Monday, April 24, 2006

Labels, Stereotypes and Prejudice Cover for Bad Decisions

This post is yet another in a series of analyses of some issues around the new SAAS (Software as a Service) venture Kanosis (we used to call these ASPs...), which I've committed myself to. I feel it is a brilliant, minimialistic, elegant and functional solution to some of the "digital divide" issues which this blog is meant to address.

However, I'm realizing that some of the issues here connect to other matters in relation to IT, namely the fact that business decisions in general are hard, and the responsibility for them is preferably to be shirked by corporate politicos, and IT decisions are even harder and even more likely to be the subject of games playing. In another post I have already addressed the issue of the popularity of SAP with Wall Street Analysts. Other examples are the popularity of Windows, or the time when CIOs (then mostly called IS Managers), "could not be fired" for choosing IBM. Thus labels often got in the way of sound decision making and outsiders labeled as progress many dysfunctional IT decisions.

It gets worse when, as my friend Michael Hugos related recently, a CIO is appointed for his presumed ability to "implement SAP" similar to choosing a secretary (excuse me: Personal Assistant) because he or she "knows" Microsoft Word. And then if SAP fails to deliver the CIO is fired, because obviously Wall Street aproves of SAP. Such companies don't seem to get that they should choose CIO for his ability to analyze and decide if SAP is an effective solution for their company, and possibly should fire him if he chose SAP for the wrong reasons. They should not saddle a CIO with responsibility for dysfunctional IT decisions over which they have no control, or otherwise limit them to being implementers of someone else's strategy. And so on.

The same goes on with people's lack of analysis of marketing plans in the Network Marketing/Direct Selling industry, and as a result we're encountering this in spades around the launch of Kanosis. Some examples:

The "P" Word.
------------- "Pyramid scam" is a bad word, and it denotes a business concept that fallaciously assumes an ever expanding base, and therefore is unsustainable in the long run. This is quite contrary to the positive meaning of the word, denoting certain architectural phenomena in Egypt, which is where the term comes from, and which are based on a solid foundation, and have now lasted in excess of 6,000 years. Similarly some quite functional business hierarchies look like pyramids, as do some very dysfunctional ones. In other words the negative connotation of the word refers purely to the false assumption of an ever expanding base. According to some credible analysis by Bill Parish & Company, which has been published among other place in Barron's, Microsoft is just such a phenomenon, and the findings are hard to refute:

Thus when I Googled "financial fraud" today, the above URL comes up at the top of the page. That speaks volumes. Conversely when people see a multi-level pay structure like Kanosis has, they say: "Oh a pyramid scheme," as if they knew what that meant, when clearly their very statement shows that they don't, since in this specific case the model evidently means that this company in particular enjoys a predictable distribution margin of 70% paid from REVENUE, and which therefore does not require an additional up-front capital infusion, and also ensures that there is a high degree of commitment for the early birds who help build the company. Evidently only people who really believe in the product or service would commit their time and resources to the vision. The level of commitment of your $200K VP of Sales and Marketing might not be as certain.

Therefore the humorous way in which Kanosis deals with the "P-word" on their site, is in fact the only way that you can counter this non-serious label (for it isn't even an argument), see:

There it says: "Is Kanosis Pyramid selling? No we do not sell pyramids. They are too heavy and expensive to ship!" And that is all you could say to this kind of non-serious "objection." And still some people will say: "Oh, it's a pyramid," and that will be the end of their "business decision." I guess it's just one more example of how labels are used to mask an inability to make proper decisions.

The "M-word."
------------- "Matrix" compensation plans have featured in so many Internet scams that there is a site devoted to steer the gullible out of trouble:

The intentions are evidently good, however the discussion around Kanosis on this site suffers from a knee-jerk response that if it looks like a matrix at all, the specifics are ignored, and it is assumed that the venture in question is automatically a scam. Jim Southworth, the Chief Technology Evangelist (he's the CTO with an emphasis on explaining the technology to the outside world) for Kanosis has had quite a time of it on that site to try and keep the dialog meaningful while wading through piles of invective and prejudice.

Again the same applies here as did on the discussion of the "P-word," and that is that if you analyze the specifics, you are likely to find a gem of efficient and effective marketing in the form of the Kanosis marketing plan. Based on my analysis, I continue to bet that Kanosis has struck just the right balance. As of this week the jury's still out on the feature set they are about to deliver May 1st, but provided that lives up to its billing, there can be no question where this company is headed.

There are other "M-" and "P-" words, such as MLM, for Multi-Level Marketing, and Ponzi-scheme for a venture where the early investors are given phoney returns based on paying them from the investments of subsequent investors. All of them are evidently nefarious schemes, and any student of financial fraud will recognize them. Many a time the studies of the actual schemes people came up with are quite hilarious and instructive as to how people defer decisions and hurt themselves by reliance on irrelevant externals. The best resources to sort right from wrong are (among others) (provided by a non-profit corporation) (provided by the best network marketing consultant in the country) (collaboration of FBI and National White Collar Crime Center).

So resources abound, and anyone should do their own due diligence on any venture they decide to get involved with by standards that makes sense to them.

It is very clear to me already that one reason network marketing scares off people is because they have to make their own decisions, because in this business model you hire the company instead of the company hiring you. Unfortunately it is the same mentality which causes people to later be herded into many of the same business opportunities, since by then they consider them credible because the neighbors are doing it. This behavior is no different from a company throwing out a perfectly good Unix architecture in favor of Microsoft Windows, which breaks down far more often and requires 5-10 times the number of administrators to users of Unix, not to mention every seat has 10 times higher power consumption than e.g. a SunRay terminal 250 Watt for a PC, vs 25 Watt for a SunRay). They are making the choise because the neighbors are doing it, or because the boss's kids have a Microsoft PC at home, or whatever. It has nothing to do with analysis.

One of the best scam artists I ever met, David Eastes, who was a big succes in Best Line (that was the "other" soap company besides Amway) at one time, and was barred from the direct selling industry because of some dubious practices, had a saying that demonstrates the issues clearly: "Logic and reason are the horse the emotions ride in on." I met him in my early days in the phone card industry, when he was trying to do it again in Amerivox, one of the first phone card companies, and one which definitely helped create that industry, even though they collapsed because of a defective strategy as well as sloppy execution.

To come back to the underlying issue here of deciding by appearances rather than by facts, another important example is the whole business of website design and the availability of reasonable and adequate disclosure on the website of any company. I have seen many criticisms of Kanosis in this regard, meanwhile they have improved the site on an ongoing basis, and I guess the critical point will come now that the company is launching their service as of May 1st, if the site will provide enough hard information. I am currently dealing with the same issues for another start-up company I'm tangentially involved with, where an interim website has garnered negative responses because of lack of information, and so it becomes a hindrance not a help in discussing the venture with others. So here is an area where companies can help themselves a lot by creating the right impression and providing sufficient answers to any potential issues. However in the spirit of caveat emptor, it does remain incumbent upon any buyer to do their own assessment, and by facts, not appearances.

The bottom line is first and foremost we should guard against being intellectually lazy, and doing our own due diligence by analysis, and not by proxy, either negatively by applying the label of "scam," based on appearance not facts, or positively, because the neighbors are doing it, so it must be alright. Any attempt to decide by proxy is ultimately only a way of avoiding responsibility for your own decisions, and making sure that you have somebody to blame if things go wrong.

Copyright © 2006 Rogier F. van Vlissingen. All rights reserved.


Anonymous said...

DATE: September 22, 2006

FROM: Kanosis Board of Directors

TO: All Kanosis Distributors (Subscribers earning commissions)

RE: Company Status

The Kanosis Board of Directors has met and determined that the company needs to hibernate then relaunch as an alternative to liquidation. Therefore, we have decided to take the following action:

(1) Kanosis Needs to Restructure the Distributorship Program

- Current distributor model was based on achieving 10,000+ sign ups/month, which was never achieved.

- Tweaking the existing distributor model is necessary to allow for more realistic targets.

- During restructuring, you are invited to contribute ideas toward a realistic distribution model.

(2) Your Credit Card Is No Longer Being Billed

- Majority ownership was not in "control" of the banking operation from Jan 06 until Mid Jul 06.

- After the 1st 30 days of being in control (Jul 06 to Aug 06) Kanosis paid commissions on Aug 15th.

- After the 2nd 30 days of "control", Kanosis corporate realized that it could not meet its financial obligation to distributors and immediately ceased, disconnected and quit running the credit cards of all Kanosians.

- All credit card charges to Kanosis were ceased on September 15th, 2006.

- Your credit card data is secure and will not be used or released for any purposes.

(3) You Can Continue Using the Service for Free

- All webtop functionality is active and your 50 gigs of online secure storage is at your disposal.

(4) No Commissions Will Be Paid Through this Indefinite Period of Restructuring

- No commissions of any kind will be paid until sometime after December 31, 2006.

- After December 31, 2006 Kanosis will begin a year-end audit of the 2006 year, verify all amounts owed and follow-up with you and disclose our ability to pay, if at all, and advise you of such.

(5) There Will Be No New "Paid" Sign Ups During Restructuring

- See item six (6) regarding new sign ups.

(6) The Service Is Open Globally for Free Sign-ups

(7) Kanosis Needs to Raise Investment Capital

If You Do Not Wish to Continue with Kanosis - Send an e-mail to; state the amount of commission that you feel that you are owed.

This is an acknowledgment of insolvency. The above eight declarations are an attempt to locate an alternative other than liquidation of the company. This is an effort to give Kanosis a chance to survive, though it will be in a bit of a temporary coma.

With the best interest of all in mind,

Board of Directors

Anonymous said...

hmmm, seems the "knee-jerk response" on Kanosis from groups like Matrixwatch were correct, eh?