If you haven’t spent the last six months on a lonely island without an internet connection, I’m sure you’ve heard about “Second Life”.

Sure, there’s something big going on here: a true virtual world that attracts millions of visitors, and even allows them to get rich by selling virtual homemade stuff or entering the second life real estate business. At least, if you believe the journalists.

Then there are others out there, screaming that this is just a big nasty hype, a giant capitalist advertising machine. According to them, second life sucks and is already dead.

I think both are right. And both are wrong.

It’s true: there were people able to earn money with second life. Not really much compared to what ordinary real world startups achieve–it was a first step. But these successful entrepreneurs are quite rare. Most people don’t get a penny out of this game. If you work hard and don’t offer cybersex, you probably won’t get out more than $1 an hour, maybe $10 if you’re really determined.

It’s true: second life sucks. Don’t get me wrong: there are many great places inside this world. Content is added faster than you can go and watch it all. But most places seem lost–nobody is around. And that’s because most of these places suck!

They suck because they lack imagination.

People get into a virtual world with endless possibilities and all they do is rebuild the first world! Why would anybody really want this? Is a second first life really what we are all striving for?

Sure, ordinary people (as opposed to visionaries) have to accommodate first. To get the things they are used to in the first world, to feel comfortable. But providing first life products in a virtual world is certainly not the thing that will make a second life Steve Jobs!

One example: they are starting a second life in-game tv magazine now. Why would anybody in the world like to watch tv inside a game? Ok, it might be interesting, but you can as well create true 3D TV. The technology is there! It’s no problem to create an invisible 3D camera dolly, put 8 invisible avatars with an in-game job on it, record the stuff and build a 3D panorama movie out of it. Then create a device that spawns a dome above the spectator and plays back a quicktime movie on its surface. You could even do an anaglyphic version of this for use with 3D googles. That would most certainly make it more exciting than boring first live flatscreen TV inside a flatscreen monitor! If you get this done right, you might have more people watching your TV than a small real-life station, and then you can do advertising. I imagine there would be many people who would really like to record 3D movies and get them shown on your station. Build a new virtual business around it…

It’s just that nobody gets these ideas. People live inside a box–inside what they have got used to. They build boring machines, horrible advertising sites, and do not let their minds flow. It’s just a little bit like the internet back in 1998: possibilities were similar to those today, except for bandwith, yet nearly everybody started building crappy homepages with an animated background and unusable menus.

People are not yet used to the power they have at hand.

Now back to making money: is it really the land that is valuable about second life? Is it really the content people create? I beg to differ, though the lindex currency movement has a volume of one and a half million US$ in 24 hours.

The real value inside second life is time! People spend endless hours on gaming, so the key is not to build things for the game but to get people to spend their time for you while providing a gaming experience at the same time!

Wages are incredibly low in Second Life. Many people willing to earn money in-game by using “camping chairs”, online surveys, banner-ad clicking and the like–for 200 Linden Dollars an hour, at most–which translates to less than $1 US…

This basically means that building in-game micropayment machines similar to Amazon’s “mechanical Turk” seems like the way to go for us. Offering easy tasks that don’t interrupt the gaming experience but which do offer immediate payment are certainly something many people will be willing to do.

There is still high potential inside Second Life. Just imagine…

Now that we are founding a company we are creating an entity that will interact with many different users, companies, partners and, of course, the state.  But the behaviour of this company no longer depends on one person alone but is determined by the leaders of the company.  Therefore we think it would be very useful to lay down the values, the responsibilities and the forms of behaviour we imagine for our company in a code of conduct.  This should help to clear up any misunderstandings between founders, employees, partners and users about where our company stands, and should provide founders and employees with guidelines for action.

There are quite many Codes of Conducts out there, especially famous in the webworld is probably Google’s “Don’t be evil” (take a look at the dog policy )   But I am still unsure what the code of conduct for a web 2.0 company should include.  The Global Compact inititative of the UN is just a bare minimal standard and it goes without saying that any company will follow this code.  Essentially it just states that you adhere to ten principles, and these are usually already incorporated into the law of your country, so you don’t have much choice but to follow suit if you adhere to the law.  But since there exist no sanction mechanisms for corporations that violate the global compact codex, and since any company can be part of the global compact initiative, the whole thing looks rather like a marketing-measure for companies like Nike to present themselves as ethical and highminded.

However, we do not intend to pay rather weak lip service to the idea that QISS will respect human rights, will abhor child labor and corruption.  These facts are or should be self-evident for any company, indeed it seems strange to explicitly mention these things. Our Code of Conduct shall not be a mere marketing effort, but it should actually matter and therefore be as concrete as possible. Of course one might just take Milton Friedman’s view that the interest of shareholders is all that matters and no other value than the shareholder value should govern the action of a company; but this would of course include illegal behaviour when the risk of getting caught and paying penalties are outweighed by the profits to be made through illegal action.  And of course not even all legal actions are ethical as well.  Therefore we need something more substantial.

Currently, the topics we are thinking about are privacy, customer service, environmental issues, fair treatment and payment of employees, dealings with partners (–are we rejecting partners, especially Advertising Partners, whose actions or products we find morally questionable?–), sustainability, openness,  and honesty.

If you have any thoughts on this topic or know of any code of conduct that might serve us as an example, please let us know.

“If you fail to plan, you plan to fail” as the saying goes.  I first came into contact with a business plan sometime during school when I read Neal Stephenson’s Cryptonomicon. Since then I have written three of them, read some books and manuals on business plans, discussed my plans with professors, consultants and bankers.  But all these discussions and books never added much substantial to Neal Stepehnson’s “treatise” (Pp 238) except some details on the financing and marketing stuff.  So here is the blueprint of Stephenson’s business plan from the Cryptonomicon:

Epiphyte Corp.’s business plan is about an inch thick, neither fat nor skinny as these things go.  The interior pages are slickly and groovily desktop-published out of Avi’s laptop.  The covers are rugged hand-laid paper of rice chaff, bamboo tailings, free-range hemp, and crystalline glacial meltwater made by wizened artisans operating out of a mist-shrouded temple hewn from living volcanic rock on some island known only to aerobically gifted, Spandex-sheathed Left Coast travel bores.  An impressionistic map of the South China Sea has been dashed across these covers by molecularly reconstructed Ming Dynasty calligraphers using brushes of combed unicorn mane dipped into ink made of grinding down charcoal slabs fashioned by blind stylite monks from hand-charred fragments of the True Cross.

The actual content of the business plan hews to a logical structure straight out of the Principia Mathematica.  Lesser entrepreneurs purchase business-plan-writing software:  packages of boilerplate text and spread sheets,  craftily linked together so that you need only go through and fill in a few blanks.  Avi and Beryl have written enough business plans between the two of them that they can smash them out from brute memory.  Avi’s business plans tend to go something like this:

MISSION: At [name of company] it is our conviction that [to do the stuff we want to do] and to increase shareholder value are not merely complementary activities—they are inextricably linked.

PURPOSE: To increase shareholder value by [doing stuff]

EXTREMELY SERIOUS WARNING (printed on a separate page, in red letters on a yellow background): Unless you are as smart as Johann Karl Friedrich Gauss, savvy as a half-blind Calcutta bootblack, tough as General William Tecumseh Sherman,  rich as the Queen of England,  emotionally resilient as a Red Sox fan, and as generally able to take care of yourself as the average nuclear missile submarine commander,  you should never have been allowed near this document. Please dispose of it as you would any piece of high-level radioactive waste and then arrange with a qualified surgeon to amputate your arms at the elbows and gouge your eyes from their sockets.  This warning is necessary because once, a hundred years ago,  a little old lady in Kentucky put a hundred dollars into a dry goods company which went belly-up and only returned her ninety-nine dollars. Ever since then the government has been on our asses.   If you ignore this warning, read on at your peril—you are dead certain to lose everything you’ve got and live out your final decades beating back waves of termites in a Mississippi Delta leper colony.

Still reading? Great. Now that we’ve scared off the lightweights, let’s get down to business.

EXECUTIVE SUMMARY: We will raise [some money], then [do some stuff] and increase shareholder value. Want details? Read on.

INTRODUCTION: [This trend], which everyone knows about, and [that trend], which is so incredibly arcane that you probably didn’t know about it until just now, and [this other trend over here] which might seem, at first blush, to be completely unrelated, when all taken together, lead us to the (proprietary, secret, heavily patented, trademarked, and NDAed) insight that we could increase shareholder value by [doing stuff]. We will need $ [a large number] and after [not too long] we will be able to realize an increase in value to $ [an even larger number], unless [hell freezes over in midsummer].

DETAILS:

Phase 1: After taking vows of celibacy and abstinence and forgoing all of our material possessions for homespun robes, we (viz, appended resumés) will move into a modest complex of scavenged refrigerator boxes in the central Gobi Desert, where real estate is so cheap that we are actually being paid to occupy it, thereby enhancing shareholder value even before we have actually done anything.  On a daily ration consisting of a handful of uncooked rice and a ladleful of water, we will [begin to do stuff].

Phase 2, 3, 4, . . . , n-1: We will [do more stuff, steadily enhancing shareholder value in the process] unless [the earth is struck by an asteroid a thousand miles in diameter, in which case certain assumptions will have to be readjusted; refer to Spreadsheets 397-413].

Phase n: before the ink on our Nobel Prize certificates is dry, we will confiscate the property of our competitors, including anyone foolish enough to have invested in their pathetic companies.  We will sell all of these people into slavery.  All proceeds will be redistributed among our shareholders, who will hardly notice, since Spreadsheet 265 demonstrates that, by this time, the company will be larger than the British Empire at its zenith.

SPREADSHEETS: [Pages and pages of numbers in tiny print, conveniently summarized by graphs that all seem to be exponential curves screaming heavenward, albeit with enough pseudo-random noise in them to lend plausibility].

RESUMES: Just recall the opening reel of The Magnificent Seven and you won’t have to bother with this part; you should crawl to us on hands and knees and beg us for the privilege of paying our salaries.

Well, this is essentially what we sticked to with our business plan, although we haven’t acquired any land in the Gobi desert, yet.  However, be sure that you are not done with the business plan once you have written it.  The business plan is for you as much as for the next investor.  In fact, it is even more for yourself than for the investor, especially if you are a team of founders.  In the business plan you lay down your strategy, the responsibilities of each founder, the aim of your business and all substantial data that is available.  It is the essential tool of communictaion for the founders to make sure that everyone knows what the company is planning and how things will be done.  It ensures that each founder knows exactly what is going on and helps to avoid misunderstandings like “I thought that we had said to do [stuff] this way or only later.” It is a living document, where you enter all the changes and adaptions of strategies and plans, where you update the aims you have reached and introduce new tasks and responsibilities that come up during the development of the company.

You can use the plan to convince new employees to work with you, even though they get a lousy salary only set off by a small share of the company.  You can use the plan also to convince potential customers or partners, who are unsure whether they’d like to make a deal with a startup not knowing whether it will stay in business or is already on its way out.

In order to acknowledge this function of the business plan we have created ours in form of a WIKI, where each founder can make changes and update the plan according to new intelligence.  We show it to our employees as well as to partners with whom we need to make contracts.  And when we have to send it to an investor we draft an updated version each time from the wiki,  make sure to use good paper, readable fonts,  have it printed in color and well bound.  And when we send it away we try to make it appear interesting, standing out for the masses,  because business angels and venture capital firms are getting many, many business plans and are not that keen to get more of the same.

And if you should find time left over from founding, or are not yet sure whether to start up or not,  make sure to read Neal Stepehenson’s Cryptonomicon, one of the most motivating books for actually starting a company.

If one takes time to bother with economic textbooks or has even taken the time to study economics, then one comes to the conclusion that the entrepreneur has either no place in economic science or at least not an important one.  Before I start to list the textbooks in which the Entrepreneur is not mentioned, feel free to take a look into the economic standard texbook of your choice and look at the index.  If you are very lucky there is a single entry.  Strange?  It certainly feels strange to to find oneself now in this seemingly unimportant role, but it is indeed stranger that neoclassical economic theory hardly mentions “our” economic activity.  I think the reason for this is the ongoing mathematization of economic science and the failure of the entrepreneur to fit into mathematical models.  At the center of economic science are “heroic” managers who maximize their company’s utility by optimizing the level of input and output of production.  But this notion neglects the factor of innovation and the creativity of the entrepreneur without whom the growth of an economy can hardly be explained.

A market consisting exclusively of economizing, maximizing individuals does not generate the market process we seek to understand.  For the market process to emerge, we require in addition an element which is itself not comprehensible within the narrow conceptual limits of economizing behavior. This element in the market . . . is best identified as entrepreneurship.[1]

The entrepreneur is the single most important factor to account for economic growth, and without people willing to risk their security and to explore paths and markets hitherto unexplored, any economy is doomed.  He helps the growth of an economy in two ways.  First, by seeking opportunities to successfully enter a market or even create a new market by identifying a need or a problem and then offering a solution. Second, by threatening existing companies as a potential competitor, thus driving them to improve their products and services.  As long as a society creates a promising environment, offering rewards for successful entrepreneurs, companies will be afraid of entrepreneurs and therefore try to innovate and optimize their products and production process to discourage any new entries.  Thus even the potential existence of entrepreneurs helps an economy to grow. Where founders are not supported very well, either because a founder-harassing legislation is in place, accessible capital is hardly available, or because founders are even hindered through a socialistic economic system, the economy will have a hard time to grow in the long run.

But even in a well-meaning environment it takes courage, creativity and cleverness to become a founder.  And with these attributes in mind we should rather call the entrepreneurs, not the managers, the heroes of our economy.  (And as we are living in societies where the economy plays the most important role in society, we could as well say founders are the modern heroes of society, but that might be hybris and we don’t want to fly too close to the sun )

P.S.

If you are interested in some economic theory on the entrepreneur, take a look at the Austrian school of economics and at Joseph Schumpeter, who introduced the creative entrepreneur as an important figure in economic science.

The Austrian guide to Entrepreneurship: provided by the Mises institute

————————

[1] See Israel Kirzner. 1978. Competition and Entrepreneurship. Pp. 31–32.