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  1. How a true statesman would deal with a terror attack

    April 19, 2013 by max

    Terrorism seems to be rampant in the western world – if you look at the media reports you might think that the chance of being the victim of a terror attack is a real and constantly present threat. But it isn’t. Terrorist attacks are incredibly rare events.  According the the Global terrorism database  there has been less than 3300 deaths from terror in the United States since 1970. 2764 of these were in the World Trade center on september 11. 2001. This is 43 deaths per year. Acording to NOAA 51 people die each year from lightning strikes. In other words, you are as likely to die from a terrorist attack as you are to die from a lightning strike. In fact you are more likely to die by falling in your bathtub, falling off a chair, being scolded by hot water from a tap, being stung by a hornet, being poisoned or falling off a building than you are dying in a terror attack. In other words – terror attacks are very rare, and are generally not a threat to normal people in Western countries.

    Yet terror is perceived as an almost existential threat to our society. Why is that?

    There are three reasons.

    The first is psychological. We fear the unknown. This is why we are afraid of the dark and what might lurk in the deep water when we go swimming in the sea. We also fear situations where we don’t feel we are in control. This is why we feel safer in the drivers seat than in the passenger seat when we drive a little faster than we should, and it’s why some people are afraid of flying. Terrorism is unknown and we are not in control of where and when it might happen. That’s why it makes us afraid.

    But that’s not enough to explain the massive fear of terrorism. Being stung by a hornet or being poisoned is as unknown and uncontrollable as terrorist attacks, yet we aren’t as afraid of being poisoned as we are of terrorist attacks. Which brings us to the second reason.

    Mass media hypes and overexposes terror attacks. On the day of the recent Boston bombing, tragic as it was, there were more American fatalities from car accidents than terror attacks. But it’s spectacular and it’s a scary story that’s easy to write. People will read it. They see terror in every newspaper, every newscast and every radio show. They think it might happen to them. They think it happens much more often than it does because mass media inflates the story to crazy proportions. Then they will be afraid. And you can’t blame them, hardly a week goes by without some mention of terror in the news.

    The third reason is that our leaders play by the terrorists rules. Terrorism is assymetric warfare. It’s using very limited means to engage an enemy that’s much bigger and which would instantly crush any terrorist organization in a head-to-head fight. It’s a flee biting an elephant. But presidents and prime ministers don’t treat it as the nuisance that it is. They treat it as  a credible threat to national security, and something the general populace should be afraid of. This, of course, is exactly what a terrorist wants. The flee that bites the elephant is portrayed as a credible threat that we should all be very afraid of. Presidents and prime ministers step up to the podium with prepared speeches telling the people that this is a grave danger, but that we will throw every resource at the problem and eventually overcome the threat of terror. By doing so terrorists are put on a piedestal where they can get their twisted message across to more people than they would ever reach otherwise.

    In the immediate aftermath of a terror attack it soothes a nation when its leaders step up to address the atrocity, and it unites a nation around an external threat. It also scores some cheap political points – approval ratings shoot up when the president or prime minister can tell the people after an attack that every effort will be made to get the perpetrators, no matter what it takes. Now on the hook a president or prime minister will allocate huge resources towards fighting terror attacks, most of it unnecessary security theater designed to make people feel safe, but not really helping. On the contrary the media now run stories about airport security, possible targets and how much money is being spent on keeping us safe from terrorists. But people don’t feel safe. They feel afraid.

    This is a shortsighted strategy for several reasons.

    First, it makes the enemy look bigger and scarier than it really is. The president only steps up to the podium when something truly big has happened. When we go to war. When natural disaster strikes. It puts the terrorist on a much bigger piedestal than he deserves.

    Second, a disproportionate   response makes normal people scared. When the president has left the podium the press takes over and before you know it everyone is talking about terrorism while looking over their shoulders. They are terrified. Which is the point of terror.

    Third, it gives the terrorist and his organisation visibility, and can help recruit members. Al Qaeda grew significantly after the 9/11 attacks.

    A true satesman should be able to see through this and deal with terror differently. Underplay it. Ridicule it. Not put terrorism on a piedestal, but paint terrorists as the low-life scums they are.

    Norway did this in an exemplary way after the Breivik Shootings and bombing. The Norwegian prime minister got on the podium to soothe the people. But instead of fueling the fear and asking for retribution and revenge he told the Norwegian people that this was the work of a madman, and that it was an extremely rare event. People shouldn’t be worried, and shouldn’t be afraid. No never-ending war on terror. No security theater.  A week later Norway was back to normal. Breivik was treated like any other criminal and was unceremoniously put behind bars for life like any other twisted mass murderer.

    A true statesman will not put fuel on the bonfire of fear. He will extuingish it by telling us that there is nothing to be afraid of. That these acts are done by moronic twisted people that don’t deserve the attention. He will tell the people that they have nothing to fear but fear itself.



  2. The madness of the bailout in Cyprus

    March 17, 2013 by max

    Last night the finance ministers of the eurozone decided on a bailout package for Cyprus. The small country with around 1 million inhabitants has an overstretched banking sector that is in dire straits. The primary reason for this is that the Cypriotic banks hold a lot of Greek sovereign debt – debt that took a serious haircut a few months ago when the EU decided that holders of Greek bonds would only receive 60% of their money. Cypriotic banks have been sympathetic (and maybe under pressure from the ECB) and have loaded up on Greek bonds. This is the primary reason for the trouble in Cyprus. The rest of the economy (GDP per capita, debt, etc.) is around average for a euro country.

    But because the banks are stuffed to the gills with Greek bonds that are now only worth 60 cents on the dollar they need a bailout.

    The big problem for the government is that the banking sector is extremely large in comparison to how small an economy Cyprus is. This is partly due to the fact that the island has always been a bit of a tax haven, with sympathetic banks and a corporate tax rate of 10%,  the lowest in the eurozone. This means that the government is unable to bail out the banks. They just don’t have that kind of money. This is why The IMF and the ECB has stepped in and bailed out the banks. Rumor has it that without the bailout Cyprus two largest banks would be bankrupt in a matter of days. A situation no economy can survive, especially not one with a disproportionally large banking sector.

    The bailout, as usual, comes from  the other Euro countries through the ESM flanked by the IMF.

    Cyprus is a small economy (around 0.2% of the Eurozone), and bailing out its banking sector is cheap compared to Spain, Italy and even Greece. But since the EU and thus the Euro is basically a political construct a bailout has to make political sense as well as economic sense. Unfortunately sometimes the two seem to be two mutually exclusive. As in this case.

    The terms of the bailout are that all funds in Cypriotic banks will be subject ot a one-time tax of 9.9% (6,75% for accounts holding less than €100.000)  This tax is being withdrawn immediately from every Cypriotic bank account over the weekend.  Everyone with a bankaccount in Cyprus will find that when they when the banks open on tuesday (monday is funnily enough a bank holiday) there will be less money than there was on friday. This goes for everyone, from instutional investors, private savers, checking accounts and pensioners. If you had a lot of money saved up for your retirement stashed away in a Cypriotic bank, well bad luck for you because on tuesday only 90% of it will be there.

    What happened after this was announced was entirely predictable. A bankrun. People are currently lining up outside ATM’s to get their money out before they’re taxed. The response from central hold has been to close down all electronic banking and not restock ATM’s so people can’t get their money out before tuesday when the tax has been withdrawn from the accounts.

    Bankruns are what every economist, policymaker and banker fear the most. The whole banking system is based on trust, if even 10% of customers withdraw their cash from a bank it will be bankrupt in  matter of hours. No bank has the money in its vault to pay up if everyone wants their money at the same time. This is a vicious circle – when there is even the smallest doubt about a banks solvency some people will begin to pull their money. When people begin to pull their money everyone else will follow, knowing that the last one in line won’t get a dime. This is why most countries have a state-backed insurance in the case of bank bankruptcies. Even if the bank goes down the state will pay you the money you had in your account. It is paramount for an economy that people trust that their money is safe in the bank no matter what happens.

    This whole thing is entirely unfair for the people living in Cyprus. The average citizen had nothing to do with the banking sector stocking up on Greek debt, but now they have to pay for it. The reason, apparently, being that the other Euro members , headed by Germany, think it would be fair that the southern nations learn to pay for their excesses instead of relying on bailouts from the Northern countries. An assessment that is, at best, inaccurate.

    The result is that the Euro areas finance ministers have shown that freezing all bank accounts in a country and withdrawing 10% without warning is a tool they’re willing to use. They’re calling it a one-off and promise it won’t happen again, but it’s a large crack in the faith of the Europen banking system, and it sends a clear signal to all savers, companies and investors in the Eurozone: If you have funds in banks in a troubled euro country there’s a chance it will be taxed without warning. You could wake up one day and see that your €1 million has shrunk to €100.000 overnight. What does it matter that our money is federally insured against bankruptcy, if the state can just decide to take it away from one day to the next?

    So what do investors, businesses, and savvy savers do? They pull their money from banks in the troubled euro countries. No need to take the risk, even if it’s small.

    In other words: Because of the idiotic idea that the Cypriotic people should pay for the bailout of their banks by simply taking 10% of the funds in every single account in the country the market now knows that money isn’t safe in troubled eurozone banks.

    Don’t be surprised to see a bankrun in Greece, Spain, Italy or Portugal next week.



  3. Tesla’s ingenious strategy

    February 5, 2013 by max

    Tesla motors has huge ambitions. Tesla founder Elon Musk has said he envisions Tesla as an independent automaker, aimed at eventually mass producing fully electric cars at a price affordable to the average consumer. This is a very difficult goal to achieve for several reasons. If you want to produce cheap cars you need a finely tuned, automated and hugely expensive factory because that’s the only viable way of producing a cheap car. You also can’t expect to get it right the first time. There will always be beginners mistakes, inefficiencies, regulations, things you hadn’t thought of and all sorts of other hurdles you need to jump through before your factory is ready for primetime. Mistakes in a full car production environment are notoriously expensive.

    Maybe the biggest hurdle towards producing a cheap car is conservative customers. In an interesting focus group study that Phillips did to find out what color they should make a new electric kettle they invited groups of people to come in and discuss the merits of the different colored kettles on display. There were kettles in red, blue, yellow, green, and the traditional white. Most people liked the colored ones, and praised them for their looks and fresh approach. After the study they were told that as a thank you they could pick one of the kettles to take home. Almost all of them chose the white one. People are conservative creatures. Especially when it comes to big investments, such as a car. You need a history, brand awareness, and a fleet of cars already driving the roads to make average customers pick a Tesla.

    These are huge obstacles, and is probably why there hasn’t been a new major auto maker in the United States for 90 years. The fact that Tesla is making electric cars doesn’t make it easier.

    Tesla’s strategy for overcoming these obstacles is ingenious; Start at the top and work our way down.

    If you drive a roadster you're cool. And rich.

    Their first car was the ubercool, expensive Roadster that goes from 0 to 100 km/hr. in less than 4 seconds. Faster than most ferraris. It comes at a base price of $109.000 which, along with the looks and performance is sure to place it firmly in the “I wish I had one of those” category.

    The roadster is the first step in the grand strategy. The point isn’t to sell a lot of roadsters, it’s creating a brand. People that can afford a roadster are a minority and it will always be a niche car- Less than 2.500 have been sold to date. But since they are early adopters and thought leaders  it elevates the Tesla brand from unknown to somewhere between BMW and Ferrari. Every car enthusiast worth his salt talks about the merits of the Tesla Roadster, and lots of average Joes know it exists, and that Tesla is the coolest thing that happened to cars in the last 50 years. The low production volume also gives the company a chance to learn how to run a car factory on a small scale while mistakes are still cheap to make. If 10% of the cars fail, that’s 250 cars.

    If you drive a model S, you're still Cool and rich. But probably also a dad.

    The next step is the model S. With a price tag of around $50.000 (depending on which battery pack you choose) it’s still an expensive car, but with a broader appeal. Due to the lacking gasoline engine and accompanying drive shaft, gearbox and other heavy machinery it’s a very roomy family car. It’s got two baggage compartments – one in the front and one in the back. If anyone doubts the target market the baggage compartment in the back can be converted to two child seats with the children facing backwards looking out the rear window. With a broader appeal, and the brand recognition of the roadster it’s expected to sell well for a car in this price range. On January 30, 2013, it was reported that production had reached 400 per week. That’s more than 20.000 cars a year. The ramp-up in production will also teach Tesla motors how to do mass production.

    This is where we are now. Notice that this is a classical Silicon Valley strategy. Start by targeting early adopters with an expensive product, knowing that this demographic will be forgiving of small glitches as long as they get the newest and coolest tech. The heavy price tag pays for your research and development, and battle-hardens your technology. This is how cell phones, flat screen TV’s and laptops are sold. Use your initial experience to iterate on processes to make the product better and cheaper. Then lower the price and grab a larger market share.  Tesla is now an excellent brand, and has processes and production methods that are built from scratch and iteratively tested to deliver cost-effective cars.

    Notice how, unlike many other electric cars, Tesla doesn’t primarily market their cars as electric vehicles. They know that outside a small circle of enthusiasts nobody cares whether it’s electric or not. What they care about is how it looks, how it handles, fuel economy, range and how nice it is to drive. Tesla cars look great, they’re so concerned with the finish they invented a special red paint that has extraordinary depth and shine. All their cars handle extremely well due to the low center of gravity (the heavy battery pack is located under the car), the fuel economy is good, and the range is almost as good as a gasoline fueled car. They also know that if they are to take on the giants of the car industry they need an edge. With their knowledge of electric vehicles, batteries, and electronics, and some experience in mass production of these they are well positioned for a future of electric cars. Arguably Tesla has more expertise in this area than any other car manufacturer.

    The next step is to move one rung lower down the ladder with a cheaper car. This is the Bluestar with an expected price tag of $30.000 and a production schedule starting in 2015. This moves Tesla closer to the large and profitable consumer market, where cars are sold in volumes of hundres of thousands, if not millions. Eventually cheaper cars, specialised cars such as vans and trucks, and eventually self driving cars (Google is close by!) wil be produced in their Fremont production facility in California. The fact that the majority of the Tesla factory still sits empty waiting for the volume of the mass market is a sign of the ambition.

    If the future of cars is electric, and a lot of things point that way, Tesla is uniquely positioned to lead the market. They have the brand, they have the technology, they have the production expertise, and they have the facilities.

    If I was General Motors I would be afraid. Very afraid.


  4. HTML prototyping

    January 22, 2013 by max

    Paper prototyping is a great way of developing webbased software that meets the users needs. The basics are simple. You take a piece of paper, and you draw the elements you need on a piece of paper. One piece of paper for each webpage. Then you talk to a user, and ask him to evaluate your prototype. You show him one piece of paper at a time, and ask what he would do. When he “clicks a link”, or “presses a button” you show him the piece of paper that corresponds to his choice.

    paper prototyping

    Paper prototyping - here a user is shown three tabs.

    Paper prototyping has some distinct advantages.

    • It’s easy. You can go from idea to paper prototype in less than an hour.
    • It’s easy to show users.
    • Users don’t get caught up in criticising your design, since there isn’t really any design to criticise. The conversation is only about usability.
    • It’s easy to change when you get feedback – just draw another piece of paper.


    The proper way of paper prototyping is to iterate your way to something your users understand and feel comfortable with. Make a paper prototype, talk to users, get feedback, make a paper prototype, talk to users, you get the idea…

    I’ve had some success taking this idea one step further. A few years ago I was contracted to redo the backend for a large webshop. The job was basically to get a lot of external systems (supplier systems, automated customer e-mails, postage tracking, inventory handling, etc.) to play nicely together and make it all available to the employees in a well designed web interface. I’ve always liked paper prototyping, but thought it had a few drawbacks, primarily that users get confused and can’t keep track if there are too many pieces of paper, and that you have to be there in person with the user for each iteration, which can end up taking a lot of time. So I did HTML prototyping instead, and it worked great. There are some simple rules I followed to get a good result:

    HTML prototyping

    HTML prptotyping - using simple HTML instead of paper.

    • No design. One of the great things about paper prototyping is that users don’t comment the design because there isn’t one. You need to carry this over to HTML prototyping.
    • Don’t use a lot of text. If you have lots of text users will focus on that instead of the interaction design.
    • No backend code. Use only HTML, once you start doing back-end code you’ve gone too far.


    HTML prototyping worked amazingly well for me and for the client. I could have more than one person testing just by sending them the link. The manager in charge could follow along. I didn’t need to be there in person, except for the initial meeting where I brought the first iteration and explained the concept.

    After a few iterations where we caught some bugs, stupidities and inconsistiencies the interface was exactly as the users of the new system wanted it to be. They had time to click around at their own pace without an obnoxious consultant hovering around waiting for them to make a choice or perform an action, they could spend some time thinking about their actions, and they could click back and forth and familiarise themselves with the new system. Under these circumstances where they weren’t stressed by external factors (me!) and could get a good feel for the whole system they provided some amazingly good feedback.

    When everyone agreed that the interface performed as it should, it was handed over to a designer to make it fast, slick and good looking. After the design process, I spent some time writing up documentation for the development team that would actually impement all the functionality behind the scenes. It turned out that HTML prototyping helped both the designer and the programmers tremendously. The designer could quickly get an overview of the job by clicking around a bit, and he could implement his design by changing the HTML and inserting the appropriate images and CSS. The programmers received an almost finished frontend that wouldn’t change mid-development, and only needed to code up the underlying functionality.

    How did the new interface perform? I spoke to the manager after 6 months and he told me that they had seen a 60% drop in the time employees spent handling orders in the backend system.

    Not bad.

  5. Where’s your apology Google?

    January 17, 2012 by max

    Four days ago this post appeared on Kenyan company Mocality’s website accusing Google of not only scraping mocality’s database, which is basically the most valuable part of their business, but also calling up the numbers in the scraped database to upsell them a Google site. Even worse, the Google employees claimed that Mocality was under or working with Google. This is certainly unethical, and may very well be illegal – Mocality is getting ready to sue. Mocality uncovered that this seemed to be an international operation involving Google headquarters and call centers in India.

    The plot was unveiled in a rather clever way by Mocality, and the technical breakdown of how they caught Google with their pants down lent the blogpost a lot of credibility.

    After a few hours it was confirmed that Google was involved with this statement from Nelson Mattos of Google:  “We were mortified to learn that a team of people working on a Google project improperly used Mocality’s data and misrepresented our relationship with Mocality to encourage customers to create new websites. We’ve already unreservedly apologised to Mocality. We’re still investigating exactly how this happened, and as soon as we have all the facts, we’ll be taking the appropriate action with the people involved.”

    The story quickly spread and both the original blogpost and the reply from Mattos was top news on sites such as Hacker news, Reddit and Boing boing.  It even made it as far as The economist. This is a big deal. Especially because this behaviour stands in stark contrast to Googles ethos of Don’t be evil.

    Yet now, four days later, that’s all we know. We don’t even know whether the above is an official statement from Google since Nelson Mattos presumably posted this from his personal Google+ account.

    This tells me a few things:

    1. Google is not entirely in control of all of their operations. If this scandal was contained to Kenya maybe it could be written off as a few fraudulent employees or a local manager that went a bit too far to get his bonus, but since it appears that it extends to both India and Googles headquarters in Mountain view there’s someone at a fairly high level that doesn’t have full control of his domain.
    2. Google doesn’t handle PR well. Writing, blogposts about new features, April fools jokes and descriptions of how great the food at Google is  is the easy part. It’s when you have a scandal on your hands that your PR needs to shine. Where’s the damage control? Where’s the communication? We don’t even know if Mattos statement is official. It’s been four days!
    3. Google is becoming a big company, just like so many other big companies. They don’t know what is going on in all divisions, they’re spreading their portfolio thin (A Kenyan online directory for instance…), and they’re losing their original values because of it.
    4. Don’t be evil is not a mantra for Google anymore, it’s become a stale mission statement. Just like the stale mission statements all other big companies have.


    When are we going to get an official excuse and explanation? Are we even going to get one?

  6. Dreamers and doers

    August 6, 2009 by max

    I know a lot of people that have started their own company, and I have even more anecdotes from forums and other sites on the web. I’ve noticed that there are two types of entrepreneurs. The dreamers and the doers.

    Kevin Rose, the founder of showing the dreamers how to run a company

    The dreamers often have a romantic view of what it means to be an entrepreneur. They’ve seen Kevin Rose of Digg fame, they’ve seen Larry and Sergey and they think they can do it too. When they read about what made the stars what they are all they see is the success story that they want to be. They’re helped along by the fact that successful founders rarely tell you about the pain they went trough, the long nights and the futile attempts at stardom they encountered before their eventual success. And since very few people that didn’t make it for one reason or another have the guts to tell the world about it you’ll probably never read about the outright failures. These are the vast majority.

    The dreamers get their cues from secondary sources, PR material, and success stories posted on Techcrunch so they have a skewed view of what it takes to do a startup. The media, the blogs and almost all other sources of information are heavily biased towards the successes. Who wants to write about the failures? Who wants to write about the boring stuff Kevin Rose does every day to keep Digg alive, let alone the countless hours he presumably spent getting it to where it is today? Stories about fuck-you money, private planes, champagne and oysters are much more fun. This bias in information gives the dreamers a wrong view of what doing a startup is all about, and what it takes to succeed.

    The problem, of course, is that this is wrong. Doing a startup is hard. Your chances of success aren’t good. A great idea is simply a starting point. The doers know this. They know that the odds are stacked against them and that they have to work hard just to survive. They know that a great company is built one customer at a time, and often requires years of hard work before it becomes successful. They know, and more importantly they act. They get stuff done. 99% of the work required in a startup isn’t sexy, but they know that if they don’t do it nobody will. They sweep the floors and clean the toilets.

    So how do you know the difference between a dreamer and a doer? Here are some cues.

    • Dreamers think the primary ingredient in a startup is a good idea. Doers know the primary ingredient is hard work.
    • Dreamers say “wouldn’t it be cool if…” Doers say “I’ve tested this cool….”
    • Dreamers talk about grand ideas. Doers iterate their way to a grand idea.
    • Dreamers go to conferences, meetups and other events to talk about their great startup. Doers stay at home and finish one more thing or close one more deal.
    • Dreamers think that if you build it they will come. Doers know that if you sell it they might buy.
    • Dreamers think it’s a straight road to stardom. Doers know it isn’t.
    • Dreamers always have one more feature to do before launch.Doers launch when it’s good enough.
    • Dreamers think that getting mentioned on techcrunch will make their company successful. Doers see it as a nice addition to their marketingmix.

    Most entrepreneurs start out as dreamers. After all, the dream of freedom, riches, oysters and champagne are appealing. I would even say that you need to have a bit of a dreamer in you to even attempt to do a startup. But the pragmatic dreamers soon realise the extent of what they have gotten themselves into and become doers. They realise that companies are built one small step at a time. And they get to work.

    If you’re looking to found, join or invest in a startup the distinction between dreamers and doers is important. doers will deliver results, dreamers will deliver hot air.

    Avoid the dreamers.

  7. Economists don’t know what they’re talking about.

    July 22, 2009 by max

    Classical macroeconomic models are in trouble. They have difficulty predicting even the most basic things. As is apparent to anyone who bothers to go back and check the predictions and forecasts that are made by economists they are mostly just random numbers. Not because of bad faith, but because of bad models.

    In the current economic crisis one major school of economists, the Keynesians, propose massive government spending to stimulate the economy while another major school of economics, the Austrian School, warns that this will inevitably trigger high inflation and should be avoided at all costs. Both schools of thought have an impressive amount of Nobel laureates backing up their respective views, and are well respected for their views and models of the world. So should the government spend massively to regain its footing? Nobody knows.

    In an economic stagmire such as the one we are experiencing now economists look back at similar scenarios of the past to get an idea of how to move forward . What triggered the great depression that started in 1929 and didn’t end until the second world war? The keynesians believe that underconsumption and overinvestment caused it. The Austrian school of economics believe it was caused by the fall of money supply. Or as the Wikipedia article on the causes of the great depression states:  “historians lack consensus in describing the causal relationship between various events and the role of government economic policy in causing the Depression.” In other words: Nobody knows.

    What about housing prices? Since they are at the heart of the crisis there’s a keen interest in knowing whether they have reached the bottom or are still sliding. New numbers have just come out telling us that U.S. house prices rose 0.9% from April to May on a seasonally adjusted basis. Most experts had expected them to fall by 0,2%. Is this a green shot that will soon turn brown, or is it the start of a recovery? Nobody knows.

    These examples are in no way unique. The June edition of the 1993 OECD Economic Outlook may have the best example of just how useless our macroeconomic models really are. The official GDP growth and inflation forecasts of the G7 countries from 1987 -92 were compared with a model that simply predicted that next year will be the exact same as this year. And they were equally good. The inflation forecast was even a little bit better. In other words, guessing that next years inflation will be the same as this years is a good a guess as the one government econmists spend vast resources deriving from complicated models. And these forecasts are the ones we base our econnomic policy on. And they’re random. Nobody knows.

    Why are we still using these models? Probably a combination of several reasons. Tradition is one. These models and their assumptions are the ones we have always used. Career economics is another. It is not unknown in science that the practitioners tend to stick to their models, since they have been using them for all of their careers. Old habits die hard, and it’s hard to teach an old dog new tricks. Thirdly it’s a question of mathematics. Most models assume that all human beings act in a rational way which anyone can tell you is not true. As a matter of fact a famous study has shown that the only two groups of people that act as economically rational beings are economists and psychopaths. Most models also assume that people don’t interact. And that they all have perfect information about the market. Which is obviously not true. But these things are hard to model mathematically, so most economists just stick to their guns. The famous physicist Max Planck once remarked that in early life he had thought of studying economics, but had found it too difficult.

    Where do we go? The problems of classical economics run deep. Macroeconomists can’t agree on the most fundamental of things, give random predictions and advice, and base their models on assumptions that bear no resemblance to real life scenarios. It’s not just the little things that don’t work, it’s the whole thing. What is needed is a fundamentally new way of thinking. People aren’t rational. They don’t have perfect information about the market. Supply doesn’t always follow demand. We need a whole new framework. Behavioral economics, which Vernon L. Smith and Daniel Kahneman won the nobel prize for studying might be one way. Complexity and Chaos theory might be another.

    Will we ever fully understand macro economy?

    I don’t know, but I do know one thing.

    Right now the emperor has no clothes on.

  8. A case for online office apps

    July 12, 2009 by max

    A friend just sent me his thesis on Business angel networks in Denmark as a word document. I promised to read it through and comment on it before he turns it in some time next week. I’ve spent the last two hours trying to open the damn thing.

    The core of the problem is apparently that the document is created in word 2008 and my version of word is 2003. So I get an error message, and a prompt with a Microsoft URL where I can go and download a word converter. Fine, no problem. I try to download the 30mb. program using firefox, but it continually hangs around halfway through the download. After around ten tries I give up, and try an office converter program that is linked from the Microsoft download page. After a few false starts I manage to download the program. When I run it I find out that it doesn’t work with my version of Word for some reason. Back to square one. Maybe the download will work better with Internet explorer, after all Microsoft program have been known to be hostile towards Firefox. No. “The connection was reset”.

    In the end I had to ask my friend to resend the document saved as a word 2003 document.

    If he had used an online office suite such as Google docs or Zoho I wouldn’t have had these problems. Microsoft should really be better at covering one of the areas where they are most vulnerable. Sharing documents in online apps is as simple as sending a link, not a 2 hour ordeal that ends up in failure.

  9. Why Google is making an operating system

    July 8, 2009 by max

    Today Google announced that they are launching an operating system called Chrome OS. This is a strategically very smart move.

    Google makes money off the web, their primary source of revenue is adsense which brings in billions of dollars a year. They are quickly diversifying their offerings with google apps, gmail, analytics and a host of other applications. All of them webbased. They are an Internet company by heart: This is where their soul lies, and this is what they do best. Their back-end technology is unsurpassed and their brand is phenomenal. Their future and financial success depends on the Internet. Or more precisely it depends on having as many people and corporations as possible moving most of their information and work online. Preferably to one of Google’s offerings.

    There are two gatekeeper products between the user and Googles products: The browser and the OS. A user needs an OS and a browser to reach Google’s products, and whoever controls these can put up roadblocks between the user and Google. I’m talking about Microsoft here of course. And since many of their products compete with Google, Office being the prime example, they have have all the incentive in the world to make the users way through the OS and browser as hard a s possible before they can reach Googles products. It’s a good strategic decision, Office is a major cash cow and accounts for a large part of Microsofts revenue. It would be stupid to make it easier to use a competitors products if you can do something about it. Which Microsoft can because they are the gatekeepers.

    Google knows this, and are trying hard to change the status quo. That’s why they have long supported the Mozilla foundation who make the Firefox browser. It’s also why they launched their own browser last year. Microsofts Internet explorer has always been buggy, and not quite up to date. The newest technology often isn’t available in explorer. This isn’t because Microsoft engineers are stupid, it’s because Microsoft management is good at strategy. They want people to use the Internet for browsing news and finding information, not to start undermining the goldmine that is office. And you need a state of the art browser to use the heavy javascript that makes online productivity apps possible. When Google launched a browser it was a jab at the gatekeepers. It was much faster and more responsive than Explorer, and the javascript engine blew them out of the water. This put Microsoft in a strategically bad position, they didn’t want to make the browser so good that online apps could eat away at their core business, but if they didn’t follow suit they would start losing marketshare quickly. Damned if you do, damned if you don’t. Note that Google’s browser doesn’t need to have a large marketshare, indeed that’s not the goal. The goal is to show the world what can be done in a browser, and thereby forcing Microsoft to innovate. And it worked: The newer versions of explorer are faster and have particularly gotten better at executing javascript, the backbone of online apps. Google won the browser war, with the help of Mozilla. The important point here is that Google doesn’t care what browser you use. They don’t make money on browsers, they make money on online offerings and apps so all they care about is that your browser is fast and supports the newest technologies.

    Now they are launching an operating system, and attacking the last gatekeeper technology between the enduser and their offerings. Strategically the situation is exactly the same as the browser war, Google doesn’t care if you use their OS. All they care about is that you can get to their products quickly, and that you start moving your data onto the web instead of keeping it on your own harddrive. And the way to do this is to launch an operating system that shows how easy it is to use the Internet for almost anything. That’s why they have been boasting about ridiculously low startup times. Turn on your computer and 10 seconds later you’ll be at And they’ll use the OS to show how little you actually need to have on your computer, how few programs you need installed, and how much easier it is if you find your information with Google, use Google docs for your work, share your family pictures with picassa, and check your website stats with Google analytics.

    Microsoft will have to adapt, and follow along. If they want to keep their marketshare that is. Of course they’ll be destroying their core business in the process. Damned if you do, damned if you don’t.

    This one will be hard for Microsoft to counter.

  10. Worst case scenario

    June 10, 2009 by max

    When you start a company it’s common to write out a best, expected and worst case scenario analysis to see how many yachts you’ll be able to buy if all goes well. And how bad it’ll be if nothing goes according to plan. The worst case analysis is often just the best case with little or no sales. “The worst that could ever happen is that we create a product, and not a lot of people will buy it” This is often wildly optimisitc.

    This is a true story involving theft, pregnancy, heart-attacks and ruined friendships of how bad a worst case scenarion can be. All names and traceable details have been left out to protect the innocent.


    Some years ago a friend of mine made a small social website that got him invited to a lot of parties. It was a great idea, and it was wildly popular among his peers. He had no intention of scaling it up and making it into a commercial company, so I asked him if I could use the idea and try to make a company out of it. He didn’t mind, so I got started.

    I wrote out a businessplan and a budget, and approached a designer I knew and asked whether he would be willing to do the design for a cut of the company. He agreed. We had a couple of meetings about the look and feel of the site, and he started working. Or so I thought. After a few weeks where nothing had happened I confronted him and asked whether he was motivated to do this. He excused himself with other projects, lack of motivation and a grudgy girlfriend, and agreed to prioritise it. A few weeks later there was still nothing. I had tried supporting him as well as I could but to no avail. In the end he conceeded that he probably wouldn’t get it done, and we parted as friends. I talked to another designer I knew second-hand and he agreed to give it a shot. The same thing happened, and after a few weeks it was obvious that he wasn’t going to follow through. Again we parted as friends, and still have beer sometimes.

    Next I did something I’m normally against – I contacted an old friend I’ve known for more than ten years and asked whether he wanted to go into business with me, and do the design part of the site. He has an amazing talent when it comes to design and usability, and has a cunning strategic mind. But I’m extremely wary of mixing business and friendship, often one of them will suffer severely. We went ahead anyway, and he got down to some serious design business. Unfortunately he isn’t good with code, so I agreed to learn HTML and CSS and do the front-end code. He delivered some amazing designs, and we picked one. We were getting a good feel for how the site should look, feel and function.

    Next I contacted a programmer I knew from two previous upstarts where he’s been absolutely amazing. Codes anything from assembler to PHP, delivers code that is virtually bug-free, does so on schedule, is a member of Mensa, and overall a great guy. I always liked him, and the feeling was mutual, so it was easy to get him on board. He thought that he could do the back-end code in a month if I did the front-end code. I’d been learning HTML and CSS and didn’t find it too hard so I started doing the front-end and he started doing the back-end. After three weeks there was a break-in at his house. They stole his server, his laptop, and even his sofa. Everything was stripped. Including the closet where he kept his backups on DVD’s. Everything was gone.

    So we started over.

    After a a few weeks where things progressed as planned the poor guy had a heart attack. We were almost done rewriting the whole thing. I obviously backed off, and gave him some slack thinking that he had more important things to deal with. We spoke on the phone, and agreed to wait a month and see how he was feeling. In that month I finished up the front-end and got pretty good at HTML and CSS in the process. I also had a lot of discussions with the designer, primarily related to how much to include in a version 1.0. My stance was to include as little as possible, his was that there was noway it would work without this and that feature.

    I didn’t want to initiate contact to the developer, thinking that he should take his time to get well before we started working again. When he called me he would be ready. That happened after two months. Having known him for a long time I could hear that he wasn’t up to his good old self. But he wanted to go ahead, so we did. Things went a bit slower this time, and I didn’t want to push. After a while he stopped answering my e-mails and didn’t pick up his phone. I was torn between pushing for some code and thinking about the guys health and well-being which obviously wasn’t good. Eventually I got an e-mail stating that he had to pull out due to personal reasons. I understood completely and wished him well. But I was back to square one.

    I didn’t know any other programmers that might want to do this, so I put up notices on the net to find potential partners that would want to program the website. I found a girl that seemed like a good match – smart, had gotten a lot of stuff done in her life, and very down-to-earth. We agreed to the terms, and she started working. After a while she called me up and told me she was pregnant, and that she would have to stop working on this as she wanted to devote time to her husband and future kids. I tried to persuade her, but to no avail.

    So I put up another notice on the net looking for a partner. Eventually I found a guy that wanted to do it. After a few meetings I started noticing that his experience and knowledge wasn’t quite what I was used to. I shrugged it off, and told myself that if he was motivated, which he was, he would be able to do it. Eventually he did get it done, but it took months, and I had to tell him how to structure his database, after having learnt how to do it myself.

    During this time I saw my friend the designer becoming more and more grudging and angry. He was blaming me that things didn’t work out as planned. I tried to calm the waters, but maybe I had oversold the promise of fame and fortune. We started falling out and not speaking as much as we used to. It was starting to cost me a friendship. And it was hard for me to keep up the optimistic facade after this cascade of problems.

    But the programmer churned away, and one day we had a working site.

    My plan for marketing was to contact a whole lot of powerusers of some of the popular sites in the same category and convince them to help us make this work. Normally I’m good at social engineering, and have a knack for turning people over to my ideas. However, all this trouble had taken its toll, and I was starting to feel it. I was the one that had to keep up morale, and constantly convince the developer and the designer that everything would work out. And now I also had to convince strangers to use the site. It was hard, and I was pretty alone.

    But I carried on.

    A few weeks after launch something terrible happened. The programmer had made a mistake when programming up against the phone carrier API, and one night a whole load of overtaxed text messages were sent to a large number of users of the site. One user received more than 100 messages. Each with a pricetag of $2. The first problem with this was that once an overtaxed textmessage is sent it can’t be retracted, and only 50% of the money goes into our account. The rest is charges for the carrier. So this would cost us some money. The sceond and more serious problem was that we lost all credibility with our users. Since we relied on overtaxed textmessages I had all the phonenumbers of the involved users. I got a list from the developer and had to bear the heavy burden of calling each one of them, telling them that this was a mistake and that we would reimburse them the money. Some of them were nice, most were not. The site suffered severely.

    Two things happened that definitively killed it. First, the sites I was using to draw in users blocked my profiles, and I had been too stupid to back up the information and contact info on the users I was talking to. So I couldn’t contact a lot of them, and worse they had put mechanisms in place that prohibited me from making new profiles. So I had no way of contacting new users.

    Second the income model we were using was made illegal because of a new law that was hurried through parlaiment due to issues unrelated to us. This was the definitive blow. With no near-term prospect of turnover in a country where it isn’t easy to go out and get external investors aboard there’s nothing more you can do.

    Now that’s a worst case scenario.