We are all early adopters now. Everyone is looking for the new new thing. When someone finds the latest new new thing, technology helps everyone else find out about it and we get to decide if we want to follow along. When done right this process moves lightning fast and blockbuster products surface almost instantaneously. New products cross the chasm faster than they’ve ever crossed before. For remarkable products, the chasm has shrunk.

Despite all this progress, there remains a lack of both art and science in the field of new product launches. We’re simply not moving fast enough or smart enough as we introduce new products because most entrepreneurs and brand managers don’t know how to launch. Billions of dollars go into research and development of new products every year. Billions more are wasted launching new products with misguided attempts to buy attention, interrupt audiences, and reach out to old, mainstream media. Thousands of products die early deaths because of bad launching.

There is a better way.

That’s why I’ve teamed up with Alex Krupp to change the world with LaunchHear. The idea for LaunchHear came out of an experiment called Swagapalooza Alex did during Seth Godin’s Alternative MBA program. We were both very lucky to have been given the opportunity to learn from Seth about bootstrapping, shipping, marketing, creating change, overcoming the lizard brain, becoming linchpins, making art, leading tribes, and being remarkable.

Equally exciting, we recently received seed funding from Y Combinator as part of the Winter 2010 batch. Wow! Y Combinator is without a doubt the best startup incubator in the world. No other incubator has been as consistent and prolific at picking great teams, seeding good ideas, and nurturing solid businesses. Paul Graham and Jessica Livingston invented the modern incubator model. They layer on value by teaching kick-ass product development and exposing us to mentors like Joshua Schacter, Paul Buchheit, and other successful technology entrepreneurs. The seed funding from Y Combinator is insignificant. What matters most is that the YC team has great taste and an incredible network of people.

So we’ll bring to bear all the goodness we learned from Seth combined with the special Silicon Valley way of building scalable technology businesses we learned at Y Combinator. And we’ll be looking to change the worlds of PR and advertising as applied to new product launches.

To bring about that change, we’ll focus on a few things:

• answer the burning question – what’s new?
• answer the passionate question – what’s interesting?
• make select bloggers, tweeters, and netizens happy by providing interesting things to point to
• help new and remarkable products cross the chasm faster
• level the playing field for companies regardless of launch budgets

There isn’t a lot here about tactics or the specific products or tools we’ll build. I want to focus on the big picture and the fundamental core values.

We’re barbarians at the gate, outsiders with strong opinions about what needs changing in public relations and advertising. We’re optimists. We believe that remarkable products can still make the world a better place. We’re passionate. We’re looking for great people who feel as strongly as we do.

Because of our posture and worldview, we’re going to make a lot of people in the PR and advertising worlds very nervous. That’ll signal we are on the right track. Fortunately, there are also a few linchpins, mavericks and brave souls within the castle walls who see the opportunity we see for drastic change and progress.

If you’re one of these brave souls, you can reach me by email at Allan[@]LaunchHear.com – we’ll have loads of fun!

Fat pitches don’t come often. Life is a cunning pitcher. So good hitters don’t swing at everything. They pass on dozens of balls, take walks, and just wait for that one perfect pitch.

The point is to be selective. Every pitch that comes your way looks tempting. But just as you swing at one, it curves and the best you can do is hit a lazy and easily caught fly ball. Wasted effort.

Entrepreneurs can be good hitters or bad hitters. The good ones pass on opportunities all the time. They only swing on HUGE opportunities.

The same can be said for investors. Warren Buffett is famous for his patience. He waits and waits until a great company gets really cheap. Everyone else has bailed on it because they’re focused on the short term results. Warren sees the fat pitch that is a great company on sale, and swings hard for a home run by investing large amounts of money. This approach means he doesn’t need to diversify. Diversification is like swinging at a bunch of pitches.

This baseball season, you’ll see my beloved Boston Red Sox play competitively and probably make the playoffs. Much of that will be because they have a lineup full of patient hitters that just wait and wait for the fat pitch.

Funny how selectivity applies to so much in life.

Would you do it all again? I don’t mean doing everything the same way you did this time. You’ve learned some valuable lessons from your mistakes. I mean more deeply, does entrepreneurship still matter to you? When you have the next big idea, would you risk it all again?

If yes, you’ve given yourself permission to fail. There is great freedom in that. With whatever runway you have left or Plan B, you can behave with a touch of reckless abandon. You can go “balls to the wall.” You don’t need to be embarrassed by your crazy idea. Nothing can stop you now because, win or lose, you’d do this all over again. Funny thing, this posture increases your likelihood of winning.

Everybody seems to be a “social media guru” these days. Like a real world sausage-fest, the “guru-fest” on Twitter and Facebook where four out of every five members claim to be some sort of ninja, jedi, maven, strategist or expert cannot possibly be a good thing. I exaggerate but echo chambers are not productive. What’s an earnest social media consultant to do?

Before you read on, you should know that I wrote this post only for those folks who are totally committed to the social media “industry” and intend to make a difference and long term careers out of this.

The Service Industry Cycle

Great, you’re in a service industry. This happens to every service opportunity. Something new and exciting happens and a few people move quickly to capture the opportunity. Others see money being made, mistakenly think it’s easy money, and then flood the scene.

We’ve reached that tipping point. We now have too many social media gurus.

How did we get here? The lowest barriers of entry ever before seen in history – except maybe for the world’s oldest profession. Anyone can build a website for little money and tell the world he is now a “social media guru” who will show clients how to navigate social networks. Even more absurd, he can go on a social network like Twitter, set up for free, and tell other members of the social network of his expertise. That’s like going to a hospital and having a fellow patient tell you he can cure your ills.

Plus there isn’t some lazy way to verify the quality of a guru like we have for accountants with CPAs, financial analysts with CFAs, or even clever business people with MBAs.

The Sameness of Promises Problem

If you want to be a successful social media consultant, you need to understand the Sameness of Promises problem. Every social media consultant promises the same thing - increased traffic and eyeballs, more buzz (whatever that means), higher search engine rankings, more followers, etc. By merely promising great results, there is no way to differentiate yourself and stand out from the guru crowd.

Now is the time to grow. To do this, you need to do something drastic, something different.

The Consultant as Curator

Fire your clients. Not all your clients, just your bottom 20% clients. Yes you do need to prioritize your client list. You need to be prepared to do this once a year. Your client list probably conforms to the 80-20 Rule: the top 20% of your clients is responsible for 80% of your revenue or profits. Your bottom 20% clients probably account for less than 5% of your revenue or profits.  You might actually be losing money servicing them.

Why fire your clients? When the promises you make are the same promises every other social media consultant makes, prospective clients have little to judge you on. Your client list is one of the few things competing consultants cannot copy. The quality of your client roster will signal to prospective clients if you’re truly a guru. Think of yourself as a curator of a gallery or museum. You’ve got to constantly clear space for bigger and better projects.

Bottom Line

None of this matters if you cannot execute and deliver on those cookie-cutter promises. But I’m assuming you’ve got the chops. I’m also assuming you want to grow and succeed in this business. You have a finite amount of time in a day. In order to get better clients, you have to free up time by firing low priority clients. I’ll leave you to define low priority. Maybe the readers of this blog can help. What are some ways you define low priority? What would make a client less important going forward?

Image Credit: Eric Weaver at Brand Dialogue

There are plenty of good pieces on the Internet about how to build a good board of advisors.  Go ahead, Google them.  There is one super post about why you shouldn’t bother to build an advisory board by the smart guys at 37Signals.  Essentially, they’re saying that too many supposedly critical things are myths that keep you from building the company and products.  But what if someone has approached you to be an advisor to his company?  There aren’t very many pieces about how to be a good advisor.  So how do you provide value as an advisor?

1. Don’t be a professional advisor.  Don’t go seeking to sit on a bunch of advisory boards.  Few things deserve your time and attention so be selective – get involved only with companies where you have unique insight and passion to contribute.  And I mean don’t be a professional advisor. If you ask for cash compensation, you’re a problem and not a solution, especially for young startups with limited resources.  If the management team desperately wants to compensate you, accept a fraction of a fraction of a fraction of equity in stock options that vest over time.  Don’t be a resource drain.

2. Get out of the way.  Too many advisors want to get actively involved in a company’s operations and tell management what to do.  The management team should know more about its business than you do and if it doesn’t – you’ll never be an effective advisor for the company anyway.  Being an advisor should never be an exercise in ego.  If you have to insert yourself to feel valuable, you’re the wrong guy.  Only get your hands dirty if the management team asks you to dive in.

3. Challenge convention.  Unlike members of a formal board of directors, you as an advisor cannot be held liable for the company’s actions.  This allows you to be more objective and give uncensored advice.  This freedom is probably the most enjoyable thing about being an advisor.  You don’t have to have all the right answers, you just need to be gutsy enough to question everything the company does and how it goes about doing it.  This is where you can have the most impact on the company by helping management to consider different strategies.  Focus on strategy, not tactics.

4. Open up your network generously.  You’ve spent your whole career cultivating valuable relationships.  Connect the company to potential investors, partners, and customers.  Of that list, customers rank supreme.  Investors and partners will show up if the company has a growing customer base.  But potential customers could care less who a company’s investors or partners are.  So if you know someone or some organization who could use the company’s products or services, be the leadoff hitter on the sales team.  But hold the management team to high standards.  Make sure milestones are being met and progress is being made before you haphazardly make introductions.  Let management know that if they do their job, you’ll be their biggest evangelist.

5. Get out of the way.  Did I mention that already?  This time what I mean is to know when the company has outgrown your expertise and ability to contribute.  There is a lifecycle to all engagements and you don’t want to be the person to outlast your welcome and usefulness.

My first impression of Seth Godin upon meeting him was that he is an extraordinarily efficient person.  You wouldn’t think of a “creative” as efficient in the sense that a supply chain manager, hamburger flipper, accountant, or the Octomom are efficient.  But Seth conducted interviews with about thirty candidates for the SAMBA program in under three hours.  He made up his mind on who fit perfectly soon after and, it turns out, he picked an amazing group.

How amazing? That remains to be seen. Everyone in the group was so remarkable, I felt like the straggler who needed to keep up, especially when falling countless times skate skiing.  Of the SAMBA crew, I was probably the least familiar with Seth’s ideas.

My talented SAMBA fellows are all immensely grateful to Seth for the time and energy he gifted to us.  We all want to thank him in some way.  But I think the greatest thanks we can give to a teacher who is so generous is to take what he taught us, practice it in the real world, change the world for the better, and succeed beyond his wildest imagination.  Then we can extend the change he initiated by teaching others.  So we’ll see just how amazing we can be.

Here are a few lessons that made the greatest change in me and they have little to do with an MBA:

Be Brave. You can start off a little clueless.  You can even start off as a complete outsider.  You can lack the resources others more fortunate start out with.  But you must have courage – this is the foundation of it all.  Everything else can be made up for right?

Be Purposeful. Some might say this is the foundation, even more important than bravery.  Maybe.  I think that if you’re brave and you’re willing to venture out and explore, you’ll find your purpose eventually.  So instead of sitting there trying to come up with the perfect and grand purpose for your life, get a little gumption and get in the mix!  You’ll find your purpose if you’re looking for it and doing something.

Seek Change. Change yourself.  Change others.  Change the world.  Change is painful but necessary for growth.  Real, substantive change has the potential to create the greatest value.  This is good advice whether you’re a college senior, corporate warrior, first-time entrepreneur, business mogul, parent, or spouse.  Back to the foundation – serious change requires bravery and purpose.

Be Generous. This depends on if you fundamentally believe that generosity produces value and surplus.  Does generosity produce economic value and surplus?  Does generosity produce reputation value and surplus?  Does generosity produce influence value and surplus?  We believe it does – but you’d have to practice it to find out for yourself.

Be Persuasive. How? Learn to tell good stories. Paint stories that capture the imagination because they are artistic, empathetic, emotional, exciting, incredible, overwhelming, unique, unexpected.  Use your new-found persuasion powers to sell your vision, your product, your service, your point of view.  Wield this superpower to cause massive change.

Keep Promises. We saw Seth do this every single day.  We live in a world where intangible assets are often far more valuable than material assets.  One of these intangible assets is reputation or credit, before it became primarily a financial measurement.  If you’re striving to increase your value as a person, keep your promises – especially when it becomes uncomfortable to do so.

My Promise on the six principles above: Regardless of what you’re trying to achieve in any field of endeavor you choose to engage yourself, you’ll increase your chances of success exponentially if you practice the six principles above.  You already knew that deep inside.

Bonus Grab Bag! Here are some of the more tactical things we learned relevant to today’s changing business environment. Should satisfy the MBA in all of us.  You’ll notice that they all tie back to the big principles:

- Recognize the difference between a freelancer and an entrepreneur.  Either one works but you should figure out which you want to be.  This ties back to purpose.

- You can generate a lot of business ideas if you try.  The trick is in choosing the right one for yourself.  Seeking change and having a purpose will help here.

- When writing a business plan, work backwards from success with concrete steps.  Concrete steps imply some level of control, that you can exert influence on.  No miracles allowed.  Each step should have more than one pathway to success.  This should not turn into a gigantic document.  Business plans that seek change have a greater chance to succeed.

- Marketing is a whole new game.  The old ways don’t work much anymore.  The power belongs to the people.  You cannot simply buy attention anymore.  You have to build permission assets, tribes, communities, ideas that spread.  Learn to tell great stories and your ability to persuade will help you thrive in new marketing.

- When working in a team, be first to spread the credit for success around.  When failure happens, be first to take responsibility.  If this doesn’t feel natural, you’re not doing it right.  It may feel painful in the short term but you’re building a long term reputation that everyone will want to associate with in the future.  This is related to keeping promises and being generous.

- Design is the last great competitive advantage.  You can design everything – not just your logo or website.  You can design the way your customers interact with the company.  You can design the way talent interacts within the company.  You can design your company culture.  This is more art than science and that’s why it’ll remain a source of competitive advantage for a long while.  It is also much harder than it looks, which is another reason why it works and is so valuable.  Design is persuasive.

- When writing press releases, make it more about the customers than about your own company.  Most press releases are ego-stroking exercises for company executives.  Don’t be that executive.  Why is your release important to the market?  Not why is it important to your company.  Check persuasion.

- Pricing tells a story!  It is a signaling strategy that is a marketing discipline.  You don’t have to just mark your costs up by 100%-200% as a rote formula.  Don’t price in the middle of the market.  Be the most expensive luxurious offering or be the cheapest most disposable solution.  Interestingly, this requires bravery to not price with your crowd of competitors.

- Sales has changed little.  It is still mostly an emotional process.  You simply need to learn to close.  Always be opening; always be closing.  Sales isn’t the tough slimy racket it is often portrayed.  When what you have to offer can improve someone’s personal or business life, you have the noble duty to change his life!  Every venture needs good salespeople and good sales processes.  Be persuasive and brave.

Seth, thank you for your time and attention.  I am truly grateful for the special experience and change of the last six months.  I am also grateful for the people who gifted us SAMBA fellows their attention by reading our posts and sending encouraging words.  I am going to set out to give thanks to Seth now by doing something remarkable.  I hope everyone reading this will choose to do something remarkable too.  This is only the beginning.

Seth said something that really boggled my mind.

“Instead of fitting the marketing to the business, fit the business to the marketing.”

“What?!?! What is he talking about?” was my initial reaction.

Turning things upside down and completely rearranging the order and relationship of things seems appropriate in times like these. Wise men throughout history have championed the art of contrary thinking as one way to develop new ideas, options, and decisions.

Instead of Marketing as an afterthought designed to fit whatever product or service you’ve already decided to create, the business you create will depend entirely on how you want to live your life and what you want your day-to-day, week-to-week, month-to-month, year-to-year activities to look like. What a refreshing way of looking at things!

The world would be a much better place if less people tried to build startups. Don’t get me wrong, I’m not saying we could use less entrepreneurship. Innovative entrepreneurs will pull us out of this recession more sustainably and more meaningfully than any government bureaucrat with indirect policy levers could ever do. What I am saying is that we need more people wanting to build companies, not startups. That is not a too subtle distinction.

Would-be entrepreneurs proclaim proudly how they are starting new businesses and are willing to endure many years of blood, sweat, and tears. To be sure, the willingness to work hard and persevere ranks high on the list of essential entrepreneurial character traits, but I think we have over-romanticized the startup life. Low pay/no pay, long hours, and years of struggle have come to be badges of honor for those of us still in the minor leagues of startups. We’ve either frantically adjusted our business models (groping after every hot trend like Web 2.0, social networking, or microblogging) or we’ve stubbornly stuck to our original ideas regardless of market feedback. The most important thing we have in common is that we’ve been unable to graduate to the major leagues of thriving, growing, established companies too big and successful to be called startups.

However you define a startup, trust me, there is no glamor or glory in remaining a startup. But we’ve come to fall in love with the Myth of the Startup. We all know a few guys who seem to perpetually be working on a startup. They love the story of being a startup entrepreneur and the attendant lifestyle. Even more pronounced is the first-time entrepreneur who has bought into the Startup Myth. His romantic vision of startup life becomes a self-fulfilling prophecy and he is destined to struggle with a small “startup” because that’s what he wants.

Dump the warm fuzzies. Entrepreneurship is not about startups. Entrepreneurship is not about eating ramen noodles and scraping by. Entrepreneurship is not about being able to tell your friends and family you are a founder of a startup so you can finally impress them. Entrepreneurship is not about working 12 hour days ad infinitum and sleeping only 4 hours per day to show the world how tough and committed you are. Entrepreneurship is not about attending industry conferences so that you can hear yourself speak and tell your competitors how excited you are about your opportunities. Entrepreneurship is not about blogging about entrepreneurship. Most of all, entrepreneurship is not about some romantic ideal of living a tough startup life.

Get real. Entrepreneurship is about growth and value. Entrepreneurship is about creating something a sufficient number of people want or need. Entrepreneurship is about turning every dollar of resources spent into something worth more than a dollar. Entrepreneurship is about building a company and growing it beyond startup stage. The list of what entrepreneurship is not is much longer than the list of what entrepreneurship is. That’s because there are a lot of things people associate with entrepreneurship that really don’t have anything to do with entrepreneurship. It’s like describing a hamburger. Despite the many different ways to make a hamburger, there are almost infinite ways to describe what a hamburger is not.

Dream, dream big. Think, think different. Start a startup and eat ramen noodles (rice and soy sauce in my case) if you have to. Revel in your foldout tables and chairs. Dance a jig in your cozy garage. But realize that all these are just trappings of a startup. Figure out a way to scale so that your startup can grow to be a valuable company. Build a company, not a startup. If you love the startup lifestyle, leave your company after it outgrows you to start something new again. It’s a good thing to have your company outgrow you, your garage, and your romantic visions of what it means to be an entrepreneur.

Hewlett Packard Garage

Before I get too serious, below is something light I wrote a while ago regarding my little adventure in boot camp with two fellow platoon leaders. I worked hard to be one of the top graduates in boot camp but I also found opportune times to break some minor rules and cause some mischief. This is dedicated to a friend named Rhett Frandsen, a fellow entrepreneur who recently joined the Marine Corps in his ripe old late-twenties. Everyone thinks he’s crazy, but only a few good men can understand. Semper Fidelis. I studied Latin in college and semper fidelis means always faithful.

Butterfingers, Snickers, and Leathernecks

Johnson, Weaver, Huynh, Garcia, Dickerson, Troy, Hernandez, Green, Morales, Cassidy, Svoboda, Diaz. These are the names of some of the Marines I graduated basic training or boot camp with some years back.

I wonder what has become of them. We were young men from all walks of life. Are they still alive? Who died on the field of battle? What are they doing today? Are we a reflection of American society? A mix of college grads, high school dropouts, mechanics, accountants, artists, fathers, real estate agents, gangsters, lawyers, computer programmers, social workers, cooks, carpenters, taxi drivers, entrepreneurs?

The Marine Corps is always “looking for a few good men.” The men that I came to know while enduring daily physical and mental exhaustion were no different from the typical Americans I meet everyday. The only distinction was that they were willing to sign up for something 99% of the population would not even consider. I am not one for groups or groupthink, but for that sacrifice alone, those men deserve my eternal loyalty – Semper Fidelis, the Latin for “Always Faithful.”

One day nearing graduation from boot camp, I decided to break some rules. I approached two of my squad leaders and motioned for them to sneak out of the barracks with me. Ducking out of sight from our drill instructors, I held silent my pockets full of change.

“Young, what da hell are you gettin’ us into?” We always addressed each other by the last name.

“Stremple, McVay, we’re gonna get ourselves some candy today,” I said determinedly. For about three months, we had not come close to confectionery. The candy cleverly concealed in letters or care packages by family and friends was unfailingly detected and confiscated after the routine mail inspections for sweet contraband.

“Where da hell are you goin’ to get candy?”

“Have you ever seen the vending machine in the drill instructors’ quarters?”

“You gotta be out of your mind. I’m not goin’ near that place, I wanna graduate from boot camp,” protested Stremple.

“What about you McVay? You in?”

“Hell no.”

“You guys got no balls. Where’s the fun in followin’ all the rules?”

“You’re a crazy Chinaman.”

“Alright, alright, I got all this change in my pockets, we’re goin’ to do this. You guys keep an eye out and I’ll go in.”

“Are you fucking serious? You get caught and we’re in deep shit.”

“What do you want? Hurry and make your pick.”

“Snickers,” said Stremple with a little hope in his eyes.

“Snickers,” echoed McVay, “what are you gonna get?”

“Butterfinger,” I replied, “I love peanut butter.”

So we walked the five minutes from the barracks to the drill instructors’ quarters. With no one else in sight, I dashed inside and dropped my coins in the machine. I never thought about what I would do if I got caught. Collecting the Butterfinger from the bottom of the vending machine, I stuffed it with the Snickers bars inside my pocket and hurried to my accomplices waiting safely at a distance.

Now what? I hadn’t thought about what to do if we were successful. We couldn’t just eat our prizes out in the open. I spied a row of porta-potties down the road. We looked at each other with bitter beer faces but rushed towards the dreaded plastic johns. Before going in our individual porta-potties, I handed Stremple and McVay their Snickers bars.

Although the stink was typical of porta-potties, that Butterfinger was the best I ever tasted. Three months of deprivation will help you filter out your surroundings and focus on the impending sugar rush.

“Damn, this is good,” exclaimed McVay in the porta-potty to my left.

“Oh man, I miss candy. Young, you are a crazy Chinaman,” said Stremple to my right.

“Hell yeah, oorah.”

We didn’t get caught. Graduation came and we were the top graduates in the class. I got to lead the march and carry the company flag during the boot camp graduation ceremony known as “Pass-in-Review.” Stremple was first squad leader; McVay was second squad leader.

Semper Fidelis.

I don’t get things right as much as I’d like when it comes to the market but my Latticework Linkfest back in late February was spot on:

In times of recession, when unemployment is high, the unemployed go back to school to add marketable skills and increase future earnings power. The leading companies in for-profit education include Strayer Education (STRA), DeVry (DV), ITT Educational Services (ESI), Career Education Corporation (CECO), Capella Education (CPLA), Corinthian Colleges (COCO), and industry giant Apollo Group (APOL). Apollo operates the ubiquitous University of Phoenix campuses. This investment thesis has worked in past recessionary times, but the unique risk this time around is the possibility that the credit crisis will hamper students’ ability to repay or obtain school loans.

The for-profit education companies mentioned have for the most part been immune to the market’s recent collapse. Some have even made significant money for their investors. The risk that students and prospective students being unable to borrow tuition dollars is still very real but has yet to have a material effect. Unlike a sample basket of leading technology bellwethers like Apple (AAPL), Google (GOOG), Yahoo! (YHOO) eBay (EBAY), Microsoft (MSFT), Amazon.com (AMZN) and Oracle (ORCL) that destroyed wealth, if you invested in a basket of these education stocks, you’d have a juicy profit or at least preserved most of your wealth.

The leading education companies collectively appreciated approximately 31% since my post published February 25 all the way to yesterday’s closing prices. If an investor had put $100,000 in each of the leading companies in that space, that basket would be worth over $921,000 today. The leading technology companies, as great as their brands and products may be, collectively lost almost 26% of market value. The index that is most apropos as a benchmark in this comparison, in my opinion, would have to be the NASDAQ Composite, which lost 26% of its value as well. An investor putting initial capital of $700,000 in either the NASDAQ Composite or the technology basket would have only $518,000 of value remaining. That’s a whopping difference of approximately $403,000 between the education portfolio vs. the technology portfolio or the NASDAQ index.

Have I been able to profit off this insight? Unfortunately no. I went into cash on June 25th for the majority of my portfolios and my private investment partnerships. In a summer of uncertainty and volatility, I thought it would be a prudent measure to preserve wealth – which has turned out to be a service for my investors and myself (unless of course inflation is higher than what the government is officially reporting). The real estate asset bubble appeared to have made other things expensive as home equity propped up prices in the stock market and other financial markets.

What’s next? Given the stellar performance of for-profit schools, I would take some profits off the table. As much as I admire Warren Buffett, I don’t have the capacity for pain to buy and hold like the old master of value investing. On a macro level, the risks to the education sector in particular and the market in general are still profound. The next shoe to drop will be fund redemptions or withdrawals from mutual funds and hedge funds, which I alluded to in Long Term Capital Mismanagement. If this occurs in a heavy way, the overall market will lose some more value and push us deeper into this bear market. The other shoe that could drop would be a failure of the consumer credit market. Credit card companies will reduce credit lines as consumers fail to meet monthly credit card payments. Consumers no longer have rising home equity to feed their spending habits. Rising unemployment also increases the likelihood of household bankruptcies.

What can we learn from this downturn?

From an investing point of view, there are always countercyclical investments available. Higher in the value chain of countercyclicals are the for-profit education companies. They are far more attractive than the conventional defensive stocks such as food manufacturers like Kraft Foods (KFT).

From a business point of view, I can only speak from the technology startup standpoint as that is where I spend much of my time. It is nice to see that people will be going back to school to learn new skills and improve their future earnings. But as much as I believe that talent can come from anywhere, as a startup entrepreneur I can seldom take the risk of hiring people out of these for-profit vocational schools. I’d rather hire someone without a degree but was passionate enough to teach himself how to write code. Or I’m looking for the genius from Stanford or MIT who dreams in code.

We all know that the rigor of most of these vocational schools like Strayer and University of Phoenix just isn’t up to par with our top national universities or even regional ones like University of Utah, Brigham Young University, University of Colorado, University of Arizona, or University of Nevada Las Vegas. Vocational institutions’ lack of selectivity (anyone can sign up for school with Strayer while prestigious institutions like UC Berkeley reject an overwhelming majority of applicants) and their lack of rigor means a bunch of job candidates with bad habits. Of course there are rare outliers and standouts, but does a startup have the time to evaluate and separate the few good from the mostly mediocre?

A startup’s early days are its most productive and critical. Founding teams employ magic to make something out of nothing. Startups cannot afford to take risks on what most likely will be mediocre talent. Let the large soulless organizations like Ingenix (UNH), Convergys (CVG), and IT departments across the Fortune 500 suck up all the graduates from vocational schools like Strayer, Capella, and DeVry. While the for-profit education companies can make for great investments, their graduates would usually make poor investments.