Jude Law in “The Imaginarium of Doctor Parnassus” blinded by egocentric success in his race to the top. On his way he destroys the ability of others to step in his shoes and uses his advantages to gain even more advantages.

How to build a world with 6x more sustainable organisations that are 10x more innovative.

How VC money prevents innovation and what we can do about it.

It seems like an accepted law of entrepreneurship: In order for people to use your service it has to be 10X better than what’s already there.

How true is that?

This law seems to be so strong that not even Google+, with Billions of backing, could not become a rival to Facebook. Google+ arguably had some features that made it a better service than Facebook.
This begs the questions if the reasons the 10x law exist actively prevents innovation from happening, why this ‘law’ exists in the first place and what we can do to change the rules?

Everyone knows the pain of trying out new products

Common knowledge suggest services need to be 10x better because in order for users to really bother trying a new product it just needs to be a lot better. I think that’s only half true. The key to finding a more complete answer to this question is in the phrase “trying out new products”.

The real reason for the need to be 10x better are switching costs through data lock-ins and social network effects

Imagine you wanted to move from Facebook to Google+, Akasha or Mastadon. It is currently impossible to port over all your posts and messages. If you switch to another social network, you immediately lose access to all of the friends you have on Facebook. For most people a logistical nightmare.

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

Switching costs (time & resources) > Additional Benefit * ~10

How does that influence innovation?

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

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

But NO because

1. The amount of effort and money to build new (but similar) services where 9/10 companies will fail because others are dominating the market is a gigantic waste of human potential and time. We don’t have the time to develop every new solution for years. We need to get it down to week(end)s or months.
2. Sometimes adding a small new feature to an existing service would bring great innovation. For example I waited 4 years before Facebook implemented the ability to save posts for later reading. Simple thing. If I had been able to modify my own interface to add this feature it would have offered a great workflow innovation for me.
3. The necessity to have such big jumps also brought us insane growth requirements that are responsible for many of the things that go wrong in this world in the first place, like exploitation of labor & environment, as well as wealth inequalities, political corruption and climate change.
4. Competition, the fuel for innovation, happens only on the political level where companies try to buy or destroy each other. Not on the service level anymore.

Faster innovation through incremental gains

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

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

What’s holding us back?

Speculation and lock-ins create a self-reenforcing spiral of infinite growth causing destructive centralisation of power.

Cause #1: We share success in companies through increase in speculative value

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

In most cases shareholders make most (or all) of their profits if the speculative value of the company increases. The company’s profits, revenue and user numbers are only proxies. Success of shareholders is not directly dependent on them.

Growth is the key metric a company optimises for.

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

Facebook is arguably the king of network effects and also an example of how extreme the above dynamic has become:
In the 2nd quarter of 2018, Facebook lost $120 billion(!) in stock value within 4 hours, the biggest loss of any company in history. The reason: It posted the least growth since its founding, while still making 5BN in profits the same quarter and growing by 42% since the last year.
Think whatever you want about the way Facebook makes money, but such a highly profitable company should not be losing 20% of their stock value while still being wildly profitable.

Cause #2: Data and Social Lock-ins & Network Effects

The requirement to grow at all costs incentivises companies to lock people into their services and make it very hard to leave. You are effectively hostages. Either it’s difficult to migrate and reuse your data in other services, or they create network effects where you lose your social connections if you leave a service. Further, most businesses require to amass intellectual property in the form of proprietary software. There is an economic incentive to not share their progress with the world. This way every new service/competitor needs to start from scratch, even for a simple app like a calendar app.

3 things that need to change

Breaking this dynamic requires tackling the problem from multiple angles.

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

A way forward?

At WorldBrain.io we are contributing to an infrastructure that enables incremental innovation in the (knowledge management) software space.

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

This is how we contribute tackling the problem:

1. We take back your data and bake interoperability deep into the core of Memex.
   To make search possible Memex locally stores personal data from the different services you use (e.g. your browsing history/bookmarks/trails, social media posts and comments, what you shared/liked content on social media, your annotations and notes). Doing so in a way that creates unified data formats across multiple services. After all, social media posts on Twitter and Facebook are structurally not that different. To make this data usable for you we are in the process of developing an API that you, developers and entrepreneurs can use to innovate on new services or integrate with your existing ones. Whichever version of Memex or other services you eventually use, you can always communicate with your friends on other services.
2. Everything we develop is open source.
   Everyone has different workflows when managing knowledge and needs different tools. People can copy Memex, change features and reuse the data they had in their previous Memex, or use 2 Memex tools in parallel. This ensures that innovators do not have to start freshly every time they want to improve a service, but can create incremental gains, acquire users easily and eventually create innovation faster.
3. WorldBrain.io has no stock value. There is no speculation.
   To reward early contributions and risk, we use a non-speculative economic model called Steward Ownership. In practice it is a profit sharing model that has a cap on the returns investors and employees can make — the cap is higher the earlier you join. A golden share will be given to the Purpose Foundation, preventing any future sale of the company.
   With that, greedy behaviour of investors and employees to make more money than they ought to get is removed. One of the questions people rarely ask in classic capitalism is answered explicitly: How much is enough?
   It allows us as a company to be OK (not great though) to lose users and revenue to other services as it will only delay our investors’ returns, not lower them overall.

Next Steps:

Of course such a data infrastructure, and the resulting data sovereignty, brings a whole new class of (privacy) challenges with it.
We are currently forming a community of people who want to build new apps on this infrastructure, and map out all those challenges and how to tackle them through e.g. good UX, education and privacy preserving technologies.

Our open questions we want to address:

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

Do you think you can contribute answering those questions, or know people who do?

Then get in touch with us to help designing systems that are user-centric, interoperable and built with a strong focus on data sovereignty and privacy.