Vibration Economics

How managing a bad economy is similar to driving a car through a construction zone.

Yesterday, driving with my family in the car, there were several times when traffic ground to a complete stop due to merging lanes in construction zones. Logically I knew this didn’t have to happen if everyone within the system both had access to all information (e.g. the left lane is closed ahead) and drivers were incentivized to slow down instead of attempting to pass each other and cause clogs up ahead. The fact that it does happen and continues to happen even with full access to information (e.g. signs, cones, traffic patterns, news radio, Internet access, and CB broadcasts) could mean that drivers are incentivized to slow down the entire system in order to make sure they get ahead first.

In Mission Impossible III, Tom Cruise’s character explains his job as a traffic pattern analyst and how the act of one person’s brakes can send ripples through the entire traffic system. This is exactly what is happening in a lane-merging event when drivers are responding to brake lights and eventually stopping instead of everyone simply slowing down, merging, and passing through the lane at a reasonable rate. The less brake lights are used, the faster a group of cars will move through a slow-down event. This is because, again, of a lack of information. The driver doesn’t know whether the car in front of them is going to simply slow down and then re-accelerate or if it is going to come to a complete stop. They only have one metric to go on, the brake light.

These ripples in the traffic system mimic other waves in science and finance. We know that by reducing the speed of the vehicle and braking less, we reduce the rapid stops and starts. By doing this we are not only reducing the amplification of the wave pattern, but also changing the the frequency. The wave goes from a high-pitched baby scream to a low bass wave. Once the frequency has been adjusted (e.g. less braking, more steady movement), over time, the speed of the vehicle can be increased. The most efficient traffic is one without waves at all, with cars constantly moving, all at the same pace, but this will never occur. While I would love to fix traffic slowdowns by implementing car-to-car communication systems or a third metric to the brake lighting system, I am simply using traffic as an metaphor for economics as a whole.

It may sound counter intuitive to say that the fastest way to move through a downturn is to slow down, but that’s because it depends on how you decrease your speed. We know that brake lights cause other drivers to slow down which don’t use the brake lights such as simply letting off the gas or downshifting. Aware drivers or smart cars will also adjust in a more subtle way and while traffic may slow down overall, it may not stop and will certainly be in a better position to begin increasing speed once the bottleneck has been passed. If we could understand what the “break lights” in the economy were and how people respond to them, we may be able to help reduce their use and get the economy moving forward again with less starting and stopping.

Examples of break lights in the economy are stock selloffs, layoffs, and inventory cuts. Speculators will sell a stock before they think it will go down, which then actually causes the stock to go down, which causes other investors to also sell until the price is enticing enough for people to buy back in. Companies will layoff workers in anticipation of a downturn, even if they are not currently experiencing one. And in fear of not being able to sell current inventory, companies will stop buying goods in order to not be ‘caught with the bag.’ These are all drastic measures that cause ripple effects in the economy, slowing it down and helping to cause the very thing they are trying to avoid.

What if instead, companies simply ‘switched gears’ or ‘let off the gas’ during an economic slow down instead of braking? Wouldn’t these companies be best poised for re-accelerating in an economic up turn? Using the prior examples of stock, layoffs, and inventory cuts, here are some examples of what companies could do differently. Shareholders could simply hold stock and stop buying for a period of time in order to coast through a down turn. Companies could use any excess employees as salesman, research analysts, or focus groups for innovation to create new ideas or help find new customers. And instead of cutting inventory, companies could increase the diversity of what they buy in order to market to areas of the market that in a good economy didn’t make sense, but now does.

In fact, most successful companies already do this. Ford Motor Company outlasted hundreds of other car manufacturers not because it was better, but because it was willing to change. Groupon was originally an online collective action and fundraising company called The Point, which pivoted and began offering discounts via email. Google continually innovate and pays it’s engineers to create side projects and yet continues to grow in spite of the economy. Compare this to the pharmaceutical industry that has increased advertising spending over research and is now in crises as their development cycle has run it’s course. Another example is Southwest Airlines, which for most of its history did not layoff it’s workers and remained profitable while it’s peers went through bankruptcy proceedings. Layoff alternatives like early buyouts, early retirements, across-the-board budget cuts, hiring freezes, and eliminating overtime pay only serve to hurt the top performers – the rest of the company is only there for a paycheck anyway. It all comes down to proper management and leadership.

Pac-Management

Most people are familiar with the game of Pac-Man where the player guides Pac-Man through a maze, eating dots. And when all the dots are eaten, Pac-Man is taken to the next stage of the game. What most people are not familiar with is that this is exactly how they work throughout the day, which is what I call pac-management.

What is Pac-Management?

Like in Pac-Man, if an email, phone call, or a person stopping by contacts the Pac-Manager, everything stops. Because of this “life or death” situation, everything is an emergency. These “contactees” are known variously as “ghosts” or “monsters” and all of their moves are deterministic: a red contactee chases the Pac-Manager, the orange contactee is seemingly random, and the pink and blue contactees try to position themselves in front of the Pac-Mananager’s mouth. Near the corners of the Pac Manager’s office are four larger, flashing dots known as power pellets that provide the Pac-Manager with the temporary ability to eat the contactees. This pent up rage can happen at any time and will cause contactees to turn deep blue, reverse direction, and usually move more slowly. When all lives have been lost, the game ends. Read More

What Happened to CollegeClub.com?

Why did CollegeClub.com fail and others succeed?

CollegeClub.com was registered on April 4, 1996 and by 2000 had around 3 million registered users. I was one of those users who used it to find friends at other colleges online. On August 22, 2000, CollegeClub.com announced bankruptcy and said it would be acquired by Student Advantage, an Internet educational content and commerce specialist, for $7 million in cash and 1.5 million shares of its stock. Almost exactly three years later, in August of 2003, MySpace.com launched. Less than a year after that Facebook.com began as a social network for colleges on February 4, 2004, but eventually opened up to the general public on September 26, 2006. What happened to College Club? What made it different from Myspace or Facebook?

Why did MySpace and Facebook succeed when CollegeClub failed?

All of a sudden what seemed so hard for CollegeClub.com to do seemed easy for others. Was it the curse of the “first to market first to fail” concept that’s befell such greats as Palm, Netscape, and Tivo? Or was it something else? EDIT: since writing this initially in September of 2009, MySpace may not be the best comparison, but Facebook is still doing just fine. 11/4/2011.

CollegeClub.com’s Business Model

Lets take a look at the business model. CollegeClub.com allowed users to sign up for free, create profiles, communicate with each other, and post pictures online. Once it attracted a certain number of users, the site was then able to sells advertising to businesses looking to sell to this highly impressionable market with loads of free time and disposable income. Marketers know that if they can hook a customer in college, they may have them for life. Both MySpace.com and Facebook.com used this same model so why did CollegeClub.com fail?

CollegeClub.com was getting funding at the tune of $15 million from a group of investors that included Convergence Partners and France-based Viventures as well as $40 million from Seligman Technology Group via the group’s investment fund and additional money from previous investors Convergence and Sony. Later deals included partnerships with Ericsson and General Motors, with a planned IPO in the offing. The old addage of “it takes money to make money” wasn’t making CollegeClub.com any money. Why?

I have two reasons why I think this site tanked:

The first reason is bad management and the second reason is the high cost of technology at the time.

Infoworld said at the time, “While one source close to the company traces the financial difficulties to some unorthodox spending practices by management, [new owner, Student Advantage] said it believes that problems stemmed from the nature of the site’s business model.” I think Student Advantage was wrong. We now know there was nothing wrong with their business model (because it worked for both Myspace and Facebook) and this next statement from Infoworld backs this up:

In the recent past, Student Advantage has shown less than stellar financial performance itself. Since the beginning of the year, the company’s stock price has plummeted from a high mark of just over $20 to its current price, which is hovering just above $7. In addition, Student Advantage has continually met analysts’ predictions of red ink, and the company has suggested that losses will continue throughout next year.

The company went from bad management to worse management – and technology costs were adding up.

“The business model works.” said Monte Brem, senior vice president of corporate development at CollegeClub in said in 2000 – and he was right – but he noted that with nearly 3 million users, the back-end costs for the site ran high and needed multiple rounds of financing for success. “It requires a tremendous amount of scaling to be profitable,” Brem added. And back then, scaling cost much more than it did in 2003 and 2004 for MySpace and Facebook respectively. Moore’s Law has two effects. Not only does technology double in speed or capacity each year, but the price almost always shrinks by half every two years. For example, a Pentium III desktop PC with 128 MB RAM and a 40 GB hard drive cost $1800.00 in 2000. In 2003, the price of a desktop had dropped below $1000 for over twice the power. Multiply that over all the equipment needed to run a large social network. In April, 2008 Facebook expanded the number of servers it uses to 10,000. The more CollegeClub.com added users, the more technology they had to add on back-end to support the load. Their revenue simply could not overcome their expenses.

CollegeClub_com_2

So why did CollegeClub.com fail?

Primarily, it was ahead of its time. It had a good idea, but no one had really succeeded with it before. Bad management decisions were made and the implementation of the idea did not match up with the cost of the infrastructure at the time. Had they waited until 2002 to launch, they could have superseded either MySpace or Facebook, but there is another reason why they may never have made it: their name. Names like MySpace and Facebook are not associated with a specific group like CollegeClub.com is. Eventually CollegeClub.com started HighSchool.com to address this problem but even it has the same problem of locking it into a specific group. There were also privacy and age related problems on the site, much like MySpace ran into in 2006 and Facebook has ran into almost every year of it’s existence.

What can we learn from CollegeClub.com?

There are three things they could have done differently:

  1. They didn’t pick a scalable name that was generic enough to be applied to almost anyone, anywhere. Sometimes it is good to be niche, but you take on more risk if you’re running your own equipment. Sometimes is pays to have a name that can be used broadly, even if you start off small within a specific niche.
  2. Take the time to develop a good business plan and don’t be afraid to change the business plan as you go. Create metrics for success, track them, and change course if necessary. The businesses that are most successful are the most agile.
  3. Avoid debt if possible when starting a business. It always catches up with you. And the more debt you have the less your’e able to (as in #1) scale or (as in #2) change course. One of the most important things in any business is cash flow.

When You Say Yes but Mean No: How Silencing Conflict Wrecks Relationships and Companies…and What You Can Do About It

In 2003, Leslie Perlow wrote a book called, When You Say Yes but Mean No: How Silencing Conflict Wrecks Relationships and Companies…and What You Can Do About It. In that book, Leslie does a case study on the demise of CollegeClub.com in the chapter, Nine Bad Endings. Pages 141-156 cover the merger with Versity, the talks about the IPO, and the eventual bankruptcy. Overall it’s also a good book on management as one reviewer called it, “A Management Must-Read”.

“Saying yes when you really mean no” is a problem that haunts organizations from startups to big businesses. It exists across industries, levels, and functions and is inflamed by a sour economy, when the fear of losing your job is on everyone’s mind and the idea of allowing conflict to surface or disagreeing with others seems inherently risky. Too often, the conversation at work bespeaks harmony and togetherness, even though passionate disagreements exist beneath the surface. Is this what really happened to CollegeClub.com? Read the book to find out.

CollegeClub.com Email

CollegeClub was full of so much promise. What happened?

CollegeClub even had email by phone. It was pretty advanced for its time.

CollegeClub “The world’s largest college community”
FREE E-mail you can also hear through the phone!
FREE voicemail, with your own 800 number!
FREE discount card!
FREE Web page builder!
TONS of ways to meet people like you! (Chat, Interest Groups, and more!)
LOTS of other cool stuff! (Including online games and music videos!)

Suprise. CollegeClub is no longer offering free email.

In 2007, Alloy Media, owner of the CollegeClub.com trademark, discontinued the CollegeClub email service rendering all “@collegeclub.com” email addresses defunct. Their website (http://mail.collegeclub.com), simply said:

“Oops! Sorry about that! These CollegeClub applications are no longer in service.

If you are trying to access your old emails so that you can forward them on to another address, use this url: http://legacy.collegeclub.com/mail.

This Service will only be available until Friday, March 16th, 2007.

Here is what the email login screen last looked like in March, 2007:

CollegeClub.com Where Are You Now?

If you type ‘http://www.collegeclub.com‘ into your browser you will be taken to Teen.com, which is, according to their web site the, “ultimate online destination for teens on celebrities, entertainment, music, and fashion.” I think what they mean to say was that they are a ‘destination for teens’ that covers ‘celebrities’, not “teens on celebrities,” which has an entirely different meaning.

Teen.com is owned and operated by Alloy Media, LLC, which is a New York based media company that is partners with Alloy Marketing and Alloy Entertainment. Alloy Media also owns Channel One News, which most know is a 12 minute news program for teens broadcast via satellite to middle schools and high schools across the United States.

The Internet is not a friendly place. Things that don’t stay relevant don’t even get the luxury of leaving ruins. They disappear.” -Facebook’s Little Red Book

For those looking for other ex-CollegeClub.com members, check out ExCollegeClubbers. The ‘tribe’ is “for everyone who wants to meet new friends, but in particular for ex members of Collegeclub.com…It used to be cool like Tribe and we have all lost contact with each other. So non-ex members and ex- members alike are invited to join.”