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.

That qualifier, “right now,” is what has me worried that our well-intentioned public servants will find it difficult to ignore the inevitable cries for mercy and help from their hedge fund brethren. Paulson is leaving himself the option of opening the program up to hedgies sometime in the future, when the most leveraged hedge funds with an intricate web of derivatives trades come calling for help are “too big to fail.” The average American taxpayer, while deemed unsophisticated enough to make direct investments in hedge funds will finally be able to own some of these exotic bad boys through our government proxies.

In the 1990s, a hedge fund called Long Term Capital Management promised to generate excess returns with minimal risk through the use of sophisticated financial models and formulae devised by a team full of PhDs and Nobel Prize laureates. Sounds seductive doesn’t it? It certainly was seductive enough that investors put in over $1 billion before the fund started trading in 1994, a huge starting coffer even by today’s standards. The short story of LTCM is that it made extremely leveraged trades with an intricate web of trading partners that, while highly profitable in the beginning, turned out horribly wrong. The fund suffered tremendous losses and teetered on the edge of outright failure. The Federal Reserve orchestrated a bailout in 1998 of over $3.5 billion. LTCM’s highly leveraged derivatives trades were made with so many counter-parties in the financial world that a Darwinian approach would have had much wider repercussions. The risk of a more widespread collapse of the financial markets loomed as a distinct possibility. LTCM was simply too big to ignore and not bail out.

So the precedent was set exactly 10 years ago. Today, the scary prospect of hedge fund failures acting as catalyst for another leg of decline in the markets is very real. We are collectively hyper-focused on the credit crunch, falling real estate prices, and Main Street’s inability to pay the mortgage. Few can see around the corner when imminent hedge fund failures will send shock waves through the system and drive us deeper into this bear market. There are now at least a dozen LTCMs out there, all crossing their fingers that their limited partners won’t request withdrawals. If the LPs bail en masse, Mr. Paulson as the taxpayer’s agent will bail out his hedge fund buddies.

Interestingly, Warren Buffett’s Berkshire Hathaway (BRK-A) teamed with Goldman Sachs (GS) to offer an alternative plan to the principals of LTCM. Ultimately, LTCM went with the government sponsored rescue. I wish it went down differently. If we’re going to spend taxpayer money to bail out hedge funds, and I’m betting we will, we should find private partners who can share the risk with the public taxpayer. We could give incentives for large private players like Buffett, who have the talent and financial heft to collaborate on a bailout, to help us carry the load. So what if a few fat cats get a little wealthier, I’d like to see the public taxpayer not have to foot the entire bill.

Even the mighty are falling. The last two major independent investment banks on Wall Street, Goldman Sachs (GS) and Morgan Stanley (MS), have received permission from the Federal Reserve to convert from traditional investment banks into commercial banks or bank holding companies. Plenty of ink, digital or otherwise, has been spilled about the disappearance of investment banks so I won’t dwell much on that. We’ve seen the collapse of Lehman Brothers (LEH) and Bear Stearns. Still somehow, I’m sure there were some who sentimentally held out hope that the two shiniest of white shoe firms in investment banking would survive relatively unchanged. Disappointingly, Goldman Sachs and Morgan Stanley will now join the ranks of Bank of America (BAC) and Wachovia (WB) as large commercial money center banks serving the retail masses.

It remains to be seen what will happen to the investment banking businesses of Goldman and Morgan. Other commercial money center banks like Bank of America and Citigroup (C) have been able to operate smaller investment banking divisions within the corporate umbrella. While the market is caught up in short-term financial myopia (worthwhile because some fear a total meltdown), I’m more interested in the long term strategic implications.

Survival – It is clear that the decision to convert to a commercial bank was spurred in part by a need to raise capital and survive. Becoming commercial banks allows Goldman and Morgan to tap the emergency funds that the Fed has made available. Goldman has also reached an agreement to secure private funding as well from Warren Buffett, the head honcho at Berkshire Hathaway (BRK-A). Morgan has agreed to sell a piece of itself to Mitsubishi UFJ Financial Group (MTU), in a move reminiscent of the Japanese shopping spree of the 1980s. In the panicked rush to shore up our faltering financial system and institutions, have we given enough thought to these combinations and their future implications?

Initial Public Offerings – Goldman Sachs and Morgan Stanley consistently topped the league tables as the best bulge bracket firms with the power and reach to handle large IPOs. No one is thinking of going public in this market environment but there will come a time when all is right again and innovative businesses will want to go public. Who will be there to sell the hype and coordinate the logistics?

Pure Investment Banks – Will there be a changing of the guard? The investment banking divisions within commercial bank holding companies have never been able to win more business than the Goldmans and Morgans and Lehmans that focused deeply on investment banking and merchant banking. Is it reasonable to assume that Goldman and Morgan will maintain their dominance of investment banking while converting into commercial banks? I think there is merit in the focus of pure investment banking. It will be interesting to watch if other players like Jefferies Group (JEF), Greenhill & Company (GHL), and Stifel Financial (SF) can aggressively move to fill the void. I think these stocks will perform well over the long term as they jockey to become the next white shoe firm (so long as they haven’t gotten involved with all the toxic financial instruments floating out there).

Talent Exodus – Look to the Yahoo! (YHOO) saga to see that Talent (with a capital T) goes where the opportunity is best and where it can operate with the least restraint. Goldman and Morgan will see their cream of the crop flee to hedge funds or the remaining smaller, albeit pure play, investment banks to ply their trade. Goldman’s proprietary traders generated a majority of the firm’s profits so I expect those guys will find happy homes at hedge funds. Why would any truly good trader want to be a part of Goldman Sachs now? On the other hand, I’ve rarely seen a guy from the sell side of investment banking be able to withstand the ruthless performance pressures of the buy side though so I expect there will be a ton of unemployed investment bankers. My how MBA programs will be flooded with applications. Brush up on those GMATs cause you’re going to be competing against a horde of former ibankers. Why would any truly good trader want to be a part of Goldman Sachs now?

There is a lot of knee-jerk anger and many hyperventilating voices calling for change and placing blame on government, government officials, greedy business executives, mindless consumers, etc. I’m over that already, in fact, I’ve never been there in the first place. I’m only interested in profiting from what the future will bring and what we can learn from history. In that light, let me end by quoting one of the great Founding Fathers.

“All human situations have their inconveniences. We feel those of the present but neither see nor feel those of the future; and hence we often make troublesome changes without amendment, and frequently for the worse.” – Benjamin Franklin (1706 – 1790)

When critical mass is achieved, the eagerly welcomed venture capital that forms to service innovative startups becomes a hot topic of conversation. Networking groups begin to get together to talk about how to raise money from venture capitalists. “Consultants” come out of the woodwork claiming expertise in helping new companies attract venture capital. Venture capitalists are looked upon as “masters of the universe” and treated like rock stars. University business school programs institute curricula aimed at instilling students with an understanding for the process. MBA grads and finance majors from those same university business schools decide they want to become venture capitalists. Local business magazines hyperventilate upon the sexy subject. Entrepreneurs talk in awed tones about their peers who have successfully attracted funding. Angel groups form and hold workshops or seminars about the process of fundraising. Websites with glossaries of mysterious VC lingo spring up out of nowhere.

We have glamorized venture capital beyond reasonableness. We spend an inordinate amount of time, energy, and attention on the subject of venture capital and end up mythologizing it. Because we talk about it so much – in such reverent tones – entrepreneurs unfortunately fixate on it at the expense of other critical components to building great companies. Would-be entrepreneurs start to reason that they must get venture funding in order to “really do something.” It is a convenient excuse to do nothing. Because we talk about venture capital so much, some of us start to see raising capital as the ultimate measure of success. “If I could just raise one million dollars, things would be different.”

Can we talk less about venture capital and more about great ideas and business building? Sure there are some programs that mix in subjects like building a great management team, hiring best practices, networking and relationship building, but venture capital gets the overwhelming majority of attention. What we need more of are entrepreneurs with the ability to figure out if their pet idea is something worth pursuing. At the very least, we need workshops and seminars that help entrepreneurs figure out if their idea, frankly, sucks. We need to talk more about making sure that our ideas are unique and bring some sort of new value to the world. We need to talk about how to execute better than your best competitor. We need entrepreneurs that can focus on the essentials of building great companies.

What entrepreneurs ought to realize is that venture capital follows true innovation and execution. It goes where the action is. It does not precede the action. Entrepreneurs who are willing to put the work in to become savvy about the whole process will come to understand that raising venture capital is relatively easy when compared to out-thinking and outrunning your best competition. It is much easier than keeping customers ecstatic. Raising venture capital is immensely easier than finding and acquiring the scarcest resource of all, great talent. Raising venture capital is not the end game. We need to stop perpetuating the myth.

Much attention has been given to the Web 2.0 generation of social networks and websites. Deservedly so, this next wave of Internet properties has quickly acquired humongous user bases, rich valuations, and cultural buzz worldwide. Venture capital investors are clamoring to fund the latest spin on crowdsourcing, content aggregation, social networking, micro-blogging, video sharing, and other different takes on social media. Fortune 2000 companies are all trying to figure out how to respond to this phenomenon; after all, they do need to be where customers congregate.

One of the big problems in this space is that advertisers and marketers are being duped by self-branded “social media gurus” and “social app gurus” who market their simplistic consulting and shoddy development services while demanding rich retainer fees. They promise “viral” adoption of inane and mundane “social networking apps” that lend little credibility to the corporate buyer. They promise “branding” efficiencies and opportunities by continually repeating their mantra of getting their clients “into the conversation.” But all good skeptical buyers should ask, “What does that conversation bring me?” More importantly, “How do I measure the effectiveness or ROI of anything that I am contemplating buying?”

At the root of the problem is the inability of the self-styled “gurus” to measure their effectiveness. Granted, social media and social networking are new fields and reliable metrics have not yet been developed. Nevertheless, progress is being made and this series will explore the emerging field of Social Media Measurement in order to bring some light and hope to what seems like a dark swamp of self-promoters looking to feed at the corporate trough.

Popularity, Novelty, and Attention

These three components are difficult to measure, but are critical to understanding how well a certain social media campaign is running. Any “guru” that advertises their expertise ought to be able to explain popularity and attention. Novelty is a little easier to define, we know what is new when we see it.

One of the great movements of Web 2.0 is the method of crowdsourcing. Crowdsourcing can be defined as “leveraging a community (this needs to be more thoughtfully defined) to gather intelligence or opinion.” It is what James Surowiecki explores in his book, The Wisdom of Crowds, and what Tapscott and Williams explore in their book, Wikinomics: How Mass Collaboration Changes Everything.

One of the great companies that has figured out a way to harness the power of crowdsourcing is Digg.com, a website that allows users to essentially vote or “digg” for interesting stories, articles, and blog posts. The items that receive the most votes rise to the top and garner even more attention. It is a useful website for finding out about what is important to others. Essentially, Digg is a good source of finding out about a particular story’s popularity, novelty, and attention.

Fang Wu and Bernardo Huberman, two researchers at Hewlett-Packard’s (HPQ) Palo Alto, California laboratory recently released a study exploring the mechanics of Digg. They essentially developed a mathematical model that describes how the popularity of a story decays over time. This decay algorithm is not unlike that which describes the half-life of radioactive material. Another victory for the Latticework Model of multidisciplinary scientific inquiry. At the core of their model is a function called a stretched exponential relaxation, which achieved the ability to measure the half-life of prominent Digg stories. Digg’s extremely popular front page, which has the power to generate vast amounts of Web traffic to stories that make the front page, features a half-life of 69 minutes! It takes a lot of work to get onto the front page of Digg but all that cumulative work results in a premium of just over 1 hour of premium attention.

Critique

I do have problems with this study and its conclusions. My issues aren’t with the conceptual idea of measuring popularity, novelty, and attention. I have caveats about their study design and assumptions. One of the well known secrets of Digg is that there are relatively select groups of Digg members who hold disproportionate influence in the community. Almost all the stories they “digg” or submit to the community habitually show up on the front page or home page. Everyone knows that there are ways to game the Digg engines. One could imagine loose “tribes” of Diggers that “help” each other digg stories in a reciprocal manner in order to get their stories to the top. This reciprocity has little to do with the novelty or newsworthiness of a story.

Another problem with the study design and assumptions is that a community is only as good or valid as its component parts. In other words, the demographic makeup of a community obviously is an overwhelming factor. Digg is a notoriously young and tech-savvy community. As such, it has its own built-in biases. Any study should take this into consideration. Most of the stories that make it to the front page are going to be technology-focused. And even within technology, the focus is primarily on Web 2.0 stories. One would find the community very hostile to Microsoft (MSFT) and other older, first generation technology companies. I think this is a secondary concern, but it should definitely be taken into consideration.

I would have liked to see Wu and Huberman explore the concept of influence. Those super-diggers who have an extraordinary ability to push their stories to the very top. In my next post, I will explore a very rudimentary measure of influence based on another very popular social media Web service.

Implications

What are the implications of this story? Perhaps a corporation contemplating a viral campaign on Digg to try and push awareness of their story could measure the costs of such an effort. Would the ability to identify the super-diggers who might be willing to trade influence for monetary compensation be a worthwhile endeavor? Note that the community would frown upon a paid campaign to push awareness. Are the risks of negative attention worth the benefits of getting a chosen story to the top? Can 69 measly minutes of premium attention be worth the costs?

Again, I issue a warning to corporate buyers. Be very skeptical of self-branded “social media gurus” and “social app gurus” – they likely are not able to quantify their expertise and will be unfortunate resource wasters. Believe me, the talent in this cottage industry is very weak but great at self-promotion. The emergence of the new Social Science will alleviate this problem by helping advertisers, marketers, and strategists identify and measure ROI and performance. New metrics are arising everyday.

Early tomorrow morning, I’m changing my routine so I can catch the Red Sox open the season against the Oakland Athletics in Japan. ESPN (DIS) will be televising the game at 6am EST, but since I’m in the Mountain states, I will need to get up by 4am MST to catch the first pitch. Can’t complain though since I’ve been in withdrawal since the last out of the World Series in 2007.

The Red Sox better jump out to an insurmountable lead early so I can comfortably get back to preparing for the markets. I am a moderate to long term investor so I usually don’t make very many moves, but it is essential that I stay aware of big picture developments and microeconomic situations. During market hours though, I don’t pay too much attention to the action because I have to manage my technology startups and because I find that not being glued to the screen helps me to keep aloof of the market’s passions. After market close though, I spend a great deal of time doing the deep research that helps me attain an edge.

If the boys from Beantown don’t take an early lead, I’m going to have to say to heck with the market and keep my eyes affixed to the action on the baseball diamond.

Since the Red Sox won a bidding war for the services of Japanese pitcher Daisuke Matsuzaka last year, the fan base in Japan has grown exponentially. This is a strategy an increasingly sophisticated Boston team should expand upon. By scouring the world for the best baseball talent from relatively unknown countries, the team can diversify its fan base and talent base. Brand – build it and they will come. This is a concept that the management of the team should instinctively understand. John Henry, the owner, made his fortune in commodities investments; so I am sure that he can see the parallels between building a great team and a great portfolio.

Go Red Sox!

Jonathan Papelbon, the closer for the Boston Red Sox pitching staff is pulling the “I’ve got to do what’s best for my family so I’m asking for a humongous raise” routine. Admittedly, he is one of the best young arms in baseball regardless of pitching role. He is also a unique talent in the world of dance. He joined the Red Sox a couple of years ago and, through unforeseen circumstances, found himself entrenched in the closer’s role. He has since become one of the best closers in the game. Now he has his eyes set on an exorbitant contract similar to Mariano Rivera’s of the New York Yankees, which would make him one of the richest players in the game.

But using Mariano Rivera as a comparable is insane because expensive long-term contracts for closers just don’t make sense. The Yankees and other less rational teams have awarded outlandish contracts to closers for dubious reasons. Their impact on the game is primarily emotional. It is much harder emotionally to lose a lead and be defeated in the ninth inning than to lose a lead, say, in the fifth inning and be defeated. But the outcome is the same in both scenarios, defeat. This emotional aversion to last-minute losses assigns a large premium to “closers” that far outweigh their intrinsic value to the team. A good inning pitched is a good inning pitched is a good inning pitched.

If there is a mistake the Theo Epstein regime has made, it is allowing Papelbon to become indispensable as the closer. Papelbon’s arm is young and trained for the rigors of starting pitching. If he played the role of a starter and contributed a disproportionate share of excellent innings pitched, he would be worth the money he is asking for.

Macro

• More pain in the housing market anticipated as some homeowners find themselves “underwater” or owing more on their homes than what their homes are worth on the market. According to Mark Zandi at Economy.com (MCO), 10% of all homeowners currently face this negative equity situation. Zandi also sees home prices falling 20% as the economy worsens into a recession. Zandi could be underestimating the damage; homeowners abandon their homes and mortgages at a high rate when they enter negative territory on their equity. Foreclosures and abandoned mortgages exacerbate the problem by increasing unsold inventory and unwanted supply.

• More goodies from Economy.com – their data shows that core capital goods orders have been steadily declining since early 2007. One of the few bright spots in economy has been the computer servers market dominated by the big manufacturers such as Dell (DELL), Hewlett-Packard (HPQ), and IBM (IBM). In our increasingly virtual/digital economy, computer servers are as tangible a core capital good as we’re going to find. Server sales increased 3.8% from 2006 to 2007 according to Gartner, a market research firm. This data confirms what I’ve been noticing in my industry. All my peers in Internet or web technology startups are increasing their investments in technology infrastructure and talent. If there is a recession afoot, it has not reached the Web 2.0 space. We’ll see how long this lasts; venture capital, the lifeblood of many of these startups, ebbs and flows to the rhythm of the public markets and their reception to IPOs. If Facebook can pull off an IPO, which it will most likely have to do because there are few companies with the firepower to acquire it at current valuations, then the party might still continue.

• Economic Karma – It All Balances Out Eventually: India’s growth as a center of information technology accelerated as the forces of globalization caused U.S. and European companies to outsource much of their technology needs to the land of spices where the labor was relatively inexpensive and talent was comparatively competent. Now there are rumblings that India is beginning to lose some of that competitive advantage as labor costs rise and the best talent has already been snapped up with very little real scientific expertise left to bid for. I suspect that much of the offshoring budgets of the Fortune 2000 will now start allocating resources to other parts of Asia and Eastern Europe. My company, SocialOptimize is outsourcing some of our mundane coding tasks to Guatemala and the Philippines. Also, the dollar’s continued weakening might make most overseas outsourcing alternatives less attractive when compared to domestic software engineers.

Micro

• 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.

• Continuing with what may appear to be a Chicken Little theme of extreme pessimism, consumers tend to put off the purchase of brand name luxury apparel in favor of generic brands and off-quality goods sold in discount retailers such as TJX Companies (TJX) and Ross Stores (ROST). Collective Brands (PSS), the owner of generic shoes retailer Payless ShoeSource should hold up pretty well as more consumers look for alternatives to Nike (NKE). This isn’t Chicken Little, this is survival of the fittest portfolio.

• Obscure Small Company: Water is the next oil. Watts Water Technologies (WTS) makes industrial products that address the water safety, quality, flow control, and conservation needs of the market. It sells product in North America, Europe, and China. Many so-called experts have predicted that food prices will rise because of the increasing demand for nutrition from a growing world population. Few have pointed out that a lack of clean water will make food prices skyrocket even more by rendering agriculture less effective, resulting in a shrinking supply of crops.

Technology

• Adobe’s (ADBE) Flex 3.0 and AIR to launch today at Engage 2008. Adobe’s suite of software has become increasingly important for web developers. Much of my previous startup’s strategy included using Flex intelligently. My current business, which is more consulting and agency-based continues to rely on Adobe software. Simeon Simeonov, a VC at Polaris Ventures, has a very good post about how AIR can be a game-changer as a live bridge between the Web and users’ desktops. It’ll be interesting to see how creative some developers can get leveraging AIR with their social networking web apps

• The success of Guitar Hero by Activision (ATVI) and Dance Dance Revolution by Konami (KNM) validates new video game interaction models based not on hand-held controllers but on input models based on other parts of players’ bodies. Now San Francisco-based Emotiv Systems has announced the launch of a new device that detects electric signals from the users’ brains and interprets those signals to control in-game action. This new interaction model should be very interesting in virtual world environments like Second Life. Of course, the early adopter of this technology could very well be the porn industry; it is usually one of the first movers in experimenting with new technology to distribute content and products.

• LinkedIn, the social network for professionals, launched a mobile version of its website. At its current state, it is “underwhelming” but the company ought to be able to figure out new user interaction models for encouraging connections. Technically, there won’t be a dichotomy between online and offline since mobile means we can be persistently online. On the “regular” version of the website, it has always been just slightly annoying to receive requests to connect from total strangers who share no relevant interests and whose only desire is to expand their “networks.” That behavior is a slightly more grown up version of Myspace (NWS-A) users’ notorious friend collecting. The firm should ensure strong filters to prevent this annoyance on the mobile platform – mobile spam is far more intolerable than desktop email spam.

Advertising Age is reporting that U.S. media employment fell to a 15-year low in December 2007. The major driver behind this slump is the struggling newspaper industry. This is not surprising because nearly everyone is spending more time getting their news on the Internet and less with broadsheets. Exacerbating the losses is the disappearing classifieds business as online alternatives like craigslist, partially owned by eBay (EBAY) offer cheaper and more immediate classifieds solutions. The New York Times (NYT), also known as the Gray Lady to the cognoscenti, recently announced another 100 job cuts as a result of diminishing revenues and profits.

Suffering to a lesser degree are the broadcast and cable television companies. Still, recent studies show that consumers are spending far less time surfing the boob tube and much more time online for entertainment on websites like YouTube which is owned by Google (GOOG). Employment numbers are falling here too but to a lesser degree than in newspapers.

Rounding out the traditional big three in media is the similarly suffering radio industry. Blame Steve Jobs and his Apple (AAPL) iTunes-powered iPods for the vanishing radio listener. The Billboard Music Charts just don’t have the same clout and influence they used to as music fans take control of their own playlists by getting farther out on the long tail. Who needs a disc jockey to tell you what’s hot when you can discover that perfectly obscure independent band on the Internet?

All is not doom and gloom. While traditional U.S. media is quickly shrinking, the U.S. advertising/marketing services industry is growing at a healthy clip. Advertising agencies, marketing-consulting services, graphic design, public relations agencies, and media-buying agencies are all segments witnessing expanding payrolls. This flies a little in the face of the argument that content is king. At least with job counts, it seems that those who subsidize the creation of content is king. Or perhaps content is still king but influence is moving away from professionally produced content controlled by a handful of conglomerates and towards massive amounts of user-generated content by amateurs and independent bloggers. Top bloggers are making a great living and their “jobs” aren’t being counted.

The growth in advertising/marketing services jobs bodes well for the startup that I am just beginning to build. SocialOptimize, my social media development and consulting agency that I co-founded, was started to answer a huge need in the marketplace. My partner and I found that huge corporations, members of the Fortune 2000, were in dire need of help addressing the burgeoning social networking and social media space. Huge user-generated content sites like Myspace, owned by News Corporation (NWS-A), and Facebook, partially owned by Microsoft (MSFT) are capturing the majority of consumers’ time spent online. Advertising dollars will flow to these platforms as agencies like SocialOptimize steer corporate marketing dollars to where the eyeballs and wallets are congregating.

Going forward, it will be interesting to see how Advertising Age will count the jobs and advertising dollars associated with social networking web applications and widgets. Software developers are finding ways to serve advertising through their apps and widgets. At SocialOptimize, we have had big marketers propose advertising on our own proprietary widgets because our apps offer marketers much more value than traditional advertising channels like newspapers and radio. This value comes from the ability to target deeper audience segments while offering demographic data and evidence of return-on-investment (ROI) at a more granular level. Well-designed apps are also much more engaging than traditional media, causing consumers to spend enormous amounts of time interacting with the apps and the social networks attached to those web applications and widgets.

The big negative about this report is that I’ll have to compete even harder to attract top talent to SocialOptimize. Good talent is so difficult to find!

News Corporation (NWS-A) and its Myspace subsidiary announced the formation of an incubator named Slingshot Labs. It will be seeded with about $15 million to hire a team of software developers. The goal of Slingshot will be to create new Internet technologies and startups to bolster News Corporation’s properties in Web media, especially social networking giant Myspace.

Myspace has witnessed a significant slowing of growth while watching archrival Facebook achieve healthy expansion over the past year. Even Microsoft (MSFT) bought into the phenomenon by investing $240 million in Facebook at a $15 billion valuation. Much of Facebook’s success can be attributed to the decision to open its technology platform to third party software developers, resulting in an explosion in the number of customized applications for the Facebook community. In so doing, Facebook benefited from the creative efforts of outside talent as users eagerly adopted the various apps, ranging from useful to extremely frivolous. Facebook even teamed up with venture capitalists to form fbFund, a small seed fund to invest in application developers, to nurture continued outside innovation. Slingshot Labs appears to be Rupert Murdoch’s answer to Facebook’s fbFund. Details are still sketchy as to how the incubator will be structured and how it will operate. A formal launch date has not been announced yet.

I’m very interested in what their approach will be. If Slingshot hires all the talent to work internally on News Corporation and Myspace priorities and mandates, I doubt they will achieve meaningful success. If Slingshot functions as a sort of talent scout to fund smart developers whose proprietary ideas are purely innovative and add value to the Internet, then they will increase the chances of producing a hit. Adding specific value to the News Corporation family should be a secondary goal – given today’s move towards open platforms, it’s a goal that could easily be appended to the original idea. Any really good idea should have the potential of succeeding simultaneously on several social networking platforms.

Entrepreneurs are passionate people. We don’t like being told how and what to do; that’s why many of us cannot stay employed for very long. It is why many of us have avoided entering Corporate America in the first place or why many of us are refugees. Incubators that solicit ideas from passionate people and give them the basic tools to build a company stand a better chance of building valuable businesses than incubators that staff up on good talent to manage towards internal, corporate-directed goals. Plus, true innovation is oftentimes an accidental, haphazard process; no ordinary corporate manager will be able to guide sustained innovation. In an age when every social network is talking about being “open” – I hope that Murdoch and Company will take an open approach with Slingshot.