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Upside-Down Examples

8 replies on 1 page. Most recent reply: Sep 22, 2009 10:22 PM by Arthur Watts

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Bruce Eckel

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Registered: Jun, 2003

Upside-Down Examples (View in Weblogs)
Posted: Aug 20, 2009 8:02 PM
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Summary
The kind of thing I've been talking about: time-share restaurants, edupunk and microlending.
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It's hard to imagine different ways of thinking about business without examples, so I'm starting to collect them. Here's the first batch.

Time-Share Restaurants

Speaking with one of my neighbors here in Crested Butte, she started talking about wanting to create a restaurant, which is a tricky business at best and even harder in a resort town with its ebbs and flows and off-seasons.

I mentioned the example given in Seth Godin's book Tribes, about a restaurant in New York that is only open 20 days a year, on selected Saturdays. You find out and sign up via the web, and they have a full house every time. Because they don't have to worry about being open at the whim of walk-in customers, they can spend all their time focusing on food rather than being constantly distracted by day-to-day management of a storefront.

We wondered if a restaurant space, or even just a commercial kitchen and searching for spaces that could be used in a guerrilla fashion, could be a viable model. Working with a number of different kitchen users becomes much more practical via the web.

Edupunk

The September 2009 issue of Fast Company magazine reports on the edupunk movement, which deconstructs education by observing that universities were founded to share a single scarce resource -- the book. At the time, there was often only a single book available, so the professor, acting as a kind of antique web server, would read and lecture from the book while the students became browsers that would copy down what the professor was saying.

Obviously other aspects of the university have been beneficial enough for it to survive the introduction of the printing press and progressively cheaper books. If you've been to college, you know that colleges, professors and textbook publishers collude to create an artificial economy to extract more money from the students (usually, their parents). The fact that such behavior is institutionalized is an early indicator that something is wrong. Add to that the research granting system whereby a university takes half or more of the money granted to a professor for the privilege of being associated with the institution. And what most students have observed is that researchers don't make the best teachers, even though they are typically forced to also teach, a task that is often relegated to graduate students.

Colleges and universities can get away with this kind of behavior because they've fixed the game. For success in life, the story goes, you need to go to a college or university, and the reputation of the institution will get you a better job and higher pay. Of course, what an employer really wants is someone who can figure things out and is unafraid of taking risks. Does going to an expensive university guarantee this, or are you even more likely to find a go-getter by seeing who has paid their own way through a community college and then a state university? I had a lot of wanderlust during those years and so I experienced many different institutions of higher learning, including spending one semester at a community college, and the teaching there was in many cases significantly better than the places that touted themselves as superior.

The Edupunk movement asks what in the colleges and universities is leftover cruft based on centuries-old constraints. The answer is "a lot." If these institutions were designed today as green-field projects, there's a huge amount that would not appear, because it's unnecessary or even counterproductive.

Take just one thing: the eyes-forward nature of most classes. Again and again, studies show that lecturing is just about the worst way to transfer information. But by controlling the game, institutions don't need to change. The Edupunk movement is going to use the internet to route around the roadblock of traditional learning, and (as is so often the case) the colleges and universities will be playing catch-up to whatever emerges.

I'm not sure what the new form of learning will look like. Personally, I'd like it to be something that I myself couldn't resist being part of either the creation or consumption process (or maybe the answer is that everyone will be part of both. That's kind of an upside-down thought). I also don't think that the internet alone will be enough, at least not for me. Interacting with other people is essential, but colleges and universities have done a pathetic job of that, too.

I can imagine a lot of things going by the wayside. Semesters and tests, for example, and lots of other things that were evolved for the convenience of the people running the institution (again, because they had the upper hand and could get away with that kind of behavior). Imagine something where you did some independent study -- aided, of course, by great interactive learning programs, games, etc. -- and periodically there was some kind of open-spaces style conference where learners got together to share and discuss and otherwise invigorate the learning process.

What I do know is that by tearing down the expensive, old-style learning institutions and replacing them with something new, vastly better and much cheaper, we will enable a much larger number of people who want to learn -- eventually, perhaps, everyone who wants to learn -- to improve themselves. And that is just another thing that will change the world in amazing ways.

Microlending

Well, banks. It's very hard to convince them that money isn't the most important thing. Tough argument to make to a company that only thinks about money all the time. Sometimes a bank here and there starts thinking that maybe it's about service. Usually they can quickly quash that notion by hiring a Harvard MBA to come in and tune things back up to maximize shareholder value.

Even though these are the same geniuses that decided it was a good idea to make home loans to people who were absolutely guaranteed not to be able to pay for them (but real estate always goes up, right? And now the same idiots won't make loans to the most qualified of borrowers), the concept of making tiny loans to the poorest of the poor was clearly ridiculous. Even though those people truly, desperately needed those loans to start micro-businesses to raise themselves out of poverty -- usually these were women forced to support themselves through prostitution.

The weirdest thing about microlending is that the repayment rate is the highest of any banking activity. It may just be that the borrowers want to be able to get another loan to further increase their business -- and that happens a lot -- or maybe being downtrodden makes you more honest than working on Wall Street or (fill in your least-favorite business here; I currently vote for insurance companies and big pharma, who I'm convinced are winding up the right-wing wackos to prevent health care).

Since microlending began, there's been another phenomenon, which is funds created by individuals for microlending. All of these things enable people who want to start their own businesses and work hard (something we've always valued in this country, right?) to do so, and one thing we have learned in this country is that virtually all economic growth comes from small business.


Bartosz Radaczyński

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Registered: Aug, 2009

Re: Upside-Down Examples Posted: Aug 21, 2009 3:03 AM
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Bruce,

I think that the restaurant is open 20 days a year not 20 days a week :D

robert young

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Re: Upside-Down Examples Posted: Aug 21, 2009 8:52 AM
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>> what an employer really wants is someone who can figure things out and is unafraid of taking risks.

I think you've found (and thus the raison d'etre of these postings) is that what the vast proportion of employers *really* want are kids smart enough to do what the pointy-haired suits have decided, in their preternaturally risk averse way. If your statement were actually true, we wouldn't be saddled with billions of lines of COBOL (and millions more every year), and the reinvention of square wheels in the form of xml goodies. Groups, with even the slightest attachment to a status quo, are petrified of risks.

John Cowan

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Registered: Jul, 2006

Re: Upside-Down Examples Posted: Aug 21, 2009 10:22 AM
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Microlending is <i>all about</i> money. Interest rates are typically 15% per year, and profits are huge. What's expensive about it is servicing all those little loans, each of which generates the same amount of paperwork as lending you money to buy a car or a steel company money to renovate a factory. Most banks go for the high end of the market for that very reason.

Michael Chermside

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Nickname: mcherm
Registered: Jan, 2004

Re: Upside-Down Examples Posted: Aug 22, 2009 10:15 AM
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Bruce:

Please keep sharing your thoughts on this subject, I, for one, am finding them very interesting. I'd really like to explore this and see where it leads.

I'll contribute another example that's close to the concept you're seeking, if not quite on target. When I was younger my family participated in a potluck supper club. They had a hall (contributed by a church I believe) and on the scheduled days everyone would show up with some dishes to contribute to the serving table then everyone would walk through and serve themselves.

A few interesting points. The group was fairly large, which actually worked as an advantage. If it had been smaller we might have needed some policy to coordinate and ensure that there were enough entrees, enough salads, enough deserts -- but with a large enough group no formal coordination was needed; if there were too many salads last time a few more people would bring deserts instead the next time.

Another interesting point is that this was NOT a system for sharing food and ensuring that everyone got some variety. Oh sure, that seems to be what is happening, but that wasn't the reason that people came. They came for social reasons and the food was essential but secondary. It reminds me of some of Clay Shirky's writings [http://www.herecomeseverybody.org/] which point out that there are huge advantages to be gained by harnessing people's inherent social behaviors.

Another point to note is that someone could have shown up without contributing food -- there was no formal security system. But there was a sense of community, and a social contract that prevented excessive leaching. In fact, there was at least one person who did attend regularly without contributing: he had mental retardation and was welcomed as a community member without being expected to contribute food.

My final observation is that I think I see one reason why this sort of bottom-up organization is not prevalent in business (which is completely dominated by traditional corporate structures). Business tends to be about making money, and money has a special characteristic: it is a form of zero-sum game. Everyone wants money, and in every transaction the monetary part of the exchange is a zero-sum game. Even if we both benefit from the trade, each party would benefit more if they came away with more of the money in the end. Things like my potluck club or an open space conference do NOT have this zero-sum property. So I suspect that the real trick to creating a form of business that operates in this manner is to determine how to avoid breaking apart on the shoals of "How do we split up the money?".

martin mcgovern

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Nickname: martinmc
Registered: Aug, 2009

Re: Upside-Down Examples Posted: Aug 24, 2009 8:59 AM
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Your comments on microlending are interesting but it's effectiveness is not as clear as initially thought.

This interesting article from the economist breaks down why it appears to have such an impact. http://www.economist.com/businessfinance/displaystory.cfm?story_id=14031284

The conversation about what universities waste resources and time on and the question of cost are separate. Many universities outside the US are much cheaper (often free)to students but have all the same institutional problems as the big US ones. The two issues are not necessarily linked.

Quote:
"Edupunk," he tells me in the opening notes of his first email, "is about the utter irresponsibility and lethargy of educational institutions and the means by which they are financially cannibalizing their own mission."

Like most change it will be evolutionary not revolutionary.

Sebastien Arbogast

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Registered: Aug, 2009

Re: Upside-Down Examples Posted: Aug 25, 2009 4:54 PM
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I'm particularly interested in your remarks about Edupunk as it reminds me of a very inspiring TED talk by Clay Shirky about Institutions versus Collaboration (http://www.ted.com/index.php/talks/clay_shirky_on_institutions_versus_collaboration.html). The reason why I found this talk particularly interesting is that I totally believe that Clay was up to something. And the reason why Edupunk echoes in me is because it might be an ideal education system for this new collaboration-based professional world. I don't think it will be anything more than marginal if it only sends people to institutions because beyond the content, the way in which this content is distributed, the way colleges are organized, it also teaches students how to cope with corporate politics, biased evaluation criteria, bureaucracy, hierarchy, and so on.

But of course, if we're going to inject more and more collaboration into big collective problem solving, then it means we need a different way of expanding knowledge and skills, and this new way shall reflect the environment in which collaborating people will evolve.

Imagine a deinstitutionalized group of people federated by an Internet platform allowing them to collaborate around a collective objective of expanding their global understanding of various aspects of the world. Exchanging resources like eBooks, web links, articles. Setting up virtual or real life meetings where people could exchange and build up their knowledge and skills as in unconferences. And people would be "graded" by one another as a function of the quality of their answers and what they give back to the community. And of course this tool should also make the transition easier from solving the problem of knowledge expansion to the use of this expanded knowledge to solve other problems, by making it easier to create other collaborative groups with collective objectives.

And to make it even more elegant, such a platform shall be designed and implemented in a collaborative way. What do you think? When do we start?

christian gross

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Registered: Apr, 2008

Re: Upside-Down Examples Posted: Aug 27, 2009 10:48 AM
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Hey Bruce...

Regarding the loans... Actually it is the right thing for the banks to do.

Let's do the math. A bank takes loans from the central bank, and gives out loans. The earnings of the bank is a spread between what they take in and give out.

So let's say that spread is 5% (not unreal).

Thus if a mortgage is 100 USD they would earn 5 USD. Of course the bank is leveraged thus that 100 USD is only about 20 USD. So assuming if a bank has no starting capital after making 5 loans for a grand total of 100 USD they would earn about 25 USD. Sound good, right? Not really they have to pay for infrastructure, employees, etc, etc...

Ok, so we have five loans, and we have a default rate of 10%. That means of the 100 USD what disappears is (20 * 0.10 * 5) = 10 USD. Now the bank earns 15 USD instead of 25.

Now imagine defaults jumped to 20%, then the bank would loose 20 USD and be left with 5 USD.

Sounds tame, yes? Well, the banks don't operate with a 5 to 1 leverage, but 15 to 1. And at the peak of the lending they were running around 30 to 40 to 1. Thus 10% default completely blows the banks out of the water. Hence credit melt-down.

So now we are past the melt-down and things are moving forward, but the economy is in rough shape. You are still running 15 to 1 leverage and you still have defaults on the book. Thus by issuing more mortgages you are adding to the problem, if the defaults persist. The only solution is to not lend anymore and just service the loans you have now, or only lend to those people that put 60% down or have AAAAAAA+ credit. Anybody else is a potential risk.

End result no credit being given out... Until the economy improves...

Arthur Watts

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Nickname: grevillea
Registered: Sep, 2009

Re: Upside-Down Examples Posted: Sep 22, 2009 10:22 PM
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Bruce, having worked in a large regional university here in Oz for 4 1/2 long years, I think you have hit the nail on the head re 'Edupunk'. Unfortunately, my experience with students (including my own degree in the early 90s) left me wondering just how many of us would actively pursue our own learning without things like assignments and exams to get us off our butts. There were exceptions, but most of us just wanted the piece of paper so we could get out and earn some money. One of the more disturbing aspects of the education industry here in Oz is that many students fully expect to hand over a cheque and receive a degree in return - I think we all know how quickly employers lose interest in any piece of paper where the school has a reputation for that sort of 'ease of learning'.

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