Thursday, October 31, 2013

Halloween: The Coordination Game

This thought occurred to me while waiting for the neighborhood children to start Trick-or-Treating.  When to start Trick-or-Treating is a coordination game of sorts.  It is no fun to be the only people on your block ringing random doorbells.  But, this is true of everyone.  So, starting from the status quo when no one has gone outside, how do we get to the scenario when the neighborhood is packed with princesses, frogs, counts, and woodland fairies?

One possibility is to announce when everyone should start, but that's not how it seems to happen.  Upon observing the neighbors, the start of it happens gradually.  A princess sits on her front porch, hoping to attract other Halloween revelers.  Then, a count timidly poses for a picture in his parent's driveway.  Then, the floodgates open, and Halloween begins!

Speaking of that, the doorbell just rang.  Happy Halloween everyone!

Tuesday, October 15, 2013

Shark Tank's Equity Clause

Here is something I didn't know about Shark Tank until it is gone:
Recently Mark Cuban gave an ultimatum to the lawyers at ABC's Shark Tank: Either remove your equity clause or I'm not coming back, reports Jason Cochran.  
According to the clause, all contestants were required to give Finnmax, Shark Tank's production company, either 2 percent of their profits or 5 percent equity in their company. This rule applied regardless of the deal struck with investors, and all contestants since Season One were obliged to agree to it.  
However, last Sunday, Cuban, who went to court Monday over insider trading allegations, wrote on Facebook that the equity clause had been removed, thanks to him:  
"FYI, there is no additional equity or percentage of anything taken any longer. That was removed retroactively," he told a group of former contestants. "I told them I wouldn't come back this season if it wasn't." ABC and Sony Pictures Television declined to comment. 

Before reading this article, I thought that entrepreneurs went on Shark Tank without having to give anything up but their time and effort to put in an application.

Now, when I find out that they had (past tense) to give up 5 percent of their company, I am even more curious about how Shark Tank sustains itself.  After all, there are plenty of investors/partners out there who would hear these pitches and not charge the entrepreneurs 5 percent of their company to do it (call this other company, Guppy Tank).

The Guppy Tank could offer the same deal as Shark Tank, but without the equity clause.  This would be strictly better than Shark Tank for the entrepreneur.  So, how come the Guppy Tank doesn't put the Shark Tank out of business? In my mind, it comes down to publicity.  For some kinds of companies, the added publicity of giving your pitch on TV is worth giving up 5 percent of your business even if you don't get the deal.  Pitching your company on national television is a service that only Shark Tank provides, and that's valuable to the entrepreneur. The people at Shark Tank recognized this source of additional value, and they set the contract to capture it.  If you think about how you can capture it, you can't exactly charge the entrepreneurs money (because they're cash strapped and asking for money), so you do the next best thing, require a portion of the business.

There is a problem though.  Some types of companies won't find it worthwhile to give up 5 percent of their company in the event that a deal doesn't go through.  These companies will automatically go to the Guppy Tank over the Shark Tank, and these are the missed opportunities that Cuban wanted to try and get by removing the equity clause.

From the perspective of Shark Tank (even as just the investment group, and not the television show), I am not sure what is going to lead to better quality deals.  Eliminating the equity clause is going to increase the variety of companies (low publicity demand firms will find it optimal now), but it is also going to increase the intensity of publicity hogs who apply to the show.  Perhaps Shark Tank will screen these bad apples out in the initial round, but it will be interesting to see how the Shark Tank pitches change.

Wednesday, October 2, 2013

Coffee, Beer, and Creativity

When I wake up every morning, there's an e-mail in my Inbox from The Daily Digg.  I must have signed up for these e-mails a long time ago because I don't remember doing it.  At first, I was annoyed to have another source of junk mail to filter (when I get around to it), but I have gone from immediately deleting this e-mail to reading it casually to looking forward to seeing what is in The Daily Digg each day.  I don't know how this happened.

Anyway, this morning's Daily Digg led me to this interesting post about coffee, beer, and creativity.  On one hand, there's coffee:

The general consensus across caffeine studies is that it can increase quality and performance if the task you are doing seems easy to you and doesn’t require too much abstract thinking.
On the other hand, there's beer:
The best time to have a beer (or two) would be when you’re searching for an initial idea. Because alcohol helps decrease your working memory (making you feel relaxed and less worried about what’s going on around you), you’ll have more brain power dedicated to making deeper connections.
So, the conclusion is to drink a beer, come up with an idea, and then chase that idea down it with some coffee.  Literally.  

Of course, if you're the type of person who searches for the initial idea in the morning and wants to work on it through the day, following this prescription might be counterproductive.  But, for the rest of us who want to justify our coffee and beer drinking habits, this article is quite interesting.