martin zeman's blog

Czech government has recently approved college tuitions. I feel sorry for all students who pay for their education in a hope that it will increase their chances for a better job when actually a degree doesn’t guarantee any kind job any more. The only thing guaranteed is a massive debt which forces graduates to accept inferior jobs just so they can start repaying it. This article from last September illustrates it nicely – almost 28% of UK graduates from 2007 were not in full-time work four years later..

When I was studying I felt a reasonable fee would be quite motivational for me. But after I’ve seen what happened in UK where the maximum tuition grew from £1000 in 1998 to £3000 in 2004 and £9000 in 2010 (source: Wikipedia) I have completely changed my mind. College tuition is a Pandora’s jar – once unleashed they won’t get cancelled.

The worst part is that tuition fees don’t have any significant positive effect on education itself. However there is noticeable negative effect – tuition transforms Universities and Colleges from centres of knowledge and research into money making factories. Courses that are not popular among the wealthy candidates (often from abroad) get cancelled and replaced by Business courses so Colleges can attract more paying students. How shortsighted.

If I had kids today finishing their high school I would honestly discouraged them from going to college. Instead I would recommend to them to take a part of the tuition money and start their own business or join a startup. They would surely learn much more and even if it wouldn’t work out it would make them much more employable than if they spent three to five years at college.

Just to clarify – I am extremely satisfied with my education – university really taught me how to think and it prolonged my carefree youth by 5 years. But I believe that entrepreneurship would be at least as valuable, educational and fun as Uni. And most likely more so.

Happy to hear your thoughts.

The simplest things are often the most powerful ones. Dmitry, our designer at Elexu, has shared with me this great acronym from Ashton Kuther (or maybe it originally came from Zappos’s CEO Tony Hsieh or someone else altogether). The acronym is an advice on how best to communicate in the Social Media world.

The advice is really simple: anything you say should fall into at least one of ICEE areas:

• I – Inspire
• C – Connect
• E – Entertain
• E – Educate

Simple and powerful, huh?

When I was explaining Elexu in the past I used to struggle – the idea felt too complex to be explained quickly and simply even to David who is a conversational wizard. Well I am Neville Longbottom of verbal communication so I often left people more confused after the conversation than they were at its beginning. The problem was I often found myself explaining a specific detail of Elexu while the important part of it and its magic lies in how all the parts fit together.

But that has changed after reading Start with Why by Simon Sinek. It really helped me resort my thoughts about Elexu in my own head and I now find it much easier and quicker to explain it to others. And judging by a few of successful networking events the message is coming across fairly clearly.

In ‘Start With Why’ Simon Sinek says that most companies and individuals define themselves based on WHAT they do – e.g. Nokia makes mobile phones. But Simon argues that people don’t buy WHAT you do but WHY you do it. And that’s what sets really successful companies and people apart – they communicate from the centre of the Golden Circle – they start with WHY.

Elexu exists to empower people and help them achieve their aspirations (WHY). We do it by providing them with access to the three pillars of success – Capital, Content and Connections – which we do by bringing together brands and other organizations, aspiring individuals and viewers, and helping them exchange value with each other as depicted on the diagram below (HOW).

We have several tools to do that, the core ones being our Social Interactive TV platform that brings content from the internet to the IPTV and our tool for hosting competitions on Elexu which is the key to the entertaining content for the viewers.

But in order to really achieve our purpose, to empower people and to change the way people achieve their aspiration, we need to provide Elexu members with more tools than the two and that’s why we are talking about micro finance platform, crowd-funding platform like Kickstarter, tool for an easy filtering and sharing of high quality information, marketplace, etc.

That doesn’t necessary mean we will implement all of them at once but they are an integral part of the Elexu vision – the empowerment platform. And that’s why talking about the tools from the perspective of WHAT confuses people – on their own the tools are not revolutionary and people are wondering – how can you do so many things? Why don’t you just focus on one of them? From the WHAT point of view it can’t be seen – but looking at it from the WHY perspective it all makes sense.

It’s a similar case as with Apple entering as diverse industries as computers, mobile phones, music, television (supposedly this year) or banking (hopefully soon), completely redefining them and succeeding without people finding it weird. In Apple’s case it’s because their WHY is to challenge a status quo and bring convenient solutions to their customers.

If you are interested in our story or just want to support us in a small way, please follow us on Facebook, Twitter or Google+. Also please check out the new facelift on our homepage. As always feedback is more than welcome – either here, on the social media channels or via email for the shyer ones .

“One man’s transparency is another’s humiliation.” Gerry Adams

I really like Clook, the hosting provider we used for elexu. They have an excellent customer service but there is something really special about them – their commitment to transparency.

Every hosting provider has, once in a while, a problem that affects their services. They all jump on the problem trying to sort it out as soon as possible but while a typical provider hopes that the smallest number of their clients will notice the disruption Clook proactively emails all their clients (not just the ones complaining) and informs them about the issue.

The majority of their clients probably wouldn’t have noticed the problem had the email not been sent. If asked whether they would like to be notified about problems the obvious response of hosting customers would surely be yes but every such email is a prompt that makes a customer think whether they should stay or go to a different provider.

Smart clients know that problems happen everywhere and realize that it is better to know about them rather than live in a sweet ignorance. But still for companies the decision to be so transparent is anything but easy and demonstrates strong integrity.

R-E-S-P-E-C-T Clook.

From the perspective of a typical company such transparency looks like an unnecessary risk but Clook see it differently and I share their view. In today’s world when customers have thanks to Twitter such a big power to determine the success of companies, transparency is the safest strategy.

“Bankers own the earth. Take it away from them, but leave them the power to create money and control credit, and with a flick of a pen they will create enough to buy it back”. Josiah Stamp

Do you know where new money comes from? If you think (as I did) that only Bank of England can generate new money, then:

1. you are wrong, and
2. you might find this article interesting.

The truth is new money is generated by private banks when they make loans to people. When you are getting a mortgage for example a bank doesn’t give you money from other people’s saving accounts – no – they just conjure the money up out of nowhere and make them appear on your account. Pretty funny, isn’t it? True they will make them disappear again when you pay the mortgage back but the interest will remain and it will end up in their pockets. True magicians – making money out of nothing.

Another brilliant trick of the banks is taking these conjured up money and re-lending them circa fifty times. Imagine that a bank generates £100,000 on your account, you send it to a person that’s selling you a flat. From their bank’s perspective it looks like a deposit. There are rules for banks to maintain minimal reserves for all deposits. Let’s say it’s 2%, that means that the £100,000 deposit enables the flat owner’s bank to make a new loan of £98,000 to someone else. This money eventually ends up in another bank which then makes a little bit smaller loan etc., etc. Until there is circa £5,000,000 of debt. No one cares these money are only virtual and are backed up by only £2,040 in Bank of England. Now it’s much easier to understand why banks are so wealthy and why we are in such a huge debt.

Positive Money is an organization that is campaigning for a legislative change to prevent private banks from generating new money. A similar law, Bank Charter Act, has been introduced in 1844, it made it illegal for banks to print bank notes. Unfortunately this law doesn’t apply to electronic money and because nowadays electronic money accounts for about 97% of all money, it’s quite a big issue.

What really surprised me was when Andrew Jackson, the Head of Research at Positive Money, said that a lot of bankers they talked to were not aware of the situation themselves. The key aim of Positive Money is to educate. Educate public, educate bankers and educate politicians. If you want to learn more about the problem and the proposed solution I encourage you to check out their website and then support their campaign and spread the word.

I had a great colleague – she is excellent at work but not enjoying it that much, often feeling bored. On the other hand she always lights up when she is talking about her nights out, what and how much she drank, how smashed she got and how awful she felt the following day. It seems to me like all she talks about is drinking .

It seemed ridiculous to me and to tease her I declared a launch of a global campaign called “Drinking is not cool”. Our marketing strategy relies purely on word-of-mouth and although it creates a great buzz – the number of active members remains stable – i.e. one (update: I wrote this article a couple of months ago and now it actually seems like there are some new comers to the club – welcome Rachel, Samson and James).

The original strategy was not to drink any alcohol for a month. But – firstly, it has been scientifically proven that small amount of alcohol is healthy, and secondly I was just about to attend my high school reunion. So I modified the strategy – instead of no alcohol I set a maximum of two drinks a night and to make up for that I changed the one month period to indefinite one.

It’s been over six months now and I must say that I can not speak highly enough of it – I used to have really severe hangovers on the days following my nights out. I used to wake up around noon feeling sick for the rest of the day. That’s gone now and that’s the biggest reward for me. People often muse about the money I must have saved but for me that’s just a small bonus. I hadn’t been spending too much on drinking before anyway, avoiding shots and preferring to get home by tube rather than by taxi.

Warning: Reducing drinking is not for everyone, it can lead to a sharp conflict with the reality with far-reaching consequences. The less you drink, the less fun you seem to have in pubs. Others are discussing things you don’t find interesting and they are laughing at stuff you don’t find funny. Are you wondering how come I haven’t returned to drinking because of this? Well, I can’t go back – my brain is convinced that what happens under the influence of alcohol is not a true reality and however nice it looks, it’s fake – it seems like I live my own personal Matrix from which there is no way back – the red pill has absorbed long ago.

PS: As for the rules I am not too strict about them, sometimes when I have a really good time I even have three beers. A small flexibility makes a big difference when aiming for consistency.

I have been describing to a friend how we distribute equity in elexu and I thought it might be interesting for others as well so I decided to share it here.

what’s the problem?
Imagine you have a great idea for a web startup and you realise you can’t do it on your own. You start looking for a co-worker. You obviously start with a person you need the most – if you are a business/marketing person you search for a developer and vice versa. As you don’t have money to pay them right away you reward them with equity. But how much do you give them?

Let’s say you believe it’s a really great idea and the person’s contribution won’t be worth more than 10% but your first coworker will very likely see it differently – she will see that there are two of you, both spending roughly the same amount of time so from her perspective it should be more like 50-50 or at least 75-25. You agree with that and start working.

It all goes well until you realise you need more human resources. So you find new people and offer them equity but that means that both you and your first colleague have to give up a part of your equity which as you can imagine usually doesn’t go down well. You can easily end up arguing about whether you need new people at all and why you have to give them so much equity. And this gets worse with every new person coming on board as you have more people with a stake in the company whose share you want to dilute.

how we do it in elexu?
We work for sweat equity which means that the salary we would have earned is converted into equity. Each of us has a set salary level. As we don’t pay ourselves any cash at the moment we can afford to set the salary levels relatively generously. Rather than setting the salary based on previous experience of a person we can look at it from the future perspective – either elexu achieved success which in itself justifies the higher salaries (we had to be quite good to suceed) or it didn’t achieve success in which case the higher salaries are irellevant as the equity is worth nothing.

Great feature we use is a deferred payment bonus – in order to make up for the fact that money are not being paid out immediatelly we put a premium of 50% on top the basic salary. The beauty of this is that we can use the same approach for external collaborators (contractors, key advisors, etc.) – if they are willing to postpone their reward until the company can afford it (i.e. after the first investment round) they will get a 50% bonus.

The key ingredient to all of this is the valuation of the company. This is the value stakeholders (founder, employees, investors) believe the company has at a certain point in time. A typical startup doesn’t set their valuation until a meeting with the first investor. That’s too late. It gives too much power to the investor to impose a valuation benefitial for her (as low as possible). What you as a founder should do is set a valuation of your company yourself on the first day you start working on it and then review it with after every major event (e.g. team expansion, demo version created, product launched, first paying customers, etc.)

Here are some ideas how to evaluate an early stage startup:

• Ask yourself: “If an investor would come today and wanted 20% of my business how much would she have to pay me?” Take into account the current stage of the startup.
• Or you could be more scientific about it and calculate it from bottom up. Estimate how much work (in monetary terms) has to be done by your employees before they will stop earning sweat equity and start being paid normal salary (e.g. first investment round). Set a sufficient buffer for unexpected circumstances. Decide what percentage of shares you want to own at the time you will start paying your employees (the rest will be owned by your employees). And now just calculate the valuation as (work to be done + buffer) / % to be owned by employees.

It is important to set the valuation right. You have to be able to justify the valuation in front of your colleagues and investors, if the valuation is too high they won’t work with you. On the other hand if the valuation is too low you might run out of equity for distribution before you reach your goal.

Now, going back to sweat equity – the salary gets converted into the percentage stake in the company by using the valuation of the company at the time the money was earned. I created a simple illustration.

The table shows an employee who worked two days a week (40% of a work week) between July and September, when the company had valuation of $1 million. And jumped on board full time since October when the odds of success increased (which is demonstrated in a higher valuation). Although the employee worked for only two days a week in the first three months she earned a bigger stake (1.2%) than in the second period (0.6%). The monetary value of the sweat equity from the first period copied the increase of the valuation so the $12k worth of sweat equity from the first three months are now worth five times more, i.e. $60k.

what are the benefits?
The key benefit of this method is that founder doesn’t have to give equity away cheaply. By operating with real monetary figures (as opposed to using only percentages) it’s easier for coworkers to see the value of their stake.
This gives the founder higher flexibility to get more people involved which subsequently inreases the likelihood of success of the startup.
There is one more perspective I’d like to mention. This approach sends a strong message to your potential investors. It demonstrates that you really value your equity. In other words, if you’ve just given 30% to a developer for 3 months worth of work, why should an investor pay hundreds of thousands of dollars for 20%?

I really like this approach, it is transparent, easy to understand, it increases the chances of success and reduces chances of internal arguments about shares and allows people to focus on what really matters – getting work done.

what do you think?
Please let me know what you think. Do you see some key aspect I have overlooked? Do you have any ideas how to further improve this? Have you successfully used a different approach? Was the article helpful or at least interesting?

The past is not dead, it is living in us, and will be alive in the future which we are now helping to make. (William Morris)

When I look back at year 2011 there are two things that stand out.

Firstly a decision to leave my employment career and join David at elexu – an ambitious startup that aims to help people achieve their dreams. When I joined elexu I thought we would launch in a couple of months but those were very naive and unrealistic expectations. Although it went slower than I had hoped we have been moving forward. Our main activities involved clarifying elexu’s concept and specifications, networking and strengthening our team.

What I found personally quite distracting was working part time in Cogent Law, even though it was only for two days a week – an undivided focus is extremely important. So I left Cogent Law before Christmas and now I am fully focused on elexu as is the rest of our team. January and February will really show what we are made of – I am very enthusiastic and optimistic about elexu right now.

Secondly the year 2011 was a year of learning for me. Apart of learning a lot about the world of startups, especially from David, I’ve read a fair amount of books. I’ve read mainly business books and books about personal development (I maintain my reading list on Linkedin). The book of the year for me was Awaken the Giant Within by Anthony Robbins.

Probably the most valuable experience for me last year was recruiting an analyst, my replacement, for Cogent Law. The lessons I’ve learned will definitely come handy.

Looking forward to 2012 I have one goal – launch elexu. I expect an eventful year full of new experiences and learning on the go. I will surely meet a lot of new people and probably go through some emotionally challenging times but I am sure it won’t be a boring year – I am looking forward to the adventure.

‘Build it and they will come’ is a dangerous assumption for a startup.

Why Startups fail?
I am reading The Four Steps to the Epiphany by Steven Gary Blank (retired serial entrepreneur teaching enterpreneurship at several major universities). The book starts by describing a scenario of an ambitious startup which raises a lot of money, prepares everything (product, advertising and PR) for a glamorous launch only to find out they are significantly missing their revenue targets. In an attempt to attract new customers the startup starts burning through the cash ever quicker ultimately ending up in a bankruptcy. According to Steven this is a very common scenario.

Steven suggests that startups don’t fail because of bad products but because they don’t allow enough time for learning and discovery about their respective markets and customers. He suggests a typical startup needs two or three attempts to figure out their market to get it right but most of the startups don’t plan for that. Instead believing they will get it right the first time they follow a very risky path of all-or-nothing, scale up their operations prematurely and end up in a disaster because simply ‘Build it and they will come’ is a myth.

Market Type
Steven stresses the big difference between introducing a new product to an existing market (this is what mature companies do) and introducing a new product to a new market or a resegmented market (this is what most of the startups do). In the first case customers and their behaviour are fairly well known and that’s why mature companies often succeed with new introductions. On the other hand in case of resegmented markets (introducing niche or low cost products) and especially in case of new markets the reaction of customers is unknown or at least very uncertain.

The two types of markets respond completely differently to the same impulses. This has very sound practical consequences and requires a special consideration when hiring staff for startups. Steve argues that people always tend to apply successful strategies from their past but should the majority of their experience be from mature companies operating in existing markets, their actions applied in a startup will not yield the expected results, in fact the actions can seriously endanger the new company.

Another great insight that’s vital for startups to understand is the process of technology adoption by a market. Startups need to realise that customers differ based on their product needs and buying habits, they can generally be divided into early adopters (customers eager or willing to try a new technology and products) and late adopters. In the first phase of a startup the available market for a startup consists only of the innovators and early adopters which is circa 16% of the size of the overall envisioned market. This needs to be reflected in the financial forecasts otherwise a startup won’t be able to hit their revenue targets.

Customer Development Plan
The book provides an easy to follow guide on how to avoid the fate of the company from the aformentioned scenario. The approach is quite simple, it says that in addition to Product Development Plan a startup needs to prepare and follow a Customer Development Plan. The goal of Customer Development Plan is to understand in detail customer problems and needs, discover a market for the envisioned product, develop a sales model which can be easily replicated, create and drive end user demand and then transition the organisation from one focused on learning and discovery to one focused on execution.

Although I have only read the first part of the book it has significantly boosted my confidence in success of elexu. I have always been a strong believer in elexu as a product I could see very clearly how it will work and what value it will deliver but I used to feel a bit uneasy as I couldn’t picture clearly the process of customer adoption. I could see elexu before the launch (beta version) and I could see elexu three years after the launch but the period in between was covered in a haze for me – it is not any more – thanks to Steve Blank and The Fours Steps to the Epiphany.

Now it’s time to start working on the Customer Development Plan, I can’t wait.

Working on elexu gives me a great opportunity to discover some great organisations with a similar mission to ours – empowering people. I am often speechless when I see what amazing things are going on that I (and majority of people) don’t know about.

Old Vic New Voices is a programme of a popular London theatre Old Vic (you will surely know Kevin Spacey who is an Artistic Director there).

The mission of New Voices is to support emerging theatre talent and to open theatre to new and diverse audiences. One of their most exciting projects are The 24 Hours Plays. I got a chance to experience it live.

To explain the New Voices 24 Hours Plays in one sentence I would say it’s an X-Factor for young theatre artists. Actors, playwrights, directors and producers go through an auditioning process hoping to get selected among circa 50 artists to take part in the actual 24 hours experience. 24 hours doesn’t mean anything else than to write, cast, rehearse and perform a play within 24 hours (actually there are seven plays as the artists get split into teams of 7-8 and each play is about 10 minutes long). It is impressive that Steve Winter, who is heading the project, personally watches auditions of all the candidates which means some 1500 monologues within two weeks.

The following video shows perfectly the atmosphere of those 24 hours. This one is from 2010 but on the night of the plays we got to see a similar video for the actual year. The video had been shot and edited in the 24 hours prior to that moment which is a great achievement considering there were some shots from the late afternoon rehearsals. I really liked the combination of film followed by a live performance.

24 Hour Plays: Old Vic New Voices 2010 from Old Vic New Voices on Vimeo.

I think the whole concept is just amazing – the time constraint adds nicely to the excitement – if they only had 24 hours anything could happen. Also the fact that audience comprises mainly of friends and family (the theatre was absolutely packed) creates a very special and warm atmosphere.

The best testament of the project’s impact are the achievements of the past participants – many of them has gone on to work in West End shows or in television. One could argue that when they chose the most talented artists there is no wonder they are successful but then look at X-Factor, how many finalists survive a following season? The 24 Hours event is one of many steps on those artists’ journeys but it’s a big one.