Gordian Knots

The high-technology sector displays all the characteristics of a mature industry overdue for restructuring: slowing growth, slim profit margins, fragmentation. Soon, price pressures and the changing behavior of customers will probably get consolidation going. Smaller companies will have to choose between being acquired or working within the sphere of larger vendors.

High-tech companies should anticipate the sector’s imminent restructuring by preparing for more deals—some hostile—and perhaps by repositioning themselves, through changing scale and scope, within an evolving industry structure.

Slashdot | The Google News Dilemma: “Wired has an interesting article about the status of news.google.com. It has been 3 years since its release and the major bugs have long since been ironed out, so why is it still in beta? Apparently, it’s because Google hasn’t been able to figure out how to make money off of it. Slapping up some Google Adwords seems like the obvious solution. The problem is that Google News has multi-million-dollar news publishers scared because of the incredibly low-cost method that Google has employed to bring us ‘up the minute news.’ Currently they are able to scrape the content of news sites under fair use because they are not using it for commercial purposes. Once they move away from the nonprofit, educational purposes of their system they can expect to be deluged by cease and desist orders. Before you break out the tissue box though, remember that google sent their own cease and desist orders to a Google News RSS feeder a few months back”

Intro HP Archives: “The main purpose of this collection is to present all previous issues of the journal Human Power in an easily accessible and searchable form. Human Power has been the technical journal of the International Human Powered Vehicle Association (IHPVA). Chet Kyle describes in his essay Human Power’s First Issue how he and Jack Lambie started the IHPVA in California, USA, together with a group of enthusiasts who wanted to race streamlined and otherwise unconventional cycles outside the strict rules of then-accepted bicycle racing.”

The sheer plunge near the bottom of the world’s deepest cave, in a remote part of Georgia, doesn’t automatically instantly inspire comparisons with Alan Warild’s home country. It’s bitterly cold, forever dark and usually damp. But since the veteran caver climbed to its dank depths last month it has incongruously borne Australia’s name.

The 49-year-old from Newtown was invited to lead a 25-strong team of cavers from Russia and Ukraine on a world-record 1830-metre descent into the Krubera-Voronia cave in Abkhazia, Georgia.

At the end of the nine-day journey down the corkscrew-shaped hole, the triumphant team told Mr Warild it would name the final drop ‘Viva Australia’ in his honour.

‘It’s not my favourite cave, because it’s about 3 degrees at the bottom and it’s muddy and you have to dive in one part. But it’s a great challenge and a bit of a thrill to stand somewhere where no human being has ever stood before.’”

The previous world record for the deepest caving expedition, 1710 metres, was set in the same cave in 2001. But Mr Warild and his fellow travellers took a different route, passing through a sump filled with icy water to descend 120 metres further. “We went as far as we could, we hit a pit full of water and decided to leave it for another trip.”

Engadget has glimpse in to the future, a future where your dog has a cell phone, webcam and electronic tag, and maybe even talks to you. Maybe. Some of this dog-tech isn’t available yet, and some of it is (in Japan, of course). The overview includes some interesting iterations of pet technology, and they even made their own version of a dog webcam along with the first ever canine photographer’s photo gallery.

NASA World Wind: “NASA Learning Technologies (LT) is a NASA R&D effort for the engineering of teaching tools that deliver NASA content in the most engaging and dynamic manner possible. LT builds the pipeline and the delivery point for unencumbered access to the best data NASA has to provide.

World Wind allows any user to zoom from satellite altitude into any place on Earth, leveraging high resolution LandSat imagery and Shuttle Radar Topography Mission (SRTM) elevation data to experience Earth terrain (or any planet with the data) in visually rich 3D, just as if they were really there. Virtually visit anyplace in the world. Look across the Andes, into the Grand Canyon, over the Alps or along the African Sahara.”

The decade-old credit-derivatives market is remarkably free of public squabbles. According to Fitch, a credit-rating agency, $3 trillion of contracts were outstanding at the end of last year. Yet any dispute is usually settled between professional dealers and losses are taken on the chin. This may help the market run smoothly, but it does not make it transparent.

Credit derivatives are contracts under which one party insures another against the default of a debtor, or a bunch of debtors. Of the $3 trillion, about $800m are complex beasts known as collateralised debt obligations (CDOs). These are portfolios of credit risk, constructed from bonds or loans, or synthetic portfolios created from credit derivatives. The CDOs are sliced into “tranches� of different riskiness and sold to investors: the riskier the tranche, the higher the expected return. These deals are monitored by rating agencies, which rate each tranche according to its perceived likelihood of default, from AAA (the best) to C (the worst).

Some CDOs, known as “Russian dolls�, contain investments in other CDOs, making their monitoring extremely complicated. To make matters more difficult still, some CDOs are actively managed—ie, the composition of the underlying portfolio can be changed by the asset manager.

Evidence that people have been promiscuous for a long time

Lotharios everywhere will be pleased to hear that monogamy does not appear to be a natural human state. That, at least, is the conclusion of a study conducted by Michael Hammer at the University of Arizona in Tucson, and just published in Nature Genetics. By examining the DNA of living people, Dr Hammer and his colleagues have found that far fewer men than women pass their genes on to subsequent generations. In short, a small number of men have been putting it about a lot, thus outcompeting their lesser rivals.

The new Indian Museum is set to open September 21 in Washington, D.C. and it’s collection includes hundreds of thousands of artifacts from the native cultures of both North and South America.

American Indians have always had a close connection with nature, so when the Native-American designers planned the National Museum of the American Indian, they wanted a structure that looked like it was carved by wind and rain. They also wanted a museum surrounded by natural things that reminded them of their homelands. That natural theme is carried through to the inside, where sunlight is refracted through a prism window and shines down from a dome above. And of course all of the artifacts on display come from nature as well – over 800,000 objects, handmade by Indians who lived and are still living at the southern most tip of South America to those who live as far north as the Arctic Circle.”

No Exit: When Venture Capital isn’t Right

Everyone in venture capital gets plans that might be great businesses, but don’t fit the venture model. And one also occasionally sees ideas which might fit the model, but only by stretching the original notion in a way that distorts it, perhaps to the detriment of the founders and the business. This is a first take at laying out the parameters of the model, and of these two no-fit situations.

OK, so what’s this ‘venture model’? We have to start with how a venture fund is organized. The garden variety venture capital fund is a limited partnership (LP) with a fixed period. That means the investors (limited partners or ‘limiteds’) commit to put up a defined amount of capital, which is drawn and invested over a period of a few years. The partnership agreement typically concludes seven to ten years after start, with options for extension for a few years depending on market conditions. During the partnership period, the capital is invested and controlled by a management company which is usually organized as a limited liability corporation (LLC), and is the general partner of the LP. It can and typical does manage multiple venture funds diversified in start year (’vintage’), investment focus, or stage. For most people, the management company is the continuing, publicly visible presence. When you say ‘August Capital’ or ‘Kleiner, Perkins’, you are talking about a management company and its people.

Actual investment dollars, though, come out of one or more of the limited partnerships, which are finite in duration. The limiteds expect their money back, with a healthy ROI, within the term of the partnership. Each of the 15-25 venture investments made within a fund is usually in a private company which has no open market for its stock – it can only be resold to qualified investors, who have to go through lengthy diligence processes to value it. Even if it has increased in value, the limiteds of the fund don’t want to receive their pro rata share of this stock as their eventual return. They want saleable shares, or preferably cash. So each of the fund’s investments should ‘exit’ or ‘get liquid’ before the end of the LP term. The most likely ways to exit are by initial public offering (IPO), where you end up with shares that can be openly sold, or by having the company acquired by another that can write a check that won’t bounce, or that is already public and has liquid shares to swap.

The need to exit is the core of the venture model. You might have a wonderful business idea, that will make its customers, employees, and managers all happy, but if it is unlikely to exit, and with a sufficient return on the capital put in, we don’t want it. It could in fact generate wonderful cash flow forever, but if we can’t monetize that in a liquid form by the end of the fund, it won’t make it through the partners’ meeting. It is inherent in the nature of the beast.

What makes us believe you can exit? The best (and sometimes circular) argument is if you are in an industry segment where exits happen. Where the public markets have a past appetite for IPOs. Where there are large companies that are known to grow by acquisition. Preferably both. Got something that Cisco or Broadcom might want to buy, and that could get public if things go really well? Ding! Go on to the next test. No? Better have some reasoning as to why you’re like something that’s worked before, or a really convincing argument of some buyer waiting to scoop you up when you win, even if it takes five years.

What should the exit look like? Everyone has their own numbers, so let’s just play with the proverbial 10x the invested capital. A good return, though not an ohmigawd-it’s-another-Netscape return. In fact, it’s about 39% compounded interest if the holding period is 7 years. Even if it takes 10 years it’s still 26%. A bit better than a CD, eh? Maybe everything the lefties say about rapacious VCs is true? I wish. Problem is that’s the upside picture. That return also has to make up for doggy deals that have lesser return, or that lose the invested capital entirely, and still let us make a decent total return for the venture category (which is in the mid-teens, with a scary variance). The nasty bit from the entrepreneur’s standpoint is that your wonderful business plan, sure to succeed, is essentially being taxed via that horrendous discount rate, all because of those other wretched loser deals we’re going to do. If only we knew which was which.

Now we can do a few numbers. For simplicity let’s say there was one round of investment, of $15m, with a generous pre-money valuation of $9m. We now need a convincing case that a decently winning outcome will produce a total enterprise value of about $240m in five or six years – which we suspect will take a year or two longer anyway. Time to look for comparables: what were the price/sales or price/earnings (you should be so lucky!) ratios for recent IPOs or purchases in your category? Beyond the direct financial implications, these ratios have baked in a lot of market wisdom about margins, entry barriers, pricing power, and so forth. Higher is better. Let’s just pick a whopping 3.0 price to sales, you lucky dog.

So you need to book $80m in sales five to six years out. Now your Wonderful Widget takes 12 months to cook, even with prototype in hand. Year one revenue: $0. You sell the Wonderful Widget to an industry that turns over its products every 9 months, and has a three month typical sales cycle to its customers. Year two revenue: $250k for some samples and a bit of NRE. You closed two OEM customers, representing 15% of the total industry volume, but they only put it in their high end product. Year three revenue: $5m. Imagine these data points on a graph, along with year five/six: The ‘hockey stick curve’ is born. OK, we don’t believe the specfic numbers on the chart any more than we do the Gartner numbers, but there had better be a good scale-up argument. Why an initial penetration can turn into a rapid breakout, and why your technology, sales channels, management team, and suppliers can all sustain that growth.

That’s a simplified picture, but it should show why some business types usually don’t make it in normal times. Professional services? Low multiple. Market share game. Scales by hiring people, not running the fab line or CD press or download site. Next!

That’s one end of the game. Now the less common case. Suppose you actually could fit the model, but you only need (say) $1.5m of capital to create the Wonder Webservice. You’ll get some chunks of the functionality on open source, plug into published APIs, get the protectable algorithm on a cheap license from your old university, and are just going to sell it through the net anyway, using a promotional model that can largely self-fund if it wins. If those stingy VCs only give you a premoney valuation of $2m, then if you’re valued at $35m five years out, they ought to be happy! Well, maybe. Who ever heard of a $35m IPO anymore? Even the investment bankers aren’t that hungry yet. For that matter, how many funds want to deal with that small a raise? That doesn’t move the needle if you’re managing $200m. And there’s always the sneaking suspicion that anything that can be built that cheap doesn’t actually have enough competitive barrier to stop the big boys from just reverse engineering it, instead of ponying up for the acquisition.

But all this can be fixed! Retool the plan to create a bigger barrier, and burn more cash. Maybe it needs to be an appliance, not pure software. Or a blade or a chip, that would be even better! Probably we need to build a complete distribution based sales channel! OK, you can see where I’m going. Sometimes that’s piling up risk needlessly, and turning cash consumption into a bogus security blanket. And taking on a need for an exit where that might not fit the inherent business situation.

It’s possible that given some of the enabling forces I mentioned for the Wonder Webservice, that there will be more business plans with the option to run capital light. If your grand idea fits into this category, consider the big capital option, but give just as much time to figuring out how you could cut the costs even further: turn beta users into discounted paying customers, play guerilla marketer, cut a revenue sharing sales deal with someone who cares about cash, not exits. The VCs won’t be offended, there are a lot of fish in the sea for us to chase.

Experienced entrepreneurs understand that the business model always precedes the business plan. In fact, a convincing business model is often all that is needed by a savvy entrepreneur to make the commitment to pursue a fast moving opportunity. Conversely, a business plan takes several months to put down on paper during which the window of opportunity may shut. For this reason, entrepreneurs who need to be agile and fast moving place more importance on formulating the business model than on writing a business plan.

Almost everyone talks about business models these days but only a minority truly understands what they are. Even the academics disagree and contradict one another when it comes to formulating a definition.

So let’s review some of the research into business models.

The Business Model as a One Page Diagram

The business model is defined by some as the profit engine of the business. It is where the rubber meets the road, so to speak. The business model is normally distilled into a diagram on a single sheet of paper showing the following elements of the proposed venture:

1. how and where the business acquires cash from customers,

2. how it uses its cash (tracks cash streams from clients and customers to the business and through the business to its suppliers),

3. how products and services flow from suppliers and the business to clients and customers in the reverse direction and, finally,

4. there is an orthogonal dimension that shows how the business connects (through sales and marketing channels) with its clients and customers.

If you get the business model right, then the harder you work, the more money you make (Google is an example here). If you get it wrong, then the harder you work, the more money you lose (Napster is an example here).

As stated above, the business model should be a one page diagram summarizing how the proposed venture will fit into the value chain between customer and upstream suppliers–if any–and create the value added which will result in profits being made.

The Components of a Business Model

In their paper, The Role of the Business Model in Capturing Value from Innovation, Henry Chesbrough and Richard S. Rosenbloom present a basic framework describing the elements of a business model. They list the following six components of the business model:

1. Value proposition – a description the customer problem, the product that addresses the problem, and the value of the product from the customer’s perspective.

2. Market segment – the group of customers to target, recognizing that different market segments have different needs. Sometimes the potential of an innovation is unlocked only when a different market segment is targeted.

3. Value chain structure – the firm’s position and activities in the value chain and how the firm will capture part of the value that it creates in the chain.

4. Revenue generation and margins – how revenue is generated (sales, leasing, subscription, support, etc.), the cost structure, and target profit margins.

5. Position in value network – identification of competitors, complementors, and any network effects that can be utilized to deliver more value to the customer.

6. Competitive strategy – how the company will attempt to develop a sustainable competitive advantage, for example, by means of a cost, differentiation, or niche strategy.

A good business model draws on a multitude of business subjects, including economics, entrepreneurship, finance, marketing, operations, and strategy. The business model itself is an important determinant of the profits to be made from an innovation. A mediocre innovation with a great business model may be more profitable than a great innovation with a mediocre business model.

The Two Dimensions of a Business Model

Management consultant Joan Magretta adds another layer of important detail to business models in her outstanding article “Why Business Models Matter”, which is excerpted from her book, What Management Is. Magretta shows that a business model actually consists of two halves: the numbers side and the narrative side.

The numbers side focuses on financial aspects of the business: do the numbers add up? Can overhead be covered to achieve break-even and then make a profit?

The narrative side covers the underlying assumptions of the plan. Will customers actually buy and why? Will other players whose cooperation is needed in the marketplace actually cooperate with the new venture?

Many rookie entrepreneurs make their fatal planning mistake on the narrative side by jumping to conclusions over the level of support that will be forthcoming from established players in the industry. It pays to be paranoid and automatically assume that others will not be interested in giving you a helping hand in establishing a beachhead in the market.

Magretta illustrates this key point in a story about Priceline’s WebhouseClub. (You can add in other failed buyer aggregators as well such as Mobshop and Mercata.)

“Here’s the story Walker tried to tell. Via the Web, millions of consumers would tell him how much they wanted to pay for, say, a jar of peanut butter. Consumers could specify the price but not the brand, so they might end up with Jif or they might end up with Skippy. Webhouse would then aggregate the bids and go to companies like P&G and Bestfoods and try to make a deal: Take 50 cents off the price of your peanut butter, and we’ll order a million jars this week. Webhouse wanted to be a power broker for individual consumers: Representing millions of shoppers, it would negotiate discounts and then pass on the savings to its customers, taking a fee in the process.

What was wrong with the story? It assumed that companies like P&G, Kimberly-Clark, and Exxon wanted to play this game.Think about that for a minute. Big consumer companies have spent decades and billions of dollars building brand loyalty. The Webhouse model teaches consumers to buy on price alone. So why would the manufacturers want to help Webhouse undermine both their prices and the brand identities they’d worked so hard to build? They wouldn’t. The story just didn’t make sense. To be a power broker, Webhouse needed a huge base of loyal customers. To get those customers, it first needed to deliver discounts. Since the consumer product companies refused to play, Webhouse had to pay for those discounts out of its own pocket. A few hundred million dollars later, in October 2000, it ran out of cash – and out of investors who still believed the story.”

The lesson here is to never assume anything other than a complete lack of cooperation, if not a full assault on your venture, by vested interests. Think about it this way, why would anyone be willing to let a johnny-come-lately shoehorn into their market for a share of their profits?

Generic Online Business Models

Here is an overview of generic business models found on the Internet. These are textual description which do not, unfortunately, include the all important diagram.

It’s funny how the very first thing that comes to mind when business plans are mentioned is the Dack BS Generator. This is a very useful tool for making your plan sound as if it was written by a team of Stanford MBA students.

There is no bigger sinkhole for entrepreneurial energy than the business plan. Every budding entrepreneur sets out to write the finance winning plan in 30 days and spends two to three times that long on it.

What’s worse is that maybe 5% of all business plans are actually read by anyone. The rest are never even cracked open. People who have no clue about entrepreneurship will always emphasize the importance of having a well researched business plan before you start. Frankly, these people really ought to just shut up. Asking for your business plan is also an indirect way of getting rid of you. When someone you have tagged as a potential investor asks for a copy, it’s almost a sure bet that they lack the intestinal fortitude to just say that they’re not interested.

But don’t take it from me. Read what America’s leading academic on entrepreneurship says about business plans.

Business Plan Samples

So what then if not a business plan? We recommend that in most cases you begin with a well thought out business model and an expanded executive summary of 3 to 5 pages. If these two items are not enough to line up a face to face meeting with potential investors, then nothing will be.

Still want to work on a business plan?

What about business plan books?

They are all pretty well the same since every plan must answer the same basic set of questions. You can in most cases find all the tips you need online for free. If you are determined to make a purchase, look up books by Rich Gumpert. You can’t go wrong with his advice. See the recommended reading page as well.

Revisionum ad infinitum

Be wary of getting caught up in this game as it’s a bottomless sinkhole for your time and energy. It starts off when the first investor you pitch to gives you his personal feedback on how to improve your plan. So you go back home and spend a day or two rewriting it. Then the second investor you pitch to gives you her unique feedback on how to improve the plan. So you invest another day incorporating those changes. Of course the third party you do your dog & pony show for gives you yet more business plan improvement advice.

If you’re quick, you will begin to see two facts: 1) that a lot of these suggestions contradict each other, and 2) the person who gave you the free advice probably never really read your plan and is not really interested in your deal.

Lesson: invest the time in rewrites only if you are assured the prospect is really serious about investing in your venture. Otherwise just remind yourself next time someone offers you a pearl of wisdom that business plan improvement ideas are like belly buttons–everyone and his canine companion has one.

Occasionally, but rarely, someone will offer a suggestion which is worth the time called for to incorporate into your plan. The trick is in recognizing it.

I’ve found that even sophisticated entrepreneurs didn’t necessarily grasp how valuation math (or “deal algebra”) worked. VCs talk about pre-money, post-money, and share price as though these were universally defined terms that the average American voter would understand. To insure everyone is talking about the same thing, I started passing out this document. Recognize that this is about the math behind the calculations, not the philosophy of valuation (which Fred’s blog addresses).

In a venture capital investment, the terminology and mathematics can seem confusing at first, particularly given that the investors are able to calculate the relevant numbers in their heads. The concepts are actually not complicated, and with a few simple algebraic tips you will be able to do the math in your head as well, leading to more effective negotiation.

The essence of a venture capital transaction is that the investor puts cash in the company in return for newly-issued shares in the company. The state of affairs immediately prior to the transaction is referred to as “pre-money,� and immediately after the transaction “post-money.�

The value of the whole company before the transaction, called the “pre-money valuation� (and similar to a market capitalization) is just the share price times the number of shares outstanding before the transaction:

Pre-money Valuation = Share Price * Pre-money Shares

The total amount invested is just the share price times the number of shares purchased:

Investment = Share Price * Shares Issued

Unlike when you buy publicly traded shares, however, the shares purchased in a venture capital investment are new shares, leading to a change in the number of shares outstanding:

Post-money Shares = Pre-money Shares + Shares Issued

And because the only immediate effect of the transaction on the value of the company is to increase the amount of cash it has, the valuation after the transaction is just increased by the amount of that cash:

Post-money Valuation = Pre-money Valuation + Investment

The portion of the company owned by the investors after the deal will just be the number of shares they purchased divided by the total shares outstanding:

Fraction Owned = Shares Issued /Post-money Shares

Using some simple algebra (substitute from the earlier equations), we find out that there is another way to view this:

Fraction Owned = Investment / Post-money Valuation = Investment / (Pre-money Valuation + Investment)

So when an investor proposes an investment of $2 million at $3 million “pre� (short for premoney valuation), this means that the investors will own 40% of the company after the transaction:

$2m / ($3m + $2m) = 2/5 = 40%

And if you have 1.5 million shares outstanding prior to the investment, you can calculate the price per share:

Share Price = Pre-money Valuation / Pre-money Shares = $3m / 1.5m = $2.00

As well as the number of shares issued:

Shares Issued = Investment /Share Price = $2m / $2.00 = 1m

The key trick to remember is that share price is easier to calculate with pre-money numbers, and fraction of ownership is easier to calculate with post-money numbers; you switch back and forth by adding or subtracting the amount of the investment. It is also important to note that the share price is the same before and after the deal, which can also be shown with some simple algebraic manipulations.

A few other points to note:

-Investors will almost always require that the company set aside additional shares for a stock option plan for employees. Investors will assume and require that these shares are set aside prior to the investment, thus diluting the founders.

-If there are multiple investors, they must be treated as one in the calculations above.

-To determine an individual ownership fraction, divide the individual investment by the post-money valuation for the entire deal.

-For a subsequent financing, to keep the share price flat the pre-money valuation of the new investment must be the same as the post-money valuation of the prior investment.

-For early-stage companies, venture investors are normally interested in owning a particular fraction of the company for an appropriate investment. The valuation is actually a derived number and does not really mean anything about what the business is “worth.�

The simple answer is that ideas are a dime a dozen. Really. The power of an ‘idea’ isn’t the concept, it’s the execution. And there’s a long, long road from idea to finished product; that’s why the overwhelming majority of ‘ideas’ never make it.

Think of it this way: you have an idea. Now how will you make it happen? Can you raise the capital? If you can’t, then what value is that idea to you? And remember that if it’s really profitable, there are probably already 1,000 people who have the same idea and are trying to find funding just like you are.

Contrary to popular belief, no one pays money for ideas. What they will (sometimes) pay for is the idea, plus a *detailed* plan of how it will be put into action, along with market research and analysis, income projections, etc. Even then, most investors will prefer to give their money to someone who’s already done all that and is generating income, if only a little.

Most of the successful businesses are not ideas, they are executionLook at successful Internet companies right now: online marketplace [ebay.com], online bookseller [amazon.com] that’s not selling electronics and a lot more, large-scale information archival and retrieval system [google.com]. Every once in a while you have Edison-like geniuses coming up with brilliant ideas that turn the world around and occasionally make their inventors rich, but more often than not, it’s the execution, not the idea that matters.

And don’t forget that Draper is not the only one, as NYT article states, he’s one of the few people that would invest in half-baked startups, but nevertheless in the venture world he’s still one of many. And there’s $70 billion dollars out there [itfacts.biz] ready to be invested into the next venture. VCs got a bit tough lately with dot bomb and everything, but the money is still out there, and there are fewer ideas, than there are brains.

IEEE Spectrum magazine is running a feature article on the state of music and current digital formats. They point to an interesting phenomenon in the digital music world that Steve Jobs emphasized as well: for the first time in music history, the next big format was not about better quality (SACD and such) but about better portability (MP3). ‘It was only five years ago that the music industry was facing a civil war over the next-generation disc-based music format — the successor to the wildly successful CD. At that time, hardly anybody doubted that the music would be encoded optically on a round plastic disc the size of a CD”

Awful Business books If you want to profit from your pen, first write a bestselling business book. In few other literary genres are the spin-offs so lucrative. If you speak well enough to make a conference of dozing middle managers sit up, your fortune is made. You can make a seven-figure income from speechifying alone.

Given this strong motivation to succeed, it is astonishing how bad most business books are. Many appear to be little more than expanded PowerPoint presentations, with bullet points and sidebars setting out unrelated examples or unconnected thoughts. Some read like an extended paragraph from a consultant’s report (and, indeed, many consultancies encourage their stars to write books around a single idea and lots of examples from the clientele). Few business books are written by a single author; lots require a whole support team of researchers. And all too many have meaningless diagrams.

The formula seems to be: keep the sentences short, the wisdom homespun and the typography aggressive; offer lots of anecdotes, relevant or not; and put an animal in the title—gorillas, fish and purple cows are in vogue this year. Or copy Stephen Covey (author of the hugely successful “Seven Habits of Highly Effective People�) and include a number. Here, though, inflation is setting in: this autumn sees the publication of “The 18 Immutable Laws of Corporate Reputation� by Ronald Alsop. And Michael Feiner has written a book offering “the 50 basic laws that will make people want to perform better for you�.

The fundamental problem is that a successful business book needs a bright idea, and they, in the nature of business, come along infrequently. The dotcom boom brought some, the spurs to Clayton Christensen’s “The Innovator’s Dilemmaâ€� or Rosabeth Moss Kanter’s “Evolve!â€� (accompanied by a CD of the guru herself rapping her message). Since then, new books have tended to focus on three areas: corporate governance; leadership; and how to make money out of bits of the business that were forgotten in the boom.

The first category has produced the most meticulous work, with books such as “The Recurrent Crisis in Corporate Governance� by Paul MacAvoy, an academic, and Ira Millstein, a lawyer. Inevitably, many books have raked over the lessons of Enron, WorldCom and other failures, trying to explain what went wrong.

Some of the leadership books are written (or ghost-written) by the likes of Rudy Giuliani or Jack Welch, to describe the secrets of their success. Others explain the mysterious qualities that successful leaders display. Warren Bennis’s “Geeks & Geezersâ€�, for example, compares different formative experiences on the way to the top. Of course, the most perceptive leadership literature was written 400 years ago by William Shakespeare; and some of today’s most readable books discuss the techniques of past heroes, such as Alexander the Great. They will teach you history, even if they do not make you Jack Welch.

The sheer number of business books means that the diamonds shine rarely in a mound of dross. Counting everything from property management to personal finance, there are perhaps 3,000 business titles published each year in the United States, easily the largest market. One industry insider estimates, on the basis of figures from Nielsen Bookscan and a hunch about Amazon’s sales, which Bookscan excludes, that a total of 8m-10m books that could broadly be defined as “businessâ€� are sold in America each year. They are almost all written by North Americans: Charles Handy, the Irish author of “The Age of Unreasonâ€�, is one of the few non-Americans who has managed to break into this market.

Including Amazon’s figures, the top 50 business books sold around 4m copies in the first seven months of this year. But many sell fewer than 1,000 in their first year, and the fall-off in sales is almost always dramatic. “The shelf-life of maximum relevance is measured in months,â€� says Adrian Zackheim, who made his name publishing Jim Collins’s “Good to Greatâ€�, one of the rare business books that has topped bestseller lists for years.

It is hard to believe that many managers run their businesses differently as a result of their reading. Occasionally, however, a truly great business book will articulate an idea that helps them to explain what it is that they are trying to do. It creates phrases—such as “core competence� or “emotional intelligence�—that fit the moment. But a few lines of “Henry IV, Part II� might well serve the same function, and give more pleasure too.

The Video Game Revolution: “‘PBS will be airing a special, The Video Game Revolution, this week. ‘The Video Game Revolution examines the evolution and history of the video game industry, from the 1950s through today, the impact of video games on society and culture, and the future of electronic gaming.’ Just a heads-up for all the game junkies out there.’”

Junk Science: “The problem about anything that surveys the economic losses caused by productivity losses is that they’re all vague measurements of approximate things that are then multiplied by a huge group of people. Really, what this means is that while there might be truth in the idea these statistics try to show, the numbers are almost completely bullshit. For example, let’s suppose 100 million workers in the united states have air blowing hand dryers instead of paper towels in their restrooms. These dryers take longer than paper towels, let’s say maybe a minute instead of 10 seconds. I would think it’s fair to say that on average a worker makes 1.5 trips to the bathroom per day. So if the average hourly wage of these employees is something like 15 bucks, 10 seconds of paper towels is worth $0.0417, one minute of air drying is worth $0.25. That means that we’re wasting ~$31 Million per day! That’s billions per year! My God! Something has to be done!”