Chapter 14
The Emergent business
The first rule
The main purpose of this book, in fact the purpose of the whole trilogy, has been to arrive at a position to start an e-business. The various chapters reflect the tortuous route that has had to be taken to reach this final goal.
It should be clear by now that starting out with a business plan, based upon a set business idea, is not a practical way to go about creating a business in a rapidly changing environment. It may be the right way to obtain finance, but, as the dotcom crash proved, getting finance has very little relevance to creating a viable business.
Learning from the many failures of the e-business pioneers, it has become evident that the Internet is mainly about enablement rather than selling. It is about communication rather than simply providing more information. While most of the ambitious e-business ventures – based upon expensively constructed Web sites and powerful backend databases – were proving to be white elephants, the simple concept of person to person communication was going from strength to strength.
Ignored by most of the main developers, e-mail became the "killer app". The inherent tendency for human systems to self organise, put all deliberate human initiatives to shame. On-line communities, costing virtually nothing to set up and maintain, had created as much, if not more, usefulness than the millions of Web sites that had squandered billions of dollars in human resources.
Anyone who has studied organic systems, knows that they have a natural tendency to self organise. They are driven by evolutionary mechanisms that act continuously to improve efficiencies at every level of organisation. The Internet is an organic system, not because it is based upon computer technology but because it is based upon human activity. It is as natural for the Internet to create its own order, and progress towards increased efficiency, as it is for any other biological organism or ecosystem.
Observing the progress of the e-business environment over the rise and fall of the dotcom bubble, it became increasingly more evident that rational human organisation is like a small sailing ship in a storm. Pitted against the natural tendency of a dynamic system to self organise, it is virtually powerless. Any human activity that does not make any real improvements towards efficiency is ruthlessly broken up or destroyed.
The instances where Internet businesses seem to have had most success is where they have been allowed to self organise: without the imposition of human control. This observation provided me with a first rule for deciding what kind of business situation to create:
1) The business should take advantage of a system's natural tendency to self organise.
What makes for increased efficiency?
"Increased efficiency", is a glib term. What does it mean in a new and as yet relatively unexplored environment? How do you recognise it? How do you measure it?
In the context of any business situation, efficiency is easily recognised and measured. It is the amount of wealth that is being created or lost. In competitive environments the biggest winners are usually those who can achieve goals more efficiently.
This begs the question: "How can you tell whether or not a business venture is going to be profitable and create wealth?" Reading through the obituaries of the many e-businesses that failed during the dotcom bubble, the conclusion seems to be that predicting future profitability is impossible. Even with the survivors, the difference between expectations and actual results, make a poor case for the ability to predict future profitability in an e-business environment.
It seems reasonable then, if most companies can't predict the likelihood or extent of e-business profitability, to assume that profitability is unpredictable. This gives rise to a second rule:
2) The business should not rely upon an ability to determine future profitability.
At first, this seems ridiculous. Surely no business venture should be started without having some estimate as to future profitability. However, this is far less ridiculous than estimating future profitability when there is clear evidence that it is impossible to do so.
The resolution of this paradoxical situation is to think in terms of strategies rather than plans. If you start with a lot of capital you are compelled to estimate future profitability to make sure you don't lose the money. This automatically puts you on the slippery slope of trying to use human reasoning, planning and forecasting the future, rather than taking advantage of a system's natural tendency to move towards efficiency by itself.
Conceptually, the idea of working without calculating future probability is difficult to appreciate. The trick is to think in terms of starting with a very small amount of money, where a mistake can see you knocked out of the game. This forces you to progress only in directions where you can reasonably expect to earn enough money to continue. In other words, all activity is confined to small steps that bring immediate rewards.
Using this simple strategy, progress is dictated by inputs of revenue rather than an amount of capital. Although this may seem nonsense to those who have been brain-washed by the stories of business angels and Venture Capital largesse, the undeniable fact is that a business that is restrained by income cannot do anything other than progress in the direction of profitability.
This provides a third rule:
3) The business must be capable of starting with a small amount of capital and be able to generate enough of an immediate revenue stream to make further progress.
Creating a revenue stream
There is only one way to create a genuine revenue stream, that is to provide value in return. This places a further restraint on the type of business that can be chosen and provides a fourth rule:
4) The business must be able to provide value right from the start.
Investment capital can only be treated as revenue if adequate returns can be guaranteed. However, as profitability cannot be predicted, this condition cannot be met, so, investment capital shouldn't be used in an e-business venture where the outcome is uncertain.
Seed capital can qualify as revenue if the probability of gain heavily outweighs the risk of loss. As a rule of thumb, seed capital can only be treated as revenue if there would be a reasonable expectation that a business could advance to where the investor's share could increase in value by a multiple of between ten and twenty. To expect to obtain better terms than this for seed capital would be unrealistic.
A different approach to obtaining start up capital is to be able to offer a solution to a difficult or unsolved problem. In this case, seed capital could be regarded by the finance provider as research and development costs – on the understanding that there is a reasonable chance a problem can be solved. This provides a fifth rule for the choice of business:
5) The business must be such as to be able to solve immediate and real problems.
Personal assets and contacts
Every business entrepreneur must have personal assets of some kind. These may be tangible or intangible. Any personal finance, property or equipment would count as an asset. So also would intellectual properties, experience, special expertise or talents. Even an ability to network or sell would constitute an asset.
These assets represent the core of the business and the more of them that can be applied to a business situation the more efficient the business will be. This provides a sixth rule:
6) The business must be chosen such that it makes full and appropriate use of the founder(s)'s assets.
As has been covered earlier in the book, an individual's ability and capability is enhanced by their choice of personal contacts. The quantity and quality of these contacts determine the range of business opportunities that can be considered. Also, they determine the effectiveness with which opportunities can be realised and the ability to expand the business. This choice of contacts applies not only to immediate contacts, but also to the contacts of the contacts. These are equally as important because they will enhance the total value of the network of personal contacts.
This provides a seventh rule that will affect the choice of a business:
7) There must be enough suitable contacts, direct or indirect, available to cover all aspects of the chosen business situation.
Employees count as valuable contacts, but, they come with a penalty attached. They represent a liability unless they are directly or indirectly responsible for increasing the efficiency or income of the business: creating real value. With a young business, particularly at start up stage, it is not possible to keep employees gainfully employed all of the time. Any discontinuities, setbacks or changes in direction can dramatically change the efficiency of a business, maybe even throwing it into a loss making situation.
The penalties associated with employees are heightened by the increase in overheads they generate: floor space, services, management time, training, taxes, government regulations, working practices, etceteras. These may be accommodated in a large organisation that has a steady cash flow, but can greatly reduce the efficiency of a young business where income is uncertain and subject to unexpected changes.
This leads to an eighth rule:
8) All employees must be revenue producing and fully covered by a stable and reliable income.
Advertising and marketing
Most conventional business strategy books will emphasise the obvious: reliable product or service, competitive pricing, customer satisfaction, after sales support, clever advertising and marketing. Few make allowances for the influence of the Internet and the speed with which information and knowledge can diffuse through an on-line population.
In the second book of this trilogy, "The Ultimate Game of Strategy", I devoted a whole chapter to the spread of information through the Internet. This phenomenon is analogous to the spread of viruses throughout a population. Information, knowledge and gossip can spread from one person to another, one person can affect many others so the spread is exponential. This exponential spreading is speeded up when it involves groups of people (such as on-line newsgroups and discussion forums).
Using this phenomenon for marketing purposes has acquired the name viral marketing. It is a highly effective and costs very little, but, it only works if the product or service is highly novel, breaks new ground or is of exceptionally good value. This provides another rule for the choice of business opportunity:
9) The product or service should be sufficiently distinctive to be able to take advantage of viral marketing.
Note:
Many people assume that viral marketing applies only to the people who are on-line. This is not true because of another phenomenon known as small world clustering. The essence of this theory is that because people on-line tend to transfer their knowledge and information to those in their immediate locality almost everybody, whether they have a computer or not, are also influenced by the Internet spread of information and knowledge.
Critical mass
The essence of technological advance in the twentieth century was encapsulated in the phrase: "To know the future is to invent it". The dotcom bubble illustrated how this philosophy is not appropriate for the Information Age.
Inventing the future, implies that clever people, with good ideas, can determine what the future holds. Many well funded dotcoms tried to do this and failed miserably. What they proved is that the future, in a rapidly expanding technological environment, is beyond the power of humans to control. The future may evolve out of inventions, but, it isn't invented.
Perhaps a new phrase might be more appropriate for the Information Age: "To know the future is to GROW it". This would involve admitting the future is unpredictable and basing business strategy on the notion of providing businesses with the ability to grow, adapt and evolve by themselves.
This philosophy is anathema to the twentieth century, Industrial Age mind set. It suggests a lack of control, a lack of organisation, a lack of leadership – an inefficient system that is random and aimless. But, nothing is further from the truth: it is just a question of knowing how to control it.
The key to controlling a self organising, evolving business it to understand the concept of critical mass. Critical mass is a single number. It may be expressed as a number of participants, a number of customers or a number of orders. It is the number that defines the point at which a business breaks even.
For every business there is a break even point, where the income is just sufficient to take care of the outgoings. If income is above this point, the business is profitable and can develop and evolve from its own resources. If income is below this point, the business runs the risk of spiraling downwards out of existence. This much is common sense, but, somewhere in between, there is a quasi state: where a business might go through a period of negative cash flow during a transitional stage in its growth.
Negative cash flow – or capital burn rate – most commonly occurs at the start up stage, or, during a period of expansion, or, at a time of redirection. The nature of e-business is such that it is continually in one of these three phases – due to constant technological change and unpredictable competition initiatives. This makes the hemorrhaging of a business's capital base the single most important problem an e-business strategist has to deal with; not least because it is an ever present danger.
Seed capital, loans, past profits and various stages of equity capital are traditional sources of funding used to finance negative cash flows. Such funding is assumed to be bridging finance, used to achieve new levels of business profitability with sound business plans aiming to meet well defined targets.
However, planning and making projections involve anticipating the future. This is not reliable in an environment so unpredictable as e-business. It puts the business strategist in much the same position as a marksman trying to fire at a fast, random moving target. There is nothing stable to focus upon.
The only predictable metric is critical mass. It is this, rather than future targets, that should form the focal point of an e-business strategy. Unlike targets, critical mass is not the aim of a strategy but represents a minimum acceptable performance. This requires a large paradigm shift for anyone used to conventional business planning because anticipated results are not specific, but vague and open ended. Not an easy thought for anyone with a managerial mind set.
The trick to understanding why critical mass is a better basis than targets for e-business strategies is to imagine a high jumper, jumping over a bar. If the high jumper isn't sure whether or not he can jump over it, he can spend more time training to perfect his technique. He may then succeed, but, a far surer way of jumping over the bar would be to set the bar lower. The point is that critical mass is knowable. It can be calculated. It is also adjustable. If it seems too high, it can be lowered to a point that makes it easier to achieve profitability..
This provides a tenth rule to apply when deciding upon an e-business:
10) The critical mass must be easily adjustable.
Note: It must be emphasised that critical mass is the single most important metric in e-business. It is the only figure that is certain, controllable and calculable in a bottom up strategy. Almost all other metrics are vague and unpredictable
Business strategy
The dotcom bubble provided ample evidence that even the best laid plans can fail or be thwarted by changing technology and unpredictable competitive action. The question then becomes, "What takes the place of plans?". The answer is strategy.
Strategy isn't about trying to plan the future. It is about using concepts to achieve goals in situations of uncertainty and competition. Concepts are in the mind so they cannot easily be written down on a piece of paper. However, once the concepts are in place, strategies can be employed and orchestrated using very simple calculations. These are often described as "back of the envelope calculations".
Back of the envelope calculations are not inferior forms of planning. They represent top level understanding and control that deal with only the most important and critical aspects of a business situation. This is particularly applicable in highly complex areas of business where vast amounts of information, and a plethora of incomprehensible detail, can easily cloud the more important issues. With bottom up strategies – the essential approach in these conditions – back of the envelope calculations are vital for fast reacting control.
The main focal point, for back of the envelope calculations in e-business strategies, is critical mass. A business direction can be guided according to the ease of achieving critical mass: moving in directions where critical mass is most easily achievable and away from areas where it is not. Such a strategy can be controlled and monitored by means of a simple model that uses only three business metrics:
Total overheads (O)
Gross profit per sale (P)
Total sales costs (S)
The critical mass (number of customers or orders needed to break even) can then be calculated using the formula:
Critical mass = (O + S) divided by P
From this simple formula, it is easy to calculate the minimum number of customers or clients needed for a particular business opportunity to be viable. If this number seems achievable then the business opportunity is deemed worth pursuing. This obvious fact provides a means of choosing between various business options: the easier it is to achieve critical mass, the more likely the business is to succeed in being profitable. This allows a business to be steered through a route of development that offers the least chance of failure.
The value of this formula is that it can show where flexibility and adaptability are needed. It can be used to guide the company into more profitable business areas and take it out of hazardous situations. It will let you know when your overheads are too high; tell you when they have to be drastically reduced if a sticky patch or a discontinuity occurs. It will let you know if increased marketing or reduced prices are likely to improve results or whether it might be wisest to pull out of a situation altogether and move on to greener pastures.
In essence, this formula can be used to enable a company to be flexible, adaptive and fast reacting. If a more powerful competitor comes on the scene, it will tell you to move on. If an new opportunity arises it will provide a way of judging whether or not to take advantage of it.
Although this is described as a "back of the envelope" calculation, it is more usefully employed as the basis for a simple spreadsheet model. This will provide a simulation of the business as various consequences of adjusting the metrics are observed.
The three adjustable metrics are overheads, gross profit and sales costs. These can be constantly monitored and adjusted to suit current conditions. Gross profits and sales costs are easily adjustable, but, overheads can be more difficult to change. For this reason, a business infrastructure that requires the lowest possible overheads is preferred.
This provides an eleventh rule when deciding upon a suitable e-business opportunity:
11) The essential infrastructure required must be such as to entail very low overhead costs.
Having a low level of essential overheads does not rule out the possibility of strategic expansions in favourable conditions. However, it will facilitate rapid contraction in times of change or adversity.
Competition
Although critical mass is the only metric that can be relied upon, it is subject to continuous change. For example, critical mass is affected by competition: if competition becomes intense, it becomes more costly to compete and critical mass goes up. If there is less competition, critical mass goes down.
Using the formula in a spreadsheet model, it is easy to estimate relative competitiveness. If a competitor has a smaller critical mass they will be in a stronger position. It will give them more scope for reducing their prices, increasing their marketing efforts, improving customer service and support or enable them to put more funds into product development.
By far the most threatening aspect of e-business is the ease with which competitors can come up with a superior or less expensive product or service. The difficulty of achieving critical mass offers some protection as it may require a substantial capital investment to persuade a large body of customers to switch loyalty. This would be particularly true if the customers themselves were an important part of the product or service (such as an employment agency).
In warfare, opposing sides may fight a war of attrition, where each side depletes the other side's resources at the expense of their own. Usually such wars are won by the side whose resources last out the longest. Similar battle can be fought in the arena of e-business, where businesses may be prepared to sustain heavy losses until they have won over all the clients. However, such victories carry a high penalty because the losses have the effect of increasing the winner's critical mass as these losses have to be recouped (or higher equity earnings allowed for).
In warfare, there will be an advantage to the side that has the more efficient armour or firing power. In e-business competition, the advantage will lie with the business that has the lowest critical mass. This provides another important rule:
12) The business should have a lower critical mass than its competitors.
Initiatives
It is too obvious to spend much time discussing the importance of product or service reliability, competitive pricing, customer satisfaction and after sales support. These are fundamental to any business situation. The only difference the Internet makes is that any improvements in these areas are not only noticed by customers or clients, they are just as easily noticed by competitors. This allows them to catch up or surpass any new initiatives very quickly.
This puts early movers at a disadvantage because if their initiatives are seen to provide a competitive advantage, they can be copied by competitors who would have the distinct advantage of not having to carry the costs of development or educating the customers or clients. This provides another rule for choosing a suitable business opportunity:
13) There should be no substantial development or pioneering costs.
Switching in an out of opportunities
A bottom up strategy that follows the direction of lowest critical mass will require high flexibility and involve fast switching between situations. As already covered, this will require the business to have low overheads, with many of the business functions being outsourced rather than carried out internally.
However, even with low overheads and a flexible business organisation, switching around can be costly in terms of the disruption it causes. Partners, affiliates and contractors need to be considered. New hardware, different techniques and software might be required. There may be a need for retraining or learning new areas of technology. Also, a change in direction might require different contacts, making some valuable contacts redundant. These are important matters to be taken into consideration.
The cost of switching out of an unprofitable area of business into another that holds out better prospects can be costly. This cost, and loss of efficiency during the change, might outweigh the advantages of moving on to greener pastures – effectively limiting flexibility and inhibiting strategic switching opportunities.
The only way to avoid these kind of problems is to be involved in a business environment that offers many opportunities for switching into new opportunities without the need to make any major organisational changes. This provides a fourteenth rule to influence the kind of business opportunity to take:
14) The business environment must be such as to allow switches in direction without too much disruption.
Potential for growth
As a business in an unpredictable environment necessitates a bottom up strategy, it relies upon there being ample scope for evolutionary, organic growth. There has to be sufficient opportunity to expand. It is no good creating a business in a small niche because it would become trapped and limited in the ways it can expand or evolve. This sets a fifteenth rule to influence the choice of business opportunities that can be taken:
15) The business environment should offer ample scope for evolutionary growth and expansion.
Funding
Bottom up strategies follow the line of least resistance, so, choice is determined more by facts and events than rational decision making. Particularly this applies to funding. Funding cannot be planned or predicted. It either happens or it doesn't and is always obtained on the basis of some understanding of what the business is about and how it is to be conducted.
A conventional business approach will be able to offer up a detailed plan, to let an investor see how their money is to be spent and how they can expect to see the results turn their investment into profit. An entrepreneur using a bottom up strategy hasn't got this option as there is no plan and no way of predicting the course of events. In some way, they are in the same position as the person trying to sell the idea of a spread sheet: as depicted in the story in chapter 11.
The late Sir "Billy" Butlin, who became a multi millionaire by creating the first packaged holidays in the UK just after World War 2, had a dream of building "holiday camps" that provided cheap accommodation around a purpose built entertainment complex. He went to hundreds of different banks throughout the UK, looking for financial backing. They all turned him down until he came to a small bank in a run down suburb of South London: Barclays Bank in Tooting Bec.
The manager of this bank recognised the potential and, probably at the risk of his career, loaned Billy Butlin the money to get his scheme off the ground. A decade later, when the Butlin Holiday Camps had spread all over the UK, Billy Butlin was still using this same small bank to handle the millions of pounds the business was turning over every week. Despite many advantageous offers from larger banks to handle his cash flow, Billy Butlin steadfastly refused to move his account away from the small bank that had given him his initial start.
The point of this story is that if an idea has any real merit, there will be a financial source somewhere that will recognise it. The more possibilities for funding there are, the greater the chances of success. This provides another rule for choosing a business:
16) There must be a variety of different kinds of funding possibilities available.
The full set of rules
This gives us sixteen rules that can be used to select an appropriate business opportunity in the uncertain and unpredictable environment of e-business. They are not in any particular order as some of them are interdependent. They simply provide a check list of conditions that must be met when the final decision is made:
1) The business should take advantage of a system's natural tendency to self organise.
2) The business should not rely upon an ability to determine future profitability.
3) The business must be capable of starting with a small amount of capital and be able to generate enough of an immediate revenue stream to make further progress.
4) The business must be able to provide value right from the start.
5) The business must be such as to be able to solve immediate and real problems.
6) The business must be chosen such that it makes full and appropriate use of the founders' assets.
7) There must be enough suitable contacts, direct or indirect, available to cover all aspects of the chosen business situation.
8) All employees must be revenue producing and fully covered by a stable and reliable income
9) The product or service should be sufficiently distinctive to be able to take advantage of viral marketing.
10) The critical mass must be easily adjustable.
11) The essential infrastructure required must be such as to entail very low overhead costs.
12) The business should have a lower critical mass than its competitors.
13) There should be no substantial development or pioneering costs.
14) The business environment must be such as to allow switches in direction without too much disruption.
15) The business environment should offer ample scope for evolutionary growth and expansion.
16) There must be a variety of different kinds of funding possibilities available.
The end of the journey
These rules now bring us to the climactic end of the book, the point at which the whole trilogy of books has been working towards: the choice of a business opportunity to pursue.
It's taken two years of contemplation and investigation; through the period of the dotcom bubble, where all kinds of mistakes have been made and lessons learned. The progress of hundreds of companies have been followed; thousands of Web articles and hundreds of newsletter have been read. It has involved listening in and taking part in many different Internet discussion forums; meeting all kinds of people in real life; attending seminars and exhibitions. This past two years have been very busy.
Of most value has been the book writing and the virtual cafe. It gave me the opportunity to express ideas, thoughts and observations and have intelligent and informed comments and opinions criticise and modify them. Over two hundred people have contributed to the conclusions reached. Not all agreed with them, but those opposing views and opinions have been taken into serious consideration.
Although I've tried to keep the content as generic as possible, it is unavoidably biased towards my own particular situation: a life long entrepreneur who is as much concerned with interest, life style and personal freedom as with pursuing a profitable goal. This has meant the content and conclusions are not universally applicable. However, there should be enough useful sections to offer some value to everyone, even though they may have no intention of creating their own business.
The final choice of business I finish up with is of course highly personal. It has to be because, as will be obvious from the rules, it must take account of my personal situation and assets. It must involve the particular knowledge and experience I've acquired during my life. It reflects the personal contacts I've made and the opportunities that have come my way. It also takes into account my shortcomings, the limitations of my knowledge and expertise, my physical location and state of finances. Everyone will have a unique and different set of factors that influence their choice of business opportunity. For what it is worth, here is the choice I made.
The final choice of a business
During the course of writing this trilogy, many possibilities and tempting opportunities for creating an e-business emerged. All, except one, they had to be eliminated because they broke one or more of the above rules. To be more accurate, I did not start with those rules: they evolved out of the reasons I had for aborting so many of the opportunities that came along.
The exception, that seemed to comply with all the rules, was a business based upon helping cancer patients locate treatment trials. This particularly appealed to me because it was a business that was based upon providing help to people with needs rather than being concerned solely with the amoral pursuit of making profits.
As you will have gathered from previous chapters, this was not an idea I came up with myself. It emerged out of a problem posed by the oncologist Tillman Pearce. At the time, it did not occur to me to be a suitable subject for business, but, I was intrigued by the problem.
When the subject was first broached, my thoughts went to the famous physicist, the late Professor Richard Feynman, who died from a rare form of cancer in 1988. It has been argued that his affliction could be traced directly to his work on the atomic bomb during World War 2. Many of his colleagues at Los Alamos also suffered a similar fate.
Freeman Dyson, of the institute for Advanced Study in Princeton, New Jersey, called Richard Feynman 'the most original mind of his generation', while the New York Times in its obituary described him as "arguably the most brilliant, iconoclastic and influential of the post war generation of theoretical physicists".
Feynman was one of the world's top authorities in particle physics, winning a Nobel Prize in 1865 with Tomanaga and Julian Schwinger, for his work in quantum electrodynamics. His principle interest was in trying to understand the composition of matter by analysing the collision of heavy particles at extreme high energies, but, his biographies showed him to have been a compulsive problem solver with an insatiable curiosity.
There are many anecdotes of Feynman spending many evenings in cafes with his associates and students, covering the tablecloths with diagrams and figures as they amused themselves with all kinds of problem solving, both serious and non serious. Such was his reputation for problem solving that when on January 28, 1986, the Challenger space shuttle accident happened, NASA asked Feynman, to help with their investigations. Feynman figured out what was wrong: it turned out to have been a gasket material that had lost its resiliency in freezing temperatures.
Feynman suffered from his cancer for the last decade of his life. It always struck me that with his brilliant mind he must have had many thoughts as to the explanation of cancer and the possibilities of a cure. Yet, there is no record of him taking any special interest in the causes and cures for cancer. These thoughts prompted me to think more deeply about Tillman Pearce's revelation that there were no really authoritative sites that covered all the possibilities of treating the various kinds of cancer. Surely, this must be frustrating and agonising to all cancer patients and their families and friends.
As this interest prompted me to look further into the problem, I discovered that all the most recent advances in the treatment of cancer weren't available through prescribed treatment. Treatments have to be exhaustively tested and approved before they can be prescribed by physicians, a process that can take typically eight to ten years.
In effect, this disbars cancer sufferers from all recent medical advances. The only way a patient can receive up-to-date treatment is to take part in a treatment trial. This presents several problems. Firstly, the field is so vast that cancer patients wouldn't know where to start looking. Secondly, there are so many trials taking place that nobody has a complete record of them. Web sites that try to provide information to cancer sufferers are overwhelmed by the scale and volatility of the information that needs to be processed.
In discussing this problem with patients, I found that besides the frustration of being confronted with vast amounts of confusing information, their problems were compounded by the fear of being used as guinea pigs, in trials that would be of little real benefit to them. This forced them to place implicit trust in their physicians.
The problem with this, as I discovered, was that most physicians are fallible. Like their patients, they are not able to have anywhere near the full knowledge that covers all the current research – even when limiting themselves to specialist areas. This has been why knowledge of cancer treatments has been used so often in this book: to illustrate the problems of information overload and data volatility.
Using a people space, where patients can meet other patients with a similar condition to discuss trials and treatments seemed an obvious solution to this problem. From my own experience in researching for this book, I'd discovered that the best way to know what was going on in a particular area of technical complexity was to communicate with others who were trying to do the same thing. This shares the work load and brings up areas of investigation that a solitary searcher might not even have found to exist.
As I made further inquiries and met more specialists in the field of cancer, I discovered another problem area: an area where the same people space that could help cancer patients meet each other to exchange information could also help the physicians and researchers who were working on the cures.
The drug companies developing treatments needed to run many different kinds of trials. They start off a promising treatment with a small trial. If this shows positive results they will conduct a further larger trial. If this also shows benefits they will run an even larger trial. This series of trials can continue for several years, with each new trial getting progressively larger and closer to the stage where it can be safely authorised for general treatment.
This trial activity by the various drug companies involves finding hundreds of thousands of trial patients. Every trial requires the careful selection of people with exactly the right profiles. They have to have a specific type of cancer. The cancer has to be at a particular stage of progression or remission. The patients have to be in a particular age group. They can be selected only if they have, or have not, received particular types of previous treatment. Every profile drawn up for each trial contains a large number of specific requirements that describe a patient suitable for the trial.
This presents a huge problem for drug companies because to get patients for a particular trial they have to source a large geographic area. This necessitates using numerous clinics in all parts of the world who can each identify suitable candidates within their local areas. A typical drug trial might involve a hundred such intermediary clinics, who assist in carrying out these trials.
With many drug companies running hundreds of trials, needing thousands of clinics who would need to search for hundreds of thousands of specific patients – a formatted people space would be an ideal structure to reduce their costs. This saving could be used to finance the setting up and running of a people space for the patients, who would need to be part of it for the benefit of the researchers and physicians.
It was the perfect situation. The profits made by the drug companies could be used to finance a free and valuable service for the patients because it was in their interests to do so. This then constituted the basis for a valid business opportunity. A business where everyone could benefit and everyone would have an incentive to take part.
Discussing the idea with various doctors, oncologists, clinicians and patients, there was overwhelming enthusiasm. But would it form a basis for a viable and stable business? I had to subject it to the rules.
Checking against the rules
Throughout this trilogy of books on e-business, I've consistently criticised the concept of a business plan. To my mind, the idea that you can plan or predict what is going to happen in a complex and dynamic environment is ludicrous.
This view point has been met with fierce resistance, even hostility and scorn. "How can you run a business without a business plan?" everyone would ask. Perhaps this section will explain. It is not about planning or prediction, it is about having knowledge and experience of natural, self organising systems. Its not about regulation and control: its about keeping to the rules.
Let's go through each rule in turn. This process replaces the concept of a business plan used in more conventional, Industrial Age businesses.
1) The business should take advantage of a system's natural tendency to self organise.
The main lesson learned from the failures in the dotcom bubble was that the Internet is a dynamic complex environment that is impossible to predict, control or regulate. However, as the successes of such phenomena as Internet discussion forums, news groups, Napster and the open source movement have proved, the Internet is self organising.
The ability to capitalise upon this natural tendency for a complex system to self organise was seen as the most important consideration when choosing a business. By using the virtual cafe software, bots and a stigmergic people space, a system for matching patients to suitable cancer treatment trials would be self organising.
The driving force behind this tendency to self organise is that all participants can benefit and it will be in everyone's best interest to take part.
2) The business should not rely upon an ability to determine future profitability.
By choosing to use a self organising system, all running costs, development and expansion must be financed out of actual rather than anticipated income because the future is unpredictable. In this situation, the concepts of determining future profitability and aiming for predetermined sales targets are not even applicable.
Note: Income is expected to come from drug company contributions and a variety of other kinds of funding (see below), but, these will manifest only as a direct response to the operation of the system: not through persuasive sales techniques. This is the principle of stigmergy.
3) The business must be capable of starting with a small amount of capital and be able to generate enough of an immediate revenue stream to make further progress.
Using founder assets, most of the necessary software is already prototyped. The system does not require elaborate hardware or server side organisation, so start up costs will be relatively small. Low overheads equates with low burn rate. This removes the necessity of having to have a large amount of capital to finance the business during the start up period.
Being modular in nature, the system can begin operating with just a single trial or a small niche area in cancer research. It doesn't need to attract the whole spectrum of cancer patients and treatment trials to be viable, especially in the early stages of growth.
4) The business must be able to provide value right from the start.
From the moment it begins, a people space can provide benefit to the participants: simply though the value of being put in contact with each other. This benefit may be small at first, but, the nature of stigmergic growth is such that benefits rapidly escalate as participation increases.
There is an exponential at work here. It is like the telephone network. If only one person has a telephone it is a completely useless device. As soon as a second person has a telephone it acquires value. This value increases exponentially as more and more people acquire telephones and can join the network of connectedness.
5) The business must be such as to be able to solve immediate and real problems.
The business would help drug companies find clinics. It would help clinics find drug companies who will be conducting the trials. It would help clinics find trial patients. It would help patients find trials. It would allow patients with similar conditions to communicate and share knowledge of various types of treatment and trials. These are real and immediate problems that a stigmergic people space can solve.
6) The business must be chosen such that it makes full and appropriate use of the founders' assets.
In an earlier chapter, mention was made of Bill Gates's own explanation as to why his company had achieved success. He told a UK television audience that his company had created and explored a computer environment and in so doing had developed many useful techniques and tools. He'd simply used that learned knowledge, and the tools that had been developed, as the basis for his business.
In this instance, I'd explored the environment of humans linking to each through computers, while writing Lingo Sorcery and Magical A-Life Avatars. I gained many valuable insights and developed some useful techniques and tools (i. e., the virtual cafe; bots and digital agents; using databases to create formatted space; etc.). It is on the basis of this knowledge and those tools that this cancer treatment trial business is being formed.
7) There must be enough suitable contacts, direct or indirect, available to cover all aspects of the chosen business situation.
During the writing of my books, I'd used the virtual cafe as the basis for developing relationships with a variety of different people in all kinds of business environments and from many different countries. Together they provide strategic links into most of the areas of knowledge and specialisation that will be needed for this cancer treatment trial project.
Most of these contacts consist of people who have many valuable contacts of their own. This represents a dynamic, human information network that reaches far and wide, particularly into the world of information technology.
8) All employees must be revenue producing and fully covered by a stable and reliable income.
With a business based upon a low overhead system, which is self running, self organising and self evolving, very few employees would be needed. Further need for employees would come only as a result of organic growth and would be financed through increases in the revenue stream.
By having a system that can grow from a small base, there is no need for any large investment funding or support from a Venture Capital company. This removes the necessity for an expensive, high profile, top management structure.
Investors need to have confidence that their investments will be used wisely. They can be convinced (rightly or wrongly) only if there is a strong and provably successful management team running the business. They'll need details of how their money is to be spent and they'll need to be assured, by the presence of provably successful executives, that targets will be met.
Such management and executives do not come cheaply. They will be used to having secretaries and assistants, they will want to create management hierarchies. They will need to be rewarded with high salaries, bonuses, perks and stock options. A self organising business doesn't need all this, but, fortunately it also doesn't need investors or Venture Capital companies.
9) The product or service should be sufficiently distinctive to be able to take advantage of viral marketing.
The stigmergic approach to dealing with volatile data is itself of novel interest. Together with the concept of a people space, it will provide a low cost environment for people trying to find others who have a special interest in a particular narrow area of knowledge. Such a system has many possible applications and will be of interest to many people, even outside of the field of oncology. This novelty is sufficient to spread knowledge about the existence of the project.
There are many Internet discussion forums and news groups devoted to the subject of cancer. Via these communities, any new approach to helping cancer patients is rapidly propagated throughout the Internet. From these Internet communities, information is passed on to people who are not connected to the Internet. It is likely to be propagated to most places where the treatment of cancer is discussed: hospitals, clinics, surgeries and even social events.
There are numerous specialist journals dealing with oncology. There are many conferences and seminars where information relating to various forms of treatment are discussed by specialists. There is a two way exchange of information between these off line centres of information and the Internet communities: a valuable positive feedback loop that can accelerate the spread of information.
There is every reason to expect that should this stigmergic people space start to work, word will spread quickly. This would cost nothing and will be far more effective than any expensive advertising or marketing campaign.
The proviso is, of course, that the system can operate effectively. However, as yet, there is is no low cost system that provides cancer patients with up to date information on cancer treatment trials, particularly with the rarer forms of cancer. This suggests that there is every chance that the system will take off as expected.
10) The critical mass must be easily adjustable
and
11) The essential infrastructure required must be such as to entail very low overhead costs.
These two rules are grouped together because they are inextricably linked. The lower limit to which the critical mass can be shrunk is dependent upon the lowest the overheads can be reduced to without losing efficiency.
As discussed above, by making use of an organic, self organising system that can grow from a small base, there isn't a need for large amounts of investment capital. This means this cancer trial treatment business doesn't have to carry the costs of a high profile, cosmetic management structure. The employee base can be kept small and efficient: greatly reducing the burden of overheads.
The fundamental structure of a people space is a server and a low cost database that simply hold lists. The functional components are client side software that, once designed, involve no running costs. At any time, the business can be quickly reduced back to a basic, low cost system without affecting the quality of the service.
Additional overheads, over and above the basic system, would be incurred only to provide customer liaison and further system development. These overheads can be scaled up or down according to actual business activity and in line with current cash flows.
12) The business should have a lower critical mass than competitors.
By utilising a low cost, low overhead, self organising system that relies upon organic growth and word of mouth advertising, there is very little leeway for competitive businesses to have a lower critical mass.
Competitors using large amounts investment capital will be handicapped with an inherently larger critical mass.
13) There should be no substantial development or pioneering costs.
The basic simplicity of the proposed system, and the fact that much of the essential software has already been prototyped, will ensure initial costs will be orders of magnitude smaller than any conventional approach to the problems aimed to be solved.
The ability to grow organically, starting from a small base, will remove the need for expensive development costs. The pioneering will automatically occur as part the self organising process as the system evolves its own path towards efficient operation. Such evolutionary development is financed, controlled and limited by the extent of the inward revenue – so, there is no need for this to be funded out of capital.
14) The business environment must be such as to allow switches in direction without too much disruption.
The modular nature of a people space provides ample opportunity for switching into different subject areas should any become too competitive or too crowded. For example, the areas dealing with the commonest forms of cancer might be crowded out with different alternatives offered by big businesses that have large marketing budgets.
However, the limitations imposed by the need to achieve critical mass will prevent these companies using mass marketing techniques in the smaller areas of the less common forms of cancer, or, with the more specialist cancer treatment trials.
A low cost, highly adaptable system can pick and choose in the niche areas and fear no competition from the the larger companies who will be handicapped by a their higher critical mass.
15) The business environment should offer ample scope for evolutionary growth and expansion.
Again, the modular nature of a people space is highly conducive to organic growth. Starting with perhaps a few niche categories of types of cancer, or, specialist trials, more can be added, one by one, as different areas of interest open up. The very fact that categories are not specifically chosen in advance allows such areas of interest to manifest randomly.
16) There must be a variety of different kinds of funding possibilities available.
A people space that covers the various needs of so many people and so many different businesses and organisation involved in the treatment of cancer provides a wealth of different sources of funding.
The modular structure and the organic growth allows areas of interest to manifest anywhere at any time. These can be initiated and sponsored by small amounts of funding so that any interested party can promote and develop the area that is of particular interest to them.
If drug companies need patients for a particular type of trial they can promote the appropriate categories. Similarly with trials clinics. Physicians and consultants may want to promote categories that concentrate information and patients around their particular area of specialty. Even patients, their relatives and friends will have strong motivations for promoting niche pockets of interest.
There are ample opportunities for government funding and grants. Charities also will have an interest in this project as it can help them to help cancer sufferers.
Even from outside of the cancer treatment area there will be many opportunities for funding because the basic idea of a stigmergic people space with client side input and control has a wealth of different applications.
The equivalent of funding will also be readily available from university students who might decide that this area of technology would make a suitable subject for a thesis. Such student interest and participation can provide valuable contributions to system development.
Conclusion
The conclusion reached, after two years of work on these three books on e-business, is that the dotcom bubble was a result of trying to apply the thinking and the business models of Industrial Age businesses to the Information Age.
The Internet is predominantly a medium for communication, but, this does not mean it is confined simply to exchanging information. It is much more than this: it is a highly complex environment that allows human activity to be computer enhanced in ways that have no bricks and mortar world equivalent. It is in these esoteric areas of communication enhancement that real advances can be made, with the potential to provide limitless opportunities for creating products and services that are as yet beyond the imagination. That these will emerge is beyond doubt.
The example provided here, of a business based upon cancer treatment trials, did not arise out of using the Internet to help solve the problems involved in cancer treatment. It arose out of an exploration of the unique environment of people using computer enhanced methods of communicating and then looking for a way in which this knowledge could be applied. That I happened to decide upon applying what I'd discovered to the area of cancer treatment trials is almost a random outcome. I could just as easily have applied this same thinking to a host of other problem areas. It just happened that an oncologist came up with this particular problem at an opportune time.
Proof of concept
Many of the ideas covered in this book can be seen on the Web site:
http://www.cancertreatmentworld.com
This site was constructed after the book was finished. The explanation on the home page reads:
Cancer treatment world is a virtual world: consisting of many different virtual countries. In every country, a specific type of cancer is the sole topic of interest.
In every country there are many towns, each dealing with a different variation of the type of cancer the country is concerned with. In each of these towns there are many different buildings, where each building is dealing with a particular aspect of the variation. In each of these buildings, there are meeting rooms set aside to concentrate upon particular finer details.
Patients, friends and relatives of patients, physicians, consultants, trial treatment clinicians, oncologists and drug company researchers can enter this virtual world; visiting any country and town that is of specific interest to them. They can go into the buildings and enter the meeting rooms to join discussion groups, discover where the latest information can be found; hear about the latest research and developments, learn of current and proposed treatment trials.
It is of course a people space. There is no information on this site. It is a place for people to meet others who have a similar interest in a particular niche area of knowledge, where they can share experiences and information with each other.
Of particular interest: all activity and organisation happens on the client side. There is no server side database. There are very few Web pages. The whole system is run by the users themselves.
Further examples of stigmergic systems will be published on the Web site:
http://www.petersmall.net
....as and when they happen.
### End of chapter 14 ###
### End of book ###
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Note: This book lead to the creation of the stigmergicsystems.com website
Copyright 2001 - Peter Small
E-mail: peter@petersmall.net
All rights reserved by Pearson Education (Longman, Addison-Wesley,Prentice Hall, Financial Times for FT.COM imprint