Tag Archives: business

How to build a company

I spotted ReWork on my bookshelf yesterday and it reminded me how much I had enjoyed reading this thought-provoking account of 37 Signals’ business philosophy. That inspired me to see if I could find Jason Fried, the founder, talking about his approach and I found it here.

Here are some of the main points:

Don’t lose control of your growth. The key decision the company took was to limit the maximum price on customer could pay (initially $99 a month). This means the company has hundreds of thousands of customers, but none of them are so big that losing them would cause a ripple. Key to this is not to customise – one product, one code base.

Hire late not early. Many companies hire ahead of when they think they will need resources, especially if they have received funds from investors. This is a big mistake, Fried argues. Hiring early means there’s often not real work yet for the newcomer to do. That leads the company to make up work which is not important – a cardinal sin, in Fried’s philosophy. A related point: never hire for new type of position before you’ve had someone in the company try it first and fail. That way you know exactly what you need to get done and can hire appropriately.

Develop an audience. This is different from developing a fan base. An audience comes back to you time and time again. It takes time to build up, but once there is the most powerful way to get products out. Spend money on teaching and sharing, not marketing. 37 Signals has no salespeople: “We only want to have people who are building the product.”

Focus on the things which will stay the same. Most companies spend most time focussed on new things, innovations. But this piece of advice, from Jeff Bezos, the only investor in 37 Signals, was key. In Amazon’s case the things which will always stay the same are low price, good selection and great logistics. No matter what else changes, these fundamentals will hold true. In 37 Signals’ case the core unchanging things are simplicity, clarity and speed.


Old and new automative – a re-run of old and new media?

Tesla S

The battle between electric cars and traditional cars will follow the same lines as the battle between new and old media – here’s how.

The first reaction of old media to the arrival of the internet was to dismiss it as irrelevant.

Then, as the internet became more accepted traditional media companies dabbled, setting up websites but with the same content as you could get in old media – and often with real obstacles (like having to log in with the subscription number which was on the polythene wrapper you threw away).

Then, as the march of new media became ever-more serious they started buying internet companies so they could own some of the magic – think News International’s disastrous purchase of MySpace.

Only after many years, as the relentless economic logic continued to bite, did they start divesting the old titles and investing (buying or launching) in new online and mobile brands.

This was a very painful cycle and affected many well-know giants of old media  – think EMAP, for instance.

My belief is that this same cycle will happen with electric cars. I’d say we are just out of the first stage where the traditional car companies dismiss electric cars as irrelevant, niche and unlikely to catch on. Tesla, however, has challenged that view and we are moving into the second stage where traditional car companies are building and marketing their own electric cars.

First, they focussed on hybrids. These are like the old/new media bundles which traditional media companies were so keen to foist on their customers. Hybrids are cheaper to fill up than conventional cars, but they are more expensive to buy and being more complex than conventional cars will probably work out more expensive to service. Thus the car companies have something which they hope looks green but which doesn’t challenge the economic status quo – servicing is where the money is made in the car cycle.

But, as Tesla has shown, there is a future which is entirely electric – and it’s much simpler, much cheaper to run and doesn’t require anything like the same level of servicing – as there are many fewer moving parts.

Of course, currently the achilles heel of the electric car is the cost. But this is almost entirely driven by the cost of the batteries (which also provide less range than consumers would like). And battery technology is undergoing a surge of investment and there will be dramatic developments both in the efficiency and cost of batteries.

In media the economic differences between old and new were in production costs. Paper, ink and distribution were really significant costs which new media avoided entirely thus the cost disparity was startling. The revenue model, though, which was solid for old media (advertising and subscriptions) was much more problematic in new media – proliferation mean subscriptions were hard to establish and advertising rates were very, very low indeed, at least compared to paper.

So new media’s challenge was to innovate around the revenue model and once the innovation started to pay off effects on old media competitors could be profound. In the world of cars the revenue models are going to be pretty similar and at parity (at least until truly self-driving cars arrive). The cost model is where the battle is going to be fought – and won by the electric car industry.

At that stage the traditional car companies will be propelled into the next stage: they will start buying innovative  start-ups in order to own the magic. This is likely to be doomed to failure (again, think MySpace) because of the dynamic famously described by Clayton Christiansen in the Innovator’s Dilemma. Traditional car companies will continue to think like traditional car companies for years to come and they will kill the very innovation they seek to acquire.

Only after the snowball really starts rolling down the hill and the economic pain really starts piling up will we see the kind of changes we are finally starting to see in media. By then it may well be too late for some of the well-known brands which have been with us through the halcyon days of motoring.

At least, that was the likely scenario before Volkswagen was caught in a massive fraud aimed at skirting environmental controls. It seems pollution ceilings in the US (and maybe the EU) are now high enough that it’s making it hard to produce the performance without cheating. The legally-enforced remedy, when it comes, could well end up pushing conventional cars back just when advancements in electric cars continue pushing impressively forward.

It could be that when we look back at the history of the migration of the world to electric cars the Volkswagen moment is seen as the turning point.


A new employer-employee compact

The old “job for life” certainties have gone but the laissez-faire approach which has replaced them is neither good for companies, nor good for employees argue Reid Hoffman, Ben Casnocha and Chris Yeh in the Harvard Business Review.

For most of the 20th century, the compact between employers and employees in the developed world was all about stability…..careers progressed along an escalator of sorts, offering predictable advancement to employees who followed the rules. Corporations, for their part, enjoyed employee loyalty and low turnover.

The arrival of globalisation and the information destroyed all that, they argue. Adaptability and entrepreneurship became the key to achieving and sustaining success.

These changes demolished the traditional employer-employee compact and its accompanying career escalator in the U.S. private sector; they are in varying degrees of disarray elsewhere.

The result is a break-down of trust between companies and their employees with a “winner-take-all economy that may strike top management as fair but generates widespread disillusionment among the rest of the workforce.”

The answer, they argue, is to build a new kind of compact between employer and employee based on three things:

Hiring employees for explicit “tours of duty”
“A tour of duty serves as a personalised retention plan that gives a valued employee concrete compelling reasons to finish her tour and that establishes a clear time frame for discussing the future of the relationship. ” These typically would be between two and four years and the end of the “tour” needn’t necessarily lead to the employee leaving the company (though that could be the outcome) but it would mean signing up to a further two or four year “tour”.

“Work with employees to establish terms of their tours of duty, developing firm but time-limited mutual commitments with focussed goals and clear expectations. Ask ‘in this alliance how will both parties benefit and progress?'”

Encouraging employees to build networks and expertise outside the organisation
To maximize diversity and thus innovation you need networks both inside and outside your company. Therefore, employers should encourage employees to build and maintain professional networks that involve the outside world. Essentially, you want to tell your workers, ‘We will provide you with time to build your network and will pay for you to attend events where you can extend it. In exchange, we ask that you leverage that network to help the company.’ “

Establishing active alumni networks to maintain career-long relationships
“The first thing you should do when a valuable employee tells you he is leaving is try to change his mind. The second is congratulate him on the new job and welcome him to your company’s alumni network.”The authors argue that having an extensive and active alumni network is extremely powerful.

“One obvious benefit of alumni networks is the opportunity to rehire former employees….They can share competitive information, effective business practices, emerging industry trends, and more. They understand how your organization works and are generally inclined to help you if they can.”

They recognise that this may sound counter-intuitive to many firms. “You might fear that running an alumni network is an admission of failure—a sign that your company can’t retain its best people. But your alumni are likely to form a network anyway; the only real question is whether your company will have a voice in it.”

They sum up:

The key to the new employer-employee compact we envision is that although it’s not based on loyalty, it’s not purely transactional, either. It’s an alliance between an organization and an individual that’s aimed at helping both succeed.

In the war for talent, such a pact can be the secret weapon that helps you fill your ranks with the creative, adaptive superstars everyone wants. These are the entrepreneurial employees who drive business success—and business success makes you even more attractive to entrepreneurial employees. 


Lingering is bad for business

The FT ran an article last month which resonated considerably with me. The thrust of the piece was that lengthy goodbyes are not good for business.

What is the point of these lengthy handovers? Once your departure is announced, your authority leaves with it. Your mind, however hard you try, is surely turning to what you do next.

It went on to cite three examples: Angela Ahrendts who is leaving Burberry, Steve Ballmer who is stepping down as chief executive of Microsoft and Sir Nicholas Hytner who is retiring as director of Britain’s National Theatre.

In each case there is a lengthy gap – up to 18 months – before the departees actually depart.

My recent experience of retiring after 30 years at RBI has taught me that the less time between the announcement and the departure the better. In my case we informed the company at the end of September and my actual agreed leaving date was today – quite a short period, it seems, in senior business circles.

Even so, I could see the problems of an extended stay. The process of announcing your departure follows a pretty set pattern. The announcement goes out and there are (hopefully) general expressions of shock and dismay. Shortly afterwards, though, people’s attention turns to what and who comes next. Then the emails get less frequent and there are slightly fewer meetings. You can see the calculation in people’s minds as they work out whether you are going to be around for the conclusion of whatever project you are being asked to validate or comment on. Quite quickly the organisation heals around your future absence. So the faster you get out the better for everybody.

This reaction is entirely healthy: companies exist for what they can do in the present and the future and not what they have done in the past. Once a departure date has been announced you become part of the past – better to acknowledge it and move along gracefully. I agree with the FT: no good can come of the lengthy goodbyes.

The Lean Startup’s powerful idea

Like the rest of the world I have been reading the Lean Startup, the new book from serial entrepreneur Eric Ries. There is a lot of good advice in the book, which focuses on developing products which solve real problems and doing it in the most efficient way.

But one idea really stood out for me: cohort analysis.

This is one if the most important tools of startup analytics. Although it sounds complex it’s based on a simple premise. Instead of looking at cumulative totals or gross numbers such as total revenue or total number of customers, one looks at the performance of each group of customers that comes into contact with the product independently.

This is a powerful idea. Often there is a lag in the behaviour you would like to see (such as signing up for a free trial) and this is very hard to detect in a mass of other numbers, which may all be going up. By concentrating on one group at a time, Ries argues, you can really tell if the key behaviours you need to see are really happening – and if you are getting better or worse over time.

If you are interested the key section starts on page 123 of the book, or you can find out more from his site. More on cohort analysis here.

Bowtie vs. Diamond

I have a theory that there are two basic shapes of organisation when it comes to organising IT – bow-tie and diamond.

A bow-tie shaped organisation aims to keep the "business people" on one side of the bow-tie and the "techies" on the other side. The "knot" is where the two are supposed to meet, to exchange instructions.

The diamond-shaped organisation, on the other hand, has no such pinch-point in the middle – just a thick middle where business and techies intermingle, speaking pretty-much the same language. Most start-ups are shaped like diamonds – whenever I have walked into a Silicon Valley start-up, for instance, I am hard-pushed to tell who is responsible for what.

Most large corporates are bowtie shaped. There would be some merit in trying to at least thicken out the "knot".

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