Michael Fauscette

The Evolution of US Securities and Exchange Commission Rules

This week there was quite a bit of debate and discussion instigated by a letter from SEC Chairman Mary Schapiro to Rep. Darrell Issa, Chairman of the House Committee on Oversight and Government Reform that was a reply to a letter from Issa and talks about the possibility of reforming the regulations around capital formation. Lately high profile start ups like Facebook, Zynga and Groupon have been under a lot of scrutiny because of their sky rocketing valuations in the secondary markets and a SEC rule that private companies with more than 500 shareholders must report financials just like public companies. This rule is designed to protect investors and takes away one of the major reasons for staying private. As Schapiro points out there is a fine line between protecting investors and in supporting a start ups need to gain access to capital. In the letter the SEC Chairman steps out from under what is often seen as a very conservative regulatory stance and suggest that some of its rules may not be in line with the current needs of start ups and need to be reviewed on a regular basis to make sure that they keep pace with current thinking or as Schapiro says "to make sure that they are up-to-date and costs and benefits remain appropriately calibrated." She goes on to provide a long lists of regulations that are being reviewed. There are a few of these that have significant implications for start ups including the increase of the 500 shareholder cap and relaxing the prohibition of companies publicizing the issuing of shares, called the "general solicitation ban."

The changes to the rules around reporting are interesting of course, taken in context to the Facebook, Groupon, Zynga, etc. status in the secondary markets. The change in the general solicitation ban though, is probably the more important. The truth is that most if not all start ups break the ban every time they raise money today. By changing the ban not only does it remove the current violation but it paves the way to using crowdsourcing as a funding vehicle. Current crowdsourcing platforms like Kickstarter are limited to projects not companies and can't offer equity stakes in those projects (prohibited by the general solicitation ban). Instead they offer "rewards". Allowing equity as a vehicle to encourage crowdsourcing would allow start ups to use these platforms. The one thing not addressed in the letter though, is a review of the accredited investor criteria, something that many start ups have called for. I suspect that those criteria will not be lowered and maybe that's not such a bad thing.   

Here's the full contents of the letter if you'd like to read it yourself:

Schapiro%20Issa%20letter%204-6-11  

Organic Business Networks

I was having a conversation the other day with a colleague about trends that are impacting and driving change in businesses and as often happens lately we ended up on the subject of business networks. When discussing new concepts we have no choice but to apply words that have existing, accepted meanings, even if those terms don't quite fit what we're trying to say, and add other adjectives to help translate the picture that you have in your head to mutual understanding. For the last few years, as I've focused my research more and more on emerging trends in the enterprise, I've found this task very challenging. Using the word social in some business context for example, is fraught with issues as people try to shoehorn their own understanding of the word into some new frameworks. The word network, I've learned, is another ambiguous term when used in a business context. It seems that the word's techie baggage, while appropriate to some extent in understanding where I'm trying to go with this idea, causes some confusion. The challenge then is to find the right adjective(s) to start to move people in the right direction, or perhaps, even though it's not my favorite activity, delve into a more detailed definition of business network.

The problem with the word network is also part of the strength of applying it to the current emerging business environment. From IT networks that are flexible, scalable, configurable, fault tolerant, accessible from multiple points and on multiple devices, we can borrow concepts that businesses need to begin to apply more broadly. The downside I think, to using the word network is that when many people hear the word they start to think of the physical connectors, the Ethernet cables and routers, etc. that make up the LAN or WAN and that's very limiting. Or perhaps they think of it in terms of the social web, which can also be distracting even though again some of those characteristics apply.

Sitting in the Philadelphia airport early this morning in one of those inviting white rocking chairs they provide, sipping a cup of tea and prompted by the sight of so many people connecting and carrying out business, I had an idea. When I think about business networks in the context of all of the other technical and cultural change factors that I see in our post-industrial information economy, maybe what I mean is "organic business networks". The word organic could be confusing though, but when I think about it in this context I am thinking that it has similar traits to organic computing. Organic computing is a computing system that is self-optimizing, self-healing, self-configuring and self-protecting. More broadly organic models are generally patterns and methods found in living systems used a metaphor for non-living systems. So applying an organic model, organic business networks are networks that represent the interconnectedness of the emerging information business environment. Organic business networks connect people, data / information, content, and IT systems in a flexible, self-optimizing, self-healing, self-configuring and self-protecting system. People are the primary nodes of the network but the other nodes, data, content, applications and systems, are no less important.

A business functioning as an organic business network would incorporate the characteristics of a social business, as I listed here, but go beyond this basic idea, using social business as the operational paradigm but using the organic business network as the mode of operating it's business. The two concepts play off each other, social business is the "what" and the "organic business network" is the how. An organic business network lets the business work outside of traditional "firewall" boundaries and is the continuously adapting implementation of an optimized business strategy. In this approach value creation can move to the optimal point in the network depending on strategic influencers like economy, market dynamics, customer behavior, prospect behavior, partner behavior and needs, supply chain dynamics, predictive business outcomes, etc. An organic business network driven company is the anthesis of a hierarchical, rigid, reactive, process constrained, and silo'ed organization. Instead the business can adapt to changing conditions, leverage assets effectively and thrive in a hyper-connected, global competitive, information driven environment. What do you think, does that add a little clarity?

Maybe it should be "Networked Business"?

I like the term social business, I'm comfortable with the concepts I've used a lot over the last two or so years. I think that it captures the necessary transformation that the post-industrial enterprise needs. As I think about social business I've started to use another concept that seems to help clarify things a bit, people-centric enterprise. But, I've started to think that maybe something beyond social business and people-centric enterprise might help us think through what is really happening or should be happening in the business transformation. There are two very key social outputs (see the IDC Social Business Framework for a discussion on social outputs) that we need to consider, content and community, that represent the force of the social web. In the social context content is often represented by social media and community is seen as a social network. So here's my idea, maybe we need to start thinking of the new business model as the networked enterprise?

To build a new model for business we have to leverage the power that comes for shifting the focus from process to people. Relationships are drivers of people-centricity, so doesn't this really mean we're changing from a hierarchy to a network? I considered other terms that apply, connected enterprise, ecosystem, collaborative enterprise...all are relevant. The business transformation has impact on all parts of the business from sales to field service and from inside to out. There's a concept in economics called the network effect, or the tendency that the value of a product or service increases as more people use it. The example of network effect most often cited by business texts is the telephone, a single telephone is useless but value increases the more people have and use it. We see this effect on the social web to a great degree, social networks like facebook and Myspace are relevant because people are connected there and become more or less valuable as more people join / use the service (or don't, so network effect can be both positive or negative).

From what I've started to observe I think that there could be a related concept to the network effect in a networked enterprise. In the networked enterprise there is an effect that I call network synergy, or value to the business is increased as a result of the increased interconnectivity of it's people. The addition of the term synergy implies that the interconnection of people produces a result that could not be obtained if the people were not connected (in simple form it's the idea that 1 + 1 = 3). So in a people-centric business the increased interconnection of employees, suppliers, partners, and customers produces a result greater than what could happen if the network didn't exist, or in other words increases value to the business. The social business, which has people as its platform, performs at a higher level because of network synergy. The more interconnected the business becomes the greater the return from network synergy.

Tags: network, social business, social web, Internet, community, enterprise

pearltrees, socializing and curating content on the web

Content of any type is not useful unless you can find it, organize it and interact with it. In the enterprise companies have tried many different schemes to try and get business content collected in a central repository, organized, tagged, version controlled, and searchable. This has often taken the route of "content management" systems. Content management systems to varying degrees, do an adequate job of getting some content into a controlled system environment. There are challenges with content management systems on two fronts though, getting content into the system in the first place (getting employees to participate in inputting content in some way) and getting the right content into the hands of the person who actually needs it. Search helps find content and tagging can increase searchability of course, but the whole system is only as good as the ability to input and tag the content, which inherently requires broad participation. To me it seems that the problem isn't management of content but the opposite, liberation of content. 

Curation of content is a concept that is gaining momentum across various media types online. If you want to learn more about curation you can check out CurationNation. The idea though, revolves around involving human interaction with content to filter and organize. Combined with the power of the social web, curation has the potential to change the way we collect, consume, organize and share content online. Socialization of content could take the form of curation if a social system was applied to the process. 

I had the pleasure this week of chatting with Patrice Lamothe, CEO of French startup pearltrees and since that meeting joining and using the pearltrees system. Here's a screenshot of my account:

 

 The concept is fairly simple really. Pearltrees is a social network with tools and processes to capture, organize and share web content or pearls. As you browse and read things online you can capture those "things" in your pearltrees (web pages, blogs, Tweets, etc.). The social aspect of pearltrees then allows your content to be viewed, searched and linked together by others with similar interest. You can add pearls from others into your trees and share the pearls in pearltrees, facebook, Twitter, email, permalink and also embedded in other web pages. Here's an embedded pearltree from my account:

Overall I'm starting to think that pearltrees is useful and that curation or socialization of content has a lot of application in the enterprise. An enterprise private label version of pearltrees, although not available today, could form the center of a social content process that would address many of the current content challenges for businesses. I'm enjoying using pearltrees for my own research although I'm looking forward to a non-flash version so that I can use it on my iPad, which has become my primary content consumption tool. (They are working on an HTML5 version for later this year)  

Social Business Prezi

Several people have asked me for the Prezi I used during my Directions presentation last week. The Powerpoint slides are available for download on the IDC Directions site (if you attended the conference). Here is the Prezi that goes along with the slides:

The Road to Social Business Enlightenment on Prezi