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By Krishna, January 12, 2010

Bruce Schneier (the author of “Applied Cryptography” and other books) explains why security theater (where security measures do not do much to improve real security) has its benefits:

Tamper-resistant packaging for over-the-counter drugs started to appear in the ’80s, in response to some highly publicized poisonings. As a countermeasure, it’s largely security theater. It’s easy to poison many foods and over-the-counter medicines right through the seal — with a syringe, for example — or to open and replace the seal well enough that an unwary consumer won’t detect it. But in the ’80s, there was a widespread fear of random poisonings in over-the-counter medicines, and tamper-resistant packaging brought people’s perceptions of the risk more in line with the actual risk: minimal. [...]

We make smart security trade-offs — and by this I mean trade-offs for genuine security — when our feeling of security closely matches the reality. When the two are out of alignment, we get security wrong. Security theater is no substitute for security reality, but, used correctly, security theater can be a way of raising our feeling of security so that it more closely matches the reality of security. It makes us feel more secure handing our babies off to doctors and nurses, buying over-the-counter medicines and flying on airplanes — closer to how secure we should feel if we had all the facts and did the math correctly.

The relation to the business world is “management theater”. There are these tons of management processes that don’t do anything to improve the success of the project or prevent its failure. Instead, they are to reassure stakeholders that “proper” management is in place.

The lesson from Bruce’s article is that even though we may want to throw all of such processes out the window, they may actually have an use. Instead of customers becoming tense and worried, and upper management trying to micro-manage the project, some of these processes may convey that the project is truly under control and the project team can be trusted. It can also reduce finger-pointing and place emphasis on improving items that hinder the project.

The tricky thing is to know what process to keep in and what to take out. What Bruce’s article suggests is to ask stakeholders or understand them to see what keeps them comfortable. For example, they get project updates in a specific format at regular intervals. Or the build, testing and deployment process is done in a specific way and is visible to them. The customer may not even read the report, but the fact that they have it keeps them happy.

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By Krishna, January 4, 2010

A hilarious take from Ron Rosenbaum:

But don’t call it outside the box anymore, please. By now, the injunction to “think outside the box” has become inside the box airline-magazine management-guru cliché. Please, some of you should get back into the box, please, and take your quirky Power Points with you. What about thinking outside outside the box? Not outside the box but not inside the box again, either. Transcend the box.

I am sure some of you remember this classic puzzle. The first time you see the puzzle, learn the solution and hear the words “go outside the box”, it is very powerful. But after a few times, it sounds banal. And when you hear it from someone who is totally uncreative, you actively start hating the phrase.

Unfortunately, that is the fate of all such cute catchphrases or ideas. Most of the best ones have been ruined by overuse in popular culture. And others have been tainted by people who have forgotten  how human beings talk.

Things like, “Give your 110%“, “Work smarter, not harder“, etc. are good concepts, but are now hated management clichés because too many bad managers have used them to absolve themselves of their responsibility in managing projects better. This also goes for observations such as Parkinson’s Law and the Peter Principle. When they are misunderstood, they can be very harmful in the hands of a bad manager with too much time in his hand and very few brain cells in his head.

Incidentally, have you noticed that good managers tend to be the most productive and bad managers the most destructive when they are least busy? More time for good managers means that they have been able to delegate their tasks well and they have more time to spend at a higher level (learning, analysis and planning). A bad manager feels too insecure to be seen with free time and so they start micro-managing or implementing something without understanding it well.

Why do bad managers use hated catchphrases so frequently? I guess it has to do with intellectual laziness. Poor managers may work very long hours, but they all never seem to have any time to sit and evaluate whether they are doing the right thing. Using management speak makes them feel more important and wiser, giving them a false sense of control and correctness. Plus, the authority inherent in these phrases and ideas makes them very convenient to beat down ideas from the underlings.

On the same topic, some good stuff from Malcolm Gladwell (emphasis mine):

[...] “The Dark Side of Charisma.” [...] argued that flawed managers fall into three types. One is the High Likability Floater, who rises effortlessly in an organization because he never takes any difficult decisions or makes any enemies. Another is the Homme de Ressentiment, who seethes below the surface and plots against his enemies. The most interesting of the three is the Narcissist, whose energy and self-confidence and charm lead him inexorably up the corporate ladder. Narcissists are terrible managers. They resist accepting suggestions, thinking it will make them appear weak, and they don’t believe that others have anything useful to tell them.

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By Krishna, December 15, 2009

I am agnostic about pair programming. I believe that having strong programmers and a good code review process offers at least as much benefit as (if not more than) full-fledged pair programming, but if it is working for someone, I don’t see any reason to object. Researching which brought me to Obie Fernandez’s strange self-congratulatory article on pair programming.

Apart from the evidence-less accusations about what “most” software developers, managers and firms seem to do, it also has some silly ideas about hiring good developers. Read:

The best way to hire talent is to drop them in actual work situations for at least a week and see what happens. [...] Our candidates spend their interview week rotating on actual production code, pairing with the same people they’ll be working with if they’re hired. Everyone gets a say in whether to hire a new recruit, and hesitance from a developer that actually paired with them means they do not get hired.

I don’t understand in what universe a talented programmer is going to take a week’s worth of leave to work as part of an interviewing process for an obscure company. Maybe a desperate, unemployed programmer? Since the best programmers are already attracted and hired by the big firms (Google, Microsoft, Facebook, etc.), is this any way to recruit them away?

This is simply a case of “don’t know what is missing“. The company simply doesn’t realize how drastically it has shrunk the pool from which it can hire and assumes that it has the best possible developers.  There is some benefit to doing your homework before hiring someone, but this is a practice that has gone too far into the other direction.

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By Krishna, November 12, 2009

David writes in response to Joel’s worries about fast growth:

All these business [Facebook, eBay, Oracle] rely heavily on the network effect: Their product is more attractive than the competition because of their market share. [...] Do you know what kind of software doesn’t have the advantages of the network effect? Ours. One Highrise user doesn’t give a hoot whether we have 10,000 or 100,000 customers. Jane Doe doesn’t benefit if we sign up any other customers this year. As long as there’s a sound business behind the product, she doesn’t care about anyone else. In other words, there are no network effects.

Do you know what other kind of software isn’t affected by the network effect? Bug tracking. I don’t care who else is using Trac as long as it’s great software. It doesn’t benefit us to know that the Shopify guys are using it too (short of just sharing tips and tricks). Again, no network effects.

This is an oversimplification of the debate. There are several ways that you can lose in a market if your competitors has way more customers than you do.

First, you simply will not have the resources to keep up with the development schedule of your competitor. If they have 10 times the people and the money, they will keep crunching out new generations of their software while you are still fixing bugs from a year ago. If the price points remain the same and any prospective customer does a comparison of the products in your space, you will lose.

Second, you cannot keep your biggest customers from jumping ship to your competitor, when and if the other software becomes much better than yours. Those customers will have the resources to migrate necessary data to your competitor. You will be left with smaller customers and lower profits.

Third, you will find hiring and retaining employees difficult. They will want to work for the market leader if they have a choice. And the market leader will want to steal them if your company is on their radar screen. So once again, you are at a disadvantage. Not only are you resource-poor, but your quality of resources is also weaker than your competition.

Fourth, if for some reason, you pose a threat to the sales of the larger company, they have the resources to beat you to gain important customers. Maybe they undercut prices or offer custom services. If they really want to get a client, a large company will go to lengths that you cannot afford. Gaining and keeping enterprise customers is a very tough job.

In short, there is a vicious cycle where, regardless of where you stood before the surge by the competitor, you are losing on all fronts – sales, marketing, programming, customer service, quality, etc.

Once there is a big gap between your competitor and you in terms of sales and size, usually the game is over, but it takes a while for it to sink in. Entrepreneurs are sometimes too full of hubris to admit defeat. They imagine themselves in a David-vs-Goliath fight where they use their strategic brilliance to make a spectacular comeback. The problem is that the geniuses are all working for the other side.

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By Krishna, November 8, 2009

A friend shared Joel Spolsky’s new column on Inc Magazine which asks if slow growth means slow death and suggests a couple of ways to grow faster:

Step One, I think, is to pluck off our biggest competitors. We’re pretty certain that we’ve already built a great product that meets our customers’ needs — but there are still too many cases where we find out that, for some reason, someone went with the other guy. So that’s the development team’s mission for 2010: to eliminate any possible reason that customers might buy our competitors’ junk, just because there is some dinky little feature that they told themselves they absolutely couldn’t live without. I don’t think this is going to be very hard, frankly. Developing great software is something I’m pretty sure we’re good at.

Step Two is something I’m not particularly good at. Not in the least bit. We have to build up our sales force. The bottom line is, we just don’t do enough selling. I’ve been working on the assumption that a product naturally creates demand for itself and the sales team just helps fulfill that demand. But I’ve realized that I have things backward. I’ve come to understand that a sales team drives demand. My problem is that I’ve never been able to figure out how to hire good salespeople. For a guy who wrote a book on how to hire great programmers, it’s mortifying how incompetent I’ve been at enlarging the sales team, which, right now, consists of one terrific account executive and a dog. (I’m just kidding. There’s no dog.)

I will tackle the slow growth/slow death issue in a later post, but what does it mean when you want to try to rapidly accelerate the growth of your business, especially when it is sales-driven instead of marketing-driven, as in the case of FogCreek? Is it just about taking more risk, as Joel seems to think?

Risk-taking is a big part of higher growth, as you have to spend money on sales personnel, marketing, customer service and technical staff while you are uncertain about the returns from such investment. Sometimes, spending money within your comfort zone is not enough to make a difference, so you may have to either take on large liabilities (bank loans) or get investors who will share control of your company.

But there is a different story with reaching for fast growth with a sales-driven approach. Which is that everything about the structure and environment of your organization will fundamentally change. First, it will change from an engineering-driven company to a sales-driven one. This means, that no longer will engineers call the shots about the direction and delivery of the software. The sales people will do that and the engineering staff will have to follow.

The reason is that salespeople are expensive and they only go after large customers. Every potential customer can bring in revenue from tens of thousands to millions of dollars. Let us say that a customer is willing to pay a site license that is equal to 25% your current revenue, but wants to add three non-trivial features that is not on the development road map. You have a choice to make here. If you decide that the integrity of your application is more important, then not only will you be writing off a huge dollar amount, but you will anger the salesperson who will probably quit. Which is not what you set out to do.

So, you take on new customers and do further customizations and changes that take the product away from its initial vision. This is not necessarily a bad thing from a business perspective, because it may meet your business goals. But it definitely will establish a new, different pecking order in your organization. And probably some of your technical employees (especially the earliest ones) will leave the organization because their personal growth needs do not coincide with those of the organization.

In a perfect world, sales and engineering could co-exist happily. But in the real world, money talks and the priorities of the salesforce always come first. Once again, there is nothing wrong in being sales-driven. Higher profits can bring financial benefits and security to everyone in the company and that may be the dream of many of them. Just don’t think that the organization and work environment will stay the same once you change your focus.

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By Krishna, October 25, 2009

Highly recommended – “Don’t Just Roll the Dice“, a free e-book by Neil Davidson.

An excerpt:

Although scientifically purer, it often doesn’t make sense to change a single variable at a time. Theoretically, you shouldn’t change the price of your product, your discounting strategy and the types of bundle that you sell, all at the same time. But practically, it can be the right thing to do. It’s more useful to fix the problem than to understand why it’s broken. When a scientist goes on a blind date that doesn’t work out then, in theory, he should fix one variable at a time, and re-run the date. First, he should change the partner but go to the same film and buy the same flowers. Next, he should keep the partner the same, vary the film and keep the flowers the same, and so forth. But the pragmatist in him will, or should, change the girl, the film, the flowers, and buy some new clothes and shave too. If it works, he might not understand why, but at least he’ll have a girlfriend.

Complement this with some reading on basic microeconomics.

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By Krishna, August 23, 2009

I recently had a chance to read “Young Guns“, a semi-autobiographical book about entrepreneurship by Robert Tuchman. Usually, such books make one fundamental mistake, which is to try to be “inspirational” and make inaccurate sweeping claims. But Tuchman avoids this by getting more detail-oriented and explaining the tough choices faced by entrepreneurs.

Whether intentional or not, “Young Guns” is not for the faint of heart. While providing encouragement to budding business owners, it clearly outlines the hard work, difficult decisions and mindset that is required to be successful. I liked the fact that the author makes no attempt to be comprehensive, but instead touches on a few important themes of business management.

Tuchman talks about who is ready to be entrepreneur and when? The title “Young Guns” reveal one part of it. Start young if you can, because the older you get, the more you have to lose and the greater difficulty it is to break from your current situation. But it is not enough to be young in years; Tuchman explains that you have to be young at heart because entrepreneurship is about taking risks and requires “passionate energy”.

Tuchman explains how entrepreneurship is being able to say, “I can’t believe they pay me to do this” because if your business idea feels like homework you hate, then you are on the wrong path. You are also not ready if you are doing this to fulfill someone else’s dreams when you are not thrilled about doing the work.

“Young Guns” specifically calls out business books who do not explain the role of fear in the life of the entrepreneur. Businesses are about risk. And risk is scary because at times, the business has to make choices that skirt close to disaster. The way to deal with this fear is to remember why you went into business in the first place. Tuchman also says, “You cannot be afraid to fail and also be successful at business – it’s that simple.”

Tuchman spends a significant part of the book explaining how important it is for the company to maintain its integrity and service to customers. A powerful example was a story where Tuchman had to cover up for a huge mistake by one of his vendors by spending out of his own pocket. He reminds us that sincerity is not cheap. Sometimes you have to lose something to build and keep a great reputation.

The book covers a lot of ground: having partners that complement you, delegating properly, building the right team, using technology wisely, learning from mistakes, choosing the right vendors, understanding the right finances and so on. What surprised me is that the book is less than 200 pages long, but it explained many of those concepts very well. Each chapter read like a well-written blog post in that respect.

In a way, Tuchman’s “Young Guns” reminded me of “The Art of the Start” by Guy Kawasaki, another excellent book. Kawasaki’s book was a little more bombastic and more skewed towards technology startups. But in general, both books provide excellent practical advice. And Tuchman’s book goes one step further and lets you know if you are qualified to become a good entrepreneur.

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By Krishna, August 6, 2009

Joshua Porter had a good post on over-relying on anecdotes:

We take shortcuts, we tell anecdotes, instead of looking at the data. In the design world this happens all the time. People extrapolate from their own experience or stories they’ve heard about using the web, generalize it, and share it with others. That’s how anecdotes happen. But very rarely can we make concrete decisions based on them.

So the next time someone tells a wonderful story that sounds a tad too good to be true, ask yourself: “is this an anecdote, or is it real data?”.

And then he goes ahead in another post to use an anecdote about Apple:

I’ve heard it said again and again, but I had never seen an actual quote in which Steve Jobs says that Apple doesn’t do market research. I finally found one. [...] Jonathan Ive in a recent interview (also worth reading) explaining how Apple’s primary goal is not to make money, but to make great products. [...]

It seems to me that Apple has a pretty clear story here: “Make the very best products. Business will follow.”

I don’t mean to pick on Joshua; in fact, I am guilty of such inconsistency in the past myself. But this illustrates a big problem with anecdotes – we are most likely to believe them if they match with our beliefs. If we like something or somebody, we are likely to believe the good stories about them and be very skeptical of the bad stories. And the opposite if we dislike them.

There is a good reason behind this. Our original beliefs are based on a series of good, original impressions about the person or thing. And any good news reinforces that, while bad news seems inconsistent with what we already “know”. This is especially true of deep-rooted beliefs in emotional subjects like politics and religion. But at least those beliefs are understandable. Religious beliefs are with us from childhood and reinforced by concepts of divine reward and punishment. Political beliefs are based on philosophical differences and even when there is evidence for or against a viewpoint, sometimes it is not very conclusive. Extreme viewpoints are easily disproved, but even without them, we have a wide spectrum of religious and political ideas.

Doing the same thing with respect to business and technology is self-defeating. There is enough data to form your impressions about a company or product without having to drink the Kool-Aid from the people running the company. The basic problem is that when explaining their success, people are not so good at telling the truth. They like to say what they think people like to hear. Or they just plain don’t remember.

Most entrepreneurs I have seen and read about are, in a way, megalomaniac (in a good way!). They believe very strongly in themselves, their company and their products. This may or may not be in odds with what the public thinks of them. For every product created by Apple or Google, there is a competitor making a product thinking they have created the best thing ever. In fact, soon when Apple and Google directly compete against each other (iPhone/Android), each side will imagine the same thing.

In essence, asking people about themselves gives you misleading answers. And generally, they sound too good to be true. I have linked to this before, but here’s what Bob Sutton has to say on it (emphasis mine):

And it has always bothered me that once his “chimps” (as he [Jim Collins] called his research team) identified the good and great companies, they went back and interviewed people about the differences. It is sort of like asking players of the team that won the world series or super bowl (and reporters) what the secret to their success was after the series is over, and then comparing their answers to the players on the fourth place team. Compelling research by Berkeley’s Barry Staw and others shows that winners and losers offer much different recollections to explain what happen and why, regardless of the facts.  In particular, winners report having better leaders, being more persistent, more focused, and more cohesive — even in experiments where there is no real difference between groups, and the winners and losers were simply misled about their performance by some seemingly legitimate person.  So I don’t know who will win the Superbowl this year, but I can predict what the winning players will say, and so can you.

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By Krishna, June 29, 2009

via Shafeen, here is an article originally published in 1982 about a trip to the erstwhile Soviet Union by Edward Crane of the Cato Institute.

But if it is hard to describe the economic wasteland of Russia to someone who hasn’t been there, it is even harder to describe what their totalitarian system has done to the human spirit of 260 million people. It isn’t just the drabness and grayness one sees everywhere. Or the rudeness and surliness one encounters so often. It’s that you virtually never see people laughing, smiling or just seeming to enjoy themselves. People seem to walk slightly bent over, their eyes always averting a stranger. There is an overwhelming sense of oppression and depression. It is no wonder that alcoholism is a major problem in the Soviet Union.

When we occasionally had opportunities to talk to people in parks or on the street, there was a phrase that kept recurring. We’d ask them if they had ever been outside the USSR, if they would ever own a car, if they could switch jobs if they wanted. The answer, with a shrug of the shoulders, was often an emotionless “It’s impossible.” Whereas in our society one frequently encounters a sense of outrage at injustice or a determination to achieve a goal against all odds, in the Soviet Union one just shrugs. It’s impossible.

I am just old enough to remember the 1980’s and the fall of the Communist regimes in Eastern Europe. Even in those days, there was talk about World World III and it was surprising to outsiders how quickly the regimes crumbled under popular unrest. Crane’s article shows how broken the citizens of those nations were and how false the facade of strength was. He was prescient in suggesting that peace, not war, would destroy the USSR because their leaders could not hide the reality behind excuses of foreign interference.

It is worthwhile to remember the horrors of Communism if only because it shows the truth of the old adage, “The road to hell is paved with good intentions“. Communism started with the assumption that it is possible for a central entity to distribute resources that would eliminate poverty, but it soon disintegrated into a totalitarian society that turned on its own people.

I don’t mean to draw any moral equivalences, but it is amazing how common the Communist mentality is, not just in government, but also in business which are supposed to be capitalistic. Big Business stifles innovation and creativity and demands conformance to outdated “standards” and rule books. Openness and transparency are dirty words in many corporations who thrive on double-speak and false marketing.

The rise of Web 2.0 and applications like Facebook and Twitter (especially with regard to what is happening today in Iran) teach us that voices cannot be silenced. People want to be heard and listened to. They want a stake in what is happening. Businesses that fail to listen to their employees and customers do so at the peril of their existence.

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By Krishna, April 9, 2009

Nassim Nicholas Taleb, of “The Black Swan” fame, writes:

Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.

But even if you have disincentives, the incentives can distort everything. As I wrote sometime back about the reward-and-punishment methodology of management, the fundamental problem is that you are creating static rules for dynamic people. Each incentive and disincentive create many unwanted side effects. So you have to keep changing the carrots and sticks all the time to deal with these side effects making people confused. The real villains of the game always know how to get what they want.

I also find it difficult to imagine the right disincentive. Remember we are not talking about breaking the law, but for “cutting corners” like the CDOs which were perfectly legal. Would a person have to give back the incentives they earned over a period of years if the financial instrument crashed one September day? If such a contract was time-limited, it would be a perverse disincentive that would exacerbate a crash. If it was not, I cannot imagine someone signing a contract to give up their earnings several years after they have quit a firm. This is just an example, but shows the pitfalls of designing an actual reward-punishment system.

Also, since each firm can create its own incentive system, there will be rush of employees towards those companies which have the best incentives and the least disincentives. With better employees (because of the bigger pool from which it can hire), a firm can be more successful, thus encouraging the others to drop the disincentives. In general, this is the trend in every competitive industry: Employers have to offer a better deal to employees or they die.

So what is the solution? I hinted that you need passionate people and you need to find a way to keep them excited and motivated through company growth and good management practices. But you also need rules to ensure quality and prevent risks. In a competitive industry like the financial markets or medicine, you need regulation enforced by the government. Otherwise, one unscrupulous firm can start short-changing established practices and create a trend that could cause the whole industry to fall apart.