Approaching business problems differently

The field of prediction markets seems to be going through a bit of a crisis of confidence recently. I would personally trace it to the recent election (where other forecasters like Nate Silver made forecasts as good as PM’s), as well as recent press like the Economist article. The general feeling is a questioning of prediction markets: if they’re so good at forecasting, why aren’t they being used much more widely? I think I have the start a good reason why.

Core Issue

Traditional forecasting is done through highly analytical techniques using past data. Statistical measures are used to generate forecasts, with probability ranges. This industry is quite large, and is highly exacting.

Prediction markets take an orthogonal approach to traditional forecasting. Instead of a “top-down” approach where huge data sets are analyzed, prediction markets use a “bottom-up” approach that combine individuals’ forecasts.

The reason prediction markets haven’t been adopted widely is because they are a tool that approaches the forecasting problem from a completely different perspective.

An example — Enterprise Business Intelligence

I’ve recently been looking into the Enterprise Business Intelligence/Business Management industry, and came across what I think is a similar phenomenon. The vast majority of the industry is composed of massive analytical solutions from the likes of SAP, Oracle, IBM, etc. They are massive companies, and implementing a “solution” can easily take a year or more. Their clients design the system from a “top-down” perspective, determining from the outset what the processes and procedures are going to be.

But then there is software like Thingamy. Thingamy is the creation of Sig Rinde, a Norwegian living in the south of France. Instead of looking at enterprise business intelligence from the top-down, he has created software that approaches the problem from the bottom-up. Instead of establishing pre-defined processes (that may not even work or will be changed by the time the software is configured), Thingamy tracks emergent processes as they happen. It can start with a very small, hard-to-define process and then scales up as the business needs it.

While Thingamy has gotten some good press and attention over the years, it’s still a fairly small company. Again, I believe this is because it takes a fundamentally different approach to the problem compared to the rest of the current industry. Hugely different approaches cause cognitive dissonance, which slow adoption.

What does this mean?

There are new types of technologies that approach business problems from entirely different directions. Prediction markets is one of these technologies. Using PM’s means companies have to upset some of their current notions about how power and influence flow in a company, relying on “soft” information from lower-level employees. A different approach also means that in certain situations they’ll be clearly superior, but also that in other situations they won’t be. Traditional methods and thumb-rules for situations just don’t automatically work.

For example, prediction markets where there is a lot of public information (like election markets) may prove to integrate new news and information more quickly, but may not be quite as accurate as other methods in the final analysis. But where information is scarce (like some internal corporate forecasts), a prediction market may be ideal. In general, new ways of thinking have to be established to know when and where to use this new tool effectively. That’s why I believe prediction markets will take quite some time to see any sort of a spike in growth; expect a slow burn for a long time.

Quick note

Just a quick note for you all. I’m curious about how well Google’s AdSense can be used to monetize a blog, so I’m going to be running AdSense on this blog on a one-month trial. If you have any opinions on this, please feel free to e-mail me or comment below.

Amir Nathoo, WebMynd, Cambridge & Y Combinator

Amir Nathoo is a Founder and the CEO of WebMynd.com, a really interesting startup company founded a little over a year ago. He spoke on Wednesday this week at an event organized by the Cambridge Network at the offices of Red Gate Software.

Amir spoke about his company and his experiences getting accepted to and going through the Y Combinator program. If you haven’t heard of it, Y Combinator is a really innovative program for software start-up companies. You get a small amount of funding and go through a three-month boot camp of getting your software ideas up and running. The whole time you have incredible mentoring from some of the best web/software advisors in the world, and the program concludes with a Demo Day, where companies show off their software and businesses to press and investors.

It was a great talk, and really brought out the benefits and realities of the Y Combinator program. Matt Schofield, the CEO of the Cambridge Network, wrote a blog post about it here.

Before I forget, you MUST try out WebMynd. They released a brand new version just a few weeks ago and it is AWESOME. You have to have the Firefox browser installed, which I highly recommend. (Go here to download Firefox.) Once you’ve got it, just head to WebMynd’s home page here and click on “Install WebMynd.”

WebMynd does four things:

  1. Gives you more (and potentially more useful) results whenever you do a Google search. This is a fantastic feature.
  2. Records what web pages you’ve been do, so you can literally go back visually to web pages you’ve seen recently.
  3. Keeps a listing of the web pages you’ve been on recently, which lets you easily go back and/or share links.
  4. One-click sharing pages with friends via Twitter, Facebook, etc.

There was some interesting talk on the night about Y Combinator. A few of the Cambridge Angels were there, as well as other investors like Laurence John (CEO of Amadeus Capital Parters Seed Fund). It seems like people are interested in the model, but want to create something that is appropriate for Cambridge. While Cambridge doesn’t have the same level of expertise in web technology as Silicon Valley does, there is some really advanced technology being developed here and a latent entrepreneurial spirit.

Laurence has started discussing this a bit on his blog, and I look forward to hearing more about it. Based on some things he said Wednesday night, it makes sense that any program needs to come from a consortium of angels or VC’s. This eliminates any negative connotation if a particular angel or VC chooses not to further invest in a company that was accepted into the program.

Perhaps I might be able to provide some perspective later this year… I’ve applied to this summers’ Y Combinator program. (With a thank you to Amir for his feedback and perspectives which were incredibly helpful!) With so many applicants it may be a long shot, but will know more in just a week and a half.

USS Hartford collision

So my old boat, the USS Hartford, was in a significant collision this week. While transiting (submerged) through the Straits of Hormuz, they ran into the USS New Orleans, an amphibious ship (surface ship that carries Marines). According to reports, about 15 people on the Hartford were hurt, though luckily none were seriously injured. The New Orleans had some tanks punctured, spilling about 25+k gallons of fuel oil.

The Hartford looks like it’s in pretty bad shape. Here are photos from the NavyTimes.com:

This one shows the sail bent over at an angle:

This shows the damage on the front of the sail, but you can also see where the bottom of the sail has pulled apart from the hull after being bent over:

I can only imagine two scenarios about what happened. #1- The Hartford lost depth control and/or got sucked up in the wake of a big surface ship. (Unlikely but has happened.) #2- The Hartford was on its way to periscope depth and didn’t hear the New Orleans or realize it was as close as it was. Since the NavyTimes article quoted the Navy as saying the Hartford was “submerged but near the surface” it sounds like #2 is the right answer. Unfortunately this is not hugely uncommon; going to periscope depth is the most dangerous thing a submarine does regularly.

I feel really bad for the guys on the boat. I was on the Hartford when we grounded off of Italy in 2003; it’s an awful experience for everyone, whether you were personally involved or not. It causes a lot of disruption for the Navy and all the people involved. I’m no expert, but that damage is probably going to take a long time to fix.

[UPDATE]: More photos here from the Navy. The sail is pretty trashed. Lots of Navy-specific comments on Joel’s blog here.

[UPDATE 2]: Commenters on Joel’s blog have written that the Hartford experienced an 82-degree roll! If that’s even half-true (and it may very well not be) it’s amazing that only 15 people were hurt.

Panama Canal crossing video

I got a kick out of seeing this video. It’s a timelapse video taken of a cruise ship going through the Panama Canal. The fun bits with locks are at the beginning and end; in the middle there’s quite a large lake that needs to be sailed across.

My old boat (the USS Hartford, SSN 768) sailed across the Panama Canal a year or two after I left; I’m still a bit jealous that I missed it. Going through the Suez wasn’t nearly as interesting, and I did that twice.

University of Michigan — 2 out of 3 ain’t bad

I’ve long had this theory that at any given time, the University of Michigan can only have two successful sports of the three top sports: football, basketball, and ice hockey. (Aka, the sports where Michigan has traditionally excelled.)

A key data point has come this year: Michigan’s football team collapsed. But to even out the cosmic karma and keep the 2 of 3 rule alive, Michigan’s basketball team has made it to the NCAA tournament!

Just something to keep in mind…

Go Blue!

Kevin Roberts & his challenges

Kevin Roberts, the CEO of Saatchi & Saatchi, is also the CEO-in-Residence at Judge Business School. He came in to talk to us recently about Winning with an MBA, which was particularly useful considering the somewhat dismal job market that we’ll be entering later this year.

First off, he’s really an incredible speaker. His staff has a virtual command center to run his presentation, with multiple laptops and a sound mixer! Impressive, and it certainly created a good first impression toward Saatchi & Saatchi. I’m really, really looking forward to the Creativity Workshop that he’s going to be running for the MBA class later this year. From what I’ve heard, it’s a very unique experience.

I don’t want to write too much about his talk with us, but do want to point out three challenges that he set out for us. I think these apply no matter who you are or what stage in life you’re at. We’ve been tasked with thinking about these and writing the answers down; you should do the same:

  • What’s my 5-year dream?
  • When am I at my best?
  • What will I never do?

Particularly on the 5-year dream, he pushed us to push ourselves. He called the 5-year dream of running your own business, etc., “pathetic.” It was a bit of a shock, but a fair point. That’s not much of a dream; we can do that right now if we chose. What’s our real dream, something that seems completely impossible right now? That’s what we should be aiming for.

The other two questions are more straightforward. Still, we need to be brutally honest with ourselves when we answer them in order to really get an insight into our own abilities and preferences.

I went out to dinner with some of my classmates straight afterward, and we started talking about these questions — specifically our dreams. It was interesting to hear what people thought. Perhaps it’s the current job market, but it was generally difficult for everyone to really expand their horizons to answer the question.

While I think I’ve come up with my answer, I’m going to hold off from writing it publicly. But I invite you to really think (and feel) hard and answer the questions above for yourself; it could make for an interesting revelation.