Contributopia

Core Values

Michael Motta — Mon, 25 Apr 2011 07:22:35 -0400

I happened across a blog by a talented startup CEO that got me thinking about "core values" statements. I certainly have been responsible for formulating and promulgating my share of Core Values statements. I have felt that it is important to get the team on the same page. To reinforce the creation of a culture by articulating underlying key values. I was always slightly uncomfortable doing this. I now realize why.

These statements are typically coming from the powers that be or, more directly, from the boss. So they are sure to be interpreted as commands. Can values be commanded, especially if they are framed as commands? "We will..." (see below) Yes, yes, I realize that in the broader social compact, laws ultimately are commands, which implement underlying core social values. The meaning of "compact" underscores the fact that I volunteer to abide by the commands, because it works out overall better for me. "Ask not what your country can do for you..." But it just does not seem good or sufficient to promulgate Core Values. Enron had a great set of Core Company values posted in their main lobby. They were beautiful. Well articulated. Important. The only problem was that many important people at the company obviously did not pay attention to them at all. Their official promulgation clearly was not effective in having a positive impact on behavior. So, something else is needed. Better for the powers that be to scrupulously abide by some key principles in their every action, leading by their example rather than by their commands.

It is hard to find the right way to frame such organizational statements. If you don't get it right, you can wind up having a rather negative affect. The kick-off example in the above blog taken from Slingshot Labs is a particularly irritating formulation for two reasons: "We will ..." uses the 1st person plural to make more palatable the fact that "I" am asking "you" to do something. It is OK, because I am also asking myself to do the same thing. But the "we" there is even a little more insidious. It sounds a lot like when I say to my 3 year old "We are going to the potty now." I have no intention to go to the potty myself other than to accompany my child to ensure he goes and does there what he is being trained to do. Possibly, I am making a big deal about an innocent usage of the 1st person plural, being used principally to avoid an explicit imperative form, which seems to be more "pushy". Or, more likely, to avoid the need to choose a personal pronoun, which is heavily freighted with gender "He always is honest." In the above post, Jason creates a much more fun and palatable formulation of the values statements by dressing them in superhero gear. It seems marginally better to put them in a definite 3rd person as a metaphor for the "good" team member. But do we need to make a big deal to announce them at all?

The second problem I have with the Slingshot Labs formulation is the fact that they are telling me what to think! Saying "We like our jobs" reminds me of the People's Republic of China. I traveled to Tiananmen Square in 1997 or so. I distinctly remember the feeling of surprise and disgust when I read the huge sign at the south end of the Square. The sign said something like "... you need to have to have the right attitude to be a properly contributing member of Society." Namely, you have to think in a certain way. Values statements should be crafted in a manner that aims more directly at behavior.

The values usually are so basic and obvious that, if you have chosen to hire the right people, everyone should know them already. Honesty. Clarity in communications. Hard work. Balance of individual contribution and team work. These values ought to be elevating to principle what most people are doing anyway. When we set out to formally announce the core values, aren't we trying to remind people, who we think have forgotten the basic principles? Is it so mysterious what is the right thing to do? If people aren't behaving according to reasonable principles, then there is something else terribly wrong that will not be fixed by promulgating the list of Values.

I am all in favor of provoking conversations about Core Values. Our job as managers is to inspire people to behave reasonably, honorably, and in a manner that moves forward the goals of the company. It is important to do this in the context of what people are doing as part of their jobs. It is much, much better to set specific individual goals individually (and regularly) that express and reinforce the Core Values in terms of day to day responsibilities and activities. Don't waste your time crafting glossy Core Value statements. Rather, spend this time talking to people about what they are doing and should be doing to advance personal and Company goals.

How to run Custom Projects. Life cycle issues.

Michael Motta — Wed, 13 Apr 2011 04:54:36 -0400

This is the third in a series of posts covering Custom Projects. See the list of links at the bottom of this post.

A company that performs custom development needs to have a coherent Product Management scheme. Also needed are a set of standards for managing the various kinds of projects undertaken. How do custom projects start, execute, and stop?

It is well worth the effort to create a document to describe how projects are run at your company. In fact, if you are performing Custom Development it is essential to have such a description. You should include the 5 major cases where projects come from: RFP proposals, requests for new features through customer support, bug reports that turn into new feature requests, custom work brought in by the sales team, and roadmap development activities on the core product. There are three key matters to get documented:

Define a well-known location for a repository for all such project requests. Consider using the Issue Repository for this purpose.
The repository should hold all relevant information for planning the project: description, technical scope summary, preliminary effort estimates and delivery dates for the major components, who owns the responsibility for taking the project to the next step, and some indication of the status or state of the project. Some care should be taken to define these project states in a complete and generic way. Stipulating the conditions under which the project state changes is important.
Describe the flow of activities, similar to the (over) simplified picture below about the stages of engagement with the customer and the key artifacts to be produced a teach stage.

A very important issue is to make an unambiguous statement about who decides whether to undertake a project with what priority. Product management or the equivalent Larry-Page-styled executive needs to be identified. The role is crucial to success: you need someone with the big picture of product-market fit and product cadence, which is directly connected to the strategy of the company. Most relevant here is to define a single point, where decisions are made on whether to undertake a given Custom Project and whether to (also) include into the product baseline the features to be developed. This requires a lot of commerce between the engineering and product management teams. But the ultimate decision must be Product Management.

Even though it is somewhat artificial, making sure that projects are force-ranked (only one project per priority level) during the planning stage prevents debilitating ambiguity later on. It is also important to note that the order in which projects are completed is not necessarily the same as the priority. It really depends on size and opportunity: small projects of lower priority may be completed before complex projects of higher priority. Obviously, discretion needs to be used to limit the delays to high-priority projects, where there are resource conflicts.

It is important to write a description about how business will be conducted with the customer under a Custom Project. In fact, you will need to create some Services Agreement prior to performing custom development. This agreement will typically say something about the Engagement model or models to be used with this customer. Further, the Services Agreement will stipulate payment terms, intellectual property, basis for pricing projects, project governance (key people on both teams, project review meetings, etc.), and a description about the stages of projects and artifacts to be agreed at each stage (see a simplified version of this process in the diagram above.) In case that you may want to run a number projects with the same customer, it is useful to create a separate Agreement, so you don't have to worry about the legal terms for each project. This agreement is typically called a Master Services Agreement or MSA.

When you get all of these details under control at the beginning, you will find that it is much easier to deliver individual projects without a lot of churning, confusion, and uncertainty. The cost of this up-front work is returned many-fold in productivity, and the satisfaction of just getting things done successfully.

Part 1: How to run Custom Projects. Introduction.
Part 2: How to run Custom Projects. Engagement models.

How to run Custom Projects. Engagement models.

Michael Motta — Mon, 11 Apr 2011 06:37:51 -0400

This is the second in a series of posts covering custom projects. See the list of links at the bottom of this post.

One of the biggest challenges is to fıgure out and apply the proper the Engagement model for Custom Projects. We make the assumptıon that the company intends to be paid for the "extra" work rather than giving it away (which may be the better approach!). "Engagement model" is just a fancy term describing the agreement between customer and provider about the manner in which products or services are to be delivered for a fee. The two traditional engagement models are Fixed-price (FPP) vs. Time & Materials (T&M). There are significant weaknesses with each of these models. We will briefly explore these models and review a hybrid alternative, the fixed-scope model (FSP), which begins to address some of these weaknesses.

FSP combines scope commitments by agreeing to deliverables, dates, and acceptance conditions. Payments are on a rate card basis (person count) with incremental acceptance crıteria tied to incremental revenue recognition. Detailed scope and project plan are agreed in the Statement of Work (SOW) to be part of the initial set of deliverables, after project start and subject to a Change Order process. This approach changes the dynamics of project initiation under the traditional models from the game of trying to get the most for the least or do the least for the most. This game usually takes place in the absence of any dependable informatıon about the detailed nature of the problem to be solved.

Risk management: a T&M project puts all of the risk on the Customer. Typically there is little recourse for the Customer in failures to deliver. T&M has become much less popular in recent years due to this fact. On the other hand, FPP offers the opportunıty to shift most of the project risk to the Supplier, by tying payments to formal acceptance procedures for the deliverables. Of course, the ultimate business risk is borne by the Customer by not having what is needed by the expected timeframe. But most of the project risks for an FPP are on the Supplier side. FSP puts greater balance in the relationship with regard to project risk. Scope is committed to ensure the Customer gets the desired results by deliverable and date. The Supplier gets a recognition up front that the Customer is engaged financially from the start and that project scope can change as the Supplier learns more about the problem. Both parties are encouraged to put “skin in the game”.
Cash and revenue: For T&M, cash and revenue recognition come continuously to the Supplier. But the customer cost to complete is borne entirely by the customer, even if you agree in the T&M SOW to set a maximum expenditure. If the functionality is not yet complete, there are unavoidable pressures for the Customer to keep paying until it is done. Typically, while there may be progress payments by Deliverable in FPP contracts, the strong card held by the Customer is that the Supplier company will typically not have the ability to formally recognize this revenue (or in some cases to get cash) until the project is complete. This is a very powerful stick. Combining acceptance-certified deliverables (the “scope” of FSP) with accommodations for incremental revenue and revenue recognition has the advantage of sharing financial rısk at the same time as getting the expected functionality in the hands of the customer at the agreed timeframes.

As you write an agreement with your customer to purchase custom work, consider carefully the alternatives for structuring the project. FSP projects offer advantages not found in FPP and T&M projects. What is most important for all non-T&M projects is making sure the SOW includes a deliverable to be completed that marks the definition of project scope. Built into the project. Typically, the scope is never clear until significant investment is made by both parties in understanding the solution to the problem. The Supplier wants to get paid for the analysis because this is real effort expended by the senior supplier team. This planning activity itself has value to the Customer. The Customer business owners (not necessarily the procurement department, who deals with projects as abstractions) have a strong incentive to get the scope right. It is also important to build-in a mechanism to allow project scope to be formally modified under mutual agreement - the Change Order process- so you can reset the project in an orderly way. Give yourselves a basis for keepıng expectations aligned throughout the project. This is the ultimate challenge for all projects of any size or shape.

Part 1: How to run custom projects. Introduction.
Part 3: Life-cycle issues.

How to run custom projects. Introduction

Michael Motta — Mon, 11 Apr 2011 05:51:24 -0400

Even for Companies that dedicate their energy to building "standard" products, customers want customizations of the standard. They are willing to pay for them to get just what they want, quickly. So, all companies will be faced with the need to make custom projects beyond core product development. Saying to the customer, "Oh, you don't really need that", won't lead to a happy customer. Promising to deliver the feature in 3 months when the next release comes out won't work either. More often than not, the customer will be ahead of the curve making a request for features that should already be in the product, but aren't yet there. The need for custom projects occurs in all product spheres and spaces. The product company faces many thorny issues in answering these requests. We explore a few of these issues, listed below, in future posts.

Finding the best Engagement model. Engagement model is just a fancy term describing the agreement between customer and provider about the manner in which products or services are to be delivered for a fee. Custom work needs to be executed under a special contract, a Professional Services agreement, which puts structure to the expectations for project. There are two "traditional" models: Fixed-price and Time & Materials projects. We propose a hybrid model, which addresses the significant shortcomings of both.
Consequences for the product development, Organizational issues. Product teams dedicate themselves to advancing the standard product. For a number of reasons, this makes them distinctly inappropriate for developing fee-based modifications to the base. But the product team holds the core product expertise needed to be successful in creating enhancements to the standard. What are the key issues? How do we sort through them all?
Team psychology and motivation. Custom product development is dedicated to quick changes meeting a narrow view of customer requirements. Core product teams thrive on answering questions about how the base can be extended to provide new functionalıty. How can this base be expanded upon in the future? (Like it or not, these are the real questions being addressed during design reviews.) How to resolve the conflict of the two world-views?
Life-cycle issues. A company that performs custom development needs to have a coherent Product Management scheme. Also needed are a set of standards for managing the various kinds of projects undertaken. How do custom projects start, execute, and stop?
Code baseline management. The interesting case is when custom projects modify existing code in the product baseline. How to manage this?
Customer support. Companies developing products or services of any sort need to have Customer Support groups to help the customer with questions and problems. How do you go about providing support for custom development?

Mixed messages

Michael Motta — Tue, 05 Apr 2011 06:26:08 -0400

e-mails are an ephemeral and noisy communication medium. There are many tools available to manage inboxes. To sort, fılter, and generate chains of related topics (usually by using the "subject" field.) To export text to other issue management tools. And Vice-versa. We even can see the future of smart tools to "understand" content. Despite all of this technology, the fact remains that e-mails are filled with stuff related to the personal relationship among parties to the conversation. Niceties. Not-so-niceties. Posturing. Informational content gets polished by fluff. Further, e-mails play out a jumbled temporal sequence. First he said this. Then she said that. Some people make comments in-line to the most recent e-mail. Others summarize the key issues at the top. Still others choose to reply to e-mails, which were sent well before the current state of the discussion. For all of the technical advances, it is really hard to extract the core business value from the morass of mixed up content. How can we possibly think that we can make sense of what needs to get done and why, when and by whom on the basis of e-mails?

Make sure your company invests in an issue tracking system to help resolve the mixed-up messaging problem. Issue tracking systems have 5 key properties:

A repository to store recall discreet issues, and a flexible way to extract and vısualize data
Workflow defining the stages of handling the issue and current status
A flexible and extensible data model and workflows, allowing you to customize the issue contents and handling.
Issue ownershıp allowing orderly serial transfer of ownershıp between people
A curated comment stream allowing people to register comments in a strictly sequential manner

Your customer support group should already have a system in place for trouble ticket management. Take a look at a comparison of such systems. I have used to good effect the following: JIRA, bugzilla, and the Lexus, FogBugz from Fog Creek Software.

Getting a tool, however, is not enough. You are investing in a critical business asset. You also need to appoint someone to manage both the business process design and operations. Invest some time to define some simple structures and rules for using these tools: access control lists for internal and external users of the system, issue classification (requirements, features, action items by category, project tasks, etc.), and mandatory fields in each of the issue categories. Except for those tools that support native, full-featured project management, don't try to use these tools for project management. Full-featured means having a convenient ability to express dependencies among different issues or tasks: when you make a change to one task, other dependent tasks should change in a predictable manner. Comment streams supported by most of these tools have the advantage over e-mails because they typically enforce a strict sequencing of comments. But take some time to define some simple rules about what is in a comment. In this context, a comment is not a conversation; it is ınformation that adds value to handling the issue.

Fınally, insist that an executive of your company send an e-mail to everyone saying that that no business will be conducted on the basis of e-mails. If the issue is important enough to require attention over time, then a record will be in the issue tracking system. The best way to do this is to say that no action will be taken on any task that is not in the tracking system.

Please be informed

Michael Motta — Tue, 29 Mar 2011 08:03:05 -0400

When I see the seemingly innocent and collaborative words "Please be informed" or "For your information" at the bottom of an e-mail, I know the intent of the author was not informational. Especially when the distribution list is not targeted. (See: Flabby distribution lists.) When the body of the e-mail describes a problem that needs resolution, this innocent-looking salutation typically means something like: "There's more to do here. I hereby remove myself from the responsibility to do it." When combined with a flabby distribution list, this phrase further means "I don't know who among you needs to take the next steps. I am adding all of you recipients so that you can figure it out." It is a foist. It declares that the author will take no further steps on the issue. If someone asks the author later why things are still unresolved, he will point to the "hand-off" in the e-mail. Don't fall for it. There is nothing collaborative about this e-mail.

To highlight the issues, let's simplify. Look at the following e-mail: "It is George's birthday today. Please be informed" Why go beyond the simple declarative statement? There must be something else at work here. Is the author is really saying there is a need for you to do something as a consequence of receiving the information? Even though it explicitly says so, "please be informed" is built not just to inform but to call you to arms. You wonder whether you should send a congratulatory e-mail to George. Maybe you should stop by his cubicle to do it in person. Will someone need to get cake and candles?

The purpose of this tortuous analysis of a simple phrase is to point out that the phrase is not so simple. We should be on watch for these magician's phrases, because their purpose is to misdirect. Their job is to get you to put your attention here when it really belongs over there. Check for your wallet! We use many of these kinds of phrases in our daily commerce. This particular class of utterance serves no useful purpose except to ask someone to do something without having to ask them to do it directly. So, how then can the author be disappointed when no action is taken on the topic? The usage of such terms in the stated context may not be intentional. It may be that these phrases are deeply ingrained in a culture of indirection. But we do understand the bad consequences of such a company culture. How it blocks clarity of communications among the team. How it leads to paralysis about how things are going to get done and who is going to do them.

Please be informed.

Flabby distribution lists

Michael Motta — Fri, 25 Mar 2011 11:31:11 -0400

e-mail distribution lists are very important. When you are composing an e-mail, first set the distribution lists. They are your audience. They drive the content of your message. The "To" list is particularly important.

It is rare that an e-mail should address more than one primary addressee on the "To" list. Out of 100 e-mails, 98 should be directed to one person. Surely, there are broadcast e-mails directed to many addressees like: "Let's meet at the Cantab after work for a drink." But most of our daily messaging is dedicated to information flow with the goal of getting something done. With the goal of shipping it.

If your "To" list has more than one person, then what you hope to get done as a result of the e-mail won't. This is because all of the multiple primary addressees will more typically than not assume that the other people on the list will take next action. We are inundated with e-mails. I scan my inbox and semi-consciously filter out those for which I am not directly on the hook to reply. Save it for later, so I can deal with the 12 other messages that require immediate attention.

At the very least, a flabby "To" list will generate an unproductive flood of responses the primary effect of which is to decide who is going to take the next steps. Most of these battles take place under cover of reviewing the content of the message. But don't be fooled! The struggle is often more about who has the responsibility.

If you are genuinely puzzled about the single addressee, then you have bigger problems. You need to think again about how to refine or better target your message. In such cases, where you are still not sure, just pick someone who should care to take further steps on the issue. Put on the "CC" list all of other parties you think are interested. By doing so, at least you put the primary addressee on the spot to decide about the owner.

But don't cheat! Don't always put the boss as the primary addressee, even though the boss may have ultimate responsibility for getting the job done. By doing this, you are showing your boss that you are disconnecting. That you are not working in any way you can to find and implement a solution. Maybe, once in a while, you can send a message just to your boss, indicating that you are at a loss to say who should take action. But, if you find yourself doing this often, then you ought to have a face-to-face discussion with the boss to talk about the company's serious problem with roles and responsibilities, or what is unfortunately more likely, that the company may have a question about your role.

What have you done?

Michael Motta — Fri, 25 Mar 2011 03:52:34 -0400

STOP! as you find yourself about to say "I am the kind of guy...", or "On my team I will never let such and so happen", or the common "Let me be honest with you.", or the ubiquitous "Frankly speaking." If you get to the point of needing to explain yourself in this way, you are already in trouble. You are saying these things precisely to combat your feeling that you lack credibility. The sad fact is that by doing this you are actually making yourself weaker. You become less credible or trustworthy, or honest. It helps you to replace action with blah blah blah, a very very poor substitute. What have you done to show you are the kind of person that ...? Are you saying that you are going to be honest now but you were not being honest before?

Catch yourself before you say these things, which serve in little steps to reduce your value. Replace them with calls to action: "After this conversation, I am going to do such and so to make sure that..." Go make it happen. Remind them later that you made it happen. Erase from your phrase book "Let me be honest", "Frankly speakıng".

It is not easy to unlearn such sticky habits. Do so and you will feel much better about yourself as a leader. As a consequence, so too will others.

Don't say who you are, do who you are.

This blog is Free (scarcity, abundance and rational discourse)

Michael Motta — Mon, 06 Jul 2009 13:30:39 -0400

A number of years ago, Abraham Pais, the illustrious technical biographer of Albert Einstein wrote in the NYT Review of Books a review of one of Deepak Chopra’s books. I have lost the specific reference to this. But I do recall one of Pais’ metaphors that I think will serve to introduce us to the raging ‘debate’ on Chris Anderson’s new book Free: the future of radical price. Pais said that Chopra’s thesis in his book looked a lot like the following Q&A. “How is Abraham Lincoln like Albert Einstein? Both had beards except that Einstein did not have a beard”. Then Pais went on to say how much he did not like Chopra’s book. I wish I presently had the benefit of actually reading Chris Anderson’s new book, but, of course, that will not stop me from making comments. The book is not currently available to me.

First, let me digress on an ad hominem attack on the key recent principles involved in the loudest Free discussion, Malcolm Gladwell and the author. Why is it that Malcolm has such a remarkable over-abundance of hair on his head (at least in the 2004 TED presentation) and Chris has none? Accordingly, why should Malcolm be arguing for continuing to institutionalize scarcity and Chris for following the mandates of abundance? It seems as though they are not properly outfitted for the sides they are taking in the argument. It also seems to me that these ad hominems represent fairly closely the level and pattern of much of the discussion to date on the serious and important topics of the Free debate.

I found a couple of points helpful to clear up some noise in the discussion.

Malcolm complains about the free model through the mouth of James Moroney’s complaints about a non-free business deal with Amazon. You may not like Amazon’s offer, but of course, this does represent a business model. Remember the revenue they are talking about splitting is Amazon subscription dollars. Why would the ersatz Malcolm complain about the opportunity to leverage off one of the most compelling information distribution platforms (and future platforms as well!). Further, Does the Dallas Morning News expect to be compensated like the Wall Street Journal? This is, after all, ‘free enterprise' : the Dallas newspaper doesn’t have to take the deal. Let them complain their way out of business. Pray that congress does not somehow intervene in the process (which may, ultimately, be Malcolm’s secret wish and the real intent of putting this story front and center in his review.)
Malcolm: a common technique to explain ideas is using the analogy. You do it all the time in your writing. I can only guess that Chris’ reference to Lewis Strauss and electrical power distribution is an analogy. Free is mostly a discussion about digital products. Why spend any of our time talking about how the analysis does not apply to the pharmaceutical industry?
Mark Cuban’s distinction between free price and free distribution does not help. Why should anyone spend money (me on promoting my content or my distributors on me) to give/get ‘exclusive’ rights to free stuff. Maybe if I am Seth Godin, Malcolm Gladwell, Mark Cuban, or Chris Anderson. Fast Company, good. Huffingtonpost, not good. I say: copy it. link to it. let it fly around the web. Why put barricades to free stuff? For branding in context? Can I only become a real player if my free stuff is offered by the ‘New Yorker’? Linking, referring to links, referring to references of links is the multiplicative magic of the streaming web. If Mark is saying that you should put some effort as a content provider to pushing your content through selected ‘context providers’, which can amplify your messages, good. If this somehow is meant to be a discussion about an exclusivity business model – it is not useful. That is exactly what is dead in the world of free
Seth Godin's Malcolm is wrong post gets out of touch with his readership and is focused on intelligentsia-insider jokes about Malcolm never having disagreed with Chris. And to what exactly in Malcolm’s article do Seth’s two comments apply? I cross checked numerous times and couldn’t line up the discussions. Typically, Seth is very good on clarity and transparency. But this time, there seems to be much more at play than meets the eye in the battle among titans. We forgive Seth a little indiscretion for all of the great stuff he has given us for free.
Malcolm is wrong. Especially about the curious analysis of iPhone business. As my former Greek boss would like to say, “I am not understanding what you are talking about.” Malcolm does not say exactly how does a discussion about Apple lockup of content and platform add up against the Free argument? Are you proposing that Apple has perfected the primary battleground tactic to fight against free? There is a little company in Redmond, WA that knows something about platform coupling. Does anyone doubt the huge impact that Linux and opensource has had on their business? And how much impact it will have in the future?

I do agree, however, with Malcolm’s claims that ‘these guys’ like Chris frequently paint a much too general ‘arc’ over the issues and do not clearly identify the use cases that apply. That’s OK when discussing a law of nature like the pareto distribution (‘long tail’). That’s not OK when discussing a complex, fundamentally-important emerging cultural and business framework. I don’t know how we could possibly have understood Chris’ indirection argument about “paying people to get other people to write” without an explanation of the GeekDad phenomenon, which I have concluded was not in the Free book. My 8th grade English teacher said the 3 most important characteristics of a good and cogent essay were examples, examples, more examples, and then, maybe, an interesting topic.

But what is really surprising about the discourse on Free is that all of the parties don’t seem agree that it is a worthwhile topic of discussion! Huh? Admittedly there are complexities to parse out. Surely, we all sense there is scary fundamental change afoot. For Malcolm to dispose of the entire discussion speaking about “The only iron law here is the one too obvious to write a book about” is downright anti-intellectual. There must be something else happening here for a professional intellectual to make such a claim. Blind irrational terror of the inevitable change? Malcolm’s theses in his review of Free seem to me to be more akin to saying that Chris is not capable of making good arguments, because his is bald. And see, he’s even got the shiny-headed Seth on his side!

‘Scarcity’ and ‘abundance’ are flashy but slippery concepts, used by the mavens to mean many different things in different contexts. Malcolm says that Chris said that mechanisms of judging quality are mere “artifacts of an era of scarcity”. Let’s sort out the important issues here. Seth’s Dip creates scarcity which creates value. Is anyone really saying that scarcity is not an on-going value concept, especially in the abundance of the digital world? Secondly, I cannot imagine that it would be a primary claim in the book that we are somehow exiting an ‘era’ of scarcity. What does ‘era of scarcity’ even mean? Why focus on counting? One, two, three, scarce. 100 million YouTube videos, abundance. What matters are the mechanisms of restriction and openness and the costs behind them rather than simply the absence or abundance of options. Aren’t we really looking at the end of an era of artificially-created scarcity by oligarchies regulating content production and distribution. When everyone becomes a producer, there is significant change in the traditional businesses, which depended on the restrictions to flourish.

The final issue in Malcolm’s statement about Chris’s thesis is that quality is an artifact. I adopt what I think is Malcolm’s sense of ‘artifact’: a smudge on ancient shale stone representing a marginal sea creature that went extinct thousands millennia ago. Can it be a primary claim in Chris’ book that quality is going extinct? But digital content abundantly available can be really good or really crappy. There will always be aggregators (although the mechanics of aggregation will surely change) of quality content, who will push their message within tribal confines. Many communities and products will spring up whose job is exactly to filter (and reduce) abundance by applying principles of quality and relevance to bring value. The important observation is that the days of aggregators imposing their criteria of quality are over. This is part of the story of the death of traditional media. Our job is to find ways not to waste our time with low-quality stuff. And this is exactly the point: quality by my standards is related to value is related to scarcity. The most important scarce thing here is my attention and interest. I really don’t care about the bazillions of videos on YouTube. It is obvious that the TV networks and the Motion Picture industries should care about this abundance outside of their control. Rather, I care that I can get quickly to what I am interested in. We also now see the end of Google’s dominance of search: we have very limited control over the detailed criteria used to produce the large, ordered set of references. Do I really want some occult algorithms based on what businesses have paid Google to influence the choice of what is available for me to have?

The title of Chris’ book is, after all, Free: the future of a radical price. So he is talking about price. Is Chris really saying that quality and value are going to become disconnected from price as is suggested by Malcolm’s review? Won’t quantitative value continue to be related to how much someone will pay for something? What then will be the basis for the pricing of digital things? In a sea of options won’t people be willing to pay for filtered content that we as consumers specify to satisfy our limited attention? Maybe the set of good things I pay zero for will increase dramatically. I agree that there is a shift from price based on some weak definition of ‘inherent value’ of content. For quite some time there has definitely been a shift away from a cost basis for price. However, to suggest that the price of everything digital will drive to zero is specious, because even if much of the underling content is free, I will be happy to pay for access to the right stuff.

Maybe I will understand better the answers to these questions after I have read the book.

The rule of small

Michael Motta — Thu, 07 May 2009 16:02:00 -0400

If we look at the reduced impact of venture funding on startups and the trends towards decentralization of the big company, it would seem that financing and other structural and marketing imperatives are driving convergence to smaller, self-sustaining entities. This is not a new idea. The prediction that the company needs to get smaller to get optimally productive with invested capital has been around for some time (see Thomas Malone). There is a broad range of factors contributing to these trends. Recent quantitative data on venture funding and expected returns suggests that overall funding will be reduced. The inescapable negative value of many venture-funded efforts captures our attention. If we are on this path of small-is-beautiful, are there any questions we can ask to help shape the focus of entrepreneurs planning to make their ideas into companies?

Fred Wilson from Union Square Ventures quotes a variety of sources, who say that venture-funding targets will be reduced from ~$36B in 2007 to ~$16B in 2009. Using a model of expected exits and returns for the funds’ Limited Partners, Fred tries to set a ceiling on investment in this ‘asset class’. Even if this 2009 level of investment is sustained (unlikely, in light of better ROI elsewhere), it will be barely be enough to cover the few sexy ‘mega-bets’ that venture funds fight with each to throw their money at. Fund managers hide behind their thin logic of Portfolio Analysis hoping that, please God, just one of the mega-bets will save the fund. Here is a ‘law of nature’: big ideas must trade money for time to create their market. If you limit their money, you limit their ability to be successful. These companies spend a disproportionate amount of the pie to get bigger faster. Further,there is an expected timeframe to returns from these funds. In my personal experience, after a few years, most venture investors lose patience, despite the best efforts of the founders to confuse the situation by changing the value proposition in order to find additional rounds of funding. Loss of patience is inherent in the short-term focused model. Small ideas built over a longer timeframe are definitely out for the shrinking venture dollar.

Why would the entrepreneur spend huge amounts of time courting venture investors, begging for attention from a group who rarely returns their voice messages in a reasonable amount of time, if at all? Because the investors can help the entrepreneur to sharpen their value proposition? If the entrepreneur cannot themselves find the right value in the right market, then they do not belong in business. Why would the entrepreneur trade significant ownership interest in their start-up company for the ‘benefit’ of the modern, highly-interactive investor, who behaves mainly as a proxy for the all-too-short-term focus of the broader public markets? Because these investors can help them run their businesses? If the team does not have the ability to run the company, then the team must realize themselves that change is needed and do it. Why would private companies, who are laser-focused on their core business, waste many person-years of senior management time to formalize mostly useless processes to satisfy Sarbanes-Oxley in order to go IPO? I’ll stretch a bit to say that IPO exits are dead except for the mega-bet. After all, Fred tries desperately to paint a rosy picture. As he should, since venture exits are why he gets up in the morning. However, we don’t hear much about the rampant disaffection entrepreneurs have with the venture model and rejection of the prospect of becoming a public company. Listen to Seventh Generation, Inc.’s ‘Inspired Protagonist’ President Jeffrey Hollender when he said in a recent interview that he has tried very hard not to take venture money and would never, ever consider becoming a public company. Out of the question.

It seems that smaller, non-venture-backed, bootstrapped initiatives are the only reasonable alternative for most entrepreneurs to productize their ideas and build a company. What does this mean for the ‘size’ and shape of the problem being addressed (at least initially)? For the markets being addressed? How can we possibly expect that these more gradual efforts could get any traction in building ‘new’ markets? Rather, bootstrapped companies need to confine themselves to attacking existing markets, trying to take customers away from established players. There will continue to be the very few success stories of bootstrapped companies, who slowly and deliberately become large like Ben&Jerry’s and Seventh Generation. Does this mean that most new companies will need to have only very targeted, small-scope, bootstrappable ideas with much more modest early valuations? How do these companies gain scale? We cannot underestimate the multiplicative effect of finding the right small idea, which appeals to and amplifies in a community, that can scale like threadless.com? (note that Threadless’ company name is ‘skinnyCorp’!). We need to begin to think about the new rules of entrepreneurial engagement on a small-scale.