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Kevin Mitnick: The Hacking Hamburglar

  |   April 15, 2013    1:50 PM ET

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The 5 Ways Local Motors Built an Online Community

  |   April 10, 2013    8:08 PM ET

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Exponential Growth in Small Machines - Don't Fear, They're Here to Protect You

  |   March 28, 2013   12:46 PM ET

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Can You Even Crowdsource the Design of a Car?

Peter Diamandis   |   March 27, 2013    2:14 PM ET

In this blog, I'm introducing you to Jay Rogers, CEO and co-founder of Local Motors, an open-source automotive design company that uses the power of the crowd to innovate a 100-year-old industry.

My personal fascination with the power of the crowd has been growing: Exactly what can a "crowd" accomplish? We know crowds can raise billions of dollars, create Wikipedia, and even design and build small autonomous drones. But how about something large and complex like designing a new car, and maybe someday even a spaceship?

You can imagine my enthusiasm when I met and interviewed Local Motors CEO Jay Rogers at Singularity University, where he filled me in on the remarkable ability of the crowd to reinvent the design and manufacture of cars.

Local Motors currently engages a crowd of more than 30,000 members who are passionate, knowledgeable and capable of automotive design. This could not have existed before the exponential tools and technologies that allow virtual communities to come together to share, manipulate and visualize large data files. Local Motors takes something traditional -- old-fashioned craftsmanship -- and brings it into the new millennium.

In Local Motors, Jay Rogers has drawn on the creative power of a global community of car lovers, designers and innovators to revolutionize automotive design (and product design in general). The company co-creates autos, as well as automotive parts and other products such as sneakers. It is best known for its Rally Fighter off-road race vehicle, which also happens to be street legal.

Jay has a fascinating and rich background. He served for six years in the United States Marine Corps, where he was an Infantry Company Commander. Next he worked as a consultant for McKinsey & Co., then at a startup medical device company in the People's Republic of China. He is a graduate of Princeton University's Woodrow Wilson School of Public and International Affairs, and holds an MBA from Harvard Business School.

To begin our interview, I asked Jay about the origin of Local Motors. "I always thought I would be building cars," he said. "But unfortunately I found that there was no place in the traditional university system for building cars and my dream, early on, never materialized. Then, while I was at Harvard for business school I met two professors who opened my eyes to what was possible: Karim Lakhani and Eric Von Hippel." Lakhami taught Jay about open-source innovation and Von Hippel taught him about the democratization of innovation. Von Hippel taught Jay that end-users, rather than manufacturers, drive innovation. Jay became fascinated with the notion of taking consumer-derived ideas and putting those things forward as future products.

The next pivotal moment in Jay's road to Local Motors was the day that he was introduced to the Threadless co-founders. "When I met Jake Nickell and Jacob DeHart, their model of creating an online community to design and market T-shirts completely inspired me," he said. "These guys set out with the goal of figuring out a better way to make people want to buy an individual shirt. They figured out that if the shirt is attractive enough, it's not about how little it costs, it's more about how unique it is, and can I own a part of that scarcity."

Effectively, Threadless is a site for crowdsourcing the design, marketing, production and purchase of T-shirts. "Modeled much on Threadless, Local Motors is a marriage of two concepts. It's about the personalized, crowd-powered design of automotive ideas, as well as the local, small-scale manufacturing of those unique concepts," Jay continued.

When I asked Jay what made Local Motors succeed, he provide three key touchstones that have driven him:

  1. 1. Don't be hampered by antiquated production models: "It's incredible," began Jay, "how hampered the traditional auto manufacturers are by antiquated approaches. Many of America's most advanced plants still using approaches that would be familiar to Henry Ford. For example, I went on tour of a Dearborn truck plant, part of a new Ford complex. It was completely empty. I asked, 'What's going on?' It turned out to be the year-end changeover," which can last between a day and a month -- during which time the union workers cannot do anything. By contrast, the electronics and the software in cars can be changed in a day." Jay lamented how certain union regulations and physical production cycles can cause such inefficiencies.
  2. 2. Learn how to be profitable even for small-production runs of unique "kit cars": "One of the keys to Local Motors' success was figuring out how make things at a low tooling cost, and making money even for low production runs. I was first inspired by this approach when I visited Factory Five Racing, an automobile company that designs and manufactures assembly kits for cars," remembered Jay. "Factory Five had sold 2,000 cars a year and was profitable even with small-batch, homemade cars."
  3. 3. Help people live their dream: More than 80 percent of the people who study automotive design do not work in the field. "The administrator of a famous design school astonished me with the stats," said Jay. "The dirty secret is that only 17 percent of the design students who dream about designing cars will get a job in the automotive industry. My favorite story involves a graduate from one of the better design schools in France who was unable to find work with a car company and ended up playing Santa Claus at a mall in France, and then got a job at a slaughterhouse. This man kept in touch with automotive design through the Local Motors site, and eventually, a Local Motors community evangelist got in touch with him and offered him the opportunity to design a car. We help people live their dreams."

Local Motors, through its online global network, represents the chance of fulfilled dreams for designers who would otherwise not have this opportunity. "My message has always been that if you think you can build a complex cyber-mechanical system, you can probably do it better with a large group of people who you plant a flag, give them a vision, organize them, respect them and engage them and then together you'll chase your dreams. That's what we do."

In my next blog, I'm going to look at how Jay was able to build this remarkable community at Local Motors, the crowd's involvement in design, and the use of competitions to drive innovation and foster fellowship.

NOTE: Over the next year, I'm embarking on a BOLD mission -- to speak to top CEOs and entrepreneurs to find out their secrets to success. My last book Abundance, which hit No. 1 on Amazon, No. 2 on the New York Times and was at the top of Bill Gates' personal reading list, shows us the technologies that empower us to create a world of Abundance over the next 20 to 30 years. BOLD, my next book, will provide you with tools you can use to make your dreams come true and help you solve the world's grand challenges to create a world of Abundance. I'm going to write this book and share it with you every week through a series of blog posts. Each step of the way, I'll ask for your input and feedback. Top contributors will be credited within the book as a special "thank you," and all contributors will be recognized on the forthcoming BOLD book website. To ensure you never miss a message, sign up for my newsletter here.

Silicon Valley Discriminates Against Women But There is Hope

  |   March 22, 2013    2:33 PM ET

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TopCoder's 5 Steps to Building a Global Workforce Community

Peter Diamandis   |   March 20, 2013    1:04 PM ET

In this blog, I'm continuing my conversation with TopCoder founder Jack Hughes, who gives us the steps that TopCoder took to build its community.

In my previous two posts about the open-innovation platform TopCoder, I introduced you to its methods. Now I want to explore how TopCoder engages with its vast network across the globe.

"It's phenomenal what you get out of the community: how smart they are, how dedicated they are, how interested they are in either a client success or TopCoder success or each other's success," founder Jack Hughes told me. "They will be competing one minute and sharing notes about who won, then what's the next step. It's and incredible environment."

To recap briefly, TopCoder is the world's largest platform for digital open innovation, whose 445,000-plus members around the world compete to develop lines of code in return for prizes and recognition, resulting in great efficiencies of time and cost.

"Competition just happens to be the thing that first engaged our community," Jack said. "There are many other aspects to TopCoder in terms of collaboration, in terms of how we go about business models, in terms of what our future is and what we think is many social aspects to TopCoder. TopCoder is a big deal with our community not because of the money in it or even because of the sponsors that are out there, or the fact that they can find a job out of it. But because they want to get together, because of the physical place where they can get together," he said.

"The primary reason people hire us is not so much the money-saving, although it's important," Jack said. "What they're trying to do is shorten that cycle to get innovative processes done."

For TopCoder's community, the project is the attractive thing: solving something people can be proud of before their peers. "TopCoder takes a big thing, breaks into many pieces and then aligns all of the aspects that have to be designed - construction, analytics, quality assurance, review. That all happens through the community," Jack said.

"Some folks are really good at finding bugs and they'll come in and they'll just do that. Some folks are really good at fixing bugs; they'll come in and just do that. Some people are really good at software design and will do that. Some people want to learn how to do software design, so they'll come in. They might have been fixing bugs yesterday and today they want to learn software design, so they'll come in and start competing in that. Not so much for the money - they don't think they can win at first - but what they're going to get is tremendous amount of feedback about how well they do it," he said.

"Most of TopCoder's productive capability is not from people doing it full-time," Jack said, although a small segment works that way. "There is always a large segment that does it part-time. They're entrepreneurs in their own way. They're creating things for other people. They have a huge affinity for helping a startup or helping small business that are trying to figure out a way to connect better with customers and bring some ability to it. And now, they can do it at a price point that's reachable."

Jack outlined five steps that TopCoder used to build and engage its community:

  1. Actively design and build the community, and start small. "The advice I would give," Jack said, "is that anyone who thinks that community is just going to find them and come to them is just wrong. You have to find and engage them."
  2. 2. Go out to universities and spread the word. "In the beginning we were literally stuffing posters into round tubes, mailing them to schools and saying that we were running competitions," Jack said. "Those went to MIT, Stanford, Carnegie Mellon, all the usual. We then followed that up with actual visits to schools, where we would go into the school and hold the competition. The prizes would be beer and pizza. Doing that brought together cores of people who said, 'This is really cool and I want to keep doing it.' Then it went very viral, very quickly. We found that the university system was where people were most likely to talk about new things, new ideas, try new things, new ideas and it certainly worked in our case."
  3. 3. Work with a partner to broaden your reach. Sun Microsystems sponsored TopCoder at one point and helped promote it. "Sun was looking at how we were attracting the community, and these were very highly skilled developers, the sort of everybody was looking for," Jack said. "Sun showed a way to get its product line into these folks' heads very early in their careers, whether they were going to go into a bank and do the analytics work or they were going to go and work for NASA and do engineering, whatever. Sun wanted to have that exposure to that group of people, even though it was relatively smaller at that time. I give Sun a lot of credit for doing that, for sort of going after that community as we had started the format."
  4. 4. Encourage sharing, references and further participation. TopCoder created a member referral program, especially in large tournaments. "We would deviate the prize money so that if you referred a member who won, then you would get some sort of a tip for referring that member," Jack said. "For a time we had incentives, and TopCoder is all about incentive systems and motivation systems. But the referral system was one of the ones to make it even more viral then already it was."
  5. 5. Be authentic to your vision, and always involve the community. "Communities are good in everything," Jack said. "They're good at solving a particular problem. They're also really good at sniffing out authenticity. So if you're unauthentic, you figure that out fast. Authenticity was one of the first things that we put up when we started the community. We set out saying that we intend to make money. We found just by saying that rather than being sly about it made a huge difference," Jack said.

"We're moving much more to a knowledge-based economy globally. We're moving to where the value content of the product or service is in its innovation capabilities, in its ability to help make its customer more competitive, faster, more efficient," Jack said. "That takes knowledge and knowledge is never going to be owned by anybody. You build knowledge not by direct financial capital as you did in appointment. It's by education, it's by teaching, it's by learning, it's by constantly moving yourself forward. Because of the Internet, people have access to those resources much more quickly. It starts to shift the weight back to individuals."

In my next blog, I'm going to continue exploring how Local Motors has revolutionized automotive design, through relying on the inspiration of the crowd.

NOTE: Over the next year, I'm embarking on a BOLD mission -- to speak to top CEOs and entrepreneurs to find out their secrets to success. My last book Abundance, which hit No. 1 on Amazon, No. 2 on the New York Times and was at the top of Bill Gates' personal reading list, shows us the technologies that empower us to create a world of Abundance over the next 20 to 30 years. BOLD, my next book, will provide you with tools you can use to make your dreams come true and help you solve the world's grand challenges to create a world of Abundance. I'm going to write this book and share it with you every week through a series of blog posts. Each step of the way, I'll ask for your input and feedback. Top contributors will be credited within the book as a special "thank you," and all contributors will be recognized on the forthcoming BOLD book website. To ensure you never miss a message, sign up for my newsletter here.

Want to Innovate? Break Your Routine.

  |   March 19, 2013   12:53 PM ET

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Crowd Control: TopCoder's 3 Steps to Building Community

Peter Diamandis   |   March 14, 2013    2:16 PM ET

In this blog, I'm talking with entrepreneur Jack Hughes, founder of the open-innovation platform TopCoder, which brings together specialists from around the world to work on projects that end up costing far less than if these projects were done in-house.

TopCoder is a remarkable platform that connects corporations, organizations and government agencies with a worldwide talent pool to create digital products. It hosts online contests to design, and even to build, these solutions. I and my colleagues at X PRIZE Foundation have used TopCoder, and have found, like everyone else, that TopCoder's global community of more than 450,000 technology and design specialists can find solutions to a wide range of problems at a fraction of the cost and time.

TopCoder is basically the world's biggest talent pool. It breaks projects down into atomized pieces of work, each of which is turned into a competition. Specialists within the TopCoder community deliver solutions for each piece. In effect, people who individually excel in everything from concepts to data analysis, design work on aspects of a bigger project. It's a great crowdsourcing model.

I spoke with founder Jack Hughes, who filled me in on TopCoder's humble beginnings at a picnic table, and the way the company approaches its innovative contest-driven, gamified, crowdsourcing solutions.

The impetus behind TopCoder was, as often is the case with drivers of innovation, Jack and his colleagues' inability to hire qualified people. "A great developer, a great creative person is a difficult thing to find," he said. "So we were sort of just iterating through different ideas on how to make the reach better in terms of identifying folks, and one of the concepts we came up with was if we start, we were doing a lot of ad hoc contests internally, because great developers love to compete."

This was back in 2000. Having sold their software development company, Jack and his partners, who included his brother Rob Hughes, "started to think about what to do next," he explained. "We started to think about building a community of developers online. That was the inception."

The early contests the team created offered a little bit of money, "just to make it interesting," Jack said, "but mostly they were for pride. Developers are very closely related to other intellectual disciplines, such as chess. So we fashioned a rating system around developers and to measure skill in a particular discipline. That drove a lot of the interest -- being able to get rated." This branded rating actually drove the community to TopCoder.

At first, these were predominantly problems created for non-commercial purposes. "We want whoever can optimize and schedule an algorithm, network an algorithm to pick up notes and pick up the fastest path, in a particular network of notes, edges, so things that would be applied to graphics would be applied to anything that's a complex math problem.

"It was basically a massive multiplayer game of coding. So they would all see the problem statement at the same time, they could open it, when they opened it a clock would start to ticking down, so they would get points associated with how quickly they submit it and then how accurate their code was."

The initial community was a few hundred developers. Then Sun Microsystems came on as a sponsor in 2002-2003, and TopCoder got a big spike in membership from that and began to branch out into commercial work.

Here are three things TopCoder did to build its community:

1. Make it clear up front what the aim of the company is. Stay true to your authentic vision. "Whatever you're doing it for and why you want a particular group or sets of groups of people around you, stay true to that and it will work out for you," Jack said. "I wouldn't say we had a formalized mission statement at the beginning of TopCoder, but we did have a founder's letter that every member saw. To this day I think we adhere to it and we've since expanded the definition of it," he said. "We felt that developers, people who create, are the center of everything. So how we connect those folks, how we facilitate their creativity, is what the business is always about," Jack said.

"There are plenty of mistakes we made. But a mistake we haven't made yet is to ignore the community. If you look at our early communications with community, they look very similar to today. Some of them literally say, 'Without our community we don't exist.'

"It is very difficult to live by that," Jack explained. "It's very easy to start thinking that there are other ways you can get things done, that there are mechanisms by which you sort of use the community. We would say that this isn't about using the community. It's about being part of one. If we lose that focus, I would say that's when we lose it," he said.

"I think communities may be harder to do now. We predated Facebook; we predated a lot of social networking, a lot of community-based business models. There's money in it now. You're going to have people chasing the money. I don't think there is anything wrong with people making money. But at TopCoder we hold true to that and everything else will get sorted out. I think that's little bit harder to do nowadays because building the community is going to be ramping it up to whatever size, doing whatever. The advice I would give is don't do that."

2. Competition drives commitment to the community -- it's competitive as well as collaborative. "Competition just happens to be the thing that first engaged our community," Jack said. "There are many other aspects to TopCoder in terms of collaboration, in terms of how we go about business models, in terms of what our future is and what we think is many social aspects to TopCoder," he added. "TopCoder opens the big deal with our community, not because of the money they win in it, or even because of the sponsors that are out there or the fact that they can find a job out of it. No, it's because they want to get together, because of the physical place where they can get together."

3. Validation points are important. Sun Microsystems came in as a sponsor that helped take TopCoder to the next level. "Sponsorship in our case was a validation point." Jack said. "Making sure that you're engaging the community and listening to the community and letting them help you form your business model is important. When we went to commercialize TopCoder, we didn't do it for a number of years after we had started it. We started to think about very different models in different ways to do that. We could have done a matching service, we could have done a matching developer to a customer; we didn't do that. We decided to use the competitive/collaborative regime to engage members in actually building the product," he said.

"We felt that was the right thing for this particular community. At that point the community was probably 25,000 people. So there were a lot of people to be able to talk to. What we have found, and what we live by is this: We look at TopCoder as an inverted pyramid. The company exists to support the community. The community exists to support our customers and to support each other."

In my next blog, I'm going to continue exploring the remarkable processes of TopCoder, how it works with its customers, how its process evolved and how it's able to achieve such exponential economies of time and scale for its clients.

NOTE: Over the next year, I'm embarking on a BOLD mission -- to speak to top CEOs and entrepreneurs to find out their secrets to success. My last book Abundance, which hit No. 1 on Amazon, No. 2 on the New York Times and was at the top of Bill Gates' personal reading list, shows us the technologies that empower us to create a world of Abundance over the next 20 to 30 years. BOLD, my next book, will provide you with tools you can use to make your dreams come true and help you solve the world's grand challenges to create a world of Abundance. I'm going to write this book and share it with you every week through a series of blog posts. Each step of the way, I'll ask for your input and feedback. Top contributors will be credited within the book as a special "thank you," and all contributors will be recognized on the forthcoming BOLD book website. To ensure you never miss a message, sign up for my newsletter here.

Can a Cyborg Treat Us Before We Fall Sick?

  |   March 12, 2013    2:17 PM ET

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Silicon Valley's Secrets Disclosed

Peter Diamandis   |   March 12, 2013    1:33 PM ET

In this blog, I'm continuing my talk with entrepreneur Philip Rosedale, who explains the "secret sauce" of Silicon Valley -- unveiling why Silicon Valley is such a hotbed of entrepreneurship.

I was interviewing Philip Rosedale, creator of the platforms Second Life and Coffee and Power, at Singularity University when he asked such a powerful and provocative question, that it launched me into a brand-new conversation with him. It is so important that I'm dedicating this entire blog to his answers.

His question: "Why does Silicon Valley have more successful software startups than anywhere else in the world? Are people just smarter here?"

After a short pause, Rosedale continued: "I don't really believe that entrepreneurs are smarter in Silicon Valley, that we were genetically different or anything. San Francisco's a tremendous melting pot of people from different areas. But I have been struck by the observation that in other countries the rate of success is much lower and that there's a very low degree of sharing of ideas."

"In Silicon Valley, you might think that people's willingness and desire to exchange little pieces of information about what they're doing carries more risk than benefit," Rosedale said. "But if you added up their interactions overall, you'd see that there is a huge benefit to exchanging ideas. Ultimately it fuels more innovation and productivity here in Silicon Valley, in San Francisco, than anywhere else in the world," he said.

In other parts of the world, Rosedale believes, "this lack of sharing might be driven simply by the fact that there aren't enough people of the same ilk. There aren't enough technical people running into each other in coffee shops colliding, if you will," he said. "But culturally, just about everywhere other than in Northern California, people are very unwilling to share information with each other."

"I've thought about that a lot," Rosedale said. "As Second Life became famous, I got to travel around the world. Being an entrepreneur and an engineering person I was really interested in that fundamental question, which always struck me as a kind of funny cocktail-party conversation, since I don't mind not pissing people off. When I was bored at cocktail parties, if I was in Europe, I'd bring out the question, 'Why is it that you Europeans basically make no software and you're all smarter than us?' In Europe people are incredibly smart. They're super effective. They can do all kinds of cool stuff. Why is that happening? And same thing in Asia," he said.

"And then, moreover, in the United States, it's not the whole United States that makes software -- it's just right here in Silicon Valley," Rosedale said. "There's really a lot more software that's made here than anywhere else in the world. Why is that?"

Rosedale went on. "I had to give a talk at a great conference, called Big Omaha, which is a big get-together of entrepreneurs and mostly software tech people in Omaha, Nebraska. It gathers together people from that part of the country -- Omaha, Des Moines -- and I did this graph where I took Google Maps and I drew these circles, which were the area where 100,000 people lived superimposed on a map of each of these areas," Rosedale said.

"I did Des Moines and I did Omaha and I did New York, Los Angeles, San Francisco and other places. On the map was a random scatter chart of red dots, and each red dot was a technical co-founder," he said. "We got that data from LinkedIn. Now, LinkedIn has searches where you can basically ask how many people in an area say something on their résumé like 'technical founder,' 'co-founder.' So you can count how many technical founders are in that area per 100,000 residents. And guess what? In Omaha and in most cities in the United States, that number is somewhere between 20 and 30 per 100,000 people," he said.

"In New York the number is 51, but in San Francisco the number is about 340. It's the classic thing we all look forward together here: It's an order of magnitude higher. And the scatter chart looks like a shotgun shell loaded onto a map of San Francisco," Rosedale said. "The point I was trying to make with the map was that if you're going to work on a software project, it's going to fail. The probability of startups succeeding is 10 percent, unless pigs fly and some statistics are radically changed," he said.

"Your project is going to fail with a 90 percent change of probability," Rosedale said. "It's going to fail in about one year. So now the question is: what happens next? The graph pretty well illustrates it visually. As I said, out there in Omaha you're not going to live through the winter. You're 24 years old. You saved up a little bit of money. You're not going to make it. You're going to have to go back and live at home or something, which is pretty depressing. In San Francisco, you're going to get another job in two weeks because it's an order of magnitude difference," Rosedale said. "You're going to walk into a bar in the Mission in San Francisco and you're going to run into the person who's either going to hire you, co-found something with you next, or fund you."

Because of this density of founders in Silicon Valley, people feel safe to try all sorts of projects, because if they fail they can move on to the next project. In fact, in Silicon Valley, people value failure as having trained them in that experience. "We're culturally tolerant of it," Rosedale said. "We have an amazing tolerance of it. It's not so much that the Bay Area breeds or attracts people who are uniquely insane, who are willing to take on this level of risk. It's actually that, for the most part, for even the craziest among us, even if these really crazy ideas fail, you know you're not going to starve to death. You're not going to be completely desolate."

Rosedale put it another way: "We huddle. We're herd animals. We come here and we seek each other's warmth and that works. We're also, I believe, safe here. When you're safe, it makes your more open and friendly. When you're open and friendly, you share things with each other, like how to set up a server or how to get somebody who knows a lot of social media marketing stuff or how to find a developer. You share that information freely with each other," he said.

"Even if you don't share very much -- and my hypothesis from studying this behaviorally is that actually we don't do that much here -- but that little bit that we do share in Silicon Valley adds up to a lot," Rosedale said. "If you have a good idea in Lisbon, Portugal, if you have a good idea in Paris, France, you hide it from everyone else, right? You hide it from everyone else because it's a precious gem and if that idea works, you'll be successful. So what's happening in San Francisco is, you have these strange confluences of people driven by the fact that people are both engaging in lot of projects and then willing to share and talk about them," he said.

The implications of that have powered his new business.

"One of the things I'm fascinated by is the question of whether with Coffee and Power ([the name of Philip's newest company] we could build an app that will get you to do that anywhere." Rosedale said. "Could we get people to connect at this level even in Omaha?" In other words, due to the density, or lack of it, in places such as Omaha, you're looking to connect but not only with 20 people within its population of 100,000 -- with Coffee and Power you're connected to thousands of people around the world. "On top of that," Rosedale said, "what if I can make it so that the 50 people at a time who are looking for team members in Omaha can find them? You can kind of see them if they're near you. You can shrink the geography," he said.

"I think the most important thing is not just finding them or talking to them. It's not enough actually to break the ice, but what if you could see a bunch of little short statements about what they were doing yesterday and what they're doing right now?"

In my next blog, I'll talk to the CEO of TopCoder -- the newest way to write software fast and cheap.

NOTE: Over the next year, I'm embarking on a BOLD mission -- to speak to top CEOs and entrepreneurs to find out their secrets to success. My last book Abundance, which hit No. 1 on Amazon, No. 2 on the New York Times and was at the top of Bill Gates' personal reading list, shows us the technologies that empower us to create a world of Abundance over the next 20 to 30 years. BOLD, my next book, will provide you with tools you can use to make your dreams come true and help you solve the world's grand challenges to create a world of Abundance. I'm going to write this book and share it with you every week through a series of blog posts. Each step of the way, I'll ask for your input and feedback. Top contributors will be credited within the book as a special "thank you," and all contributors will be recognized on the forthcoming BOLD book website. To ensure you never miss a message, sign up for my newsletter here.

Creating a Company Without Employees: Philip Rosedale on Coffee and Power and the Future of Entrepreneurship

  |   March 8, 2013    1:42 PM ET

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Forget The Sequester: Entrepreneurs Are Saving The Future

  |   March 7, 2013    4:52 PM ET

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Second Life: How a Virtual World Became a Reality

Peter Diamandis   |   March 7, 2013    3:40 PM ET

In this blog, I'm introducing you to the work of Philip Rosedale, who set out on a very bold mission to create a virtual world accessible to the masses. How does one even think about doing something on this scale? What are the lessons learned? Enjoy!

I caught up with Philip Rosedale, the creator of Second Life, a brilliant entrepreneur and a close friend, at Singularity University. Philip is one of the most expansive thinkers I know, with a passion for creating communities and motivating people to be effective and powerful entrepreneurs.

As a reader of this blog you already know my passion for "origin stories" for people's companies, so finding out how and why Rosedale started one of the most ambitious Internet companies of the last decade was a real treat for me.

"I started doing electronics when I was a little kid, in the 5th or 6th grade, buying computer parts at a swap meet and writing my first programs," Philip told me. "Simple things just blew my mind with respect to the sort of infinite simulation or combinatorial possibility inside the computer. My personal obsession from my childhood was that I just wanted to recreate reality inside the computer and then go in there," Rosedale said.

Rosedale had studied physics at college and after graduation set out as an entrepreneur. "I had started a small company doing database inventory control, and decided to move the business up to San Francisco," he said. "My timing for landing in Silicon Valley, at the center of the Internet, was perfect."

"At that time I told my friends that I was eventually going to build a virtual world, but the systems weren't up to speed," continued Rosedale. "There was insufficient bandwidth and no 3D, even on desktop computers," Rosedale said. "So I decided that I was going to have to lay low and work on something else entrepreneurial with this Internet 'thing' while I waited for the future to catch up," Rosedale said.

Like anyone inspired by a bold idea, Rosedale had the confidence that he could eventually make it happen: "I was just so insanely motivated to build that place that I could see in my head." He remained on high alert waiting for the signal that would allow him to take action and move ahead.

That signal came while Rosedale was working at Real Networks in Seattle -- the Internet software company behind such companies as RealAudio, RealVideo, RealPlayer and RealDownloader. (Rosedale actually created Real Video.) While there he met Mitch Kapor, the founder of Lotus 1-2-3 and Lotus Notes who later went on to become kind of a benefactor behind Second Life.

"It was the availability of broadband over DSL that re-launched my quest for creating my 3D virtual world," said Rosedale. "When that bandwidth became available to the home, I was like, 'Oh my God, I can do it -- I can build Second Life!' You get that moment when you just feel like it can be done or, at least, it's not too crazy to try and do it. In the next couple of weeks I packed up from Seattle and came back to San Francisco and started Second Life," Rosedale said.

I asked Rosedale how he had raised money for such a crazy idea. His answer: "I didn't." Rosedale had made enough money when Real Networks went public that he was able to invest about $1 million of his own money in getting Second Life started.

"Unfortunately, even with my $1 million it wasn't fundable," he said. "If you have an idea as crazy and bold as Second Life I can guarantee you one thing: those traditional venture capitalists that are loaded with billions of dollars are not waiting to fund ideas like this," he said.

Still, he convinced a few forward-thinkers (Mitch Kapor among them) to help fund Second Life, and now, some dozen years later, Second Life has more than 20 million registered users and remains a success. "The company's about 175 employees in size today," Philip said, "and it's very profitable because those users on Second Life are able to do really cool things with it and they're able to get value out of it. In turn, Second Life as a company is able to share in some of that as revenue. The GDP of Second Life today is somewhere between $600 million and $700 million a year in transactions between people. Most of those transactions are things like users building and selling clothing, furniture design, to other users -- essentially people building a virtual world and then selling that virtual world to themselves."

I asked Rosedale to summarize his lessons learned from creating Second Life. If you were advising an entrepreneur who wanted to do something as big and bold as Second Life, what are your top five pieces of advice -- what to do and what not to do? Here are his answers:

1. Have real passion. "If a crystal ball told you that this was going to be huge and have a big impact on the world, but that in the end you would not make much money, would you still want to work on it? If no, stop," said Rosedale.

2. Don't raise very much money. "If your idea is really big, too much money will probably increase the risk of failure," continued Rosedale. "Because there are many more ways to spend money to fail than win."

3. Encourage people other than yourself to take genuine risk by your side. "Don't shoulder the burden of proof alone."

4. If the idea is really new and unique and big, other people will all think it is bad and is going to fail. "You will have to do it against the best advice of others -- see point #1."

5. Be good to people, both inside and outside the company. "Being bad is stressful and will occupy your mind. If you are working on something really amazing," Rosedale reflected, "you will need that focus for the product and the company, not for worrying about people you've screwed."

In my next blog, I'm going to continue my talk with Philip Rosedale, and detail his beliefs regarding the future of entrepreneurship and the workforce.

NOTE: Over the next year, I'm embarking on a BOLD mission -- to speak to top CEOs and entrepreneurs to find out their secrets to success. My last book Abundance, which hit No. 1 on Amazon, No. 2 on the New York Times and was at the top of Bill Gates' personal reading list, shows us the technologies that empower us to create a world of Abundance over the next 20 to 30 years. BOLD, my next book, will provide you with tools you can use to make your dreams come true and help you solve the world's grand challenges to create a world of Abundance. I'm going to write this book and share it with you every week through a series of blog posts. Each step of the way, I'll ask for your input and feedback. Top contributors will be credited within the book as a special "thank you," and all contributors will be recognized on the forthcoming BOLD book website. To ensure you never miss a message, sign up for my newsletter here.

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