Entrepreneurship Heros II: Night at the Museum

If the Seal of New York City were designed today, it would not have a sailor and a Native American on it. It would have a cab driver and a food cart vendor.

Cab driving and food vending wood seem like the two of the most democratic enterpreneurial options, the foundation of which is the public streets New York City: you just wheel out your vehicle and try to make some commerce happen. The only thing that you need is a license. The one for cab driving is called a “medallion”, costs $766K, and as an investment vehicle outperformed just about any commodity and stock index. The food cart licesnses are also very expensive. Plus you are hounded by NYPD, Department of Sanitation, and who knows what else. Cab drivers and food cart vendors are some of the hardest working and most prosecuted businesmen in the city, but sometimes they have their own victories, big and small.

You don’t need to go any further than the Metropolitain Museum of Art to see two interesting examples. Right in front of the museum there’s a collection of food carts. They all are very typical carts, none of them are of the fancy variety. There are two types represented – the basic “dirty water hot dog” cars and “street meat” carts. But there’s one important difference – they all have stickers that say “Disabled Veteran”, and there’s usually an actual veteran somewhere nearby.

In the past years the space in front of the museum was either empty or occupied by one or two carts licensed by the Department of Parks. Then one day Dan Rossi, a disabled veteran, discovered a 19th century state law that allows disabled veterans to sell food in areas that are off-limits to others. The location in front of the museum is particularly lucrative because there are no affordable restaurants as far as an overweight tourist can walk. This hack is a small, but significant victory for food vendors. They are still ticketed mercelesly by NYPD, have to work crazy hours, and deal with the need to urinate in some kind of a miraculous way. At least they got an article in the New York Times written about them.

Across the road from the veteran’s carts is a mansion that belongs to billionaire Tamir Sapir, a former cab driver.

Mr. Sapir’s legend starts in Georgia, USSR. He found an interesting niche business: filling out complicated emigration forms for the Soviet Jews. At some point he was persuaded by his mother to give up his excellent life (it was a very lucrative business, from what I understand) and emigrate to Israel himself. He found himself in the middle of the Yom Kippur War, and quickly emigrated to the United States. He worked hard to earn enough money to leave rural Kentucky for New York, and then even harder to buy a cab medallion (which was a lot more affordable in those days). Then he risked everything again by putting up that medallion as collateral for a loan that he needed to open up an electronics store with a partner.

In the 80s there was a bit of a thaw in Sovet-American relations – Perestroyka and whatnot. There was a significant amount of people visiting the US – diplomats, scientists, sailors, and those invited by relatives. These people were allowed to exchange a small sum of rubles into dollars at the official rate – if I remember correctly, 60-something kopeks to a dollar.

What these lucky tourists wanted the most was electronics. In particular – vcrs, doule deck cassette players, and Walkmen. They had the money to buy these things, but here’s a problem: they needed 220 volt round plug devices, and more than that, VCRs needed to support the SECAM standard. You could not just walk into any store and find these: American market was all 110V and NTSC.

Every child in Odessa back then knew all of this, as well as that if you found yourself in New York City with some money, all you needed to do was trudge over to Timur’s (this was before he changed his name) store in Manhattan and find 220V SECAM VCRs.

Mr. Sapir was making a mint, but more importantly he was making connections with the Soviet ministers, diplomats, and future oligarchs. A little later he was invited back to the USSR, and made more connections there. These connections allowed him to play on the Soviet deregulation arbitrage market.

You see, when the Soviet Union was transitioning to the market economy all prices were regulated except those for commidities like metals, oil, and fertilizer. Those with connections could buy these commodities for already devalued rubles and sell them abroad for hard currency, making millions of dollars. All you needed was connections, which Mr. Sapir had.

He made millions, but the game became very dangerous as people tougher than NYC cabbies entered it. Mr. Sapir did not continue his career as a commodity exporter. Instead he invested his millions into New York City skyscrapers. The real estate market bottomed out, and you could buy a whole skyscraper for 10 million dollars or so. He bought a whole bunch of them. The price of Manhattan real estate exploded, and he became a billionare.

He bought a mansion across from the Metropolitain Museum to house his collection of carved ivory (for some reason this was a very popular area of collecting in the Soviet Union), has a yacht that used to be stuffed with a collection of exotic animal taxidermy that could rival Mr. Burn’s wardrobe or Amy’s car from Futurama.

Well, the two lessons here are: 1) you have to take risks and 2) you have to find a niche. The rest is luck.

Alexander Hamilton

From National Book Award winner Ron Chernow, a landmark biography of Alexander Hamilton, the Founding Father who galvanized, inspired, scandalized, and shaped the newborn nation.

Ron Chernow, whom the New York Times called “as elegant an architect of monumental histories as we’ve seen in decades,” now brings to startling life the man who was arguably the most important figure in American history, who never attained the presidency, but who had a far more lasting impact than many who did.

An illegitimate, largely self-taught orphan from the Caribbean, Hamilton rose with stunning speed to become George Washington’s aide-de-camp, a member of the Constitutional Convention, coauthor of The Federalist Papers, leader of the Federalist party, and the country’s first Treasury secretary. With masterful storytelling skills, Chernow presents the whole sweep of Hamilton’s turbulent life: his exotic, brutal upbringing; his brilliant military, legal, and financial exploits; his titanic feuds with Jefferson, Madison, Adams, and Monroe; his illicit romances; and his famous death in a duel with Aaron Burr in July 1804.

For the first time, Chernow captures the personal life of this handsome, witty, and perennially controversial genius and explores his poignant relations with his wife Eliza, their eight children, and numberless friends. This engrossing narrative will dispel forever the stereotype of the Founding Fathers as wooden figures and show that, for all their greatness, they were fiery, passionate, often flawed human beings.

Alexander Hamilton was one of the seminal figures in our history. His richly dramatic saga, rendered in Chernow’s vivid prose, is nothing less than a riveting account of America’s founding, from the Revolutionary War to the rise of the first federal government.

De gustibus non est disputandum

In the former Soviet Union, cognac was the expensive booze of choice, while whiskey was relatively unknown. Technically, you can only call cognac the brandy from Cognac in France, but the Soviets did not care much about that, already abusing Appellation d’Origine Contrôlée with Soviet Champagne.

In any case, high end Armenian brandy was considered the ultimate drink. Armenians were one of the first to invent the alcohol distilling technology, and Armenian brandy, by the way was the very same drink that Odysseus used to knock out the Cyclops.

The reason I remembered all this, is because two news articles reminded me of a Russian saying: to a pessimist cognac smells like bedbugs, to an optimist – bedbugs smell like cognac. Good cognac has a rather peculiar smell, and some say that it smells exactly like squashed bedbugs. Although I smelled cognac often enough, I’ve never smelled squashed bedbugs. Thus I can’t really say if the saying is true, or just an artifact of crappy Soviet cognac.

Consider the contrasts:

In Zimbabwe people are eating rats:

“Twelve-year-old Beatrice returns from the fields with small animals she’s caught for dinner.

Her mother, Elizabeth, prepares the meat and cooks it on a grill made of three stones supporting a wood fire. It’s just enough food, she says, to feed her starving family of six.

Tonight, they dine on rats.

“Look what we’ve been reduced to eating?” she said. “How can my children eat rats in a country that used to export food? This is a tragedy.””

Zimbabwe’s ambassador to United States, Machivenyika Mapuranga, told CNN on Tuesday that reports of people eating rats unfairly represented the situation, adding that at times while he grew up his family ate rodents.

“The eating of the field mice — Zimbabweans do that. It is a delicacy,” he said. “It is misleading to portray the eating of field mice as an act of desperation. It is not.” “

It’s hard to be optimistic about rat eating, but I guess it’s not as difficult for Mr. Mapuranga.

On the other hand, it’s probably pretty hard to be pessimistic about gourmet food served in some Manhattan soup kitchens:

“The multicourse lunch that Michael Ennes cooked in the basement of Broadway Presbyterian Church last week started with a light soup of savoy and napa cabbages. The endive salad was dressed with basil vinaigrette. For the main course, Mr. Ennes simmered New Jersey bison in wine and stock flavored with fennel and thickened with olive oil roux.

But some diners thought the bison was a little tough, and the menu discordant.

“He’s good, but sometimes I think the experimentation gets in the way of good taste,” said Jose Terrero, 54. Last year, Mr. Terrero made a series of what he called inappropriate financial decisions, including not paying his rent. He now sleeps at a shelter. He has eaten at several New York City soup kitchens, and highly recommends Mr. Ennes’s food.”

The gourmet soup kitchen chef is an optimist though:

“Despite the care he puts into his cooking, he doesn’t mind a little criticism.

“They’re still customers, whether they’re paying $100 a plate or nothing,” Mr. Ennes said. “One thing we do here is listen to people and let them complain. Where else can a homeless person get someone to listen to them?” “

I grew up with the Soviet media feeding me horror stories about life in America, and I know that indeed, looking at the world through the eyes of reporters is “looking through a glass darkly“. I trust the CNN reporter over the Zimbabwian politician because the latter has a much keener interest in misrepresenting the reality. But on the other hand, the efforts of the New York Times reporter to find the several homeless critiquing the free gourmet cuisine seem a little artificial. I bet 99% of them were rather grateful for tasty meals. But then, I don’t doubt that the New York City homeless can be rather picky — I’ve seen some refusing and even throwing offered food at the would be Good Samaritans.

The Russian Tea Room Syndrome

 

“Man told me,” He said, “that these here elevators was Mayan architecture. I never knew that till today. An I says to him, ‘What’s that make me– mayonnaise?’ Yes, yes! And while he was thinking that over, I hit him with a question that straightened him up and made him think twice as hard! Yes, yes!”

“Could we please go down, Mr. Knowles?” begged Miss Faust.

“I said to him,” said Knowles, ” ‘This here’s a research laboratory. Re-search means look again, don’t it? Means they’re looking for something they found once and it got away somehow, and now they got to re-search for it? How come they got to build a building like this, with mayonnaise elevators and all, and fill it with all these crazy people? What is it they’re trying to find again? Who lost what?’ Yes, yes!”

“That’s very interesting,” sighed Miss Faust. “Now, could we go down?”

Kurt Vonnegut, “Cat’s Cradle

The Russian Tea Room, once a popular restaurant created by ballerinas and danseurs (aka male ballerinas) of the Russian Imperial Ballet for themselves and their friends. Later it became an expensive restaurant for the Manhattan high society. In 1996 the new owners closed it down for 4 year and $36 million renovations. In 2002 the restaurant closed, and the owners were bankrupt. In the aftermath, one of the chefs, M.D. Rahman, can be found on 6th avenue and 45th street selling some of the tastiest street food in Manhattan. I bet he’s making more than he did back at the Russian Tea Room now with his little cart.

In the parlance of the Internet this is known as a “redesign” or a “relaunch.” If you are making a living out of web development, like I do, chances are that you participated in a vicious cycle of web site redesigns. They usually happen like this: managers decide to do it and get funding, a lot of meetings follow, specifications are written (or not), arbitrary deadlines are set, designers create graphical mock-ups, then coders swarm and engage in what’s referred to as “death-march.” Managers change their minds about the look and feel a few times during the death-march for an extra morale boost. Finally, a redesigned website launches. Managers start planning the next redesign right away.

In the olden times the CEO’s nephew often got the web design job. Well, these days the nephew grew up, he has a consulting agency. “This is old and busted, let me redesign this mess and you’ll get new hotness” – he says. Pointy-haired bosses everywhere nod and say – “yes, yes, new hotness”, and the cycle keeps on going, redesign after a redesign.

There are a few different types of redesigns. Firs of all, there’s changing the look. In the simplest and best form, this is a very quick deal, especially if the site is properly architected for quick changes. It’s like taking your plain vanilla cellphone, buying a snazzy faceplate, one click – instant new hotness. I have nothing against this sort of redesigns.

The only thing you have to look out for here is what I call the “Felicity effect.” A television show Felicity had a famous redesign failure – the actress Keri Russell cut her trademark long hair. One might argue that she is hot no matter what, but the show suffered a huge drop in ratings. You have to keep in mind that a new look rarely attracts new customers, but often upsets the old ones. For instance, I like Keri’s new look, but I would not start watching that show.

The second type of a redesign involves changing the underlying technology of the site. One might change the content management engine, database engine, rewrite the site in a different language, make it run on a different web server, different operating system, etc. These usually turn out to be the most disastrous and costly of redesigns.

Joel Spolsky wrote about “… the single worst strategic mistake that any software company can make: … rewrit[ing] the code from scratch.” In the web publishing world these kinds of rewrites cause a lot of grief and devastation. A huge technology change always requires a lot of debugging and fixing afterwards, and as soon as most of the bugs are fixed, a new redesign comes around, because, see, ASP.NET 2.0 C# is “old and busted” and Vista Cruiser Mega Platform D## is “new hotness.”

I am not talking here about replacing a technology simply because it does not work or is dangerous. But redesigns are rarely aimed at fixing things – they are done in search of hot technologies and hot looks. By the way, amongst pointy-haired web execs fixing things is less glamorous than perusing new technologies, and that is less glamorous than changing the looks.

A building superintendent I know was in a middle of a huge project – repairing three old and unsafe elevators as well as fixing the crumbling facade of the building. Although the repairs were crucial, they did not earn him the love of the tenants that the old superintendent enjoyed. The old super, instead of fixing broken things, engaged in an almost constant painting projects, changing the color of the paint every time just a little bit. And when he wasn’t repainting, he would leave out the paint bucket and a brush on some rugs in the lobby.

The web execs often go for the best of both worlds – equivalent to changing the foundation of the building (and not the old one was sagging), as well as painting it a new color at the same time. The full Monty web redesign is what the pointy-haired want.

Let’s take a look at the sense that such redesigns make from a capitalist point of view in an area that I know well — web publishing. Web publishing businesses work just like any other. You take some money (aka capital), you spend that money to produce something and you hope that that something makes you even more money one way or another. In economics this is known as Marx’s general formula for capital: Money-Commodity-Money.

Another thing that I faintly remember from my economics class is a rather disturbing concept called “opportunity cost“. See, when you invest money in something you instantly incur this cost. Why? because you can’t invest your money twice, and there always seems to be something you could have invested in that would give you a better return. Let’s say it’s 1995 and you are an editor in, oh, Random House or HarperCollins. You have a budget to publish some children’s books and there’s a pile of proposals on your table. You pick a few. They make money, win awards, etc. Yet, the opportunity cost on every one of those books is about a kajillion dollars, as in that pile there was a certain book by a woman named Joanne Rowling.

In theory, any web executive’s first objective should be to make, and not lose money. Also they should look to minimize the opportunity cost whenever possible. This is of course not the case for many of them. They are thinking: hey I have this fat budget – I can do a big redesign, or …. hmm, what else can I do with that money so it will make me more money?

So how would one go about increasing profits? In the web publishing today content is once again king because of the maturing web advertising, vast improvements in hosting costs and google-inspired web indexing and searching. This was not the case in the earlier days of the web, but now you can directly convert “eyeballs” into profits. The process is rather simple: you create web pages, users visit them, you show users ads (for which you are paid). The relationship is linear – more users = more ad impressions = more money.

So, first of all, you might produce more pages. With search engines like Google, even pages that are hidden in archives of your website will still produce pageviews. The more pages you add, the more revenue you’ll get. In fact, pages with useful information, once placed online become something very dear to a capitalist’s heart – an income generating asset, the very thing that the author of Rich Dad, Poor Dad is so excited about. They are like the geese that lay golden eggs.

The cost of producing more pages comes from three sources: the cost of content – you need to pay someone to write, take pictures, etc; the cost of placing it online – “web producers”, the people who write html, create hyperlinks and optimize images draw a salary; and the cost of hosting/bandwidth – if you are hosting huge videos you costs might be more than what you can get from advertising, but if it’s just text and pictures you are golden. As you surely don’t expect the Spanish Inquisition, there’s the fourth cost: the opportunity cost of showing this content for free, instead of asking for subscription money. The main thing to remember, once the content/feature is created, the costs to keep it online and generating money is trivial.

Besides producing more content, there are other ways of making more money. One might improve the relevance of ads on your pages. If you have a third party ad system, you are pretty much can’t do that. But if you have your own, you might create mechanisms for serving super-relevant ads. Sometimes you might add e-commerce capability to your content website. For instance, if you have a gadget review site, injecting opportunities to easily and cheaply buy the gadgets that you are writing about will likely bring in more more money than machine generated dumb ads.

One might create content that is more valuable to advertisers. For instance, keywords such as “mesothelioma lawyers”, “what is mesothelioma” and “peritoneal mesothelioma” generate ridiculous costs per click on Google’s AdSense. If creating content about “form of cancer that is almost always caused by previous exposure to asbestos” that is so popular with lawyers is not your piece of cake, you can create content about loans, mortgages, registering domain names, etc.

Then we enter the murky waters of web marketing, and especially “SEO” – search engine optimization. In short, if you get other websites to link to your pages, you will get more vistits, partially from those links, and even more importantly, because search engines will place your pages higher in their results. The hard, but honest way to do this is to produce unique, interesting and timely content. No body’s interested in that. Encouraging the readers to link by providing urls that never change and even “link to us” buttons is not in vogue: most web execs prefer non-linkable flash pages. Another way is to pay for links – in the best case for straight up advertising, in the worst case – to unscrupulous “link farm” owners that sell PageRank. Then comes the deep SEO voodoo – changing the file names, adding meta tags, creating your own link farms and hidden keyword pages. At the worst, there’s straight up link and comment spamming. Unethical methods of promoting your business work: Vardan Kushnir who spammed the entire world to promote his “Center for American English” had enough money for booze and hookers, but not many people shed a tear for him when he was brutally murdered (maybe even for spamming). In corporate world the equivalent is the PageRank ban from Google.

So, you could spend your money on all of these things that I described, and hopefully make more money. On the other hand, redesigning a website from top to bottom to make it “look good” or “more usable” will not bring in more “eyeballs”. A redesign of a large site takes several months for the entire web staff. The possible positive aspects of the redesign are these:

1) Faster loading pages
2) Easier to read text
3) More straightforward navigation
4) Cleaner look
6) Bug fixes
7) Switching from a more expensive software and hardware to cheaper

Existing users will probably like you better, but will new ones all of a sudden descend onto the redesigned site? Not likely. In fact, some think that the ugliness of MySpace design is an asset rather than a drawback. People want something from websites. Be it news, funny links, videos, naked pictures, savings coupons or product reviews, design does not matter too much to them. If they can click it, read it and (for the valuable geeks with blogs and websites) link to it – users are generally satisfied.

Here’s an example of a well executed major redesign of a high profile website, the New York Times. NYT always had a well designed website, and the new one is pretty nice too. But is there a lot of new traffic? Here’s an Alexa graph.

At the worst redesigns bring:

1) Broken links (sometimes every single url changes and all links from outside break)
2) Heavier graphics, proliferation of Macromedia Flash
3) Slower loading pages
4) Loss of features and content
5) New bugs
6) New software and licensing costs, more expensive servers

Often this is all that they bring. Broken links hurt the search engine positioning. New software costs money. It takes a long while to work out the bugs.

Here’s an Alexa graph of another major redesign on a website, which name I’d like to omit. Just as the traffic recovered after a big redesign in 2000, a new one hit in 2003. It seems to be recovering again.

The thing is, many businesses are very robust and the disastrous effects of web redesigns do not kill them. Pointy-haired bosses make their buddies rich, while getting kudos for the redesigns. Everyone stays busy, and software companies get to sell a lot of server software.

Rantosourus Rex – Part I

Here I sit, in my favorite seat on the Q train facing the window, writing this post on my Blackberry TM.

Remember, I promised to write a long and involved post about pen computing, mind mapping, memex and electronic books? Well, I don’t think I can cram all of my thoughts on the subject into a well organized linear article. Instead, I think I’ll write a series of hyperlinked rants. I think that will be even more appropriate. So here goes.

Joel Spolsky likes to refer to “future so bright, you’ll need sunglasses”. Most of the people I know, are wearing Mylar goggles. But that future is not bright enough right now, so it only seems like eternal night with a few sparks here and there. That future is electronic books and pen computing.

So, I sit on this train with a copy of the New York Times. And I’ve just read an article about a woman with a Masters degree from Columbia who sells her short stories for two bucks a piece from a cardboard box in a subway station. There is so much wrongness here. And a parallel : me, struggling with turning pages of a gigantic broadsheet that is the NYT, in a cramped subway seat, my hand filthy with newsprint by the time I found something interesting among the piles of information that the editors and advertisers thought I should read; and her, crouched on the cold cement floor, with a pathetic cardboard box, selling her information that way because nobody wants to publish it.

This is wrong, wrong, wrong, wrong, WRONG!

The first thing that is wrong is that the NYT is published in broadsheet (as opposed to tabloid) format. Which means that to read it you need to use some weird folding techniques.to read them on a train. This is something that I might enjoy, but I am absolutely not typical. I enjoy practical applications of the science of topology. I can tie many nautical and surgical knots, and I fold and stack my t-shirts in a way so that the design of the shirt always shows up on the same edge. And I learned how to fold broadsheets from my High School Economics teacher. And even I am annoyed.

So dead tree newspapers are not ergonomic. But that’s not all. I can’t get only the information that I want to purchase. If I were rich, I could employ the services of newspaper clipping service. I would gladly pay to read ‘s articles if they were clipped from Ediot Achronot and translated into English somehow. Even right now I pay 10 dollars a year to get newspaper and online comics from http://www.mycomicspage.com.

Unfortunately most information providers want to lump together everything that they’ve got and sell it as a whole. Out of a couple of hundreds of cable channels that I pay for, I am interested in maybe 15 – 20 shows that run on a few channels. But to get only those channels would cost me just a few dollars less than the whole deal. And that sucks! I am subsidizing a whole lot of stupid no talent shows at the same time when shows that I crave are being canceled. Firefly, Futurama, The $treet – gone. I’d give up 180 channels just to get those three shows back. And so would many, many people.

Sirius satellite radio has two things that I like immensely – a good jazz channel and their hypnotic callsign. Everything else I don’t care about. But to get that I would also have to pay for every other channel they provide. And I am not gonna.

This is socialism, people. Few talented information creators feed hundreds of no-talent parasites. What is even worse, there is a certain threshold that is equally hard to overcome to both talented and non-talented people. That threshold is the editors. They are a proxy, a layer that is supposed to filter out crap. But the filtered stuff has the same proportion of crap in it (governed by Sturgeon’s law).

For instance, a few years ago I picked up a book called Year’s Best SF. I was reading crappy story after crappy story. But one of the stories, “Guest Law” by John C. Wright, Esq. was definitely not crappy. In fact, it was so good that I tracked down every single piece of Mr. Wright’s prose. In fact, after sending money to some two bit sci-fi rag that published one of the stories, through almost half a year I had to send a few dozen emails to the publisher just to get that one magazine with the story. And it was worth it. To me, but not to Mr. Wright. What is very upsetting, is that instead of paying the author directly, I had to pay the derelict editors and all the other authors I don’t care about.

All of these problems can be solved with technology, and I’ll write about that in the next post.