Customer Development – why its an evolutionary algorithm and not a science

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Complexity Economics / Economics / Eric Beinhocker / Evolutionary Economics / Philosophy / Politics

Darwin, Steve Blank, Evolution and Customer Development
Serial entrepreneur Steve Blank wrote the ‘Startup Owner’s Handbook’ to relay what he had learned from running startup organisations. The book tries to impart the techne of building a profitable startup and does so in a brilliant and original way. He rejects the old business plan driven model for running a new company. He claims that no one can know how a product will fare in the market before they try it out. He recommends that products should be developed through cycles of contact with consumers. Blank sees the book as the application of scientific methodology to a craft which has hitherto been flaky, impressionistic and imprecise. His followers (e.g. Eric Ries) have reframed his advice as a structured methodology, playing St Paul to Blank’s messiah. In their telling it ceases to be practical advice born of experience and becomes the one true path to success in business.

Here I argue that Blank mistook the nature of his advice. It does not resemble a universal ‘scientific method’ because such a method does not exist in the form he claims. His methods do not resemble the work of scientific giants, neither does it provide a cast iron route to success. Blank’s valuable insights are really an attempt to harness the power of an “evolutionary search algorithm”. He seeks to evolve a “fit” between business model, business plan, product and market.

If the value of his techne – Blank’s account of his craft – is not in question, does the framing matter ? It matters because the content of the original insights have been progressively corrupted in the development of a ‘customer development’ orthodoxy. Far from being a isolated discovery by Blank, this is a particular application of an universally pervasive algorithm that has been studied extensively by mathematicians – ‘substrate neutral evolution’. Putting ‘Customer Development’ in its real context helps us to polish the glass and see the value in Blank’s insights clearly once again.
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The War of Metaphors : Why the Global Financial Crisis Was Marxs’ Revenge

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Business Cycle / Complexity Economics / Economics / Hegel / Philosophy / Politics / Uncategorised

Solidier

“universal history is the history of a few metaphors.” Jorge Luis Borges

On February 20, 1974 Hiroo Onoda, an army intelligence officer of the Imperial Japanese Army, left the Philippine jungle. He had spent the previous 19 years continuing to fight the Pacific War despite Japan’s surrender. Ono refused to hand over his sword until his old commanding officer, then a civilian bookseller, travelled to the Philippines to receive it in person.

Onoda’s identity was defined by war, and he found himself unable to accept that it was over. Although his case is extreme, every dispute leaves marks on both victor and vanquished. They can drive events decades later in unexpected ways. Just like Hiroo Onoda the developed world has continued to fight an intellectual battle that was long ago resolved. Just like him, it is continuing to pay a high price for acts of resistance against an imagined foe.
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The immigrant’s fallacy. The liberal case against immigration from poor countries.

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Adair Turner / Economics / Immigration / Rational Choice Theory

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Liberals traditionally see immigration from poor countries into the rich west as a win-win transaction. The immigrant increases their living standards. The host country gets new and enthusiastic workers willing to take the jobs that natives don’t want.

When migrants express dissatisfaction with their lot, liberals attribute it to xenophobia in the host nation. They believe that if discrimination could be eliminated, the frustrations and disappointments of immigrants would disappear with it. Thus liberals are obliged to attack the prejudices of their co-nationals until acceptance of migrants is universal.

But this view embodies a deep cognitive dissonance. Liberals look migration from two incompatible viewpoints at the same time. They evaluate a poor foreigner’s interests in absolute terms up to the moment they cross the border, but from that moment on, they then insist on a relative evaluation.

In truth, the socialisation of low-skilled immigrant into a rich country generates anger, bitterness and disillusion for reasons that have no connection with racism. Newcomers to the West slowly ditch their old value system and assume that of the host nation. As we’ll see, this inevitably turns their experience of migration negative.

There are indeed good reasons to believe that relative position is the more important measure for those of us the rich West. In absolute terms, the welfare of contemporary welfare claimant far exceeds that of a middle class worker in the 1960s. If absolute measures were what mattered to us we would have shut down our welfare states long ago.

But if it relative status matters so much to liberals, why do they wish to import migrants into the very lowest rung of our societies? If the ‘jobs that no one wants’ are all thats on offer, then by their own account, most migrants were better off in their own countries.

If they are to be true to their core values liberals must treat low skilled immigration from poor countries with extreme caution. Potential immigrants are uniquely poorly placed to evaluate the pros and cons of migration.
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In the future everyone will be a conservative: the economy’s evolving complexity undermines both the left and the right

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Complexity Economics / Conservatism / Cultural Stasis / Edmund Burke / Eric Beinhocker / Evolutionary Economics / Network theory / Party System / Philosophy / Populism

NASA-COLUMBIA-10YEARS
During the launch of Space Shuttle Columbia’s 28th mission a piece of foam insulation the size of a small briefcase broke off from an external tank and struck its left wing. Many shuttle launches had seen similar damage but this time it proved more serious. On 1st February 2003 the space shuttle exploded as it entered the earth’s atmosphere killing its crew of seven astronauts.

A later investigation concluded “the physical cause of the loss of Colombia and its crew was a breach in the Thermal Protection System [which] allowed superheated air to penetrate the leading edge insulation and progressively melt the aluminum structure of the left wing”. The Space shuttle was “one of the most complex machines ever devised. Its elements … were assembled from more than 2.5 million parts, 230 miles of wire, 1,060 valves, and 1,440 circuit breakers.” The investigators discovered that nobody understood the whole system. While there were many people with a deep understanding of individual systems, it was impossible to anticipate and protect against all the circumstances involving multiple systems that might lead to failure.

In such a world every serious politician, whether of the left or right, would be a conservative. They may find themselves surrounded by populist pranksters on all sides, but the 21st century will be a century of uniformly conservative government.

Its a central tenet of traditional conservatism that our societies resemble the Columbia Space Shuttle. We can’t hope to ever understand their complexities. Attempts at radical change are risky and doomed to failure. They lead to consequences that are unanticipated and unintended. People are bound together in one nation as if part of a living organism. The whole is sustained by fragile and unknowable relations amongst the parts.

Unlike Columbia human design plays little part in its development. Instead it is shaped by the environment, as a rock is worn smooth by the wind. Mankind can no more gain complete control over social processes than it can tame the wind.

This idea is usually understood as problematic for the left. The left traditionally claims that rational reforms can be achieved. But as we shall see this principle of conservativism poses just as much of a problem for the right. Drawing on ideas from evolutionary economics and biology we shall see that the social world is approaching objective limits on its complexity, and that these put the role of all politicians in doubt.
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Iain McGilchrist : the Divided Brain and the Global Financial Crisis

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Complexity Economics / Economics / Eric Beinhocker / Evolutionary Economics / Iain McGilchrist / Left Brain / Margaret Thatcher / Philosophy / Politics / Samuel Brittan / The Master and his Emissary

HST-SM4

The hubble space telescope was launched into low earth orbit in 1990 with great hopes of extending our knowledge of the origins of the universe. It quickly became clear that something was wrong with the pictures it was sending back to earth. Instead of appearing as sharp dots, individual stars were surrounded by a blurry halo. Somehow the enormously costly project of putting the world’s most powerful telescope into space had turned out a dud.

Hubble_PSF_with_flawed_optics

A commission of enquiry was established to trace the source of the error, headed by the director of the Jet Propulsion Laboratory, It soon found that the device known as a ‘null corrector’ used to check the shape of mirror before it was sent into space had been incorrectly assembled. One lens was out of position by 1.3 mm. The intention had always been to double check the mirror with another null corrector but, in response to demands to cut costs, only one was used in the final manufacturing step. It had been carefully designed to meet the strictest tolerances but it was assembled incorrectly and without a second device there was no way to spot the error. The result was an extremely precise mirror in exactly the wrong shape.

The fiasco of the Hubble space telescope teaches us something about the operation of our own perceptual systems. A normal human being makes use of a number of them at the same time. Each one balances the other, correcting for their deficiencies. If one becomes dominant, or if others are destroyed by injuries, the efficiency of the overall system collapses.

Left Less

The psychiatrist Jonathan Sacks documented what happens if this delicate balance is disturbed. His book, ‘The man who mistook his wife for a hat’ popularised the stories of those of us who suffer perceptual distortions after brain injury. We can find ourselves without the concept of ‘left’ in its entirety, drawing toppling houses and clocks which operate from 12 to 6 only. We can confuse items of clothing with family members. Sacks’ “Lost Mariner” lost touch with the present moment and was forever stuck in 1945.

Despite our increasing familiarity with these neurological oddities it is very hard to imagine that normal human suffer similar misperceptions. The idea that we all suffer deficits that resemble those seen on Sack’s neurological wards is difficult to bare. But as we will see there is good evidence that human perception suffers from systematic warping just like the Hubble telescope. It was eventually fixed by the fitting of additional mirrors, especially ground to correct the error. Contemporary human beings may be in need of a similar therapy. But before we can imagine what this might look light, we need to characterise the aberration with precision.
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The business cycle : traditional economics account of its central phenomenon is simply wrong

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Business Cycle / Economics

The dynamic of the business cycle is the central mystery of modern society. During the twentieth century we experimented with a variety of techniques to smooth out its ups and down. This century has brought a different problem – so called ‘secular stagnation’ – characterised by consistently lower growth rates. Bizarrely, the core models used by most mainstream economists have long been known by mathematicians to be incorrect, or at least to miss entirely the phenomenon they are meant explain. Cyclical instability, the central phenomenon of the economy, is missing from the economic models used by economists.

In other sciences adding a series of fiddle factors to a failed model to get it past evidential tests would be seen as fraud, in economics cheating leads to a Nobel prize.

Every model has its boundaries. Each covers a certain number of phenomena and leaves others out. The aim of every account of the business cycle should be to explain its characteristic qualities. The business cycle has irregular patterns of oscillations that vary over time in period and amplitude. They are neither completely regular nor entirely random.

For historical reasons conventional economics makes use of models with equilibrium at their heart. If the economic system were entirely self equilibrating then it would not generate cycles of any kind because if it were ever out of equilibrium the system would return directly to its equilibrium state and stay there. Economists have tried to address the problem by introducing the concept of external ‘shocks’. They imagine the equilibrium of the economy is disturbed by a series of external factors generating the kind of wave pattern we see in real world business cycles.
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Traditional economics resembles the Cuban motor industry. How it breaks the basic laws of the physical world.

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Complexity Economics / Economics / Eric Beinhocker / Evolutionary Economics / Philosophy / Politics

Cuba

Economics, like physics, was emitted from philosophy. Aristotle, Adam Smith and Jeremy Bentham viewed themselves primarily as philosophers. These subjects are now studied in isolation from their mother discipline and each other. We can not now expect academics to be familiar with each other’s work. The age of ‘Renaissance Men’ familiar with every aspect of human learning is long gone. But according to Eric Beinhocker’s book ‘The Origin of Wealth’ the compartmentalisation of the academic world has reached such astonishing levels that one discipline can operate for decades without discovering that their academic colleagues have longstanding proofs which entirely debunk their work.
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Against diversity : why progressive societies don’t progress

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Cultural Stasis / Economics / Hegel / Philosophy / Popular Culture

Genre Timeline

Diversity is celebrated by ‘progressives’ but its attainment is the death of social progress.

When was the last time you came across a really fresh idea? Not an old notion in new packaging, but an original take on the world from a radically different perspective. I’ll hazard a guess – a decade or more. In the words of the painter David Hockney, ‘most fields of arts and culture seem to be stuck somehow’. Across a wide variety of disciplines in the arts, popular culture and academia we appear to be trapped by old ideas and discredited narratives. It seems that the rate of cultural progress has slowed dramatically across the board.

Historically cultural stasis has been the preserve of societies with strict hierarchies policed with rigid conformity. Japan once succeeded in cutting itself off from all progress for 200 years using harsh social rules. But in our case the evidence suggests that stasis results from the reverse phenomenon. It’s our embrace of the unquestioned goods of our age, diversity and tolerance of difference that has dissipated the forces of social change.

This is new world is not only dull, it is also doomed to the repeat its failures. We are unable to learn from our mistakes. It seems impossible to throw off any idea however much trouble it brings us. When novel challenges arise, as they inevitably will, we are unable to respond. Pluralism and tolerance of difference have long been celebrated as stabilising forces in British society. But the intellectual and artistic world are now too stable. We are slumped at the wheel, speeding towards whatever chicanes and hairpin bends the future may bring us. Pluralism has become a destabilising force for our societies.

We are discovering that the reviled monolithic cultures of the mid-20th century had desirable qualities now lost to us. They could generate change from within. They responded quickly to events. Here is the paradox. Homogeneous societies have an orthodoxy that can be contested. Heterogenous ones do not. Diversity, so celebrated by progressives, itself blocks progress.

Plurality dissipates the forces of social change. They run into the sands of innumerable subcultures, each protected by the bubble of its own niche media. The capacity to learn and develop is essential to the health of society. Without it we will eventually suffer an accident. The Global Financial Crisis provides a warning. The intellectual response to the events of 2008 was derisory. Alan Greenspan accepted that his entire intellectual world had collapsed that year. By implication economics itself was left in shattered pieces. The response of the economics profession was denial. It rebuilt Greenspan’s old structure exactly as it was. Economics was able to ignore its antagonists and proceed as if nothing had happened. What will be the public reaction to the next crisis?

Cultural change is a dialectical in nature: a thesis encounters its antithesis, with a resulting synthesis. Conflict is followed by resolution and change. But in a diverse and pluralistic society thesis and antithesis exist in their own niche. No conflict means no resolution and no change. A society which supports infinite diversity must expect infinite stasis. Its said that history is written by winners, but in a niche culture everyone is a self-defined winner and no one keeps the score.
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The breakdown of the left/right ideologies is the breakdown of representative democracy itself

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Democracy / Party System / Peter Mair / Politics

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The breakdown of the left-right polarity in Europe is nothing less than the breakdown of the system of representative democracy itself

Quantum physicists tell us the familiar world of three dimensions is simply an illusion. Their models contain any number of exotic spatial dimensions. The party political systems of the European democracies also evolved in a simple environment now faced with multi-dimensionality for the first time. Our systems used to work well at one basic task – they balanced the power of the industrial working class and the middle classes – but we now live in a political world soaked in as many multiplicities as a quantum physics model. It is no longer a unidimensional tug of war between classes with a uniform outlook. The party system is simply unable to cope – not just in practice but in theory.
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Evolutionary Economics – respect natural cycles

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Business Cycle / Colin Tudge / Economics / Evolutionary Economics / Globalisation / Quantitive Easing

Stonehenge2

When we intervene in a complex adaptive system whose dynamics we do not understand, there is a possibility that the effects may be the very opposite of the ones we intend. Attempts to manage out the downswings in the business cycle can have unexpected consequences.

Every era has its mysteries. Each society has its known unknowns. Some cultures approach the unexplained with humility, others pretend they have answers when they have none. For most of human history cyclical phenomena have been the primary challenge to our explanatory powers. Our lives themselves have been measured in cycles we could not explain: from the daily rotation of day and night, to the 29 day sequence of lunar phases and the yearly cycle between summer and winter. Before the advent of Christianity Europeans venerated the year’s passage with festivals at midsummer, midwinter and the midpoints between. Britain’s greatest prehistoric monument, Stonehenge, is a giant device for tracking celestial cycles. Society employed a professional priesthood with the responsibility for measuring these rhythms and predicting their course.

For many thousands of years wonder at natural cycles was at the centre of our culture, but what of today ? Science has lifted much of the mystery of course : we no longer wonder at the arrival of Spring, or the passage from dusk to dawn, but one puzzle does remain – we are still unable to explain the rotation in our fortunes we call the ‘business cycle’. Unlike the movements of the planets we have no formula which can predict its length or amplitude. No policy has been yet devised by economist or politician with consistent success in smoothing out it’s ups and downs. It is an eternal mystery. Just like the celestial cycles it has been known since ancient times – seven year cycles of glut and famine were described in the Old Testament. We maintain the contemporary caste of soothsayers we call economists to predict the cycle’s inflexion points and invoke recovery after a downturn. Unlike the ancients we look at this cycle without humility. We have been fixated on the idea that we are just on the verge of getting the cycle under our control for a century at least.
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