Loeb NYC Plants its Flag at SXSW

I was sitting on the stairs of a packed house in the middle of downtown Austin. The room filled with people, many of them the brightest minds at South by Southwest (SXSW). Brand marketers and influencers mingled with investors, founders, artists and everyone in between. Yet everyone’s attention was fixed on the front of the room, where entrepreneur and a good friend to Loeb NYC, Bonin Bough was moderating a fireside chat, between Gary Vaynerchuk (of Vayner Media) and my boss, Michael Loeb.

The discourse ricocheted between topics like the state of entrepreneurship, the blessing of “micro failures”, parenting techniques, and tombstone carvings. Prominently marked on banners throughout the room was the unmistakable logo of “Loeb NYC”, proudly displayed our brand to the world. Michael was captivating the audience,

“I want to prove Keats wrong. Keats said, our ‘names are writ on water’…The legacy I want to have is going to be enduring. I want somebody to point to me and say I learned something from that guy, or he built something for me, or he changed something, or he made things better.”

 

Loeb NYC quote I want to prove Keats wrong. Keats said, our ‘names are writ on water’…The legacy I want to have is going to be enduring
Michael Loeb on “Legacy”

Select founders and operators of Loeb NYC investment portfolio companies were dotted throughout the room, as were members of the Loeb NYC team itself. Given the size of the crowd, the room was remarkably silent. There was a palpable, powerful energy and excitement that manifested in an unmistakable buzz. It was at this very moment—when the nucleus of SXSW seemed to have converged within the “Loeb House”—that I realized I was witnessing a defining moment in the life-cycle of Loeb NYC. At this moment it became undeniably clear that we, Loeb NYC, had planted a flag and boldly announced to the world, “We are here. We’re here to play. And we’re here to stay.”

Loeb Enterprises has been operating for roughly ten years, and in that span has produced results many accelerators and incubators only dream of. Three companies, most notably, sit perched within the “trophy case”: Synapse Group, Priceline, and Script Relief, each of which have achieved storied status within its industry. Additionally, as of today, upwards of 15 companies operate within the greater Loeb NYC portfolio. So why did SXSW feel like a watershed moment for Loeb NYC? What had changed? Why did this moment, in the illustrious history of the company, feel different?

loeb nyc quote we are here we are here to play and we're here to stay

To answer those questions, let’s consider that simply put, the dynamics of media and consumer attention are going through tectonic shifts in style and technique. Past operating styles and methodologies will not cut it for firms that want to survive and thrive in 2018 and beyond. Those who want to be in the game and, more importantly, win are required to take a new tack, if prominence and reputation are at all important to them. For Loeb NYC, these things matter, not only for legacy, but for efficacy.

We believe that what we do day in and day out is special. There’s a magic inside the walls of Loeb HQ that allows us to view the world with optimism and the future with possibility. In the words of Katie Loeb, Director of Innovation at Loeb NYC and the mastermind behind our Austin event, our program at SXSW was an activation, a deliberate statement to the world of our presence and vision.  

The better one gets to know the man in charge, Michael Loeb, the clearer it is that his vision and ambition for Loeb NYC is massive.  In the words of Mr. Loeb himself, the vision for Loeb NYC is “What my partner, Rich Vogel, and I envisioned a decade ago when we concluded that for us Synapse was not the last chapter, but the opportunity for a bold new one.”

Bonin Bough, Michael Loeb and Gary Vaynerchuk at Loeb NYC's SXSW activation.
Bonin Bough, Michael Loeb and Gary Vaynerchuk at Loeb NYC’s SXSW activation.

This vision is clear and enticing. A company factory: vertically integrated company-building from an idea, to execution, to exit. The nomenclature is simple, it more or less describes the lifecycle of almost any successful startup investment. But in the case of Loeb NYC company-building, both the theory and practice are very different. Traditional venture capital firms and accelerators generally think of themselves as hotbeds for successful market disruptors and innovations. As places where exciting early-stage ventures blossom into unicorn companies with regularity. The reality is that it’s difficult to build a company – read Michael Loeb’s post, “The Entrepreneurs’ Gene” to see the proof from a man who has done it many times over. Most early-stage companies will fail, plain and simple.

So, how does one create a closed-ecosystem with better odds and better pathways to success for early-stage companies, at scale? From my perspective, the model at Loeb NYC achieves this by removing the constraint of constant-capital raising from founders and CEOs, so they can focus on running their companies. Providing back-office support and advice to the early-stage companies so that the headaches of administrative work are largely mitigated. We challenge the odds by offering portfolio companies access to expert teams of marketers so that they can quickly augment a small marketing with a larger, advisory one. A real sense of community means that companies can leverage each other’s networks and speedily earn credibility and connections with customers. Place this in a beautiful working space that can compete to attract talent with the best of ‘em. Add outstanding talent, commitment, and creativity to that mix and you have something special. We have this. We have it now. And at SXSW, we told the world.

magic inside walls at loeb nyc

Loeb NYC is a place where true talent can thrive and where meritocracy is honored and respected. Above all else, it is a place deeply passionate and committed to building successful enterprises across multiple industries. That is our foundation and inspiration. Walk around our offices at 712 Fifth Avenue and a clear sensation is realized of the kinetic energy and momentum present in this environment. Startups pack the floor, each targeting a different industry with intensity and drive. One common thread emerges; an undying commitment to results and growth. The aforementioned confluence of success-factors cannot be created overnight. It is possible through years of focus, merged with a willingness to test, experiment and iterate. You can feel it the moment you step off the elevator.

Mike Provance, the CEO of 3×3 Insights describes his company’s relationship with Loeb NYC in terms of a streamlined symbiosis:

“Our company is housed inside Loeb NYC, and we can’t go a day without spending time talking to Michael about what we’re doing. He’s very hands-on in the way that he engages with his portfolio companies and is constantly thinking of ideas that help us better execute on what we are trying to do, whether it’s sending emails any time of the day, or wandering through the Loeb NYC incubator, Michael is always available to us, as are his team of experts in various areas of marketing, of product development, direct mail, about anything you can think of he’s got some sort of experts who can support the efforts you’re trying to do.”

Personally, I have been in the Loeb orbit for the past three years or so. In that time I’ve seen expansion into two new floors in our midtown Manhattan headquarters, and a threefold growth in the size of our portfolio. Sitting on the stairs in that Austin house at SXSW, it’s apparent that the last ten years of innovation, company-building, and pure hard work have been leading up to this moment: a powerful declaration of our identity and intentions.

Our efforts at SXSW excited and encouraged me about what’s still to come. As the team returned home and settled back into our rhythm of operating and building, one resounding statement from our time at SXSW remained fixed at the front of my mind: We are just getting started.

Profits and Losses of Employee Appreciation

A company’s ability to retain talent often has consequences to its reputation and the quality of productivity and culture.  A 2013 Gallup survey report entitled, “How to Tackle U.S. Employees’ Stagnating Engagement” which studied almost 5 million employees, concluded that actively disengaged employees cost the United States economy $450 Billion – $550 Billion in lost productivity every year.

To contextualize the scale of this cost, the Federal Government has budgeted $412 Billion for mandatory Medicaid spending in 2019. Employee disengagement and workplace departures risk lowering morale amongst remaining employees and results in recruiting and training costs. While some employee turnover is natural and to be expected, consider the following eye-opening, preventable reason for disruption to employee retention.

The OC Tanner Learning Group published the results of a 10-year, 200,000 person study, “Performance: Accelerated.” Managers and employees were interviewed for the study, which centered on employee engagement and retention. The results revealed that 79% of people who left their jobs cited ‘lack of appreciation’ as their reason for leaving. Forbes online recently cited a poll which showed that more than 35% of employees consider “lack of recognition” of their work as the biggest hindrance to their productivity. The Wall Street Journal commented that this report provided “a startling link between recognition and profitability.”

Reasons for quitting work pie chat and statistic

Given the extremely high number of people who attribute their reason for leaving a job to feeling (or being) under-appreciated and the resulting costs to business, one would think that employers would make appreciation and gratitude expression a top priority for themselves and managerial staff.

Over the past thirteen years, I have managed the operations and functionality of teams in a range of industries. I am now an (appreciated and thankful) administrative member of the Corporate Development team at Loeb.NYC.  

Throughout my career, I have witnessed numerous acts of appreciation, as well as some demoralizing methods for seeking performance results. Eventually, people who didn’t feel they were treated well always resigned, and sometimes did lasting reputational damage to a business. The reputation of one company suffered so severely as the result of complaints by a disgruntled former-employee that relationships with other businesses and customers were severely impacted. The situation attracted enough community attention that sales drastically decreased. The company closed its doors late last year. 

Nina Lichtman illustration two people in meeting

Fortunately, there are simple ways to mitigate the risks and costs associated with employee turnover and low morale, as well as to boost Return on Investment (ROI) of retained employees. Genuine and well-timed expressions of appreciation have multiple benefits (financial, time, production output, etc.), and are not costly or time-consuming.

Say “Thanks”, Show Thanks

A verbal “thank you for [specific of what you’re thankful for],” can change a colleague’s mood and outlook, and let them know that you care about their professional well-being. Brendan Kamm, CEO of business-centric, mobile gifting app, “Thnks” has founded an entire venture on the premise that expressing gratitude has a ripple-effect and is a valuable workplace exercise with multiple rewards. He states,

“The most powerful tool you have for creating success is to appreciate others. Simple, considerate gestures, like saying ‘thank you,’ have the power to completely change another person’s perspective. It demonstrates that you value their time and respect your relationship. The Art of Appreciation is the ultimate game changer.”

Thnks’ platform allows users to send (customizable) gifts with personalized messages and requires only the recipient’s email, twitter or SMS address. Kamm cites the following effective examples:

Send someone an Uber Ride on a rainy morning to make their commute a little easier and their day a little brighter.”

Coffee for the Week is a great way to show your appreciation to someone who you know has a trying week of work ahead of them. Help keep them caffeinated!”

For the person who is always on the road, a more legroom seat upgrade or carry-on cocktail kit can make their life on the move a little more comfortable while demonstrating your thoughtfulness.”

To gain further and more immediate insight into the effects of appreciation in the professional context, we conducted an anonymous, external “Workplace Appreciation Survey.”  We asked, “Have you personally been shown appreciation by someone at work?”. Most examples provided in answer to that question were not major pecuniary or grand gestures, but rather tokenistic or verbal acknowledgments, not tied to a formal reward or review program. For example:

Nina Lichtman illustration appreciation gift ideas

 

 

“I got a cookie.”

“Praise, recognition, gratitude.”

“Kind words in a card, token gifts, food.”

“I was rewarded with praise from my supervisor and a gift card.”

“Thank you emails, shout-outs in meetings or at events, thank you cards.”

“I frequently hear from other team members how much they appreciate having me there.”

 

 

These examples may seem simplistic, even infantile, but what these responses demonstrate is that people remember small, timely expressions of gratitude. And that genuine expressions of gratitude, rather than the monetary worth of the gift itself, is meaningful and effective for building morale and improving employee retention in addition to team building and a formal pay increase structure.

Showing appreciation is not a one-way street or exclusively “top-down” in nature. While it benefits both parties (and business) for employers to show gratitude to their employees and subordinates, it is also pragmatic and valuable for the recognition or consideration to flow in the opposite direction as well. Managers and high-level executives deserve thanks too. A survey respondent added,

My partner and I tell each other “good job” frequently. He’s very good about giving positive feedback. We meet daily and go over our agenda and pending requests from clients. We also talk about ways we could both improve. I feel extremely valued at work, not only by my partner but by our clients as well.”

It doesn’t cost you anything to say “thanks”, but it might cost you not to.

it doesn't cost you anything to say thanks

Team Building vs. Targeted Gratitude

Lest one think that group offerings like company events and team building exercises are enough to prevent or cure “under-appreciitis”, this way lies false hope. While group events and team-building are important in their own right and may serve to demonstrate collective recognition and morale-boosting, team recognition does not adequately tackle the problem of an individual employee feeling despondent, undervalued or taken for granted. Group activities are not designed to focus on the performance of any one individual.   

Sandra is an experienced accounting and finance professional in New York City. She has worked both as a low-to-mid-level employee but has also held managerial and CFO positions. Sandra has experience across enormous, big-name corporations as well as smaller hedge funds and companies. She makes the case that while team events can be useful for boosting morale, some employees would also like flexibility for “priorities outside work” and that team-building works  best if it feels organic and not forced:

“I have a life outside of work; I have priorities outside of work… [which take] time to maintain. Organic colleague bonds are really strong, but… I prefer an organization to respect the individual. If you’re on a good team with good people who support each other, it’s hugely instrumental in defraying feelings of unfair work or lack of appreciation.”

Nina Lichtman illustration happy employees

One person who answered the survey made the following point about group versus individual appreciation:

“Although I didn’t leave the job because I didn’t feel appreciated (it was a one-year residency), I will not return to work at that organization because I felt like the morale was so low. A huge part of that [decision] is lack of recognition and appreciation from management for the efforts of those in the department…The manager explicitly stated that she did not believe in recognizing people individually because it creates “animosity” between staff members… She was not even supportive of getting people candy bars on their birthdays. It fostered an environment full of animosity and a focus on the negative. Hardly anyone in the department felt appreciated.”

Our external “Workplace Appreciation Survey” asked a question derived from the OC Tanner study mentioned earlier, “Does the person you report to do a good job of recognizing employee contributions?” One answer stated, “Currently, no. I no longer work in an environment where we are praised or recognized for the things that we do.”

How do I manage?

I realized that a good manager is a great leader

For three years, I was a manager at an ice cream company.  When I started, there was one small store in San Francisco.  There were eight people on staff, including two founders. We received investment capital, and suddenly I was opening stores and hiring at pace. At that time, I had a conversation with a team member, which impacted how I view the importance of appreciation and myself as a manager.  

He had been working overtime, late shifts and sacrificing weekends. He was drained. I didn’t notice until it was too late.  In one of our final conversations, he told me, “I feel like I am doing everything for everyone else and no one is doing anything for me.”  I felt like I had failed him. He left shortly after that.

From that point, I realized that a good manager is a great leader. I started having weekly one-on-one check-ins with people I managed. We discussed roadblocks in operations and what I could do to set them up for success.  We held manager meetings where staff could showcase their wins. As a result of these efforts, day-to-day operations were smoother, and the team more cohesive. It was a tangible improvement. Taking the time to hear employees out, address concerns and provide individual feedback, made my team feel appreciated.  Sandra (hedge fund CFO) agrees,

Part of learning how to manage is to be actively trained on what your staff is doing. In my position, I like to keep a list, for people I work with when they’ve done something really positive. If it’s something negative, I will usually address that right away. If [one] think[s] reinforcing positive behavior is far more beneficial [than only noting negative behavior] you’re in better place at the end of a reporting cycle if you track performance in real time, to more accurately weigh the employees’ pros, good qualities, and development areas.”

Low-Cost Methods to Help Staff Feel Appreciated*

*With High ROI.

Give regular, constructive feedback

Set aside some time to go over changes your staff could make to improve. Express what you genuinely like about a team member’s performance, contribution or abilities.  Avoid creating a situation reflected in this survey response: “My boss was not into positive feedback. It was just assumed we should work well. He only let us know when there were issues.” Inform individuals precisely what you like about their work. Contextualize your comments by identifying how their efforts contributed to the team’s goals.  

Timing is everything

Giving feedback when the timing is not linked to formal performance reviews or deadlines will be perceived as more genuine. Sandra comments,

“There has to be out of cycle performance rewards for people who you value. Too many times only when someone is leaving, has [the employer] pulled the ‘money card’ and at that point it’s disingenuous and it’s too late. A clear indicator [of disingenuousness] is people who express praise only when there’s a pressing deadline, or there’s a linked benefit. But that’s why genuine feedback or taking time out of the normal stress and routine of work, or taking someone for coffee and informally going through their strengths and development points, has been a much better way to give that kind of information because it’s a conversation in somewhat isolation.”

By showing appreciation you can significantly lessen recruiting, re-hiring, training and gap-filling costs

Be aware of your employee’s time

Employees can feel taken advantage of if their manager is not mindful of personal time, is not aware of what the staff-member does with their work time, or lacks a realistic picture of how long tasks take to complete. According to a survey respondent, “When my shift was over, I wish [my manager] could have been more aware that I am tired and I want to go home. Not have me linger around longer ‘cause my employer wants to talk… I think some people are not aware of how much work goes into some of the projects I work on.” 

Advocate for your staff

Have a system to remind yourself of the positive work your team members and colleagues are doing and spread the word.  An extra step is being an advocate for a person. Managers may not have a say over their team’s pay, but it is meaningful for a supervisor to inform a senior person or HR member of the value a person adds and their strongest skills. A respondent claimed, “When people promote the work I do for them or acknowledge the effort and love I put into it, it brightens my life up.

The Profits of Proactive Appreciation

By showing appreciation, you can significantly lessen recruiting, re-hiring, training and gap-filling costs. You can mitigate the risk of damage to morale and business-reputation caused by employee turnover due to feelings of unappreciation. The prophylactic for this scenario is to offer small and timely words or gestures of thanks, and it makes financial sense to take those steps. If those words and gestures not only prevented loss, but stimulated profit, growth, and productivity, it would be suboptimal business not to consider it.

Happily for me, Loeb.NYC is an environment that cultivates a fun and rewarding employee culture, and actively cares about staff satisfaction. I’m grateful for that.

 

 *Original Illustrations by Nina Lichtman, (Dashride). Graphics by Alyssa Liegel. Leigh Adler, Editor. Contributions by Brendan Kamm. 

Penrose Hill: Bringing Wine Into the 21st Century

I’m Philip James, Founder and CEO of Penrose Hill – a wine company aiming to bring the wine industry into the 21st century. At Penrose Hill, we rely on data analytics to gain unconventional perspectives into a somewhat conventional industry. We want to see things in new ways, especially if it allows us to eliminate inefficiencies so that we can provide consumers a better product for a better price.

Turning Data Into Wine

Data is at the heart of what we do. We use feedback from our customers and partners to optimize every aspect of the winemaking process; from label design to flavor profile. As an independent winery, Penrose Hill eliminates the layers of middlemen between the producer and consumer, giving our customers exclusive access to small-batch wines for less, while delivering higher margins to our partners.

bottle of wine with toy truck

Firstleaf Wine Club

There are three distinct branches driving our company’s growth. The first and largest being the Firstleaf wine club. Penrose Hill’s goal is to build the world’s most customer-centric wine company, and Firstleaf is our key to achieving that. Using a specially designed algorithm that combines machine learning and wine chemistry into an AI-based platform, we are able to match wines to customer’s tastes with unprecedented specificity. Even with this incredible tool, we’re constantly innovating new ways to connect our members with great wine.

penrose hill bottles and audience match

Direct-to-trade Wines

The second branch driving our growth is a line of direct-to-trade wines. We are diversifying our sales base by venturing into the biggest segment of the wine market: traditional, distributor-driven sales to retail and restaurants. Leveraging the savvy we gleaned from market testing from Firstleaf, new packaging options and dynamic customer experiences allow us to breathe new life into this segment of the industry. We are introducing several new brands in 2018. Our canned wine Right Now Red no. 8 is already in some stores in New York! We made it to be enjoyed anywhere you are – perfect for a busy city.

canned red wine

Another of our wines to look-out for is Bodewell—a collaboration with the charity Wine to Water. The proceeds from the sales fund their mission to provide access to clean water to those who need it the most globally. For Bodewell we only source from exciting and distinct wine regions, in an effort to highlight our interconnectedness through the land.

Corporate Partnerships

The third branch of our company is corporate partnerships. We have been working to launch wine clubs and build labels for brands interested in diversifying their client outreach. A really fun “Loeb family” partnership we have just completed is with the team from Thnks!

Wine Pairing Advice from Penrose Hill

I thought it would fun to end with a little practical wine pairing advice. In my opinion, wine pairings are all dependent on what you are eating and what you like, but here are a few quick tips that may help lift any meal or dinner party. The most important “rule” is to have fun and drink what you like, there are no hard-and-fast rules when it comes to pairing wine! That said, here are a few typical recommendations:

● Start with something sparkling! Champagne is often saved for toasts, but sparkling wines deserve a place at any dinner table, as they pair well with nearly all foods. Our Clarabelle Sparkling Wine was a club favorite this past holiday season.

● For whites, we love anything with higher acidity. Acidity allows a wine to highlight and mix with the food’s flavors. Our Play Riesling is a great option for such a meal.

● If you prefer reds, I’d suggest a Pinot Noir, like our Cassiday Blare, or a medium-bodied blend. You want wines with the fruit and acidity to stand up to a meal with a lot of different flavors present.

bottle of red wine lying sideways

Loeb NYC Speakers Series: Cryptocurrencies with Alyse Killeen

Around the Loeb.NYC offices, I’ve noticed chatter about cryptocurrencies and blockchain. Given the nascent, confusing, and somewhat mysterious nature of the technology and its ecosystem, I suggested that we host Alyse Killeen for the monthly Loeb NYC Speakers Series. Alyse is a Los Angeles-based venture capital investor who focuses on data science, network infrastructure, fintech, e-commerce, and blockchain. She has contributed to two books on cryptocurrencies: “The Handbook of Digital Currency” (2015) and “The Handbook of Digital Banking” (2017).

The Bitcoin Surge and Decentralization

When I first met Alyse at Michael Loeb’s Founders & Funders event in 2014, the price of a Bitcoin was around $400. Now, in late November 2017, Bitcoin’s price is approaching $10,000. With this massive surge in price (+2,400% in just three years), Bitcoin has generated major interest from the mainstream. As talent and capital have poured into the space, it’s become clear that Bitcoin and other cryptocurrencies are here to stay. One of the goals of the Loeb NYC Speaker Series is to promote company-wide understanding and discussion of new ideas. Given the amount of buzz in the space right now, hosting Alyse to explain Bitcoin, blockchain, and its implications going forward was a no-brainer.

Above: Fintech Silicon Valley interview with Alyse Killeen on what drew her to the blockchain, and on inclusivity.

For Alyse, the importance of blockchain technology can be boiled down to its power to decentralize structures and institutions that are traditionally relied upon to establish trust between multiple parties.

Alyse explained that Bitcoin emerged in the wake of the 2008 financial crisis, partly in response to eroding trust in financial institutions and governments. She explained that Bitcoin users can choose to transact on their own terms without the consent of any intermediary. As more people earn, buy, and use the currency, its price increases. While rampant speculation has obviously contributed to Bitcoin’s rapid price increase, adoption and usage has grown substantially as well.

Alyse explained that instead of a central institution like a bank maintaining a ledger of balances, the Bitcoin blockchain is maintained by a worldwide network of financially-incentivized “miners” — people who have set up computing hardware to verify Bitcoin transactions. Miners earn Bitcoin rewards in exchange for their participation in the network. Mining is intentionally expensive, requiring high-powered computers and substantial electricity consumption. Thus, miners have begun to set up shop in regions like China and Venezuela where electricity is relatively inexpensive.

Alyse Killeen signs the wall at Loeb NYC Speakers Series Decentralize all the things
Alyse Killeen signs the wall at Loeb NYC Speakers Series

How does Bitcoin Mining Work?

The system is designed to work as follows: as Bitcoin’s price increases, more miners will participate in the network. As more miners join in, the faster and more secure the network becomes, ideally creating a virtuous cycle that allows for seamless, borderless, and secure exchanges of value without the need for any centralized intermediary. This is particularly important in nations without the institutional stability that we tend to take for granted in the US. In a country like Venezuela that has experienced hyperinflation, Bitcoin has become a viable alternative to its national currency. For those interested in investing in Bitcoin, Alyse had a few recommendations: only invest what you’re willing/able to lose and store your cryptocurrency in a hardware wallet like the Trezor or Ledger.

Initial Coin Offerings

Another subject that came up was the recent Initial Coin Offering (ICO) craze. Alyse warned that a lot of these ICOs are scams but believes this financing model will ultimately democratize access to capital. To briefly explain an ICO, companies seeking venture funding can create and issue their own token as a means of financing rather than traditional equity or debt deals. Presumably, as the company grows, the value of its token will increase. Token holders are immediately liquid, unlike with traditional venture capital or angel investments. Alyse recommends doing serious diligence on ICOs before investing, as one should with any investment.

It is an exciting time in the world of cryptocurrencies. There is a lot to learn and sometimes answers to the questions you have may not even exist. From all of us at Loeb, we’d like to say thank you to Alyse! For more information about Alyse, visit her website and follow her on Twitter.

Adam Rice

Adam is a Venture Associate at Loeb NYC, where he sources, evaluates, and pursues new business and investment opportunities. He is currently focused on fintech and blockchain. Prior to joining Loeb.NYC in 2014, Adam received his BA from the University of Michigan.

Offensive Content on Social Platforms

Content moderation on social media is a weird pet obsession of mine. The internet is full of garbage, both benign and insidious, but a number of recent headlines bring the issue into stark relief:

Google links to hoax articles during breaking news. Twitter is filthy with Nazis. YouTube’s algorithm has been suggesting and promoting bizarre, disturbing content to children. And Facebook has an overseas army of content janitors, a legion of hundreds who still can’t keep the platform clean. Indeed, many tasked with scrubbing Facebook of offensive content end up traumatized, permanently shaken by the sheer volume of violence and depravity the job exposes them to, and what it reveals about the darkness of humanity.

The reason I describe my obsession with content moderation on social platforms as ‘weird’ is that I have no solution in mind. The more I understand about the problem, the more convinced I am that social platforms, as they are presently understood, will never be able to keep their users safe from offensive content. It’s like fighting a Hydra, where if you cut off one of its heads, two will grow in its place. But in this case, it’s hundreds and thousands of hours of content that a handful of underpaid moderators are tasked with parsing. 

Unwanted Interactions

Here’s a story: a few years back I was doing community management for a small social media platform operating in stealth. This was a social network built on small groups that facilitated text, image, video, and audio sharing, and (alarm bells) live video chat. It was also (glaring siren) aimed at a teen demographic. If you remember Chatroulette, I don’t need to tell you what happened next.

Now before you sprain your neck rolling your eyes at the hubris of such a venture, a few facts about this company: we had a famously brilliant CEO, the seed funding for the company was brow-raising, and our engineering staff was world-class. Our, ahem, “unwanted interactions” problem was not the result of unskilled dilettantes throwing darts at a board. The people behind the product strongly believed in both social discovery and the power of live interactions. They knew they had both a moral and business duty to make their platform a place that was fun and safe for everyone. It was their number one priority.

Yet in the end, they decided they simply could not do it. At least, not with the product they had. Ultimately, they pivoted from large, public groups to small, private groups. Last I checked they’re doing fine. But they’re not huge.

Because it turns out, the very thing that drives growth (and valuation) in social platforms, facilitates the abuse that comes to plague them.

It’s very hard to have viral growth of any app without incorporating levers built to aggressively expand every user’s social graph: suggested friends, suggested pages, suggested rooms. In the hands of users with good intentions, this can very quickly bring one into contact with toxic elements. In the hands of malicious users, this presents endless new targets to harass, stalk, and intimidate, each of whom is outside the malicious user’s real-world social circle.

So that’s how abuse becomes commonplace on social platforms. But why is it so hard to stop? Why can’t platforms simply ban the offending user, delete the offending content, close the offending channel?

As I see it, there are 3 reasons why no major social platform has “solved” abuse:

  1. The valuation of social media platforms depends on the discovery capabilities it provides and on wide, active social graphs.
  2. Many (most?) major platform founders and top brass, genuinely believe in unfettered discovery and in free speech as universal, absolute social positives.
  3. Decision makers at major platforms know that any effective solution to offensive content on their platform would involve unbelievably complex, contextually aware AI, that simply does not exist right now.

Worth noting: the major platform with probably the smallest abuse problem is Snapchat, which requires users to either know each other’s name or snap each other’s QR code in order to connect. In other words, the app that is least aggressive at expanding the social graph has the smallest abuse problem. Not a coincidence.

Audience Plus Content

Point number 1 seems self-explanatory: social media platforms require a virtuous cycle of content generation and discovery to stay relevant. A user posts content knowing it will have an audience. That audience interacts with the content, sending positive reinforcement to the author, inspiring the author to make more content. The audience itself is inspired by the content to create its own, and the cycle continues. Keeping the user returning requires consistently fresh content, and fresh content requires both an active community and easy discovery of content outside a user’s existing network. Nail that and you’ll always have users, which means you’ll always have advertisers. Nail that, and you’re a billionaire.

Free Speech Issues

Point number 2 might be a bit controversial, but without making a political judgment of any kind, I’d direct you to former Twitter VP Tony Wang’s famous “free speech wing of the free speech party” line, Facebook’s stated purpose (until recently) of “making the world more open and connected,” and various statements made by Reddit founders and executives on why, among other things, they let /r/jailbait exist for more than one nanosecond.

Machines Aren’t Ready to Help with Content Moderation (Yet)

The real rub comes from point number 3. The sad fact of the matter is that the flow of content generated by both human and bot actors on the internet is far wider and faster than any human-dependent solution could possibly counter. There are 500 million Tweets posted, 30 trillion pages crawled by Google, 432,000 hours of video uploaded to YouTube, and 576,000 new users added to Facebook every single day. You can’t ban every offensive account, you can’t screen every video, you can’t even tell who is going to be toxic when they join Facebook.

Or at least, no human, no amount of humans can (not when malicious actors are deploying bots to facilitate their aims). But word filters can be built, AI can identify certain errm, human parts, and patterns of behavior can be mapped for the most regularly reported users.

But these are all imperfect half-measures. Because AI is bad at stopping abuse before it happens and bad at using context to flag offensive content. The purest example of this failure can be seen in the recent viral post, There Is Something Wrong On The Internet, where the author documents how the YouTube algorithm has been gamed by spam accounts to rack up millions of views of bizarre, frightening content, all the while reaping ad dollars for the account owners.

No AI could stop content like this because you couldn’t describe to an AI why it was offensive – or at least, you couldn’t describe why in a useful way, a way that prevents future content from this from ever being served from children. Filtering stuff like this takes a human eye. At least, for now.

Of course, there is another option. Google can stop pushing discovery on its YouTube platform. It can trust that if the user wants something, she will seek that out. But for that to happen, for Google to stop thinking about their platform as a neutral territory for discovery and start thinking of it as either an archive to be browsed, or a media channel to be managed, Google would have to completely upend what they see as the actual purpose of YouTube. That of course, would mean accepting slower, smaller growth.

So I wouldn’t count on it.

Silicon Valley Valuations - Let it Be Real

My Dad, the great Marshall Loeb, told the joke of “this guy” (joke maker-uppers are evidently misogynists – or is the opposite the case?) and the $10,000 dog. Each day he goes to a bar, mangy mutt in tow. This guy is subject to unrelenting derision from his fellow revelers, which only intensifies when in defense of his pet, he declares ‘this dog is worth $10,000’. After a time, he has quite enough of the mutt-busting. “Ok, I will prove it to you”, he countered in defiance, “Be here tomorrow.” The following day, like clockwork, he reenters the bar with a smirk wider than the gulf between Pelosi and Trump, and matching cats under his arms. “You see, I told you pagans that the dog you made so much fun of was worth $10,000 and now I have the proof”.  “Say what?”, asked the confused chorus. “I traded him for two $5,000 cats”.  

A Herd of Silicon Valley Unicorns

In 2016, the VC ecosystem echo-chamber fabricated 160-something unicorns, a.k.a startups with billion-dollar-plus “valuations” (why the quotes? Read on). I asked two-dozen start-up CEOs, carefully selected for some gray hair wisdom, two questions:

How many of these mythical creatures will be more than myths? And; How much green ($) will the founders ever see? Answers: few and little.  

Fund managers are subject to a number of pressures, one of which is finding deals. On the spectrum of asset classes, venture is illiquid, risky and in theory, high returning. Committed capital from investors is ‘called’ over time as deals are consummated, requiring that funds are held in highly liquid, safe and therefore low returning instruments – in sum – the opposite end of the asset spectrum. Investment outcomes are generally thought to be highly dependent on a specific asset allocation formula. Investors count on VCs to make their investments with alacrity so as not to, egads, wither in the wrong class.  And while not all entrepreneurs are serial entrepreneurs (and not all would-be entrepreneurs have the “entrepreneur’s gene“), fund managers are invariably promiscuous, always on to the next and bigger fund for the increasing fees – which investors are subject to shine (good returns) or rain (bad ones) – and marketplace juju.

In a low return world sloshing in cash, (why else would the Nets, a team that last ruled their conference during the Internet winter of 2001, be worth $2 billion?) startups are bid-up and are ‘marked to market’; that is, valued from the last overheated investment, often by another VC firm. This is long before the mutated unicorns become sickly, but in time for display on the VC-scoreboard to impress the big wallets for the next fund in the series.  I know what you’re thinking: the government (oy vey) should do something about this. Watchdogs are obliged to protect the little guy, and venture targets the ‘sophisticated’ investor. You better know what you are doing to ski the black runs or you may just fall – hard. You’ve been served; fat-cats beware.   

A case, from zillions of postulants, in point. A VC fund in which I have invested (does this make me a hypocrite?) marked-to-market a lipstick-on-a-pig startup (old product, pretty digital interface) for which revenues this year will drop by a predicted 1/3rd, will lose over $200 million, owns little unique IP, but has a brand-name VC money sponsor (hint: there is an intimate connection to the White House’s alpha male) to $2.8 billion. Huh? For a negative growth newbie? Oh, but management has projected revenues to triple in 2018 with a $300 million swing on the bottom line to profitability. And no, it’s not in cannabis so ‘eating home cooking’ doesn’t explain the hyperventilation.   

Real Growth and Real Time

‎There is a reason why Warren Buffett doesn’t touch this stuff – he takes a long-term view. To be sure, the market puts a premium on innovation, novelty and first-in-market positions – that is where you find big growth and the big opportunity. Investor insanity is fleeting and corrections are violent: my founder’s shares in Priceline went from $16 at IPO to $163 in months to $1.28 months later at the nadir of Internet meltdown #1 (there will be more). In the long run, the market values what is real: real companies inventing real solutions, real revenues, real profits, real value. Not unicorns, nor $10,000 dogs, nor two $5,000 cats.  

We live at a time of great transformation, in which every industry will be subject to wrenching disruption. As an entrepreneur, nothing could be more invigorating. There are great ideas – big and brilliant – which will be sown and burgeon in vast new companies.  The ones that will stand the test of time, the ones of which Keats would say are not ‘writ in water’, will be made of sturdier stuff. So entrepreneurs, summon your genius and courage to build something good that lasts, something that fuels the soul, something that will make you and your investors’ money and your Mama proud. Let it be real.  

Establishing Office Culture is Key to Startup Success

 One of the best things about starting your own business is that you get to (try to) build whatever type of company you want — including the culture. Everybody has been in organizations where the overall culture and values, or at least certain management styles, were toxic. Or maybe a lack of leadership undermined employee morale and performance. So why would you want that to happen in your own business?

The case for actively creating a culture

Surprisingly, startups and closely-held businesses often fail to instill values and foster a culture conducive to a positive and productive working environment. I’ve seen many small businesses where the organization’s culture was defined by the dynamic and dysfunction of its founders. In startups, where long hours, tight deadlines and high stress is the norm — and where high-performance and passion are critical to success — low morale and high turnover can be a recipe for disaster.

Taking the time to define, communicate and instill your startup’s cultural principles may seem like a luxury compared to launching, marketing and selling your products and services. However, if you don’t take the time to do it up front, you may not get a second chance.

Michael Loeb quote summon your genius and courage to build something good that lasts

How do I start(up)?

In a startup, it’s easy to place the focus on whatever the shortest path is to get things done and meet critical deadlines, launches, and milestones. But if you’re not careful, you can end up with an organization that lacks a clear set of cultural values or leadership practices, and a staff that’s not motivated or empowered to do their best work. Here are some ways to prevent this:

Write it down

Think about what kind of culture you want for your organization, and write down a set of cultural principles and company values you want to aspire to for your employees, customers, and partners.

Include the team 

Communicate your cultural principles and company values to your employees, and take steps to get feedback and buy-in from them.

Show you’re invested 

Commit to actions the company will take to instill and uphold cultural principles and values.

Empower your employees 

Allow them the freedom to perform in the roles they were hired for, and give them room to make mistakes and learn from them.

loeb nyc employees high five
Loeb NYC employees support each other

Foster accountability 

Establish standards of trust and independence among employees, and strive to weed out those who consistently fail to live up to it.

Hire carefully 

When hiring for key roles, especially those in management positions, make sure have you a clear understanding of a candidate’s leadership style and skills, and that they align with your desired values.

Walk the walk 

Strive to embody the values you want to instill in your organization in your daily actions and communications.

Celebrate success 

Take the time to recognize great work and contributions.

Using the above techniques can set your startup on the right track for success, productivity, and low employee turnover. At Loeb NYC, I have observed a large emphasis placed on establishing a culture of fun, employee satisfaction, and fulfillment, and continued learning. This is done through events like “Speakers Series” and weekly staff meet-ups (celebrating birthdays and milestones). It helps make people happy to come to work on a Monday.

Creativity, Inc. Book Cover Ed Catmull

Recommended Reading

Part of our company culture: Loeb NYC has started a monthly book club (and sponsors the books for whoever wants to join in). Each month, a new “Loebster” moderates the meeting, leads a discussion on the book of the month and votes on the set text for the following month. The books selected relate to improving business, productivity, creativity, innovation, and inspiration. Loeb NYC’s book for April 2018, was “Creativity, Inc.” by Pixar’s founder, Ed Catmull. Catmull, after the release and success of Pixar’s first movie (and the first ever computer-animated feature, “Toy Story”) was faced with the challenge of breathing inspiration into a burnt-out, uncommitted staff. Catmull describes how he made actively, continually improving company culture his personal mission, as a crucial ingredient to the creative process and Pixar’s success.

Chris Dowling VP of Product, DgDean

DgDean develops the technology necessary to fuel businesses – whether for startups or established companies. DGDean eliminates the burden of tech with a unique, proven approach and guiding principles. They enable your digital structure to evolve with your customers’ needs. This includes data collection, analytics, coding, design and more.

My Top 3 Transferrable Skills

National Job Action Day

Didn’t realize it was Job Action Day?  Me neither – and I’ve been working in career development for almost 10 years (with my company, WORKS – a partner to LoebNYC). So I did a little research and discovered that this auspicious occasion was created in 2008 by LiveCareer. In the spirit of 2017’s theme; “Survive and Thrive: Using Transferable Skills to Give Your Career New Life,” I’ve picked the top three transferable skills we need to continually hone if we want to kick-ass in our careers.

Time Management Skills

One day, I decided to go running. I got back and said to my then-husband, “I just ran 15 minutes.” He was like, “that’s great, babe.” The next day I went out and ran a little further. I texted him at work: I ran 20 minutes. He came home that night and presented me with a sports watch so I could track my progress. The next morning, I went out, ran past my 25-minute marker, looked down at the watch and discovered I’d only run 7 fucking minutes. The point of this story is that when we’re doing something that is challenging, we tend to overestimate not underestimate, the amount of time we spend doing it.

You might have read Malcolm Gladwell’s, Outliers: The Story of Success (if you haven’t, pick it up).  He suggests it takes 10,000 hours to get to phenom status.  That’s a lot of time, a lot of dedication, and a tough threshold to reach when you’re sneaking peeks at your Instagram every fifteen minutes. Managing your time is no different than managing your money or your weight – tracking your progress is the key. Pick a skill, goal, passion project that you’d like to succeed at and track how many hours you actually spend doing it. My guess is that you’re going to be surprised.

Nicole Williams Book Cover Girl on Top
Nicole Williams, “Girl on Top”

Motivation

Ten-thousand hours doesn’t come without commitment, and the root of your commitment is your ‘why.’ Why are you doing what you’re doing? For me, my mom worked in a paint factory while I was growing up and I hated how it sucked the life out of her. My why started out as, “Sure as shit that won’t be me,” but it turned into something larger, “I want to help others.”  There’s a secret to the why, the deeper you go… the more altruistic you go, the more likely you are to sustain it.  Your first answer may be “To pay the rent,” but think about what you’re contributing to the world, how you’re making people’s lives better, dig into that ‘why’ and find the wellspring of motivation.  Another book suggestion. Pick up Simon Sinek’s, Start With Why and find one of my favorite quotes as it relates to business; “People don’t buy what you do, they buy why you do it.”  What’s your why?

Relationship Building is a Skill

I was in the office of the Academy Award-winning producer of Silver Linings Playbook – in the pitch of my life. I was out of my mind nervous and used the trick of the trade in that kind of situation: get the focus off of you. I looked around his office, and on his wall was the framed Oscar-winning card with American Beauty printed on it (another film he produced).  I asked, “What was that moment like?”  He took a minute to think about it and told me a story about allowing himself to want, really want, to win, so that in the event he did win he could sink into the moment. 

Anyways, the meeting was a success and months later he told me, “You know, I’ve had the envelope framed on my wall for years. Everyone is so busy pitching me, no one thinks to ask about it.”  Our natural inclination when trying to build a relationship is to make sure we get seen and heard and that’s all well and good but the truth is the best way of making a good impression is by letting them take the lead, especially when it’s you in the selling seat.  Be armed with questions like; “What do you wish you would have known going into that situation?”,  “What was that moment like?”,  “Why did you make that decision?”

The above tactics are applicable and useful, whether you are looking to grow your current career, switch to a new career – or are simply looking for greater satisfaction in your current role.

Nicole Williams Job Quote
Click the quote to download Nicole Williams’ “Get the Job You Want” FREE ebook

Nicole Williams

CEO, Career Expert, Best-selling author, LinkedIn spokesperson and Today Show career correspondent.

After working both as a Career Counselor and as a Sr. Business Consultant, Nicole Williams founded WORKS in 2006, with the help of Michael Loeb. Nicole had the vision of building a business that not only helps young women create the careers of their dreams, but also supports the companies attempting to recruit and retain them as employees, and the businesses that are interested in providing products and services aimed at enriching their lives.

WORKS

WORKS is a career brand dedicated to inspiring, revitalizing, educating and energizing professional women striving towards career success. Today, under the WORKS banner, and with an incredible team, Nicole Williams has authored three bestselling books: Wildly Sophisticated: A Bold New Attitude for Career Success, Earn What You’re Worth, and Girl on Top. She has worked with Fortune 500 companies including LinkedIn, Ford Motor Company, Banana Republic, The Limited, and Proctor & Gamble on hiring, retention & marketing programs. Nicole has had her career advice covered in national outlets such as The Wall Street Journal, The New York Times, Marie Claire, TODAY, Good Morning America & CNN.

What is Our "Company Factory"?

“Michael, what you have here is unique, isn’t it?”

Swinging by Loeb.NYC’s Midtown Manhattan office not long ago was a brilliant and remarkably successful entrepreneur, Jonathan Klein. Jonathan and Mark Getty were founders of the eponymous Getty Images. All that company did was revolutionize the stock photo, editorial photo, and film business. With his work largely done – Getty was sold years back to Carlyle for $3 billion-plus. Jonathan serves as Getty Images Chairman, has sat on the boards of two other unicorns since their relatively early days (Etsy and Squarespace), works with various non-profits and advises multiple VC businesses, all while traveling the world to seek out great companies and investments. To be sure, Jonathan has seen a thing or two … but not our model, not once.

“Michael, what you have here is unique, isn’t it?” Jonathan is South African but has lived in England for 20 plus years, so he can be British in tone. So, the quizzical “isn’t it” is at once charming, colloquial, rhetorical, and by turns confounding.

His words were high praise. Our model – a self-funded company factory – is, I suspect, accurately referred to as unique. It’s what my partner, Rich Vogel, and I envisioned a decade ago when we concluded that for us Synapse was not the last chapter but the opportunity for a bold new one. What was then a germ of an idea is now burgeoning into full flower.

Loeb.NYC rejects the traditional incubator model

When described, our factory model sometimes draws comparisons to an Incubator, or its cousin the Accelerator. I describe these as ‘pieces in the middle’: desk space where cohorts of start-ups or young companies, filtered in by type (adtech, health-tech, fintech, whatthehecktech) are paying tenants for 3 to 12 months, and enjoy, ostensibly, the benefits of sage advice from some grey hairs and community.

What a traditional Incubator is not, is the pieces in the beginning – the ideas, capital or talent. Nor is it the pieces in the end – more and more capital and the exit. For its trouble ‘the house’ gets a sliver of equity and may or may not write a check for a modest $50k or thereabouts. The true value of the incubator model for the entrepreneur? Connections to capital. Famously, Y-Combinator, la creme de la creme, has a queue of VCs – the likes of Andreessen, Sequoia, Greylock – lap up its graduates like Skittles at a Halloween bash.

Michael Loeb Quote

Add to this the disadvantages of this common start-up model. They don’t tell you this in entrepreneur’s school, but founders spend half of their time raising round after round of money, and then more time keeping the money happy. Other hours are spent coding bills, planning payments, nudging receivables, pouring over leases, contracts, and the like. Alas, what about the business building? Um, well, not so much. As a related aside, consider this post about the importance of office culture to startup success.

Another thing they don’t tell the newbies: the game is kinda-sorta rigged. VCs know that the universal rules of construction apply: the business of building a business takes longer and costs more than the business builders presuppose. Starter-uppers are optimists who ask for too little at first, and upon the re-ask, VCs often invoke the ‘down round’ edict; that is, more equity for less. Ever hear of Waze? A friend and founder Uri Levine told me he owned just 3% of his company when it was it was sold to Google after the VCs had their “waze” with him.

Greedy? Attribute more to odds and probability. Most VC’s will candidly tell you that only 2 start-ups in 10 have an appreciable return. A little verity from a shot of Casamigos and they will confess to less. Moreover, they are counting – banking actually – on the performance of a rare winner (the most profound of which are fancifully referred to as Unicorns) to pay for all the losers … and their wood-paneled offices, partner mortgages and a long list of green fees.

whiteboard with loeb.nyc logo

Our unique ‘Company Factory’ model

By contrast, our model spans the business lifecycle from ideas-to-execution-to-exit. We are self-funded, so our starter-uppers spend not their precious time soliciting investors, but rather soliciting results. Our shared services; world-class talent in tech, digital business development, accounting, finance, analytics, data science, promotional design, manufacture and a dozen direct-to-consumer marketing sources, allows small teams to punch way above their weight and have access to capabilities other companies can only dream of.

We think our model is also a magnet for talent. With so many companies in the factory, the odds of collective failure are markedly reduced, and the work is more varied and interesting. The net effect: the chances of success for each company and its rate of growth is markedly increased. The #1 cause of death for a start-up is not the lack of a good idea, it is the lack of capital. But not at our shop. #2 cause of death is dismal execution. But all the less likely with our accomplished and experienced practitioners. I say of us today that once every 5 years we start 10 companies. In truth, it could be twice that number at this very moment, depending on how you count ’em.

‎Another promise of an incubator is a community. But inasmuch as all start-ups in a conventional incubator are more than a little bit competitive – they share the same physical and metaphysical space after all – not much is collaborative. And that is also part of the dream that Rich and I had: the making of a bonafide entrepreneurial community. A band of start-up pirates, all sharing best practices, and best resources, all participating in the spoils.

At Loeb.NYC we still have much to do. Unique is hard; unique takes time. But we are getting there one groundbreaking start-up at a time. And for that, I thank you – our community, our merry, exceptional band – all.


Michael Loeb CEO and Founder

Michael Loeb, a serial entrepreneur, is currently the President and CEO of both Loeb Enterprises (LE) and Loeb.NYC. He knows success, past and present. Loeb.NYC, Michael Loeb’s privately funded venture lab leverages his expertise and vision to build prosperous companies from the ground up. World-class analytics, design, marketing, and tech-development pave the way to rapid growth and significant scale.

Things You Didn't Know About Bitcoin's Blockchain

Loeb NYC logo forrest background

Once a speculation point among those involved in startups, finance, or investing, Bitcoin, Initial Coin Offerings (ICO’s), and Blockchain have entered the broader cultural lexicon. You probably have a good idea of the basics and are aware of the social, philosophical, and economic issues, but what follows is a list of things you may not have known about how Bitcoin’s Blockchain actually works.

A slew of Silicon Valley startups and opportunists (some with legitimate intentions, other with get-rich-quick agendas) are raising capital to launch ICO’s on the back of newly invented tokens and cryptocurrencies. A report published by “Bitcoin.com” in February 2018 and cited by Forbes indicated that, “46% of startups that raised capital via initial coin offerings (ICO) are “dead already…despite raising over $104 million.” and that “The failure rate for ICOs is nearly double that of the one-year failure rate for an average startup going the traditional route of venture capital.” You can read more about inflated Silicon Valley valuations in this blog piece by Loeb.NYC CEO, Michael Loeb.

Despite wild volatility and steep trading peaks and valleys, people are still asking “is Bitcoin still a good investment?” Let’s go back to some basics about the Bitcoin blockchain to gain a better understanding of its underlying technology (which I predict is here to stay, no matter what happens with the value of the coin itself).

1: The Bitcoin Blockchain is a public ledger

Anyone can inspect every transaction that has ever occurred

Here is the very first block #0 in the chain, and here is block #492435. Within each block there are many individual transactions, and the flow of value in a transaction can be explored visually, using tools like this one where we can click through any orange circle that represents a spent value. Because everyone can see every transaction, anyone can confirm that the flow is valid – such that the receiver of value always comes from sources that have sufficient unspent value.

2. Transactions are not from one sender’s address to a recipient’s address

The inputs to each bitcoin transaction in the blockchain are the outputs of previous unspent transactions. So, if Alice wants to send Bob 50 BTC (Bitcoin units of currency), she would do so by specifying one or more of her previous transactions where the total output is more than 50 BTC. This is a subtle but important difference from using Alice’s Chase or Paypal account as transaction deposits are not aggregated into a single identifiable account, and they remain anonymous.

3. Transactions spend all the inputs

In order to efficiently verify transactions, every transaction uses the total value of the inputs and will create a new output address for any change. So for example, if Alice wants to send 50 BTC to Bob and she has 3 prior transactions where she received 25, 20, and 15 BTC, her bitcoin client or wallet software would use all three prior transactions to send 50 BTC to Bob and would result in 10 BTC to a new address as change, and all three prior transactions would be marked as spent and no longer usable.

 

4. The Bitcoin Blockchain Ledger stores every transaction and is currently ~140GB with over 11k copies in nodes distributed globally

Anyone can start a node, download the ledger, and start verifying and confirming transactions. This makes Blockchain highly resilient to data loss or central control. Natural disasters or individual or company failures will have no adverse effect as long as there are sufficient copies running.

The “Game” of Blockchain…

5. Confirming a block of transactions is a 10-minute guessing game

In order to prevent Alice from using the same coins more than once, all the nodes need to agree on the order of transactions so that once a previous output is used, it can’t be used again.  This is achieved by setting up a difficult guessing game designed to take approximately 10 minutes to win so that a single order of transactions is accepted.

Each player puts together a block of valid transactions that have occurred since the last confirmed block, including the hash of the last successful block, a special transaction to deposit winnings to the player, and a number the player can change called the nonce. The player then runs a hash function over the data and tries to win by producing a hash that is less than a certain target number known as the difficulty. If the hash result is higher than the difficulty, they change the value of the nonce and try again. When a winner succeeds, that block is confirmed and broadcast to everyone, and the game begins again with the next block containing the hash of the last one, hence the name, blockchain.

6. It generally takes a mind-boggling number of guesses to win each game

The process of confirming a block is called mining, and the players are called miners. The combined guessing rate, or hash rate, of all the miners, was approximately 11 million TH/s at the end of October 2017, where 1TH/s is 1 billion hashes per second. At the current difficulty level, this means that it takes an average of approximately 6 billion (10^18) guesses. That’s:

 

6,000,000,000,000,000,000

 

7. The difficulty of the game adjusts every 2 weeks

Since the purpose of the game is to demonstrate Proof of Work and is designed to take 10 minutes to solve, the difficulty of the game is adjusted every 2016 blocks (approximately 2 weeks based on 10 mins per block) in order to keep the length of each game close to 10 minutes. This is done by adjusting the target difficulty number to be higher (easier) or lower (harder) proportional to the amount of time it took to complete the last 2016 blocks being greater or less than 2 weeks.

8. The winner gets rewarded in Bitcoin until the entire 21M prize pool finishes by the year 2140

The first transaction in a newly confirmed block is the reward the miner awarded themselves according to the rules and is called the coinbase. The reward started at 50 BTC per confirmed block and is halved every 210,000 blocks or approximately 4 years. You can see this yourself by looking at block 209999, and then block 210000. This mechanism results in a total supply of 21M BTC awarded, after which there will be no more new BTC entered into circulation. At this point, miners will be paid by transaction fees for their work to confirm new transactions in a block.

9. Confirmed transactions are irreversible

By design, once a transaction is confirmed and added to the blockchain, every subsequently confirmed block creates an increasingly long chain making it virtually impossible to rewrite history and undo the transaction. This results in low transactions costs because similar to paying in cash, there is no need to account for chargebacks.  

10. Proof of Work currently costs more than $1.1B annually, using more electricity than many countries

While the blockchain mechanism is effective in its objectives, it has drawn criticism for the increased use of electricity and resources consumed by an activity that is an artificial means for introducing difficulty and effort. Several alternative mechanisms such as Proof of Storage and Proof of Stake are intended to address this.

If you learned something interesting and would like more information about the inner workings of the Bitcoin Blockchain, I recommend watching this excellent Khan Academy series hosted by cryptographer Zulfikar Ramzan.

Michael Yoon CTO, Investor, Advisor

Michael is Principal and Founder of Yono Consulting where he provides product, strategy and technology consulting services and helps companies like THNKS to design, implement, and scale their products and technology. He is an experienced product management and technology executive with a track record of success in top-tier financial, consumer and technology companies.

THNKS

We are a team of sales and client service professionals who wanted a better way to say “thank you” to our clients. Our mission is to strengthen business relationships with instant, relevant and meaningful gestures of appreciation while increasing efficiency and control around gifting for compliance, legal and finance teams.