Startups' grand illusion: You have to be 10x better than whats there

Hey folks! I am about to publish a blog post below. Thought this might be a good place to get some eyeballs on it before it is released :slight_smile:, and generally this group might be interested in the subject of how we can build a more open, innovative and user-centric internet.

Thanks for sharing your perspective!


We all have heard it: In order to build something valuable you it has to be 10X better than whats there. It seems like an accepted law of entrepreneurship.

A law so strong that not even Google+, with Billions of backing, could not become a rival to Facebook. Google+ arguably had some features that made it a better service than Facebook.

This begs the questions if the reasons the 10x law exist actively prevents innovation from happening, why this ‘law’ exists in the first place and what we can do to change the rules?

Everyone knows the pain of trying out new products

Common knowledge suggest services need to be 10x better because in order for users to really bother trying a new product it just needs to be a lot better. I think that’s not the case and the key to solving this question lies in the phrase “to try a new product”.

I believe the real reason are are the switching costs, lock-ins and network effects that make it very hard or impossible to leave services and try out something new.

Imagine you wanted to move from Facebook to Google+, Akasha or Mastadon. All your posts and messages ported over is impossible and you immediately lose access to all of the friends you have on Facebook.

So as long as the following is true people tendenciously do not switch other services, even if they know those are better.

Costs to switch (time & mental effort) > Additional benefit offered * ~10

But…what about innovation?

Don’t these 10x requirements produce the leapfrogs in innovation we need to solve humanities biggest challenges quickly?

tenor

Yes because it indeed produces big, measurable, jumps in innovation that have brought humanity forward.

But no because

  1. The amount of effort, money to build new (but structurally similar) services where 9/10 companies will fail because others dominating the market is a gigantic waste of human potential and time. We don’t have the time to tinker on every new solution for years. We need to get it down to week(ends) or months. ****
  2. Sometimes already a new feature to an existing service would bring great innovation. For example I waited 4 years before Facebook implemented the ability to save posts for later reading. Simply thing. If I had been able to modify this feature in my own clients it would have offered great workflow innovation for me.
  3. The necessity to have such big jumps also brought us insane growth requirements that are responsible for a lot of things that go wrong in this world in the first place, and which we need to fix now.

Faster innovation through incremental gains

How would a world look like where not 1/10 companies survive & produce 10x innovation, but 6/10 companies survive, each producing 2x innovation at 1/10 of the cost?

We would enter a world where we create incremental innovations at higher speed and less effort, more employment, more stable companies and economy, more service competition and less exploitation.

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What’s holding us back: Network Effects and Data Lock-Ins

Cause #1: How we share success in companies:

Speculative value increase

In order to reward the risk of contributing to a company in either time or money we use equity or stages stocks.

The problem is that in most cases shareholders make most (or all) of their profits if the speculative value of the company increases. The company’s profits, revenue and user numbers are only proxies, success is not directly dependent on them. Growth is the key metric a company optimises for.

Therefore the worst thing that can happen for shareholders is that growth is slow or negative. Losing users or revenue is not acceptable and lock-ins must be created.

Facebook is arguably the king of network effects and also an example of how extreme the above dynamic has become:

In the 2nd quarter of 2018, Facebook lost $120bn (billion!) in stock value within 48 hours, the biggest loss of any company in history. The reason: It posted the least growth since its founding, while still making 5BN in profits the same quarter and growing by 42% since the last year.

Think whatever you want about they way Facebook makes money, but such a highly profitable company should not be losing 20% of their stock value overnight while still being wildly profitable.

Cause #2: You and your data are hostages:

Data and Social Lock-ins & Non-Interoperable data formats

The requirement to grow incentivises companies to lock people into their services and make it very hard to leave. Either it’s difficult to migrate and reuse your data in other services, or they create network effects where you lose your social connections if you leave a service.

https://twitter.com/piamancini/status/1045034032407425024?ref_src=twsrc%5Etfw

This also creates counter incentives for interoperable formats which would make it easier to migrate between services or integrate them into custom workflows.

Further, most businesses require to amass intellectual property in the form of proprietary software. There is an economic incentive to not share their progress with the world.
This way every new service/competitor needs to start freshly, even for a simple app like a calendar app.

The 3 things that need to change

Breaking this dynamic requires tackling the problem from multiple angles.
I think it needs 3 things to make that possible.

  1. Data and social Interoperability so users can freely move between services that suit their needs better and never lose the ability to communicate with their friends on other services. This will create the free-market pressure to produce good services, as you can’t lock people in as easily anymore and only keep them if you are the best service to them.
  2. Economic models that reward being a good service, not growth.
    In an environment where people can easily leave a service, a company can only really be successful if they focus on being a good service. This way they will need to optimise for revenue, not growth. Further, their growth is limited to the amount of people they can be the best service for, so it will be hard to get growth-focused Venture Capital investments. Another economic model is needed where investors make money only if the company is being a good service, thus by making revenue and profits.
  3. Optional but ideal: Open-Source software
    New companies should be able to build on each other’s work to provide services faster without spending 1000s of hours in building up services from scratch. Increased collaboration on key infrastructure and drop in development costs are expected.

A way forward?

At WorldBrain.io we are building open-source software and attempt to enable incremental innovation in the (knowledge management) software space.

The foundation to make this possible is Memex, an open-source privacy focused tool to organise your online research. It’s a mix of a Google Search for everything you have seen in the past, Medium’s highlighting and commenting features but for the whole web, and Pocket’s organisation features supercharged. All data is stored locally on your computer by default - you are in control. (You can download it here: worldbrain.io)

This is how it help may tackle the problem:

  1. We bake interoperability deep into the core of Memex.
    To make search possible Memex stores personal data from the different services you use (e.g. your browsing history/bookmarks/trails, social media posts and comments, what you shared/liked content on social media, your annotations and notes).
    Doing so in a way that creates unified data formats across multiple services. After all, social media posts on Twitter and Facebook are structurally not that different.
    To make this data usable for you we are in the process of developing an API that you, developers and entrepreneurs can use to innovate on new services or integrate with your existing ones. This central data store also houses your own social graph, so whichever service you eventually use, you can take your friends with you.
  2. Everything we develop is open source.
    Everyone has different workflows when managing knowledge and needs different tools. People can copy Memex, change features and reuse the data they had in their previous Memex via the Storex API, or use 2 Memex tools in parallel. This ensures that innovators do not have to start freshly every time they want to improve a service, but can create incremental gains, acquire users easily and eventually create innovation faster.
  3. WorldBrain.io has no stock value. There is no speculation.
    To reward early contributions and risk, we use a non-speculative economic model called Steward Ownership. In practice it is a profit sharing model that has a cap on the returns investors and employees can make - the cap is higher the earlier you join.
    This ensures that everyone is focused on building a sustainable service and greed for more than you ought to get is removed.
    It allows us as a company to be OK (its surely nothing to celebrate, but its OK) to lose users and revenue to other services as it will only delay investors’ returns, not lower them.

Next Steps:

Of course such a data infrastructure, and the resulting data sovereignty, brings a whole new class of (privacy) challenges with it - after all we wanna prevent that this can turn into a Cambridge Analytica 4.0 scenario because people unknowingly share detailed data about their digital life.

We are currently forming a community of people to map out all those challenges and how to tackle them through e.g. good UX, education or privacy preserving technologies.

Our open questions we want to address:

  1. How do we create a secure technology infrastructure for personal data?
  2. Data sovereignty & flexible APIs come with risks - Cambridge Analytica 4.0 style risks. How do we create good UX that makes it easy, transparent and flexible to share personal data with other applications, while educating users about the potential risks and opportunities.
  3. What can we learn from past efforts to interoperability and data model standardisation in order to create interoperable data models/formats for knowledge sharing that can evolve with contemporary needs.
  4. How does legislation need to change to support ecosystems that are built on privacy as well as data portability/interoperability and reduce social lock-ins?
  5. How can (governmental) funding mechanisms be designed to support early stage entrepreneurs and organisations using Steward Ownership or Non-Profit models, so they can avoid Venture Capital and focus on generating sustainable revenue/profits.
  6. How can we facilitate a multi-stakeholder community of individuals & organisations with potentially large spectrum of political, economical and technical motivations/requirements to use this data infrastructure.
  7. How can we create a community that is inclusive to people with different, sometimes opposing, world views and which lives constructive, consent-focused (not consensus!) discourse to ease those difference and find multi-partisan solutions.

Do you have ideas on how to answer those questions, or know people who do?

Get in touch with us and help designing systems that are user centric, interoperable and build with a strong focus on data sovereignty and privacy.

Join us in our Slack/telegram Channel (coming soon)

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Hey Oliver, this is really interesting. In the language of economists, you describe market failures (in “What’s holding us back”). You then proceed to recommend fixes (in “The 3 things that need to change”). Two out of the three you mention qualify as competition policy (they make it harder to attain and hold dominant positions) and make plenty of sense. The third one, about VCs, is less straightforward, and I’m afraid it plugs back into value theory. That does not mean you are wrong, only that it is less obvious from a textbook economics point of view.

I really like the idea of

It could be the beginning of a much needed activity to issue guidelines, set goalposts and certify companies and products. I think the folks involved in the European Commission’s Next Generation Internet initiative might look with some sympathy upon such efforts. Many people in the Edgeryders community also care about these issues, and we would like to help if we can.

I find a bit less convincing that any single company be a good candidate for a long term fix. It’s great that WorldBrain is experimenting with non-speculative finance, but I would not stake too much on it. Quite some innovation in governance and corporate culture have been attempted in the past (lastly the “not evil”, progressive tech giants), and I am not impressed with the results. Of course, this time might really be different, but that’s a hard argument to make.

I think your “A way forward” section means to treat WorldBrain not as a massive fix, but as an example of the approach you would like to see. If it is so, I think it could be made clearer by bolting it on top of Things that need to change, item 2, and explaining that items 1 and 3 are a matter for public policy.

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This is a very good question and relates to something my friend @guff once said when we were talking about entrepreneurship. I’m paraphrasing, but basically, the argument is that the start-up entrepreneurship hype is mostly a cheap way for big companies to outsource their R&D to young idealistic people who are willing to live on noodles and spend their best years chasing a project that is very likely to fail. And the systems are set up so that if they do make it, against the odds, they end up under investor control and are likely to be sold off to a bigger player for a pay-out. This 2x world is certainly more appealing in that regard.

These are questions that I think @smari might be quite interested in as entrepreneurship is one of his areas of interest in the Icelandic parliament.

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Continuing the discussion from Startups' grand illusion: You have to be 10x better than whats there:

@hugi asked me to X-post my reply on Facebook here. I made some minor editing to fit this forum better.

Sorry for a long rambling text but I’m thinking a lot of these kinds of problems due to my internal conflict between my ADD (human limitation, which includes problems with processing info) and my intense curiousity (filling my brain with too much info).

I thought a lot about innovation rate when I wrote this comment a earlier today: https://www.facebook.com/mrhama/posts/10156538052578951…

The OP is really good as it explains why the economic ecosystem fails to select for growth in utility because of various impeding factors.

I thought a bit about questions similar to Cause 1 and 2 last week and spoke about them with some friends. I think Cause 2 is a really hard nut to crack as it’s impossible to have open APIs for personal data (as we learnt from the Cambridge Analytica scandal, mentioned by OP). To spur innovation and bust the tech oligopoly we’ll need open standards, protocols, interoperability etc. The big problem here is that the oligopoly as well as their customers (advertisers) oppose such changes as that would undermine their profitable positions.

I wonder how and if grassroot innovations alone can break the staleness of the oligopoly. It might take a bit of trust busting from USA and EU to really shake things up through political means.

Right now there are a bunch of competitors to the oligopoly but they are irrelevant since most of them don’t seem to realise the importance of working with the whole stack. Each of them have simply too little brainpower (since most good developers are already employed by the oligopoly) to be anywhere close to develop as good services as the oligopoly does which makes the strategy of competing with a better service a fool’s errand. Bitchute will never be able to outcompete Youtube with a bit freer speech as their USP.

My idea last week was to develop some kind of virtual business card as a hub for metadata about a person or a company you want to follow and then build a platform to navigate these information streams. Different communications platforms can be connected to that hub. My idea at that point didn’t even attempt to solve the problem of the storage of the databases. I doubt we can solve that issue for the forseeable future since only the major clouds have the scale to store the data cheap enough. Storing data locally is incompatible with the nature of social media since the communication is asynchronous. So far blockchains have been unimpressive in their ability of integrating social media or other services into the protocol itself to make data storage disembodied from a singular entity like a corporation. So far the only use case for blockchains is to tranfer money since then there’s an acceptance for the high costs of transferring small amounts of data.

I’m very happy to read that many of my ideas about some kind metadata manager had already been thought of and implemented by Worldbrain. I’m also a bit skeptic: Does Worldbrain want to compete in an existing market dynamic or do they want to disrupt the dynamics. It might be hard to achieve both goals of making things interoperable as well as spending time to develop a good UX. Wikipedia/Wikimedia have managed this but for such a shifting service such as managing information overload in an environment where the flows of information are locked into personalised propertiary algorithms on different platforms it might be a much harder task how to make the webs manageable.

I’m currently opting out from a lot of different data managers and unfollowing topics on social media (like Pocket) and just shove the data into Excel instead where there’s a simple 2D-layout that suits me better. This process of decluttering gives me a lot of inspiration. There are many things I learn about myself and of the internet through this process. Maybe we can remodel the stack, loosen the grip of the oligopoly and spur more innovation. What I desire is the somwhat oxymoronic desire of having many different information flows manageable through a small set of apps/sites/services. Facebook and RSS have failed me. Facebook because it’s too closed and hard to configure and RSS becuase it doesn’t have an algorithm to discern what’s relevant or not.

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@Hama

I think no need to apologise for good insights :slight_smile: Sometimes it is hard to condense these year long experiences and thoughts. So no problem. One purpose of such conversations is after all to synthesise. :slight_smile:

I think Cause 2 is a really hard nut to crack as it’s impossible to have open APIs for personal data

I think I understand your concern and fear the Cambridge Analytica 2.0 scenario too, but I would not say it is impossible to solve. We think it is a very hard nut to crack though. The way to solve the data sharing problem is not just with technology but also with a lot of education. Such systems need to be very well designed in terms of UX and how to educate people about the way to share data without overwhelming them. That’s a whole range of challenges by themselves.

To spur innovation and bust the tech oligopoly we’ll need open standards, protocols, interoperability etc.

YES! This is exactly what we think too. In order to have more data sovereignty, privacy and better services we think the best metric to optimise for is interoperability, not decentralisation. If we manage to do this, we assume we create the kind of free-market dynamics that could break up the power of those organisations.

It might take a bit of trust busting from USA and EU to really shake things up through political means.

I think luckily we have the regulatory atmosphere in Europe that is tendentiously more interested in privacy and interoperability, making Europe a very good foundational market for such an effort.

since most of them don’t seem to realise the importance of working with the whole stack.

Can you elaborate, not sure if I got this. Seems important to understand tho.

Different communications platforms can be connected to that hub.

This is one of the thinking processes on how this platform could be architected to avoid a vulnerable centralisation of user data in user’s control. Basically finding a way that the data in all the services a user uses is accessible with a Memex, but stays in the “protection” of those services, spreading the attack surface.
However to make this possible it would require those oligopolies to play ball to this, which is unlikely. So another route is to use some good ol’ adversarial interoperability to create data formats that interoperate with those services and once such formats have more widespread use it may ‘force’ previously locked up services to open up more in order to stay competitive. This is a very long game though.

Storing data locally is incompatible with the nature of social media since the communication is asynchronous.

Indeed it is and a dogmatic approach to decentralisation will not get us very far. We think that there is always a necessity for varying degrees of (de)centralisation in the system, dependent on the use case.
In our approach this means that we follow a wordpress.com/org style model where we provide hosting to users who want to have a SaaS experience, but you can self-host your sync/collaboration node too.
As decentralised storage technologies like Dat or IPFS mature, it may be purpuseful to use them, but not now.

So far blockchains have been unimpressive in their ability of integrating social media or other services into the protocol itself to make data storage disembodied from a singular entity like a corporation.

Actually I see a deep dichotomy in the goals that blockchain and cryptocurrencies in particular have that impede their ability to have the impact of decentralisation originally envisioned.
On the one hand they use technology that tries to build trustless, distributed systems and on the other hand an economic model that intrinsically creates incentives for centralisation through the speculative nature of how success is shared.

Does Worldbrain want to compete in an existing market dynamic or do they want to disrupt the dynamics.

Which dynamics specifically are your referring to?
The current market dynamics I understand is the centralisation of user data around corporate entities and the network effects created. If that is what you are talking about, yes our plan is to disrupt that dynamic by giving users unprecedented freedom to move services, a freedom we believe is hard to take away again once given. The big assumption is therefore that over time it may force existing players to adopt such interoperability to stay competitive.

Apart from that maybe that answers some of the question:
There are 2 different entities forming:

  1. WorldBrain.io as a company which is the developer of (the current) open-source Memex and generates revenue by providing SaaS services to users.
  2. Still to be named: Storex and a community of organisations/individuals as the underlying infrastructure which will be built as a non-profit, multi-partisan entity similar to wordpress.org. WorldBrain.io will likely be the main driver behind its development for the next 1-2 years but keeping it intentionally open and separated from the main business.

Facebook because it’s too closed and hard to configure and RSS becuase it doesn’t have an algorithm to discern what’s relevant or not.

We hope through this central store and the upcoming collaboration features that are based on a PubSub model we would combine the best of both worlds. You can have data streams coming in from your various sources and use whatever algorithm, UI or UX you prefer to manage those streams.
This modularity is one of the key principles behind building Memex and Storex.


Thanks again for your thoughtful comments. Looking forward to continue the conversation. :slight_smile:

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Thanks for your comment. :slight_smile:

Can you elaborate on this point a bit more?
What specifically are you afraid of in the context of value theory and how can I make my point more straight forward (aka. what kind of open questions come up for you?)

It could be the beginning of a much needed activity to issue guidelines, set goalposts and certify companies and products.

Yes :slight_smile: that is the idea. If we wanna have a real change this effort must be bottom up, but another company trying to build it in their singular view of the world

I think the folks involved in the European Commission’s Next Generation Internet initiative might look with some sympathy upon such efforts.

I think so too, and being funded by the LEDGER grant is a first step towards this.
Within the next 6-9 months we try to formulate the vision of this data sharing infrastructure, build an MVP, getting 10-20 organisations using the infrastructure and then applying for some bigger NGI/H2020 grants beginning of next year to get it to maturity.

I find a bit less convincing that any single company be a good candidate for a long term fix. It’s great that WorldBrain is experimenting with non-speculative finance, but I would not stake too much on it.

Agreed, specifically this data infrastructure should be a non-profit multi-partisan effort. As explained in the response to @Hama, there will be 2 entities.

  1. WorldBrain.io as a company which is the developer of (the current) open-source Memex and generates revenue by providing SaaS services to users.
  2. Still to be named: Storex and a community of organisations/individuals as the underlying infrastructure which will be built as a non-profit, multi-partisan entity similar to wordpress.org. WorldBrain.io will likely be the main driver behind its development for the next 1-2 years but keeping it intentionally open and separated from the main business.

, but I would not stake too much on it.

What makes you skeptical about that?

and I am not impressed with the results.

Yes I see it similarly. I think the problem with those attempts was that they tried to use governance as a fix to counter the deeply embedded economic incentives of companies. After all if your company is built for growth (which inevitably become exploitative and power-centralising at some point), using governance to solve this is ineffective at best and fails at worst.

The point of Steward Ownership is to systematically remove the incentives for greed behaviour (infinite potential for growth) by agreeing on a fixed return for investors/contributors before they invest time and/or money. Excess profits can then be used to improve the working conditions, supply chain sustainability, overall service, or simply be given away to charity.

If it is so, I think it could be made clearer by bolting it on top of Things that need to change, item 2, and explaining that items 1 and 3 are a matter for public policy.

Thanks for that suggestion, will see how I can incorporate it.

However, I think you can’t rely on solely public policy to change 1 and 3. Open-Source software (2) alone won’t fix the issue either. I don’t even think it is a hard requirement. Interoperability (1) and Steward Ownership structures (2) won’t be freely adopted by existing corporations and it is expected, like with the GDPR legislation, that there will be major effort to counter interoperability legislation. And frankly it takes way too long. Time we simply don’t have as humanity. So I think a move towards interoperability and Steward Ownership at scale can only work if the primary driver is technological innovation that changes the playing field. This may be supported by legislation at some point, latest when it becomes almost inevitable to strengthen interoperability efforts because of public pressure.

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Great link on adversarial interoperability.

Based on what I know so far, I see interoperability and user choice about who stores the data and where, as your best shot to gain traction because that is most in conflict with the business models of the big monopoly platforms.

Something I have noticed over the past decades is how many startups or rival businesses or enterprises had a product or service that was either bought or duplicated. And that business either cashes out or goes under or somehow finds a niche and survives. I saw this in the 80s with Apple and MS in their operating systems, I saw it in the 90s with MS Explorer, and in the 2000s with Google (maps come to mind for one) and Facebook up through today. And I suspect that FB’s new emphasis on private group messages is not just to stay out of the content moderation game, but is in response to a threat from Slack.

I am pretty sure you know this already, but when your product or service, that relies on either an Apple or MS OS, Google, FB or Amazon (and others surely) succeeds past a certain point, if they can copy it, they will. Either that or make you an offer you are not likely to refuse.

So making indexes and notations and sharing info…all of that is something they can reproduce. But you know they won’t allow someone to control their data and they won’t play nice with everyone else, just like how Apple makes it harder to do things with Adobe when those two are warring…so making the things work that live in between the Big Boys and creating a kind of more protected value to the people who use it gives an opening I think.

Yes i see this too. With decentralisation as the main metric it may not be enough to provide better services. It’s hard to beat the convenience and efficiency of centralised systems.

I am pretty sure you know this already, but when your product or service, that relies on either an Apple or MS OS, Google, FB or Amazon (and others surely) succeeds past a certain point, if they can copy it, they will. Either that or make you an offer you are not likely to refuse.

There are several factors that may not let that happen.

  1. WorldBrain.io is a Steward Ownership company. Once this transformation is complete, the company itself can never be sold. A golden share will be given to a foundation with the only purpose of preventing any sale of any shares.
  2. Interoperability (the freedom to move your data and friends) will presumably give people a freedom that is very hard to take again, once given. Thus the assumption is that over time other services effectively need to offer some interoperability to stay competitive.
  3. Actually the goal is that Memex and its features are duplicated and integrated into other (proprietary) services that allow to share the data inside those services more effectively.

However these are all big assumptions and its not self-evident that these will play out exactly like that.
The key will be to continuously try to set the market incentives so that it just becomes more profitable for existing organisations to be interoperable, because the market demands it.

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Hey folks.

i just published the article on medium and shared this tweet about it.

I would be very thankful if you can spread it in your circles!

Cheers :slight_smile: