Still not sure if it’s a safety harness, a leach or a noose.
- Montreal-based entrepreneur

The person above, who didn’t want to be named, is referring to one of the government programs that fund R&D activity in Canada. Programs with alphabet soup names like SR&ED and IRAP can repay up to 85% of your developers’ salaries. (Yes, 85%)

Fred Lalonde, an experienced entrepreneur and founder of Hopper Travel, recently said these programs are the devil. And I think he was being nice. Here’s why:

• These programs create bureaucracy. The government hires technical “experts” to audit companies and decide whether the work they’ve done is innovative enough. To navigate through their requirements and make sure you use the right buzzwords, startups hire consultants (some of them previously employed as the aforementioned government auditors) to prepare their claims. All of this costs money.
• They’re a distraction. None of the people above add any value to your business. Every minute you spend dealing with them is a minute you could be spending learning about your customers/users, getting to product/market fit or gaining market traction.
• They create incentives to misalign resources. This is dangerous because it’s insidious. When you’re getting back 85% of your engineering salaries, it’s easy to just throw more engineers at your problems. As a result, Canadian startups have world class engineering teams, but often fall short on the product and user experience side.

I’ve spoken to a several Canadian startup entrepreneurs in the past few weeks about these programs and there is clearly a lot of frustration regarding them. Yet at the same time, there is a reluctancy to discuss the issue publicly for fear of biting the hand that feeds them giving the already limited pool of capital available to early stage startups here.

I’ve come to the conclusion that these programs do more harm than good, and it’s time we have an honest conversation about getting rid of them.

But wait, you say, how will our tech industry continue to exist? You can argue it’s time to just drop the crutches and learn to walk. After all, these programs don’t exist in Silicon Valley, yet they seem to be doing just fine.

Or, the government can take that capital and redeploy it in other ways, such as:

• Investing in venture capital. You don’t want the government investing directly in startups, but they can act as a catalyst by acting as a limited partner in funds managed by people with operational experience. This model has worked in Israel, and Quebec has taken some big steps in this direction recently with the creation of the Teralys Capital fund of funds as well as investing in Real Ventures.
• Invest in infrastructure that creates conditions for innovation and risk-taking, from universities to places like Notman House in Montreal or MaRS in Toronto.
• Creating startup friendly tax policies. We give tax holidays to foreign “specialists”; why not do the same for entrepreneurs, or early employees who decide to take the risk on a startup, or angels who invest in them?

What has your experience been with these R&D programs? Should we keep them or replace them, and if so, with what? Let’s get a discussion going in the comments below.

Most startup entrepreneurs are obsessed – rightly so – with figuring out the magic formula to get their product to go viral. But few are able to launch a product which goes viral completely on its own. Very often, successful products early on have gotten a boost by latching onto another company with more users, money or both. Here are some examples:

Hitching a ride

• Despite still not being a monetization success, Youtube has been very successful at optimizing for retention and virality. But when Youtube first launched, their founders had to literally beg people to post videos. Is was not until Youtube enabled embedding and users started posting their Youtube videos on Myspace that the service really took off.
• Location-based games Foursquare and Gowalla are seeing viral growth due in large part to very tight integration with their users’ Facebook and Twitter streams.
• Without a doubt the most successful company built entirely on top of another social network is Zynga, through their brilliant (but often annoying) deep integration of Farmville and other games with Facebook in a way which enabled them to grow faster than if they had to build their own social graph from scratch.
• Before Google was what it is today, they powered search on Yahoo!
• BillShrink scored a marketing coup last year by convincing T-Mobile to plug the site’s cell plan picker because T-Mobile objectively came out on top most of the time. What are the chances the startup would have otherwise afforded a national ad campaign featuring Catherine Zeta-Jones? (See the video at the top of this post.)

There’s nothing wrong with being a plug-in to someone else who can increase your distribution early on. But pinning everything on one partner is a recipe for certain death, which is why all the companies above used their opportunities as a springboard – they embraced, extended and then evolved.

Case in point: When Facebook limited Zynga’s ability to talk to their users directly, and wanted them to migrate to Facebook Credits as a payment platform, they promptly decided to create their own game network. (And it didn’t take long for rumors to circulate about Google investing $100 million into Zynga and planning the launch of Google Games.)

What are some of your favorite traffic hacks? Share them in the comments below.

Special thanks to Peter Pham for previewing and providing feedback on this post.

Bernal Bucks welcome here

You’ve heard about slow food, but what about slow money?

Slow money is exactly what Arno Hesse hopes to bring to his Bernal Heights, San Francisco neighborhood with Bernal Bucks. The goal behind Bernal Bucks is simple: More money circulates locally when spent at locally owned businesses, which in turns contributes to the local economy.

Here’s how it works:

• Individuals get Bernal Bucks stickers by making a donation to a local charity
• Bernal Bucks is not its own currency but rather a sticker you place on existing $10 bills (Because the sticker is removable, you’re not defacing currency, which is illegal) Each $1 donated buys you one sticker
• Use the currency at local businesses and get rewarded — a free apple at the grocery store, $5 off your massage, etc.

I first met Arno at BarCampBank San Francisco (where the spark behind the project ignited) and asked him to elaborate on the motivation driving the project:

Arno Hesse

Bernal Bucks is our pilot project for a new model of community finance. It aims at keeping the money in local circulation, and to use the intra-community money flow to grow the neighborhood’s prosperity.

In some way, the financial crisis has highlighted the urgency for communities for more resilience against (inter)national finance mess-ups beyond their control. While the local conditions have been developing positively in many places, the big banks have throttled credit and thus money inflow, due to their problems.

A mere five months after launching, 50% of local businesses representing about 70% of the transaction volume in the market. The beauty of the project is at the same time in its simplicity (no new currency or payment methods to get adopted) as well as in its power to reshape local economies. With more and more businesses giving rewards to FourSquare users for checking in it stands to reason that giving rewards for Bernal Bucks — where you can reward actual transactions — has the potential for even wider adoption among merchants.

What’s next for Bernal Bucks? Organizers are working on launching a local shopping card for sometime this year. This should make adoption even easier for everyday individuals while maintaining universal merchant acceptance. And everything being tested is with an eye towards scalability in other local communities.

What do you think about the idea behind Bernal Bucks? Would you use it in your community? Please share your reaction in the comments below.

SmartHippo advisory board meeting (photo by Bill Rice)

We have an awesome advisory board at SmartHippo and I often get asked how we set it up and how we leverage the people on it. If you run a startup, particularly if you’re early stage, a good advisory board can be one of the best investments you can make.

Here are some tips on how to make it work:

Who to include on your advisory board

• Thought leaders or other well respected people in your industry.
• Door openers who can introduce you to customers, channel partners or investors.
• Superstars who you wish you could have on your management team but can’t afford.
• Strive for a balance of people with different areas of expertise who may not all think the same way.

Who not to include on an advisory board

• Token individuals who are there just in name but who aren’t actually engaged in your business. You don’t want someone conducting diligence on you or your company to call up an advisor only to find out they don’t remember who you are.
• Angel or institutional investors who have not invested in your startup. This doesn’t send a good signal, since if they really believed in you they would have invested.

Receruiting and compensating your advisory board

Most people will be flattered to know that you see them as an authority in your industry and will be open to learning more about your business and providing you with feedback. At this point, the easiest way to get people to join your advisory board is just to ask.

If you’re early stage, you’ll typically be compensating your advisory board in stock options. 1/4 to 1/2 point of equity, vested over four years is a good guideline.

Getting the most out of your advisory board

Remember that your advisors are busy full time with other things. Respect the value of their time and be as specific as you can with requests you send their way. (i.e. “I’d like your feedback on our go to market plan” or “Are you able to introduce us to a C-level executive at company X.”)

For many advisors, aside from the longer term payoff from stock options, meeting and learning from other smart people can be a big motivator. At SmartHippo we also make it a point to organize an annual advisory board meeting where we fly all of our advisors into town and combine a day of updates and strategy meetings with social events. Make it fun!

Does your startup have an advisory board or are you thinking of setting one up? Share your experience in the comments below.

With Dave McClure already confirmed as one of the keynotes, this is an event not to be missed. One of the startups applying will also get to accompany Dave on his Geeks on a plane trip to Asia.

Register (free!) for the event. If you’re the founder of a startup, apply to present (also free!).

As i write this, the tradeshow floor here at Blogworld has been open for a little over an hour. I’ve made the rounds of the various booths and come up with my best picks:

Most innovative: Zemanta

Zemanta is a very cool tool for blog authors. As you’re writing a blog post, it analyzes the context to automatically suggest relevant images (creative commons-licensed), tags, external links and even related blog posts, all of which can be included in your post at the click of a mouse.

Zumata has the potential to help bloggers save time, write better and more interesting posts, and gain traffic. They are not monetizing it at the moment, but I can easily see them selling sponsored content recommendations tailored to the content of a blog post.

Most promising: Crowd Science

Crowd Science is a hosted audience measurement service. If you have a web site you want to sell ads on, you’ll want to provide your advertisers with demographic and psychographic information on your visitors. Most audience measurement services rely on observing the behaviors of a panel of web surfers, but many sites do not have enough traffic volume for such a panel to be effective.

Crowd Science’s approach is to host inline surveys embedded within the web site being measured. The surveys all contain a base set of common demographic questions, which site owners can enhance with questions specific to their vertical. The surveys are only delivered to a sample of overall traffic, and once enough data has come in, site owners can use it to create a media kit with data validated by a third party.

Most interactive: Toss up between b5media and Southwest Airlines

There’s a poker game going on at the b5media booth. You get get free chips by wearing b5media schwag, yelling out “I love b5media,” or the like. When in Rome do as the Romans do. And when in Vegas, well… here’s a crappy cell-phone photo of that poker game:

It’s great to see a big company that gets social media, and it doesn’t surprise me one bit that Southwest Airlines falls into this category. Southwest is holding a “blogospondent” where participants film and post videos about Southwest. They flew the top three contestants to Vegas for Blogworld, and they now have until tomorrow to produce a video. Oh, and they handed out roasted peanuts in the a

Are you at Blogworld and do you agree or disagree with this list? What are your favorite picks from Blogworld? Leave a comment below.

Stuart MacDonald is the founder of Tripharbor.com (Tripharbour.ca for Canadians), a recently launched vertical search engine for cruise ship vacations. Besides just letting you compare details and prices, Tripharbour also features some cool community features that let you read trip and destination reviews and make friends with others who have similar interests.

Stuart knows the online travel industry well, having previously served as SVP Packages and Chief Marketing Officer for travel behemoth Expedia. Cruise vacations is a $24 billion industry in North America, and he’s aiming for a piece of the action.

Rather than write up a big long report, I decided to continue my experiments with video by bringing a camera along to give people who did not have the chance to attend a bit of a feel what what the event if like.

In today’s interview, David Crow introduces the idea behind Founders and Funders.

Stay tuned: This Friday I’ll be posting part two of the series, where we get to hear from one of the entrepreneurs who was at the event.

Now, it looks like it may be Lending Club‘s turn in the US. According to a notice posted on their site, they have stopped allowing their lenders to initiate loans via the site. (More coverage at Netbanker, Techcrunch, and Center Networks.)

Like IOU Central, they’ll continue to service existing loans. However, in an effort to maintain credibility with the borrower side of the equation, they will also continue to accept loan applications, which they will fund themselves from this point on. How long they’ll be able to do that for without having to start placing caps on new loans, I don’t know. They’ve announced $12.3 in total financing.

My guess is their legal team is burning the midnight oil. Anyone thinking of starting their own P2P lending marketplace may want to review this telling video from 2006 where Chris Larsen of Prosper talks about the effort they spent working with regulators before launching, which he says gives them a two year lead over potential entrants to the space. In Canada, CommunityLend seems to be taking a similarly cautious approach to regulatory issues.

The disk, sent unregistered to Swiss Reinsurance Co., contained password-protected details including customers’ names, life-insurance cover levels, birthdates and smoking status, London-based spokesman James Thorpe said. It didn’t contain clients’ financial details or addresses, he said.

The article then goes on to state: “The company will encrypt any disk which includes sensitive information in the future, Thorpe said.”

Good idea, guys.