in the command chain beneath you. It's called Span of Control: When given enough levels of hierarchy, any manager can control any number of people - albeit indirectly. But when it comes to direct reports, the theory suggests entrepreneurs must respect managers' inborn limits.                                                                       - Entrepreneur Magazine, Jan. 2001 Those inborn limits are consistently about eight people. Successful managers delegate to no more than about eight direct reports, who in turn manage another eight or so, out to the edges of the organization. Everyone is paid based on the population beneath them, not, as we've learned, based on the company's profitability. Since the constant ratio is about one manager to eight people, the size of the organization - and the CEO's compensation - is based on how many 8-person levels there are. So organizations are hierarchical and pay is hierarchical and command structures are hierarchical. If you wanted to found the next big success story, you'd plan to hire eight people and grow until you had to hire another 64 people for those eight to manage, then another 512 people for those 64 people to manage, etc. When you had succeeded to the point that you had five levels of management, then you'd have almost 30,000 people in your company, and your compensation would be some small fraction of all those workers' average salary, times the 30,000 employees. If your average worker earned $40,000 per year (sound low? the math says that 7/8 of them are at the lowest pay level), then you might be receiving 1% of 30,000 employees' salaries, or about $12,000,000 per year. That sounds typically outrageous but, well, typical. It seems that most companies are based on the same algorithm as a multi-level marketing scheme, like Amway or Mary Kay. In other words, it's a chain letter! If managements sound cynical, you should see the workers. Desperately Seeking the Right DNA The only problem with your success formula would be how to get your people to do consistently valuable work and get your marketing and sales departments to represent and quantify that value to your customers, and get your organization to respond quickly to new opportunities and let go of old ones just as quickly and be sure you hired skilled people exactly when you needed them to respond to opportunities. Good Luck! Some organizations have the DNA to do much of this well and most do not. Why not? Because most people don't care about the company's silly Mission Statement, they care about their pay check. Why do most people come to an organization? Dreams? Hopes? Challenges? Recognition? Sorry, it's the money. The most interesting thing about a company is its likelihood to spit out cash regularly and to look like that will continue for a while. If you're not convinced, ask the kids' mom what a company is for. We don't go to work for a company - We go to work for an accounting system. If we could find a reliable accounting system outside a company, we might go to work for it. Xpertweb's viral expansion plan is based on real mentors doing real training and getting 1% of the prices paid or received by their trainees. The mentors are also expected to find their own trainees - four to eight of them. But mentors are not expected to supervise their trainees. Instead they get automatic reports on the grades and comments each trainee earns or gives as they sell and buy. The mentor's only concerned if the trainee disappoints someone who's a proven fair grader. Otherwise, the mentor is busy herself, buying and selling under the peer-to-peer protocols she was taught by her mentor. The formula is just like the example company: train four people who buy or sell $1,000 per month, and collect $40 per month from them. Inspire them to train 4 each, so another 16 people are sending you $10 per month. Keep the growth happening and in a couple of years you'll have 1,364 people sending $10 per month into your account. Where's the accounting system? It's distributed among the web servers of all those participants and their mentors, each of whom has formally committed to do work they get good grades for, and no other kind. It's not a centrally managed accounting system, but it has all the characteristics of one, except there's no way to change the rules. An accounting system is a money allocation system that causes people to do work today in reliance on a future reward. People learn who to trust and who to avoid, so they work or purchase today in anticipation of compensation next week. They also form a confidence that their trainees will forward the required 1% fee every month. As those responses accumulate a history of reliability, they will be relied upon. And that growing reliance is the basis of any ambitious microeconomy. 11:55:24 PM    comment []

Virus Engine There are many kinds of viruses on the Internet. All of them pose as something they are not. Inactive code dormant in your computer until launched into action An email message apparently from your friend that carries a destructive payload A Word document with a destructive macro And then there are the mind viruses that are destructive only when they force you to take actions you otherwise would not, which is the message's only purpose. An email urging you to protect yourself against a computer virus that doesn't exist A heartfelt plea to sign and forward a petition condemning the Taliban which has been circulating on the Internet for years, even though the petition forwarding address died from the traffic years ago and the Taliban have been eliminated A plea from a rich Nigerian needing your personal help to launder funds Junk mail promising impossible returns on dubious investments None of these work if you know about them and can ignore the mind viruses or automate your computer to ignore them. Both actions inoculate yourself against the viruses' effects. The cost of spreading these viruses is low but they can infect the globe. No wonder it's irresistible to create and propagate them - ours is an Attention Economy, and we all want to make an impression even if we can't make a million. The Internet has exposed a class of irritating attention-getters that we've lived with forever but never saw in such clear relief: that most business and political activities are not about profit but about vying for the spotlight. We're preternaturally anxious to get others' attention. We assume we'll figure out how to profit from that attention once we have it. This was the theme of the DotCom bubble, where no one worried too much about real earnings, as long as the multitudes believed enough to invest in the attention itself. For viruses designed to get your money, the model is to set up a company to be the recipient of funds (from customers or investors) and which the founders and early investors can profit from. From the perspective of the macro economy, such an enterprise is simply an accounting system, into which one invests time or money and out of which one hopes to harvest more money than the investment costs us. Accounting Systems are Proprietary Too Previously we explored the striking proposition that proprietary data is the root of tyranny, and has been since the Sumerians invented the first data base in or about 3246 BC. The insult is further compounded by the harsh truth that, search though we might, we can't find a single instance of a data base that is not proprietary. That figures - the pecking order constricts us all, whereby each of us is someone else's tyrant, and data is simply a way to enforce the pecking order. So we would expect those who are subject to the data to be the peckee, and the dick who keeps the data to be the pecker. (Really, I'm not making this stuff up). Would we expect any less from the special kind of database called an accounting system? That's where the juice is in the macro economy, which is simply an immense collection of interlocking accounting systems investing in each other in the hope of future returns. Hell, we'll even invest in the appearance of an accounting system if the potential reward is great enough, including state lotteries and Nigerian money laundering schemes. The Subversiveness of a Non-Proprietary Accounting System We've previously described an architecture for a non-proprietary cooperative accounting system which stores matching, non-repudiable transactional data on the web servers of both the buyer and the seller in a transaction. If invoked, the architecture creates the first unmanaged accounting system which saves it from the fate of yesterday's HumanTech example. Once we start down the non-proprietary design path, we're in unfamiliar territory. By definition, there can be no edge given to one party in the transaction over the other. That design decision frees us from the huge intellectual overhead of scheming against the customers of our accounting system and lets us use the freed-up cycles to design a mutually rewarding system. This has never been possible before, since there's never been symmetrical (non-proprietary) data before. Once we start designing for both parties, we have the economic equivalent of cold fusion. Imagine a world where some large minority of the population believes it can outwit the rest of the population  and grab a disproportionate share of the goodies. Further, assume a small minority that actually does outwit the rest of the players, especially including the large minority outwitting the majority. It's a set of Russian dolls, really, with ever-smaller groups benefitting from the collection activities of the slightly more numerous but less skilled toll collectors around them. The world you're imagining is the one you live in, and if you believe you're close to the center of this dance, then you're as naive as the honest, hard-working Christians who think the Republican leadership is on their side. The subversive nature of our proposed non-proprietary, unmanaged accounting system is that, unlike every other accounting system in history, it actually does what it says it will do. By its open nature, every promise is recorded and every action displayed, right down to the transaction level. The only challenge is to design the right algorithms and to come up with the kind of viral rewards system designed into yesterday's HumanTech example. How is this model subversive? When the entire world is based on a hierarchy where the better informed perpetually extract resources from the less informed, the ultimate subversive act is to break the extraction system. We've never had a global, interconnected Meme Machine before, but the Internet is exactly that. There's no way to get the current players to change their M.O. overnight. But if we just get a tiny microeconomy together and provide the right viral mechanism, then the micreconomy can start to steal transactions from the outmoded economy, as we'll describe tomorrow. 12:05:08 AM    comment []

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