Tech’s Ethics: Cryptocurrency

Where do you start with cryptocurrency. The cultural phenomenon (read: speculative bubble) that took off in 2017 has continuously confounded analysts and observers. How can such an unstable currency be promoted as a viable alternative to fiat currency? How are we allowing this massive operation to use so much of the world’s energy? How can something that’s overwhelmingly used for illegal activities and currency speculation be legal?

As we dive into the ethical quandaries surrounding cryptocurrency, we’ll run headlong into the most confounding thing about this world of ours: human nature.

What is cryptocurrency

Before we dive into the ethics of cryptocurrency, we need to define what cryptocurrency is. (And this ties into so many issues surrounding cryptocurrency – the complete lack of understanding of what it is.)

First, and foremost, cryptocurrency isn’t a physical thing. It’s entirely digital. Sure, there are cryptocurrency ATMs now, but those don’t give you crypto dollars or anything like that. They give you fiat currency (dollars, euros, yen, won, etc.) Think of cryptocurrency like the numbers that move around when you make credit card transactions. You have a physical card (and maybe not even that if you use your phone to pay) that transfer so many digital dollars to the store you’re shopping at. Eventually that has to be paid with actual money from your bank account (or maybe not if you just declare bankruptcy like Michael Scott), but during the transaction there is no physical currency exchanging hands.

So now that we understand cryptocurrency as a digital mode of transaction, what is it exactly? Well, it’s not really a currency. It’s more like a commodity with limited supply, like gold, for example. There is only so much gold in the world. We can’t magically make more gold despite the best efforts of alchemists. Gold has transactional value – some people have gold, some people want gold, and there is an associated value for the trade from gold to another commodity or currency. One ounce of gold might be worth $1,400 or it might be worth one brand new suit. (Fun fact: an ounce of gold in Babylonia circa 500 BC would buy about 350 loaves of bread, which is about the same number of loaves of decent bread you could buy today with the same amount of gold.) The price of gold is stable because the supply is naturally limited. That’s a foundational feature of cryptocurrency, except the supply is artificially, not naturally, limited.

Taking Bitcoin as an example, only 21 million Bitcoins will ever be released. (Experts expect the last Bitcoin to be mined in 2140 – if Bitcoin and cryptocurrency is even around then.) The actual release of Bitcoins takes place during an activity called, appropriately enough, mining. So what is mining? Think of it this way: person A wants to send Bitcoin to person B and they need Miner C to validate the transaction. The miner is the arbiter of the transaction. It would be like in the real world if a kid wanted to buy a toy at a toy store and the cashier asked the parent if it was okay. The parent has to give the thumbs up to the transaction.

But what Miner C does to validate the transaction is a complicated process that involves solving an extremely difficult math problem involving mind-bogglingly large prime numbers to verify that the transaction is legitimate. If Person A tries to be sneaky with their transaction and give away Bitcoins they don’t own, for example, or change the amount of Bitcoins they’re sending partway through the process, the math won’t work and the transaction will be denied. And for doing all of this work, Miner C is rewarded with, surprisingly enough, Bitcoins. (That’s where every Bitcoin in existence has come from – a miner validating a transaction.)

A few other details to keep in mind: there are several miners working on any given transaction so it’s validated multiple times over, anyone can be a miner (all they need is a machine capable of solving the problem), and finally, the amount that miners are rewarded decreases over time (the artificial limitations, again) so it becomes more costly to mine Bitcoin.

That’s the broad overview of how cryptocurrency works. It’s actually a beautiful little system. The problem is, it’s a solution in search of a problem. Nobody actually needs cryptocurrency, except for folks who want to get around the headaches of dealing with fiat currency. And therein lies the problem: most people who use cryptocurrency use it for illegal activities and speculation.

The Technology Is Broken

As we discussed with social networking technology leading inevitably to echo chambers, the technology of cryptocurrency leads inevitably to illegal activities on a massive scale. The supposed benefits of cryptocurrency are used by nefarious parties to accomplish all kinds of outlawed actions.

Cryptocurrency is anonymous. Great in theory, terrible in practice. When people have no fear of being tracked by their currency transactions, they feel empowered to engage in stuff like drug purchasing and human trafficking. There is almost no way to track a transaction back to its original source, especially if transactions are obfuscated by several layers of microtransactions that mix up all the sources of the coins. Eventually it becomes a completely lost cause to even try to determine who did what with what coin.

Cryptocurrency has no central oversight. Again, great in theory, terrible in practice. Cryptocurrency is the brainchild of the anarchic, libertarian sect of Silicon Valley technologists whose overarching goal is complete freedom for every individual. But the problem is that this philosophy leads to horrible humans doing horrible things. The negatives far outweigh the positives. If you don’t have centralized institutions providing at least a threat of punishment for illicit behavior, people feel empowered to do whatever they want. And the sad reality of this world is that a not insignificant number of people don’t want to use this power for good.

“Positives” of Cryptocurrency

But are there any real positives of cryptocurrency? Or is it all just a racket to enable illegal activities? We tend towards the latter, but let’s give the devil his due.

(And as an aside while attempting to strengthen the arguments of cryptocurrency advocates, it is difficult to discuss cryptocurrency in any sort of objective fashion with these people because so many of them are so heavily invested in the success of cryptocurrency. Any cogent argument you put forward falls on deaf ears because everyone involved in this racket has much time and so many resources invested that they can’t allow themselves to believe that they might be wrong about the whole thing.)

Proponents say cryptocurrency could be a viable replacement for the banking system with its questionable history. Certainly, the banking system as it is today is a problem. Any system that can collapse the world economy through a deplorable scheme like the one that caused the housing bubble in 2008 should be looked at with a critical eye. It’s not perfect and there are a ton of bad actors. Should it be replaced with something better? Of course! Is cryptocurrency that better solution? Absolutely not!

Let’s take just two functions that traditional banking serves that cryptocurrency has absolutely no control over. First off, with traditional banking, when you do an exchange, you know who you’re working with. The bank takes your currency or commodity and provides you with dollar bills, for example. With cryptocurrency, you have absolutely no idea who’s on the other end of an exchange. If you sell cryptocurrency for dollars, you could be selling it to a retiree who’s buying cryptocurrency for fun, or you could be selling it to the Chinese mafia who’s going to use it to fuel their prostitution rings. You have absolutely no idea.

And what happens if you send money to the wrong place? Just the other day, we tried to transfer money to a checking account that was closed – we had the historical account linked instead of the updated, live account. Did our money just disappear? No, it came back a couple days later. And what happens if your grandparents fall for a scam and try to transfer money to some scam artist in Africa? The bank flags the transaction, calls them up, and asks them if they really meant to do this. Really good banks would even explain that this was a fraud scheme and save your grandparents from throwing their money away.

And that’s just two things legacy banking provides. We didn’t even talk about the fact that if you lose track of information on your cryptocurrency wallet, it’s just gone. There’s a great story out there of an early Bitcoin buyer throwing away an old computer that had his information stored. Those coins would’ve been worth hundreds of millions of dollars today, but now that computer is in a landfill somewhere with no hope of finding it. Imagine if you forgot the password to your checking account and so all the money in it was just gone. That’s how cryptocurrency wallets work.

Proponents also claim that cryptocurrency is a more democratized currency. There’s a clear claim there that the more democratized a currency, the better, but we don’t necessarily buy that at all. But even if we were to grant that assumption, is cryptocurrency even more democratized?

Certainly anyone can buy cryptocurrency, and in countries where the monetary system is collapsing like Venezuela, cryptocurrency might be a better option for the people. But are we really going to overhaul the world economy because of the currency struggles of one country? If a state can’t control its currency, isn’t that a problem with the government and not with the currency itself? Again, a solution in search of a problem.

And beyond those edge cases, it’s not even clear that cryptocurrency is more democratized. If we’re talking about the actual industry surrounding cryptocurrency, almost all of the mining is done by humongous conglomerates. Cryptocurrency advocates love to promote the story of the dad who set up a mining operation in his basement and made enough to pay the mortgage each month. What they usually don’t tell you is 1) that person got incredibly lucky to mine even a couple coins – you don’t hear about all the small mining operations that never mined a single coin just by bad luck because those operations folded and lost their owner tons of money, 2) those stories are mostly from a bygone era where the price of cryptocurrency was sky high and you got twice (or four times) as much cryptocurrency back for each validated transaction. Today the speeds of computers owned by mining operations, the size of these operations, and the increasing cost of business means only a few of these massive operations are mining practically all of the coin. Not very democratic.

And it’s not even like most people could even get involved with cryptocurrency. It’s not a super intuitive technology. A lot of people like using money, despite all of the issues with the banking system. Money provides a ton of benefits that people don’t want to part with. Outside of the technology bubble (the information bubble, not the financial bubble), most people don’t actually want cryptocurrency. That doesn’t matter to most cryptocurrency backers, but that just shows their true colors as far as the supposed democracy of cryptocurrency goes.

Illegal Activities

Now we come to the root of the problem. Because what is cryptocurrency used for? The vast, vast majority of cryptocurrency is used for two things: illegal activities and currency speculation. We’ll discuss the second half in the next section, but for now, let’s focus on arguably the biggest problem with cryptocurrency, namely, its participation in the world’s massive black market. Here’s a relevant quote from a recent study:

We find that illegal activity accounts for a substantial proportion of the users and trading activity in bitcoin. For example, approximately one-quarter of all users (25%) and close to one-half of bitcoin transactions (44%) are associated with illegal activity. The estimated 24 million bitcoin market participants that use bitcoin primarily for illegal purposes (as at April 2017) annually conduct around 36 million transactions, with a value of around $72 billion, and collectively hold around $8 billion worth of bitcoin.

And that right there should be the killing blow for cryptocurrency.

If you care at all about the negative impacts that illegal activities have on our world, you won’t want anything to do with cryptocurrency. Crypto backers will claim that fiat currency is used just as much for illegal activities, but the difference is that 44% of fiat currency transactions aren’t for illegal activities. And 25% of currency users aren’t using that money for illegal activities. The absolute amounts might be the same, but that’s just because there’s so much more fiat currency around. The fact of the matter is that cryptocurrency is used for an unconscionable amount of bad in our world.

Drugs, child pornography, human trafficking, money laundering – these are actions funded by cryptocurrency that have real-life consequences for people. Transacting with cryptocurrency is increasing the amount of misery in the world instead of decreasing it. That’s not something people should want to be involved in. And that’s the root of the debate with the ethics of cryptocurrency.

Monetary Schemes

It’s not just illegal activities of course. It’s also the monetary schemes (scams?) that cryptocurrency enables. Many of which are illegal with fiat currencies, by the way, because we’ve been down these roads before. Cryptocurrency being the wild west landscape it is, doesn’t seem to really care about this kind of stuff except insofar as it erodes public trust in cryptocurrency as a whole and threatens the price of their massive coin reserves. That’s, again, why you won’t hear many cryptocurrency advocates owning up to the myriad shortcomings of cryptocurrency.

What schemes are we talking about here? There’s the oldest and best, obviously: Ponzi schemes. Consider Bitconnect, a bygone coin from 2017. The plan was a Ponzi scheme, pure and simple. You bought a Bitcoin, converted it to Bitconnect, and loaned it out to people farther down the pyramid with a maximum payout of 1% compounded interest daily (an insanely high rate, which is a sure sign of a Ponzi scheme). So your profit depended on how many people you recruited into the Bitconnect scam. Sound familiar? There was even a coin named PonziCoin for crying out loud. And people actually bought it! That’s why we have a regulatory system in place, to prevent that kind of thing.

Of course it’s not just Ponzi schemes. Another major monetary racket that’s run with cryptocurrency is the classic pump and dump. All that means is that you endlessly hype up a particular coin that you own, hoping that your phoney promotion will push the price higher so that you can sell your coins at a profit (or at a smaller loss, as is usually the case since most people bought high). This is even the stated policy of major coins. The CEO of Ripple explicitly stated that the goal of the company, since the company itself owns so many Ripple coins, is to ensure the price of the coin goes higher and higher. I’d definitely trust that guy to be honest with me about Ripple. It’s Enron executives all over again. Push that price higher and higher and then sell your stock (or coins, as the case may be) to the dupes who believe the hype.

The Environment

One of the cruelest aspects of the cryptocurrency landscape is the impact it’s having on the environment. It takes an unbelievable amount of energy to mine cryptocurrency. That’s a lot of wasted resources on a speculative bubble. It’s gotten so bad that major countries like China are thinking of banning cryptocurrency entirely. Why spend so much energy producing something that has no intrinsic value outside of how it enables illegal activities?

(Another aside: there was recently an article about how almost 75% of bitcoin mined in China was done using renewable energy. It was one of those banner articles that painted cryptocurrency as all good, as doing no harm. The kind of article that can only be found when the world is deep in a speculative bubble. But the sad reality is that it didn’t take into account the fact that for all of the renewable energy that was being used by cryptocurrency mining, the non-cryptocurrency mining energy usage had no access to that renewable energy. And that energy has to come from somewhere. Guess where it comes from? Coal and other hyper-polluting sources. So much for that good news.)

Cryptocurrency mining operations move around the world looking for cheap energy to feed their addictions to this speculative bubble. As energy costs rise, as cryptocurrency prices fall, as miners get fewer coins per validation, it’s going to become very difficult financially to keep it all going. But the mining operations won’t go down without a fight, and while they’re around they’ll soak up every bit of energy they can. Energy from public utilities that are funded in part with taxpayer dollars. Energy used to produce coins that they largely pay no taxes on themselves. It’s the Silicon Valley libertarian’s dream: huge public infrastructure to support the self-obsessed, money-crazy, Randian ideal of narcissistic individualism at the expense of local communities and society at large.

In Conclusion: Human Nature

We hate cryptocurrency. I think that’s fairly obvious at this point. But we hate it in practice, not in theory. In theory, it’s a fine idea to have some sort of decentralized currency that people can transact in if they want. The problem, as with so many things, arises when the rubber meets the road. The road being human nature.

People can be terrible. With no oversight or fear of repercussion, people will do awful things. The unsolvable problem of cryptocurrency is that if you give people a totally anonymous and completely untraceable mechanism for transactions, they’re going to use it for drugs and child pornography and human trafficking and money laundering and black market weapons and any number of other illegal activities. Heck, cryptocurrency has allegedly even been used as a form of payment for hired hitmen to murder people. Is that the kind of behavior we want to encourage? Is that the kind of society we want to live in?

Those aren’t questions that Silicon Valley and cryptocurrency technologists worry about. Those people worry about one thing and one thing only: money. They don’t want to build a better world. They don’t want to build strong local communities and bridge the national divisions our world suffers from. They want to make as much money as humanly possible to buy as many things as they can humanly buy with no regard to the actual effects their actions have on actual people.

So what’s the solution? We usually wrap these Tech’s Ethics essays up with potential next steps or ways to remedy the situation. In this case, we’re stumped. Short of massive governmental involvement in the entire system, which no government actually wants to do because they don’t want to throw resources at a problem that shouldn’t exist, we say ban cryptocurrency. It was an interesting thought experiment that has turned into a nightmare for the world. Ban cryptocurrency. It’s the only viable option at this point.

Tech’s Ethics: Fake News

We begin, not unlike so much fake news these days, with a tweet. A now deleted tweet that topped out at almost 20,000 retweets and a nearly equal number of likes. One of those viral tweets that struck a nerve. A Dallas man snapped a picture of some busses and claimed they were being used to transport in fake protestors to raise a ruckus at a Donald Trump rally. It was huge news,  but had one small problem. It was a completely false.

The busses were there, of course. We can still believe in photographs as visual evidence. But they weren’t there to shuttle legions of anti-Trumpers. They were there for a tech conference for a piece of software. (The most shocking aspect of this story is 20,000 people show up for this conference for niche software, but more power to them.) The author eventually apologized – although he stood by the belief that democrats were attempting to sabotage Donald Trump – but the damage from the tweet had been done. It had been seen by millions of people and spread to numerous other sites. On Facebook alone it had nearly 150,000 shares. This is what fake news looks like, and the impact it’s having on the world is too negative to ignore it any longer.

What is fake news?

But what is fake news? We need to define the problem before we try to understand it (and how to fight it). According to our President, there appears to be two good definitions. First, fake news is anything that is unflattering to Donald Trump. Obviously that’s just textbook narcissism, and it goes without saying that Donald Trump isn’t the only person in the world who denies a piece of information that paints them in a negative light. He just happens to hold the most powerful office in the world. His second definition is any news that contains any inaccuracies at all. Just as one bad apple spoils the bunch, a single slip up in an otherwise pristine article makes the entire piece false. Is there an incorrect date? A number that’s slightly too low or too high? A person who was supposedly present, but wasn’t there the whole time? Minor infractions, to be sure, but in the president’s mind it’s damning.

That’s not what we’re talking about when we talk about fake news. The fake news we mean is news that is intentionally misleading with malicious intent. The intents themselves are myriad: character assasination, political swaying, increasing paranoia, increasing polarization, or even just, like the Joker, a desire to watch the world burn. Whatever the reason, fake news is incredibly destructive despite often being easily recognizable.

So what?

It’s a fair question. We might admit fake news exists, but who cares? (Plus maybe all the news about fake news is itself fake news in a sort of M.C. Escher self-reflexive situation.) Lots of people have been saying lots of nonsense for a very long time. What makes it different now? The major difference in terms of the communication technology itself is reach. Fake news, if allowed, travels far and fast. When fake news was contained to the local kook, it usually didn’t make it past the town tavern. But now any insanity posted on the internet can travel globally, and travel instantaneously, making the problem that much worse.

And that has a real effect on our world. Political polarization has been increasing for decades, and the internet and fake news are at least partially responsible for this rise. Not only that, but fake news can have real impacts on political outcomes, which lead to real policy decisions, which have a very real, very direct effect on day-to-day life. It’s a problem that can’t safely be ignored any longer if we want to have the same kind of political discourse as that of yesteryear, which led to so many improvements around the world.

The Businesses

Why is a solution challenging from a business perspective? First off, you have older media companies like CNN and much of print media that desperately need to grow their audiences. And the sad reality is that stories about fake news get folks to watch or read like nothing else. As much as people get riled up in sharing conspiratorial pieces of news, people get just as riled up (if not more so) lambasting these examples of seemingly mass insanity. So CNN, for example, will pick up on a piece of fake news about Nancy Pelosi being drunk and stir the pot as much as they can, claiming that this is the kind of thing that conservatives share and hosting numerous debates about what that means for the party and the political system at large.

Not only that, but the rise of fake news has occurred contiguously with another major change in old media: the shift from hard reporting to opinions and analysis. This has proved to be a major shift in the way news organizations are run, and it hasn’t been one for the better. Well, it’s certainly been better for the bottom line, and that’s really the point of it. It used to be that when something was happening on the other side of the world, news organizations would send a team there to report from the scene. They wanted boots on the ground. But that’s expensive. It’s much cheaper to have someone, a single person often, sitting at their computer typing out their opinion on the news in question. (And you don’t really need to fact check opinions and analyses since they’re substantially more subjective than the hard facts reporting of the past.) Plus, opinions and analyses, get people incredibly riled up, just like stories about fake news. So not only are you producing content cheaply, but you’re producing content that people are going to have sharp reactions to. It’s the best of both worlds! (Ignoring the fact that it’s debasing the effectiveness of old media.)

The Audiences

Why is a solution challenging from an audience perspective? Well, first, you can’t fix stupid. We don’t mean to be derogatory, but the painful reality is that the global populous is becoming less intelligent (with a few exceptions like the Nordic countries and much of Asia). We certainly know more factual information than ever before, but the kind of wisdom that people used to possess that allowed them to analyze assertions and test out the logical reasoning behind an argument are fading fast. And, unfortunately, we’re not doing enough to combat that. The place to start would be schools, but for a long time now, the curriculum has been moving to tests based on simple knowledge and away from tests based on critical reasoning.

Beyond a simple lack of general knowledge and the ability to reason, there are very real trust issues in society today. The pillars of society have lost the trust of the citizens. Nobody trusts old media. Nobody trusts the government. It’s difficult to call yourself real news when nobody believes you.

And then there is a further compounding factor called the backfire effect. Basically, what has been observed is that when people are presented with information that contradicts a strongly held belief, they in fact believe in that belief more strongly, not less. People want to believe what they believe and they will happily ignore evidence to the contrary. Or, in fact, take that contradictory evidence and paint it as some sort of conspiracy to make their viewpoint seem outlandish (which it probably is). There doesn’t seem to be a way to win.

The Content

Why is a solution challenging from a content perspective? Well, it has to do with the content itself and the platform it appears on. First, as far as the content goes, how do you prove that something is intended as fake news and not as comedy or satire. The Onion, for example, is entirely fake news (based on real news, of course). But nobody is up in arms about The Onion, even as it has fooled people into thinking it was real on numerous occasions. So how can you tell if content is meant as fake news? (The only real solution there seems to be to say, to quote old Justice Potter of the Supreme Court, “I know it when I see it.”)

Plus, the problem is deeper than simply identifying fake news. The problem is also who is going to be delegated the task of identifying fake news. Do we really want social media companies, who the public at large completely distrust, to decide when something is or isn’t fake news? That seems to be a solution that’s dead on arrival. But in lieu of Facebook or Google or Twitter deciding, then who decides? You could say to leave the content to the people and let them decide, but that’s what we’ve been doing, and it’s not working.

There is another problem with the content itself and that is both how much of it is out there and how good it is at directing people in a certain direction. Content creators have gotten incredibly good at convincing other people to believe in what they’re saying. And with fake news, this has led to internet death spirals whereby someone starts by drifting from reasonable news, to iffier news, to extremely suspect news, to outright fake, malicious, and conspiratorial news. Someone goes, for example, (and we’re only using the conservative track as an example, it happens to people of every political persuasion) from the Wall Street Journal to The Washington Examiner to Fox News and The Daily Wire to, finally, sites like Infowars and Newsmax. The content takes control of people and leads them down rabbit holes they don’t even know they’re in.

Solutions I: Things That Won’t Work

So as we start to imagine some solutions to the problem, let’s first consider ones that are doomed to fail. One thing we could try to do is to revert technological decisions and changes that have happened over the last couple decades. The reason this solution would fail is because with anything tech-related, you can never put the toothpaste back in the tube. Once a technology is out there, it’s out there for good. You can modify it, certainly, but can never be rid of it. (Plus the companies that build this technology have a vested interest in sticking around, and have a ton of cash and whole host of lobbyists ready to make their case.)

So maybe we should educate people before the fake news takes its hold. This is somewhat akin to what YouTube is doing with its displaying of information related to certain channels associated with fake news, letting users know that the content might not be 100% trustworthy. But we’ve already see in the backlash to that policy decision why this solution is doomed to fail. Any legislative attempt to fight the problem will immediately be targeted as partisanship, and yet another attempt to silence one particular side of the debate (usually conservative). Leveraging these perceived attacks on the free speech rights of the conservative base by California liberals, Republicans might end up winning key political victories. And with those additional seats, they could eventually overturn the policies themselves, possibly even swinging the pendulum farther to their side.

Solutions II: Things That Might/Could Work

So then what are some possible solutions that might work? Twitter has already implemented a partial solution with their shadowbanning system. What Twitter does is track a user’s tweets and if too many get reported or even automatically identified as negative fake news content, Twitter will hide all of that user’s tweets from the community at large. It’s like the user still imagines they have an audience, but nobody is actually seeing their content. We would actually go a step further and create fake engagement with the content itself from fake users. If someone posts an abhorrent conspiracy theory on their Twitter account, retweet it dozens of times and like it in similar numbers with fake accounts. That way the spammer will feel they’re actually reaching an audience and getting real engagement when, in fact, they’re shouting into an abyss with no one around.

Furthermore, a user’s spam score (which is used as the basis of shadowbanning) could be publicly visible to everyone. If a user had a score of 40 out of 100, for example, you might be hesitant to believe anything they say. Or you might be encouraged to go to direct sources and decide for yourself whether the author is right. And that’s great! That’s what people used to do when presented with seemingly wild news – make sure that it’s actually true.

Finally, one solution that sadly could work is simply removing the source from whatever article is posted. Whether something is from MSNBC or Fox News, The Palmer Report or Red State, the user should have no idea. Then their biases would at least be somewhat mitigated. You could even go a step further and attach a random media company to each piece of news to completely screw with people’s heads. Imagine seeing PizzaGate news coming from Mother Jones or news about Trump’s tax records coming from The Drudge Report. It would definitely make people pause and question the actual veracity of a piece of news instead of just blindly following their trusted sources, many of whom might not be trustworthy in the slightest.

Conclusion

Fake news seems to be here to stay. Many social media companies, notably Facebook, have committed to combating fake news however they can. (And it might actually be having a positive effect – enough time just simply hasn’t passed to know for sure one way or the other.) But as we’ve pointed out, there are so many factors that make fake news so powerful. Beyond the backfire effect, where people believe in something more, not less, when presented with conflicting evidence, there is just so much content out there and so many gullible people willing to consume it that the problem might seem unbeatable. And it very well may be unstoppable. But certainly ideas like spam scores and anonymized sources could be tried to see what positive effect, if any, they had. What we certainly can’t afford to do, both for the sake of our political institutions and for the health of our civic communities, is to ignore the problem of fake news any longer. Something has to be done, and it’s high time we did something.

Entrepreneur Series: How to Sell Your Idea

For this chapter, we spoke with Brian Brandt from iFound, an AR shopping application that was acquired in 2017 for an undisclosed amount.

Gunner Technology: First off, and I know I’ve said this to you a bunch before, but congratulations on getting acquired. That’s something very few people ever accomplish.

BB: We got really lucky and we couldn’t have done it without you guys.

GT: What was the biggest factor behind getting acquired?

BB: That’s sort of tough to quantify. There were so many factors and you never truly know which one was the determining factor, if any of them even were. It really comes down to the whole package at the end of the day. What I will say, however, is that having all of our financials ready and updated and accurate was huge for our buyers. And having a historical record of all of those numbers too so it was easy to show our rapid growth both in terms of users and monetarily.

GT: Were they more interested in the users or the revenue?

BB: Honestly both. Having that fairly substantial user base is always going to be attractive in this day and age, but also being able to point to all of these companies that we had partnered with and the revenue we were generating from those partnerships and just from general usage of the app was obviously key as well.

GT: Any recommendations for companies out there looking to sell?

BB: When we sold iFound, I had been working on it for almost eight years. It basically took me from my late twenties to my late thirties. That’s a huge investment both in terms of time, but also emotionally. One thing I’ve seen over and over again with founders or early stakeholders of a company is an inability to let go. And I understand that, believe me, because I loved iFound and I loved our team and everything about the company. But if you truly want to sell your company, you have to be ready to let it go.


We’ve come a long way since the start of this book on entrepreneurship, and if you’ve ever stayed with an idea long enough, you’ve gotten to a point where you’ve wondered whether it was time to sell. That’s what this chapter is all about.

Kickin’ It Old School

Back in the day, valuations were a lot easier. Largely they were based off EBITA or Earnings Before Interest Taxes and Amortization, which is basically a measure of how efficient your business is. It cares about stuff like whether you have a balance sheet (and whether your books are in order), whether your taxes are paid and up-to-date, whether you have done proper accounting (and if not, whether you have any distressed assets).

Depending on the economy, you’d multiply EBITA by 2x or 4x or 8x or whatever multiplier. And then you’d increase the price based on other attributes like having some key partnerships or a rockstar CEO. And mostly all anyone cares about is the last 3 years of EBITA, with the most recent year being the most important. Also highly important is showing year-over-year growth.

And that was basically it.

The Silicon Valley Effect

But we now live in a brave new world.

Traditionally, folks wanted to purchase diamonds, but now they want to purchase pieces of coal to turn them into diamonds. Facebook, for example, had potential. Mint had potential. But they were both free and had no revenue to show, which is partially why Silicon Valley got away from EBITA. Silicon Valley loves to buy potential.

So what matters now, largely, is your user base. How many users do you have? What’s the acquisition rate like for new users? What’s the total pool of potential users? (Are you targeting some small, niche market or are you after the entire world like Facebook?) And how much are your users worth?

So if your product is free, what really matters is massive amounts of growth and engagement. That shows that people love your product and shows the potential for major upside as the idea grows even more. (Plus, your user data is incredibly valuable and the more you have, the more valuable it is.)

A Note About B2B

B2B works slightly differently, although a lot of the same principles apply.

With B2B, buyers would also look at how many contracts you have, the average length of those contracts (100 contracts for 4 years is better than 1,000 contracts for 2 years), the overall value of those contracts, what percentage of contracts are cancelled, etc.

Brokers

It’s often a good idea to reach out to a broker to help sell your company. They’re experts on attracting potential buyers and focus on fitting the buyer to the company. Plus, if they can’t directly help you sell your company, they can often at least tell you what you need to do to get potential buyers interested.

But if brokers are interested in directly helping you, they can often expedite the process tremendously. Most brokers have a huge network of buyers, folks who love buying up companies with proven track records of success or even just companies with lots of potential. These brokers will shop your company around and hopefully sell it for you for a commission.

It’s honestly a great way to go if you’re looking to sell your company and it’s a method we’ve had tons of success with in the past.

How to Run Your Company

Finally, to close this book out, let’s talk about how to run your company.

We’re not going to tell you how to build a culture or what your day-to-day looks like. That’s for you to figure out and customize. (Plus that’s a lot of the fun of running a business!)

What we will tell you is this golden rule that we use at Gunner Technology:

Don’t operate as if you’re going to sell your company, operate as if you’re a company that’s going to go all the way to IPO.

Operating your business this way focuses you on those key things that will make your company run like a well-oiled machine (and will also help you sell it down the line). It will make you prioritize keys like balanced books and long-term growth – all the things an acquirer will want to see when they’re looking at your company.

Operating in this fashion also helps you structure your business in a process-oriented manner where any piece can be replaced. This is hugely important during an acquisition because the acquiring company will often want to replace some (or all) of the pieces. They’re often buying the business, not the personnel (or at least not all of the personnel).

Final Thoughts

We started with an idea. We ended with an acquisition.

That’s the story of so many businesses and it could very well be the story of yours. Hopefully by applying the principles in this book, you can set yourself and your business on the path to success. We wish you all the best and all the luck in the world with your idea!

(And don’t hesitate to reach out to Gunner Technology for help with your idea by emailing contact@gunnertech.com.)

Business Development: Valuing your Services

Capitalism says supply and demand set price.

But that only works if everyone knows about a product or service.

The concept is rather simple: A company should set a price that maximizes profits.

That means, in a perfect world, the company would sell to someone willing to pay $200 for $200, but if someone is only willing to go to $199, the company sells to them at that ceiling and so forth on down until the company would lose money on the transaction.

“It sounds great, and that’s certainly a worthy pursuit, but there’s two problems with that,” Gunner Technology CEO, Cody Swann said. “First, not everyone is going to know about your product or service. There’s going to be people out there willing to pay $200 who just don’t know you exist. Second, you’re going to make the customers who paid $200 really unhappy if you lower your price to $199 or lower to accommodate other customers and clients.”

Companies use a number of tactics to address these problems.

Discounts such as coupons are a popular method as are referral credits and loyalty rewards.

“Car dealerships have perfected this,” Swann said. “They have discounts for everything. They don’t actually change the ‘base price’ but in negotiations, they’ll keep heaping on discounts.”

The difference, Swann said, is that, unlike car dealerships, companies should offer transparent pricing and discount models.

“You’re not a used car salesman,” Swann said. “This isn’t ‘Let’s Make a Deal.’ What you’re doing is saying ‘If you’re willing to help us, we’ll help you with discounts.'”

For example, if the client is willing to extend the project timeline from a month to three months, that should earn a discount.

If the client is willing to refer 10 people, that should earn a discount.

If the client is willing to accept a more aggressive payment schedule, that should earn a discount.

“We actually offer all prospects and clients an interactive pricing spread sheet,” Swann said. “This has our fixed base price, but allows the client to adjust other stuff, like timeline, number of resources, payment schedule and more. They immediately see the tradeoffs and can choose the plan that best works for them.”

This option model allows companies to be flexible without haggling over their base price, which should rarely change and when it does, it should usually go higher.

“Think about it,” Swann said. “If you’re a service company, you should get better at what you do as time goes on. That experience and improvement should be reflected in your price. What you don’t want to do is raise costs willy nilly or because your costs go up. Raising costs don’t mean anything to your clients, so you shouldn’t pass it on to them if there’s no increase in value.”

Getting to that original base price can be a bit of an art and a science.

Business owners and CEOs should do their due diligence to get that original price as “right” as possible.

“Competitive research is a big one,” Swann said. “What are your competitors charging? Also, ask people in your market informally view surveys and focus groups ‘What would you pay for this type of product/service?'”

In the case of a service industry, that base price is generally the company’s hourly rate.

“You don’t want projects at an hourly rate,” Swann said. “It’s a pain in the butt. This is why the discounts are so crucial. You want to move your clients to a project or retainer rate which will earn them lower prices and remove a lot of headaches and uncertainty from you off an hourly rate.”

Entrepreneur Series: How to Grow Your Idea

For this chapter, we spoke with Katherine Kane of Country Shore, a rapidly growing, Florida-based apparel line for anyone who loves the outdoors.

Gunner Technology: I’m not sure I’ve ever seen something grow the way Country Shore did.

Katherine Kane: Thanks! We put so much effort into getting boots on the ground at various events and just becoming a known name in Florida and beyond for folks who like country music and fishing and hunting.

GT: And as a company that works mainly with customers, as opposed to one that works mainly with other businesses, we had to strategize together a certain way.

KK: Totally, and we talked about that a ton. What folks to target on Facebook, how to promote our Instagram posts, setting up all that Google tracking stuff.

GT: It was a huge pain in the butt, but it really paid off in the end.

KK: It was something new and different for me, that’s for sure. And it was really tough. But like you said, we saw the results.

GT: People started recognizing you guys at shows and the Country Shore trailer became a go to spot, right?

KK: Yea, it was nuts. And once you get folks talking about your company, you just start growing like crazy. And we were especially blessed to have some pretty big country names sport our gear at shows and give us shout outs. That kind of stuff is just ridiculously powerful as far as selling your stuff goes. When you get Luke Bryan rockin’ one of your hats, you can’t put a price on that. That’s just huge.


This chapter is all about how to grow your idea without having to use the lottery model of “I’ll just throw this out there with no marketing behind it and hope it becomes the next Flappy Bird.” You can launch your idea and hope it becomes a humongous success, but the odds are probably much, much worse than just spending a couple grand on lottery tickets and winning that jackpot.

You Have to Spend Money to Grow

You’re going to have to spend money to grow your idea. That’s just the reality of the situation.

For example, you need enough capital reserves to jump on the hype train if your idea starts getting some positive publicity. You can’t just let that kind of momentum die off without throwing a bunch of money at marketing and building your product. You’ve got to be able to spend the necessary resources to give your idea a chance at becoming a massive success.

(Venture capital, angel rounds, or outright acquisition are all great options in terms of raising funds to expand an idea that’s growing in popularity.)

Another way to spend money wisely when growing your idea is to work with developers who know how to prioritize properly. This usually means working with an Agile shop with a proven track record of success building and launching applications in a timely manner. Those kinds of shops will help you determine the best way to spend your money as far as building out the actual idea, and they’ll do it in such a way that you have the necessary reserves to really grow your idea.

Keeping Up with the Kardashians

You can’t discount word of mouth when it comes to growing your idea.

When you’re trying to nail down a niche with a B2B business, word of mouth is incredibly important. You’ve got to build a solid reputation and keep it that way to really grow your idea.

With B2C businesses, word of mouth is a little bit trickier since you’re usually trying to reach the masses. That’s when spending a lot of money on marketing is key. (Again, we’re talking 1x or even 2x the amount you spend on developing the idea itself – marketing is really that important.)

Finally, whether you’re talking B2B or B2C, celebrities and key influencers are genuinely important. Obviously, their promotion has to be genuine – you’re looking for brand ambassadors not people who pretend to like your product and never actually use it. But if you can get some big names who engage with your product regularly, that kind of publicity is functionally priceless.

Sell!

Finally, to quote Sean Connery in The Last Crusade: “Indiana, let it go.”

The last thing you want to do if you get to the tipping point is to hang on for too long. We’ve seen too many founders hold on for too long only to see their idea collapse when they could’ve cashed out and retired to a tropical island.

We understand loving your ideas – it’s why we all do this. But businesses are like your kids heading off to college. You’ve get to let the little birds leave the nest. Otherwise your idea becomes a 34-year-old “adult” living in your basement playing video games for twelve hours a day.

Entrepreneur Series: How to Update Your Idea

For this chapter, we spoke with Ethan Blades from ServiceSmart, an application that helps car service centers track their automobiles more effectively.

Gunner Technology: It seemed like ServiceSmart was growing and improving every single week.

Ethan Blades: It was frankly incredible. We went from idea to launch to multiple, fairly major overhauls in the span of a couple of months. In the auto service industry your customers expect to work quickly – their car is their life in a lot of cases. So being able to have a similar arrangement with the development of this app was a true gift.

GT: I hadn’t really thought of that! Agile, in a lot of ways, which you’re well familiar with now, is sort of the project management analogue of ServiceSmart for car service.

EB: And that was the goal. We wanted a system where customers knew, every single step of the way, what had already been done with their car, what was currently being done with their car, and what would be done with their car in the future.

GT: That’s Agile in a nutshell.

EB: It is. And it helped our project tremendously. This was my first experience with Agile and seeing new stuff every week. Usually you just give your requirements to developers, they go off for a couple weeks or months, and come back and say, “Here.”

GT: Which isn’t the best.

EB: It’s the worst! Because there are always so many issues. And they’re issues that you could’ve caught and fixed while they were working on it. And some of it is minor and easy to fix, but a lot of times we’re talking about major changes. And that leads to cost overruns and missed deadlines.

GT: And nobody likes that – especially in the car service industry!


Gunner Technology is an Agile shop. Always has been. Always will be.

The reason we love Agile (and why you should too) is because it makes it so much simpler to update your idea. And in this age of rapid progress and constant change, the ability to update your idea is paramount. If you’re not keeping up, you’re falling behind. You can’t just ship it and be done like you used to be able to. Those days are long gone.

Act Like You’re Launching Every Week

One of the biggest perks of using the Agile approach is that you’re constantly rolling out updates. At the end of each iteration (Agile’s term for a period of work, usually one or two weeks), you have a working piece of software that you can deploy live to production.

It also lets you handle necessary updates when your audience really starts to grow. You can easily push out changes or optimizations to handle the increased traffic. Your app will no longer be brittle – it’ll be ready to handle whatever gets thrown at it.

Another huge perk of going Agile is that everything is documented with user stories, which are little descriptions of pieces of functionality. For example, “As a member, I would like to upload a profile picture so that I can customize my home page.” (You always include the type of user, e.g. “member”, “admin”, what that user wants to do, and why they want to do it.)

With a huge backlog of user stories, you can easily handle user feedback, prioritize items, determine budgets based on timelines and the amount of work each user story will require, branch into separate teams to work on different pieces of functionality, and a whole host of other benefits. Agile really is the only way to go.

Feedback

Feedback, both user-driven and automated, is critical for your application.

One thing your application has to do is capture bugs automatically. This means that whenever something goes wrong with your application due to an internal error, you should automatically record that issue with whatever project tracker you’re using. That way you keep on top of bugs and fix stuff immediately.

For user feedback, you should have a mechanism set up like Zendesk where users can let you know when something doesn’t work (or doesn’t work as intended or as they imagine it should). You can also use a simple Google Form as a low-budget feedback mechanism.

Feedback from users is crucial. It’s honestly more valuable than feedback from internal beta testers because the lack of familiarity with the product makes user feedback truer to the general experience. Often beta testers get too familiar with the product and your team doesn’t know how something isn’t working.

Plus general users have more direct requirements for how the application should work based on the model they build up in their mind. So instead of telling them how it should work, the imagine to themselves the optimal way your application should function, and if your app doesn’t meet those expectations, users will let you know about it.

And you should constantly ask for feedback from users to improve the final (or ongoing) version of your product. This might be directly asking for feedback or sending out a survey periodically. And you should make feedback mechanisms like Zendesk or your Google Form readily apparent to users so they know they can always get in touch with you with comments or complaints.

Communication

One thing to keep in mind with feedback, however, is that users aren’t always the best at communicating what they want. You often have to push them for specifics and to make sure you fully understand what they’re asking for.

Also, users can get frustrated, and a lot of times they’ll leave extremely negative feedback in the heat of the moment. You can’t necessarily take their anger at face value, but you also shouldn’t dismiss it because there might be something actionable therein.

Another issue you’ll encounter with user feedback is when that feedback doesn’t align with the ideas of investors. Investors often have incredibly strong opinions about the product and don’t want to hear about it when the users want something different. You’ve got to walk a fine line convincing investors that the users often know better than them what the app should do.

One piece of communication that’s especially important is communicating changes to the users. If you’re rolling out a huge update, you’ve got to have some sort of notification mechanism set up to let users know. You don’t just want to spring it on them and face tremendous backlash like Snapchat dealt with.

Business Development: Reporting and Tracking

There’s plenty of them out there.

“What gets measured gets done.”

“What gets measured gets improved.”

“What gets measured gets managed.”

“I would go a step further,” Gunner Technology CEO Cody Swann said. “What doesn’t get measured is worthless.”

Swann referred specifically to business development – in particular marketing, networking and sales.

Across industries, business owners and managers seem to all agree that measurement – reporting and tracking – are vital, but so few do it.

First, there’s the issue of effort and coordination. Measurement sounds great, until the commitment kicks in.

“If reporting and tracking were totally automated, everyone would do it,” Swann said. “But it’s a meta process. It’s not doing. It’s tracking the doing, so everyone wants to skip that part and get straight to what can be improved.”

This leads to a lot of assumptions that seem to be common sense, but lack data to actually back them up.

“If you land a huge client because they searched for ‘Gunner Technology’ on Google or whatever, your inclination is going to be: ‘Let’s go all in on Google!'” Swann said. “But that could a random chance. Heck, they may have even misspelled what they were really looking for.”

Unfortunately, companies make decisions off of these anomalies and then get frustrated when the results aren’t repeated.

“Marketing works,” Swann said. “Networking works. If they’re not working for you, you either don’t have something worth marketing or you’re doing something wrong.”

The second reason companies often forgo measurement and tracking is an issue of a kind of paralyzation.

“Folks worry about the ‘how’ other than that ‘what,'” Swann said. “How are we going to get this data? How are we going to tie it into that data? Then they go down that rabbit hole and never actually implement anything.”

Instead, Swann said, companies should start with the end result and worth their way back into the “how.”

“Tell me what you want to know and then we can work on how we’re going to get you the data to tell you what you want to know,” Swann said. “And, guess what? It is going to be a lot of work.”

The workload is often heaviest when first starting out, which is why companies give up so quickly, Swann said.

The companies that have success continuously refine their process and incrementally automate it.

Some data gathering and input will always require a human, but a lot of it can be automated, but there’s no point int worrying about that until companies figure out their process.

“Pin down the process,” Swann said. “Then figure out how to automate it.”

The last big reason companies avoid tracking and reporting involves accountability or the desire to avoid it.

“Everyone wants to say they’re working really hard and doing everything right,” Swann said. “But very few actually want to prove it. The funny thing is, it’s not a matter of trust. It’s a matter of measurement. OK. So you’re telling me cold calling doesn’t work? How many people are you calling each day? Where are you getting your information from? What are you saying?

“People just hate to be held accountable and will fight it tooth and nail, which is so weird because the goal of accountability is to make you as an employee better and make the company better as well.

“So often, I hear ‘I work all the time!’ OK, but what are you doing in that time? Show me. Immediate backlash. You’ve got to get rid of those people.”

Dealing with the second issue, “what” a company should measure is different from company to company and industry to industry, however, there are some common numbers that almost all companies should keep and eye on.

“If you can’t tell me what your customer lifetime value and acquisition cost, you shouldn’t be in business,” Swann said. “And you won’t be in business long unless you get on that right away.”

Customer lifetime value is the total revenue a company gets directly and indirectly from their average customer or client, including referrals.

So if Company X signs Client Y to a $10,000 contract and then two years later, Client Y refers Client Z to Company X on a $20,000 contract, Client Y has a lifetime value of $30,000.

Acquisition cost is what it costs to, in aggregate, land a new client.

So if Company X spent $1,000 on marketing which got Client Y to send Company X an email, followed up by a $100 dinner meeting between the two parties and finally, Company X paid a lawyer $2,000 to draw up a contract, Client Y’s acquisition cost was $3,100.

“If you know these numbers, it becomes a simple math problem,” Swann said. “Of course, you want your acquisition cost to be as low as possible, but as long as you have spare resources, you should spend up to $1 less than your acquisition cost in order to maximize revenue.”