Wednesday, May 23, 2001

Don’t Give Away The Store

"Why are my prices so low? Because I’m insaaane!."
--Crazy Eddie, 20th Century electronics retailer and patron saint of dot-com e-tailers


As a marketer, the worst mistake you can make is to discount or give away your product. While it may be tempting to boost your top-line growth with sales and freebies, the disciplined marketer knows not to give away the store. You may be able to boost short-term sales, but you will cripple your industry’s ability to earn any long-term profits.

To understand why this is the case, we have to start with a deceptively simple question: “How does a marketer make money?”

As every capitalist knows, you make money when you buy low and sell high. Or, more formally, the profit equation states that you make money by capturing the value created by the difference between the consumer’s willingness to pay and the supplier’s opportunity cost. Increase that difference, and you add value; decrease it, and you destroy value.

It’s easy to understand the supply side of making money: reduce your cost of goods sold whenever you can, whether through mass production economies of scale and scope (what Henry Ford did by building the Model T), or by exerting buyer power over your suppliers (what Sam Walton did when he build Wal-Mart into the giant it is today). This is the job of operations, manufacturing, and purchasing.

For most people, even most marketers, however, it’s hard to understand the demand side of the profit equation. You see, your job as a marketer isn’t to create value by persuading people to buy your products, it’s to create value by persuading them to pay a higher price—and be happier as a result.

As a buyer, I’m looking for bargains: chances to buy products for less than I’m willing to pay. It’s all relative. If I’m willing to pay $7.50, $10 for a movie ticket seems outrageously expensive. If I’m willing to pay $50,000, I may do somersaults of joy when I bargain the BMW salesman down to $45,000.

The goal of the marketer is to increase the consumer’s willingness to pay. Period. It’s a consumer’s willingness to pay, not features or accessories that lets us charge higher prices—and earn higher margins.

Steve Jobs is famous for asking John Sculley if he wanted to change the world, or spend the rest of his life selling sugar water. He got it wrong. Steve Jobs saved Apple Computer by persuading millions to spend 30% more when buying a computer—just so that they could get it in blue instead of gray! What’s more, those iMac buyers were eternally grateful for the opportunity to spend their money. Now that’s marketing genius.

Now let’s return to our original subject, and look at the effect that discounts and freebies have on consumers.

Many people think of these as essential marketing tactics. In actuality, they’re self-applied hangman’s nooses. Sure, they may help you boost product sales, but they have exactly the wrong effect on the consumer. Giveaways and discounts reduce consumer willingness to pay, and that reduction trashes both margins and customer satisfaction.

Once upon a time, consumers happily paid $19.95 per month for Internet access. Think about it—for about the cost of your average newspaper subscription, you got access to an entire world of knowledge, entertainment, and services. Try to picture that transaction—sounds like quite a bargain, doesn’t it?

Then came the free ISP tidal wave. All of a sudden, you Internet was meant to be free. Companies like NetZero vacuumed up customers, while paid ISPs lost market share even after slashing prices. The free ISPs turned a cozy, reasonably profitable market into a devastated landscape of red ink.

Today, as the free ISPs float belly-up in the dot-com deadpool, the market has yet to recover. The number of Internet-connected homes has actually declined—many consumers are now unwilling to pay for Internet access, just as they’re unwilling to pay for email, maps, or stock quotes.

Worst of all, consumers are actually less happy, even though they’re paying less money. The free ISP giveaway forever altered consumer’s willingness to pay for Internet access, and destroyed the market for pure ISPs.

So when you’re tempted to lower your prices or hold a sale, make sure you have the discipline to resist their siren song. The disciplined marketer knows that her job is to make the product more valued in the mind of the consumer, not to lower the price.

Monday, May 21, 2001

Are Capitalists Evil, Part II:

As we discussed earlier, the modern face of capitalism (Bill Gates, Larry Ellison, Steve Jobs) is the face of evil--in marked contrast to the beloved figures of Bill Hewlett and David Packard. Why then has such a change occurred? Were Bill and Dave exceptions to the rule, or were they simply part of a long line of humanistic capitalists?

The answer, as always, is more complicated.

History has a love-hate relationship with moguls, sometimes even in one mogul's lifetime. Andrew Carnegie was a much-admired humanitarian whose reputation was forever sullied by the bloody Homestead strike that his partner Ford Frick suppressed with Gatesian ruthlessness. John D. Rockefeller was the riches and most reviled business titan the world had ever seen, but became a gentle grandfather figure in his retirement.

Attitudes towards capitalism also tend to run in cycles. The Gilded Age celebrated capitalists, as did the Roaring Twenties. The Depression Era blamed society's problems on business, as did the Sixties and the muckrakers and trustbusters from the turn of the century. In England, the world's first industrial nation, the revered figures of Watt and Arkwright gave way to the Dickensian proprietors of child labor factories and debtor's prisons.

The general pattern has been that capitalists are lionized during booms, and despised during busts. Yet during the dot-com boom, capitalists were despised even before the bubble burst. Why?

Capitalists had behaved badly during previous booms--the dot-commers had nothing on the Vanderbilts and other New York elite when it came to conspicuous consumption.

Something different was occurring. Throughout history, capitalists had been admired and despised, but they were generally seen as a breed apart. It was hard work to become a steel, railroad, or shipping titan, and the results were tangible. The dot-com era saw a dramatic cheapening of wealth. All of a sudden, success was seen as the result of luck, rather than any special genius or burning drive. No one ever lionized prospectors who struck it rich during a Gold Rush the way that they idolized a Thomas Edison.

It may be that time and perspective will cause us to reclassify Gates and his brethren. Rather than evil puppetmasters, they will resemble nothing more than schoolyard bullies, swelled with importance by an accident of fate (or hormones), with no more lasting impact.

Friday, May 18, 2001

Interstitial tasks in the matrix of life

Computer programming teaches us to decompose any given task into "procedures," the smallest logical unit of action. There's a host of reasons why taking this approach to managing life's complexities make sense, but one of the least appreciated is its ability to run interstitial tasks in the matrix of life.

I don't know about you, but I often find myself with dead spots in my day. Perhaps I'm on hold while I'm waiting to speak with someone. Maybe I'm waiting to download a particularly long file. Or maybe I only have 5 minutes to kill before I hop into a meeting. These are the interstices of life: tiny, self-contained, pockets of life.

Too often, our response is to waste the time--to look at ESPN.com for the umpteenth time that day (at home, this is the same urge that fuels ESPN SportsCenter's viewership: millions of husbands who have finished washing the dishes, and want a 5 minute break before taking the garbage out.). If, on the other hand, you have decomposed your tasks into procedures, you can use that 5 minutes to accomplish a atomic (self-contained, not nuclear) task.

Those interstices really add up--a fact exploited by network television programmers. The average 30-minute sitcom represents only 17 minutes of programming--the rest are commercials. In other words, 57% content, 43% commercials. The same thing applies to your day. Of your 8 hours (or 10, or 12, or 16), as much as 43% might be wasted on coffee breaks, ESPN.com, and that porno site that you "accidentally" stumbled upon late at night.

Maybe you don't want to work that remaining 43%, but even if you don't, you'd be much better off focusing on being productive throughout the day, and then going home for a block of real leisure.

So stop wasting the interstices; find the procedures that will make you more productive, or get you home faster. If not, there's always SportsCenter....

Thursday, May 17, 2001

As you can see, getting a puppy really takes a lot out of a fellow. Nonetheless, I promise that this time I really am returning to the fray.

No rest for the wicked

One thing that I miss from my childhood is the concept of vacation. Yes, most of us still take vacations as adults, but it's really not the same. When you're a kid at the start of a long vacation, it's impossible for you to even conceive of the vacation ending. At the beginning of the summer, I'd get a funny feeling in the depths of my stomach, sort of like the feeling I get when I'm standing on a cliff and looking out over the Pacific Ocean. It's a feeling of endless reach and possibility that's both frightening and exhilarating. It's the feeling of countless days that I have no idea how I'll ever possibly fill.

But in the adult world, I never get the same sense. There's always something to be done, a call to be made, research to be read, publications to peruse, emails to write. The adult world (except for the idle rich) is based on capitalism, and capitalism is based on relentless progress. Everything is always changing, and you'd better keep moving, or someone with more hustle than you will push ahead of you on the ladder of success.

It's this compulsion that makes capitalism so powerful, and allows capitalists to accomplish so much. Under the feudal system, there wasn't much that you could do to progress in life. If you were a serf, you stayed a serf. If you were an earl, you stayed an earl. There wasn't much social mobility, and every year seemed to blend into the next with little change.

In the capitalist era, every year brings more changes, especially in your position in the hierarchy. These changes apply to individuals and to companies. Yesteryear's unemployed liberal arts major becomes yesterday's VP of Business Development, who in turn becomes today's unemployed liberal arts major. Ford creates the auto industry, is humbled by General Motors, surges back on top, is humbled by Japanese imports, surges back on top, and who knows what else from there. The only certainty is that you have to keep progressing, or you'll fall behind.

This creates progress, but destroys leisure. I have had a hard time relaxing ever since I started a company. There's always something else to be done. Even at home, I know that I can always wash the dishes, or tidy up the guest room, or work on filing the household documents. There's always progress to be made, and some of the time that makes me feel good and useful, and some of the time it makes me feel harried and hurried.

Ultimately, though, I'm willing to pay the price, both for myself, and for humanity as a whole. I don't believe that the noble savage was any better off than we are today. Parents work hard so that their children can have a better life, then become parents and work hard so that their children can have a better life.

Perhaps that's it then--all of human progress takes place so that children can experience that delicious sense of possibility on the first day of a long summer vacation, with blue skies overhead and a newly mown field of grass stretched out before them.

Tuesday, May 01, 2001

Sorry for the long layoff--

I'm proud to announce a new addition to the family: my new puppy, Kobe.

Unfortunately, Kobe takes after her namesake's hyperactivity and headstrong nature, so I haven't had the time to write it.

Nevertheless, I'm back on the job, and ready to bring you more of the articles that you crave.

Are Capitalists Evil?

Not a question that you'd expect from this raging capitalist, but a good one nonetheless.

Over the past couple of years, Silicon Valley in particular and business in general lost two of the great business titans: David Packard and Bill Hewlett. Not only did Dave and Bill start the company (in a garage no less) that laid the foundation for Silicon Valley, they also pioneered the startup mode of management, with their HP Way.

The HP Way marked the zenith of humanistic management, with its concepts of "management by walking around," and trusting employees. Moreover, Dave and Bill were themselves great humanitarians. Not only did they donate more money (on an absolute and inflation-adjusted basis) to Stanford University and Leland Stanford's founding bequest, they found ways to help thousands with the Lucille Salter Packard Children's Hospital and their respective foundations.

Plus, all HP employees knew them as plain old Dave and Bill. Nice guys do finish first sometimes.

However, as I mourned their passing, I started thinking about our current crop of business titans....and found them sorely lacking. Let's consider:

Bill Gates: Evil.
Larry Ellison: Evil.
Steve Jobs: Evil.
Jeff Bezos: Probably evil, but definitely toast.

There may be a few exceptions, but they're mostly old-school (Warren Buffet), or live in outlandish places like Texas (Michael Dell) or South Dakota (Ted Waitt).

Yep, by and large, capitalists these days are evil. The question is, why?

To be continued...


Friday, April 20, 2001

Job Security

The nature of job security has changed forever, yet again.

In my parent's generation, job security was simple. Once you won a job with a company, you stayed there for 40 years, and retired with a generous pension. If you were lucky, you got a company car and other perks that went well with a tranquil suburban lifestyle.

A decade ago, that changed, with the advent of rengineering and downsizing. As any reader of this column knows, I'm definitely not against downsizing. If fact, I think it's a good thing. However, it did fundamentally change the nature of job security.

For the past five years, job security has consisted of a) working for a successful company, and b) having a reasonable grasp of technology and change. If you picked wisely, and worked for a Cisco Systems, you might even become a millionaire simply for sticking around. Even if you didn't become a stock option millionaire, those magic instruments still help out the promise of paying for that BMW Z3, or that house downpayment. Employees of admired companies felt safe, even as the dot-coms crashed and burned. After all, people would always need more computers, more software, more routers, or more good advice.

In the past three months, that's all changed again. Now no company is safe. Even the mightiest companies of the information revolution, the Ciscos, Dells, and Suns have been forced into layoffs. Siebel beats earnings estimates and announces a 10% cut.

The new job security calls for new rules.

Rule #1: Control Your Own Destiny
You can only feel secure if your fate is in your hands. Find a job where you contribute directly to your firm's success, and its ability to employ you. Make sure that you contribute directly to profits. This doesn't just apply to sales people; everyone, from admin assistants to software engineers to graphic designers need to get as much control over a revenue stream as possible.

Rule #2: Make Yourself More Useful Than Your Co-workers
As the old saying goes, you don't need to outrun the bear, you just need to outrun the other guy that the bear is chasing. Make yourself more useful than your co-workers, and the ax will fall on their necks, not yours. This means getting your job done quickly and efficiently, then asking for even more work. Beware, though, don't fall into the trap of accepting work from your co-workers. Only take assignments from people who are in a direct chain-of-command above you.

Rule #3: Plan On Getting Fired
Act as though you expect to get fired. Hustle. Build up your human capital. Network. All of these activities will make you more useful than your co-workers and help you control your own destiny.

Besides, if you do get canned, you'll have a good head start.

Wednesday, April 18, 2001

Staying On Target

Maintaining your focus is a constant challenge in today's world. I've found that a few simple shortcuts can eliminate the clutter and keep me on track.

The advent of the Internet has raised procrastination to new heights. When you wanted entertainment in the old days, you had to walk to a water cooler to gossip about your peers' sexual inadequacies. In the current era of instant messaging, streaming media, and, of course, dancing hamsters, endless procrastination is only a keystroke away.

Even more insidious is the procrastination that masquerades as productivity. The five times daily pilgrimage to News.com. The slow perusal of F*ed Company--just for the news, of course.

Plus, with fewer people doing more things in an environment in constant flux, it's tough to remember what to do, or to stay productive.

I've struggled with this for years, from the personal planner days to the Palm V era, and none of it helps.

Ultimately, the solution that I found is very low-tech, very simple, but very effective.

Every Friday afternoon, when the rush of the week has subsided, I take half an hour to compose a checklist of what I need to accomplish the following week. It's a simple Word document, with room for checking off the tasks. If I need to work with anyone else, I put their names down.

Here's a sample of this week's list:

__ Launch Commission Junction distributor program
__ Create user demo for the Lead Engine web site
__ Draft Got.Net co-location contract

Once the checklist is complete, I email it to everyone that I work with, and post a printed copy outside my office where everyone can see it. As I complete the tasks, I check them off with my trusty black pen. If something else comes up, I add it in--again, in pen.

Now I know exactly what I need to do, and whenever I feel the itch to sneak over to ESPN.com, I just glance at my checklist and move on to the next unchecked item. The 1-week time horizon is just enough to give me some long-term thinking without requiring constant revisions.

It may seem like a small thing, but it's the anchor that I cling too in the maelstrom of business today.

Tuesday, April 17, 2001

A Profitable Decline

Anybody can succeed during periods of wild growth; you really earn your spurs managing through declines.

Growth makes everything easy. Promotions, raises, bonuses, even fancy new buildings and corporate masseuses make it a cinch to keep your employees happy and play the benevolent capitalist. The problem is, growth can't last forever.

No company can grow for 20% a year forever. It's simple mathematics. If the world's economic output is growing at 2% per year, a company that grows faster than that will eventually account for 110% of world GDP.

Back in 1999 and 2000, there were a number of companies whose stock market valuations seemed to assume just that: total world domination.

However, every growth story must come to an end, and most of them suffer hiccups along the way.

Take Cisco Systems. Cisco is the ultimate growth stock. It has a near-monopoly on the routers that form the backbone of Internet infrastructure (at last count, still doubling every 6 months). It has one of the world's most admired CEOs, and has created thousands of millionaires among its employees. It may very well be the single greatest venture investment in history.

And yet, just this week, Cisco learned that even the greatest growth story can come to an end.

As a result of a 30% drop in revenue, Cisco will report its first quarterly loss ever, and the outlook for the future is extremely cloudy.

What Cisco management needs to do now, is to manage a profitable decline.

Contrary to popular belief, you don't have to grow to be profitable. Some companies have been extremely effective at making money in declining industries. Computer Associates has made a living as an IT bottom-feeder, vaccuuming up legacy companies and serving their shrinking but profitable customer base.

It's not easy. You have to cut expenses to the bone. After all, you can't control revenues, but you can always control expenses. Simply refuse to spend money, and count on your team's creativity to do more with less.

You have to be ruthlessly efficient, and squeeze every last dollar out of your sales. That means watching sales costs like a hawk, and pounding your receivables on a daily basis. You should also stretch out your own payables as much as your creditors allow.

But if you can manage a profitable decline, you'll be able to make money in any environment. And, if your business begins to grow again, you'll be in an even better position to grow profitably.

Monday, April 16, 2001

The End of Stickiness

I spent last week on vacation in Amsterdam, completely cut off from the Internet. No Web, no email, nothing. First time I've done that since my honeymoon in 1998.

While I missed my usual dose of information, I couldn't help but be struck by the parallels between e-business and some of the practices that I observed in Amsterdam.

For example, in Amsterdam, restaurants and cafes take forever to take your order, bring your food, and collect your check. For some people, this might seem like a pleasant case of old world charm, letting you linger over mealtime conversation. For this busy American tourist, however, it was horrible.

The worst episode happened at The Pancake Bakery. For those who have never been to Amsterdam, the Dutch are huge pancake fans. Cafes all over the city serve pancakes that look like giant crepes, topped with every conceivable substance, from smoked salmon to chocolate (though thankfully not at once). They're quite delicious, though I'll never understand how the Dutch avoid being the fattest people on the planet. Maybe it's all the smoking.

Anyway, my wife and I stopped at the Pancake Bakery for lunch (a Norwegian pancake with smoked salmon and creme fraiche and a Dutch pancake with ice cream, cherries, liquor, and whipped cream), which was quite excellent. While we were eating, however, a massive crowd had built up, thanks to the popularity of the restaurant. There were at least 20 people waiting, and they spilled out into the street, despite near-freezing temperatures.

When we finished our meal, I went up to pay and was told to return to my seat, that they would come with the bill shortly. I thought, "Oh, how nice," and sat back down to wait. And wait. And wait.

After 30 minutes, they still hadn't brought the bill! Now mind you, this is with 20 potential paying customers waiting in the freezing cold.

Finally, I had to force my way back to the cash register and insist on paying! Needless to say, I stiffed them on the tip.

Nonetheless, this bizarre behavior isn't restricted to our European friends.

Think of all the times you've heard "stickiness" hailed as a panacea for web sites. Well, the problem is, having stickiness without actual sales is like having customers hanging around your restaurant without actually collecting checks.

The goal of a business is to make money. Yes, it's important to have all your tables full, and to keep your customers happy, but at the end of the day, what matters is what's in the cash register.

Friday, April 06, 2001

Eliminate Serial Killers

To make your business successful, eliminate serial killers from your staff.

I'm not talking about the run-of-the-mill sociopaths you see on the evening news, I'm referring to something far more insidious, that may even be affecting your own job performance: Serial-itis.

All business tasks fall into two categories: serial tasks, and parallel tasks. You can't start working on a serial task until its predecessor is complete, and you can't start working on its successor until you finish the task at hand. You can work on a parallel task whenever you want, without interfering with other work--there are no dependencies.

Serial killers turn parallel tasks into serial tasks.

You may ask, "What's so scary about serial killers? Whether the task is serial or parallel is irrelevant, as long as they get the job done." What serial killers kill is any chance you have at rapid time-to-market, and in the post-Internet age, time-to-market is everything.

Think about it. Let's say your new product requires accomplishing tasks A, B, C, and D. Worked on in parallel, you might have a time-to-market of X. Once the serial killer completes his grim work however, your product's time to market might be 4X, or even more!

Thus, Windows 93 becomes Windows 95, Windows 97 becomes Windows 98, and so on.

The problem is that becoming a serial killer is so damned seductive. It's easier to work on one task at a time, to take a mental break by waiting until Jones finishes task A before you start on task B.

The justifications sound so reasonable: "I don't want to redo work that we've already done. We have to wait until everything is coordinated. Well do X when we do Y." Unfortunately, they're dead wrong.

To eliminate serial killers, you can't simply tell your people to avoid serializing parallel tasks. One, they won't know what you're talking about, and two, it's difficult for anybody--even you, the entrepreneur--to police themselves appropriately.

What you need to do is to challenge people's assumptions whenever you see a serial task. Ask, "Do you really need to wait? Isn't there a workaround?" Remind them that their time is a sunk cost. Be a bastard if you have to.

If you don't, the serial killers will remain on the loose, and they'll kill your products' chances at success.

The angry capitalist will be on vacation for a week, with absolutely no Internet access, so check back on the 16th for the latest rants and raves (okay, the latest rants).

Thursday, April 05, 2001

Budgeting Made Easy

Entrepreneurial budgeting is simple: Give every program a $1 budget.

You may think I'm joking, but I'm not.

As a entrepreneur, you need every project to pay off quickly. You can't afford to take a flyer on a long-term investment, where the term may exceed your company's life expectancy.

Painful experience has taught me that "Investment" is simply a code word for, "Bend over and pull down your shorts."

I'm not saying that you can build a billion-dollar business without spending money--you can't. What I am saying, however, is that you need to make sure that any money that you do spend results in a pretty darn quick payback.

A classic example is 3M's approach to innovation. 3M allows its researchers a certain lattitude to pursue untried, unplanned, unbudgeted ideas. It's not easy, but if you can beg, borrow, or steal the resources, 3M will look the other way. In fact, this approach has resulted in some of 3M's greatest products, like Scotchguard and the Post-It Note.

Constraints breed creativity. If your team knows that it can't undertake a project unless it a) costs nothing, or b) has a payback period of one month, you people will get very creative.

You want every one of your employees to act like the cost of their projects is coming out of their own pockets--that will give those programs the best chance of success.

Wednesday, April 04, 2001

Contrary to Popular Belief...

Many entrepreneurs (myself included) have a contrarian streak. We don't like to go with the crowd, figuring that their lemming-like behavior will get them killed, sooner or later.

For example, I've believed since 1998 that Internet stocks were ridiculously overvalued, and refused to invest in them. Actually, I decided that the only sane thing to do was to become a seller of stock, so I started a company, but that's another story for another time.

This refusal to participate in the NASDAQ bubble earned me a lot of strange looks, especially from my business school classmates. "You mean you aren't investing in Internet stocks," they'd say, in a tone generally reserved for child pornographers and Yale alumni.

I have to admit that my faith wavered at points, especially after I found out that several classmates had maxed out their student loans, put it all into Internet stocks, and racked up 6-figure gains. Nevertheless, I stuck to my guns. Now, with the Nasdaq approaching 1600, I feel vindicated.

Nevertheless, my anecdote underlines the perils facing the dedicated contrarian. The world *is* subject to manias and irrational exhuberance, and it can be a trying task to be the lone voice of reason. In addition, a contrarian can be just plain wrong. You can argue that horses will replace the automobile, and that would be a contrary position, but you'd be waiting until doomsday (or a post-nuclear civilization).

Don't be contrary just to be contrary--you have to carefully research and prove your position before you spit defiance at the gods of consensus.

One friend of mine believes that now is a good time to become a venture capitalist. Right now, the masses believe that the VCs fleeced them out of their hard-earned cash. Opinionis still split on whether this occurred because the VCs were feeble-minded simpletons or high-pressure con artists, but neither option is what I would consider flattering.

Yet his contrarian stance is well-supported. Entrepreneurship isn't going away, and valuations are a lot more reasonable (for the VCs at least!) now that the bubble has burst. Furthermore, a look at the history of the VC industry reveals that many of the greatest venture investments of all time (Cisco comes to mind) were made during difficult economic times.

As a entrepreneur, you'll often find yourself in the contrary position. Just make sure that your beliefs are well-supported, and stick to your guns, and you'll find success.




Wednesday, March 28, 2001

The Email Quandary

If you're like me, you probably spend a significant proportion of your working hours reading and writing email. The problem is, like most modern marvels of office automation, email can end up increasing, rather than decreasing work.

Even in our small (eight person) organization, we have a radically divergent continuum of email use. Everyone uses email, but some use it just for external communications, while others use it to communicate with an officemate who's 10 feet away. I'm sure that the problem is worse in larger organizations.

The email-centric often treat email like a guided missile: launch it via cc:, and it will use its heatseeker warhead to home in on the correct target. That's just not the case. Email works as a "fire-and-forget" communications medium under the following circumstances:

1) If the author is ending a discussion
2) If the author is opening a discussion that is expected to be very short, e.g. 1-2 exchanges
3) If the author is opening a discussion that is expected to be very long, e.g. a week or more
4) If the author is participating in a free-form discussion which none of the participants wants to end
5) If the email is completely self-contained

By the way, points 4 and 5 explain why email is so incredibly popular as a medium for leisure communication. I've lost count of the jokes, funny stories, Darwin Awards, and LEGO pornography that I've received over the years.

Email is the wrong medium for any complex, interactive discussion that you want to resolve in less than an hour. For these discussions, you need to speak in person, or over the telephone. Any discussion that goes through more than 3 exchanges back and forth should probably be switched to phone or in person.

So when you're tempted to hit the "Reply All" button, remember to do a few things:

1) Use a meaningful subject line
2) Clearly delineate action items
3) Attach an individual person's name to each action item
4) Ask yourself if you really need to send it.

I won't be able to publish on Thursday or Friday, since we'll be moving our office, but we'll resume our regularly scheduled ranting on Monday.

Tuesday, March 27, 2001

Thinking like a startup

To start a successful company in a down economy, you have to think like a startup.

This advice may seem absurd, but it is essential--and little followed.

Throughout history, successful entrepreneurs have followed a few simple rules like minimizing your costs and focusing fanatically on revenue-generating activities. These time-tested rules applied to any situation, from opening a lemonade stand to starting a legal practice.

During the Internet bubble, however, the new wave of "entrepreneurs" abandoned these rules, and started thinking like big companies.

Big companies are run differently from startups. Their style isn't necessarily better or worse (I may never want to work for a bi company, but there are plenty of people who would, and furthermore, would hate the startup existence), just adapted to their circumstances.

Big companies think strategically; startups think tactically.

A big company has to focus on big successes; small victories are mere rounding errors in the quarterly filings. That means placing bets on strategic initiatives and having the patience to wait for results. Hewlett-Packard spent billions over several years to become a PC powerhouse.

A startup has to focus on getting quick revenues. This often means settling for smaller but more readily attainable wins, and avoiding any projects with long payback periods. But having the flexibility to win small victories lets a startup try a lot of different things to experiment its way to a big success.

Big companies invest for the long term; startups minimize costs

A big company will make capital investments that reduce the variable costs of manufacturing a product with a 5-year life cycle.

A startup will manually process a transaction for 2 months to save the $1,000 it would cost to automate the process. A startup simply can't bet on being in the same business in 5 years--or even being in business. The best way to succeed is to minimize fixed costs and up front expenditures so that you maximize your option value.

Big companies believe what they read; startups believe in the cash register

A big company manager will often make decisions based on what she reads in the business press, or see on the news. The big company mentality says that the world is a relatively orderly place, and that the wise businessman listens to the experts.

The startup entrepreneur knows that there are no experts, that all the analysts are full of bullsh*t, and that she can only believe what she knows from experience.

A lot of people are more comfortable with the big company, big picture philosophy. Life is more reasonable, more manageable, more dignified. The new-look entrepreneurs thought this way, trained by top-tier business schools, consultancies, and investment banks.

Unfortunately, applying that philosophy to entrepreneurship practically guarantees disaster. An entrepreneur knows that life is unreasonable, unmanageable, and often unmentionable, and that it takes a streetfighter mentality to succeed.

So if you want to be an entrepreneur, look at the list above, and decide if you're willing to think like a startup.

Monday, March 26, 2001

Big fish, little fish

Successful business people learn to evaluate potential: theirs, their employees, and their businesses. Without an objective evaluation of potential, it's impossible to make good decisions.

The old saw says that it's better to be a big fish in a small pond. In business, however, there's no guarantee that a weaker competitive set will lead to greater success. In fact, the opposite is often true. The truly great rise to the challenge of greater competition, and become even bigger fish when transferred to a big pond.

Take Michael Jordan. Michael Jordan was cut from his junior high school basketball team. From that humble beginning, as a small fish in a small pond, his growth outpaced his surroundings. He was a good high school player, a very good college player, and the greatest player that ever played in the NBA. Each time the bar for his performance rose, his level of play rose even further. Michael Jordan grew with his pond.

In contrast, Steve Alford was better off as a big fish in a small pond. Alford was a legendary player in Indiana high school basketball, had a stellar career at Indiana University, and was a massive failure in the NBA. By the end, he was clearly a small fish in a big pond.

What separated Jordan and Alford wasn't work ethic or mental toughness; Alford was an incredibly hard worker, and a true student of the game of basketball. What separated them was potential. Jordan had "upside." Alford had already maxed out his potential as a ballplayer by the time he entered college.

However, Steve Alford didn't let his failure as a player discourage him. Instead, he became a basketball coach, and is now ascending the coaching ranks, and growing with each new job. He was a good assistant coach, a very good head coach at Southwest Missouri State, and is now an outstanding head coach at the University of Iowa.

The lesson to take away from this is that you need to figure out where you, your employees, and your business stand in terms of potential, and choose accordingly.

If you believe that you have a great deal of upside and potential growth, moving to a bigger pond with stronger competitors will improve your performance and bring about growth. If believe that you are close to your maximum potential, moving to a bigger pond will get you eaten, and you should learn to be content with being a big fish in a small pond.

Friday, March 23, 2001

Theory vs. Practice: "You can't cash a syllogism!"

Building a successful business takes practice. You have to learn the hard way: by doing, making mistakes, and redoing. Theory can be helpful, but true insight comes from the friction between planning and execution.

99.9% of business failures over the past year resulted from overemphasis on theory and underemphasis on practice.

A theorist believes that the world works based on a set of rules, that you can read those rules in a book or article, and that you can use those rules to design a successful business.

I call this the "Dungeons & Dragons" approach to business, and it's likely to be as successful in business as your average D&D player is in a singles bar.

The X-Files summed it up best when the slovenly hacker pulls himself up and says, "I didn't play all those years of D&D without learning something about courage!"--right before the camera shows him cowering and whimpering with fear.

That kind of second-hand knowledge is almost always useless; the rest of the time, it actually hurts your chances.

I'm not knocking education; as I've said before, I'm the product of the world's finest (and most expensive) institutions of higher learning. However, classes don't teach you how to run a business.

A practitioner may work with rules, but understands that rules were meant to be broken, and that the effectiveness of following any given rule is always in a state of flux.

The old rules were, "spend a ton of money to get big fast." Theorists who treated that law as immutable are now on a permanent vacation. Practitioners follow a rule as long as its clear that it still applies, but are willing to shed their prior beliefs and turn 90 degrees at a moment's notice.

I call this the "no-huddle" approach to business. You must always read your environment, and be ready to change your play, your formation, even your entire philosophy in less than 30 seconds. There's no time to huddle and call plays from a set script. Even if there was time enough, blindly executing a seven-step drop against a blitz formation is a recipe for disaster.

Yes, you're going to make mistakes. But a good entrepreneur, like a good quarterback, learns from those mistakes and instantly adjusts the offense for the next play, almost by instinct.

If you want to succeed in business, lay down the dice, forget about fighting orcs, and pick up a football. Besides, it'll be good for your complexion.

Thursday, March 22, 2001

Market Research, or "Who Buys This Shit?":

To make money, you have to sell a product or service. To sell a product or service, you have to offer value to a customer who is willing to pay.

It sounds simple, but the bubble made millions forget.

When you're starting a company, you always have to put yourself in your potential customers' shoes and ask, "Honestly, would I buy this." If there's any doubt, head back to the drawing board.

The bubble made people believe that the idea was everything. MBAs, consultants, and investment bankers specialize in this kind of top-down thinking, so they crafted extremely persuasive stories around these ideas.

Attractive young people with fancy pedigrees produced beautiful PowerPoint slides with hockey-stick charts. They filled their pitches with magic incantations, and gesticulated with holy passion. The VCs saw the vision and opened up their checkbooks to these "paradigm-breaking" companies.

And you know what? Less than 1% ever bothered talking to a customer first.

It's easy to skewer with hindsight, which makes it politically incorrect, but it's still worth doing. Would you ever buy dog food online? Designer clothes? Furniture for your home? I've bought all of those things, but I'd never buy them online. It just doesn't make any sense.

But it wasn't just the B2Cs that lost sight of the need to sell. Take the B2B exchanges. Please. How many ever bothered to talk seriously with the actual purchasing managers and salesmen, whose personal relationships make that business go?

If you want to succeed, do the following:

1. Talk to potential customers before you plan out your product. If you've already decided what to do, their feedback will be useless.

2. Don't leave any room for ambiguity. Ask them, point blank, will you buy my product at X price? Get them to schedule delivery if you can. "Yes, that looks interesting" just ain't good enough.

3. Keep talking--and listening. If you've got a new competitor, your customers will know. If your product desperately needs a facelift, your customers will know. If you are secretly plotting to defraud your customers, they will know.

Remember, to make money, you have to convince someone else to part with theirs. It's not easy, but nothing worth doing ever is.

Tuesday, March 20, 2001

Shortcuts and Spaghetti:

Now that the dot-com crash has exploded the myth of "Internet time," it's a good opportunity to look back on one of the most dangerous practices that arose during the bubble: taking shortcuts to "get big fast."

While it is true that the Internet has increased the velocity of business, far too many companies used it as an excuse to take shortcuts.

Shortcut #1: In the old economy, you built a brand over time, by delighting your customers. In the new economy, you built your brand by spending $100 million on television advertising, paying customers to use your product, and IPOing to increase your "buzz."

Shortcut #2: In the old economy, you built your company organically, by hiring good people. In the new economy, you built your company virtually, by hiring Scient, Viant, Sapient, or somebody else with a cool "ient" name, and by making offers to anyone with a pulse.

Shortcut #3: In the old economy, you learned about business by working for a successful company, and struck out on your own when you had accumulated experience. In the new economy, you dropped out of school/b-school/McKinsey and started your company right away, since your "paradigm-breaking" ideas rendered old-fashioned experience useless.

Unfortunately, while the idea of these shortcuts was appealing--who doesn't want to get rich quick?--they led their proponents off the proverbial cliff.

I advise you to pick up a copy of "The Mythical Man-Month," quite possibly the greatest book ever written about the software development process. In it, Fred Brooks describes how taking shortcuts in complex, interdependent endeavors like software development inevitably leads to a trail of tears.

Taking shortcuts in the development process leads to "spaghetti" code: disorganized, unreplicable, and unmaintainable. And when you've made that mistake, no amount of money or resources will correct it. One famous Brooks saying is that the surest way to delay a project is to add more people to it.

The shortcuts taken during the Internet boom led to "spaghetti" companies, and now we're all paying the price for the few lucky ones who got liquid and got out before the music stopped.

However, "The Mythical Man-Month" also offers us a recipe for success.

The key to success is discipline: planning carefully, executing systematically, and documenting thoroughly. In other words, doing things the old fashioned way.

So the next time you consider taking a shortcut, remember: becoming a spaghetti company is a good way to let your competitors eat you for lunch.

Thursday, March 15, 2001

No more Mr. Nice Guy:

"Nice guys finish last."
--Leo "The Lip" Durocher (actually a misquote, but too good to pass up)

Sometimes you have to be a bastard.

Most of us like to believe that virtue is its own reward, that the good guys will beat the bad guys, and that things will turn out fine in the end. Guess what? We're wrong.

That may work for the Disney Channel, but it doesn't work for business. Business is war. Sportsmanship doesn't count. If your opponent trips, don't help him up--kick him while he's down and cut his throat.

The great Michael Jordan understood this. Michael was the greatest basketball player of all time, due in no little fact that he was one of the meanest basketball players of all time. Former Bull Scott Burrell was once asked why he was running hours of drills. "Because Michael said that he'd beat me up if I didn't." When asked why he, a grown 220-pound elite athlete, feared such tired braggadocio, he replied, "Because he's Michael Jordan, and I believed him."

But being a bastard to your competitors is fairly intuitive. What made Jordan great was his willingness to terrorize his own teammates--when the occasion called for it.

I'm not recommending the yelling and screaming, Bobby Knight approach to management. What I am recommending is having the balls to make unpopular decisions and force them through.

It's a given that your employees aren't always going to agree with what you do. If they did, you could simply replace them with robots. However, when you've made a decision, they must swallow their dissent and comply. And if they don't, you have to punish them or even fire them.

It's easy to be a nice guy. Spending money is easy. Delaying product launches is easy. But so is going out of business.

Note: Because I am traveling to Las Vegas for a bachelor party, I will not be publishing on Friday, March 16. Fear not, loyal reader, I will be back on Monday.


Wednesday, March 14, 2001

In praise of midgethood:

I'm not referring to height (I'm 5'11" myself), but to the size of your venture. One of the most disastrous myths from the dot-com era was "Get Big Fast." I remember hearing this from my professors when I was at Harvard Business School. The problem is that size may sometimes be an evolutionary advantage, but it always restricts flexibility. The dinosaurs learned that lesson the hard way.

The "Get Big Fast" philosophy was predicated on two assumptions. One, that vast amounts of capital would be available, and two, that behemoths would dominate the world of business.

The proponents of this philosophy, most notably Amazon.com, set about constructing businesses of T. Rex proportions. No amount was too great to spend on marketing, hiring, or building. Revenues and growth were everything, and profits were for wimps.

And then, the sky fell in. Like a giant asteroid plunging to Earth, the Nasdaq cratered. The shockwave that ran through the capital markets dried up the supply of funding.

Then, like the lumbering dinosaurs of old, the Get Big Fast proponents began dying out. With their gargantuan size, they couldn't adapt to the suddenly frigid funding climate. $1 million can easily get a small, nimble 5-man company to profitability. Bronto-sized CMGI lost $1.2 million an hour this past quarter.

Yet when the dust cleared, there were plenty of survivors. A recent survey by Verizon indicated that 55% of small businesses with a Web site say that they broke even or made a profit on the web.

Small businesses have lower overhead, greater flexibility, and faster time-to-market.

My own experience reflects this. Sadly, my company fell into the same Get Big Fast trap. We hired like mad, bought like crazy, and quickly grew to 40 people. Our burn rate skyrocketed, our strategy ossified as different managers defended their fiefdoms, and I grew frustrated with getting less done by managing others than I could have gotten by doing it myself. In my defense, we learned. We fired all but 8, slashed our overhead, ditched our old (failed) strategy, and carved out a path to profitability. But we never could have done it if we had stuck to our saurian ways.

Dinosaurs died out. The mammals survive. Which do you want to be?

* No offense to Billy Barty and he rest of the little people. After all, without you, we wouldn't have the Wizard of Oz, Charlie and the Chocolate Factory, and, of course, Time Bandits.
This post was intended to appear on March 9.

Nasdaq 2000:
Last year, the Nasdaq index hit 5,000. Today, just 12 months later, it flirted with 2000.

What does this mean for an entrepreneur? Everything, and nothing.

Everything, because the supply of funding has dried up. VCs have to nuture their previous startups that can't go public. Angels are suddenly poorer (and in some cases, poor!). Corporate investors decide to stick to their knitting. And even doctors and dentists decide to splurge on espresso machines instead of seed investments.

Nothing, because the chances of any particular startup going public are so small as to be irrelevant. If your company is successful, it will probably be acquired for its potential or its cashflow, neither of which depend on the capital markets.

In fact, if you can start a company on a lean budget, this may be the best time to begin. The lack of funding has deterred the casual competitor, and you may reap a windfall if you sell your company for undervalued stock and the market rebounds.

Of course, that's easier for me to say, since I haven't invested in the market since 1998. It would be far more difficult to maintain perspective had I used my business school loans to buy dot-com stocks on margin.


Friday, March 09, 2001

Nasdaq 2000:

Last year, the Nasdaq index hit 5,000. Today, just 12 months later, it flirted with 2000.

What does this mean for an entrepreneur? Everything, and nothing.

Everything, because the supply of funding has dried up. VCs have to nuture their previous startups that can't go public. Angels are suddenly poorer (and in some cases, poor!). Corporate investors decide to stick to their knitting. And even doctors and dentists decide to splurge on espresso machines instead of seed investments.

Nothing, because the chances of any particular startup going public are so small as to be irrelevant. If your company is successful, it will probably be acquired for its potential or its cashflow, neither of which depend on the capital markets.

In fact, if you can start a company on a lean budget, this may be the best time to begin. The lack of funding has deterred the casual competitor, and you may reap a windfall if you sell your company for undervalued stock and the market rebounds.

Of course, that's easier for me to say, since I haven't invested in the market since 1998. It would be far more difficult to maintain perspective had I used my business school loans to buy dot-com stocks on margin.

Thursday, March 08, 2001

Timing is everything:

And if you haven't learned that from the past couple of years, you haven't learned anything.

Here's a terrific example: Palm Computing and Handspring

Palm had great timing, and terrible timing. The key to Jeff Hawkins and Donna Dubinsky's success at Palm wasn't just "the big idea." People sometimes forget that Palm's first product, the Zeos, was a serious flop, along with Go, Eo, the Newton, and every other PDA of that vintage. What set them apart was that they learned from the failure, and had husbanded their resources enough to bring out the Palm Pilot. They had great timing.

Unfortunately for Jeff and Donna, a lack of cash forced them to sell their company to U.S. Robotics for a paltry amount of stock. Bad timing. U.S. Robotics, in turn, managed to sell itself to 3Com when its shares were near an all-time high. Good timing for USR, bad timing for 3Com. 3Com's shares never really recovered, as accounting irregularities sank 3Com's stock, making Jeff and Donna's stock worth even less. However, the USR acquisition turned out to be good timing for 3Com, since the Palm Pilot became a huge hit, driving almost all of 3Com's growth and profits.

By then, however, Jeff and Donna had left 3Com to start Handspring. Great timing. Jeff and Donna raised money from Kleiner Perkins and Sequoia, and launched Handspring in time for the 1999 Christmas season. Unfortunately, production and customer service problems dogged their launch, a result of the compressed time frame. Bad timing.

Handspring recovered however, since this time Jeff and Donna had left plenty of safety margin. By June, Handspring was ready to IPO. Good timing. Handspring went public before the general tech stock slide, and shot up to $100 a share. Even though the stock slid from that height, Donna was able to sell 100,000 shares (a mere .22% of her stake!) for $4 million. Good timing. Jeff hasn't sold yet (bad timing), but don't feel too bad for him and his 40 million shares, which are still worth close to $1 billion.

The moral of the story is that even an entrepreneurial home run, like Palm/Handspring, is apt to have been affected by timing, both good and bad. You need to put yourself in a position to benefit from good timing, and leave yourself sufficient safety marging so that bad timing doesn't wreck your plans.

Wednesday, March 07, 2001

MBA vs. NBA:

Entrepreneurs often beat themselves up for their lack of "success." Sometimes they're right to do it. But often, it's because they're comparing themselves against an unrealistic competitive set.

For example, a budding retailer might compare herself to Jeff Bezos (or maybe not, given the current market!). A hardware entrepreneur might look at Michael Dell, and a budding software mogul might look at Bill Gates, or, god forbid, Larry Ellison (though if you feel inadequate because you don't a) own a Russian fighter jet, b) race in dangerous sailing competitions, or c) hire an endless stream of attractive young assistants, you've got bigger problems).

The problem is, these success stories are six-sigma events--way outside the standard deviation. According to Forbes, there are 298 billionaires in the US (probably less by now--editor's note). In contrast, there are 384 players in the NBA.

Let us consider the NBA, the world's most glamorous sports league. I've seen commentators cluck cluck about how terrible it is that thousands of underprivileged African American boys dream about making it to the NBA. It's like a lottery, they say, only the tiniest fraction succeed.

How reasonable is it then, for the millions of entrepreneurs and dreamers who someday want to be billionaires to compare themselves to the mere 298 billionaires?

So don't beat yourself up just because you drive a Corolla (which I do), and don't have over a million dollars worth of liquid assets (which I don't). But I wouldn't ever take away anyone's right to dream.

Tuesday, March 06, 2001

Bibliography for Entrepreneurs:

The toughest task for a budding entrepreneur is figuring out what's important and how to do it.
The toughest task for an experienced entrepreneur is explaining what's important and how to do it to a budding entrepreur.

The fact is that entrepreneurial learning is experiential--you can't really learn the importance of inventory controls until a disgruntled employee steals $50,000 of equipment. Trust me. I've gone through half a million dollars worth of the finest business education available, and I had to learn 99.999% of entrepreneurship on the job.

Books won't teach you how to be an entrepreneur. Accept it. However, if you realize that fact, and approach them with a grain of salt, here are a few books that you might find entertaining--and even useful.

High St@kes, No Prisoners, by Charles Ferguson.
Ferguson made his "fuck you" money when he sold FrontPage to Microsoft, and this book shows it. Ferguson pulls no punches, and shows you the seamy underside of Silicon Valley: the lying, cheating, and stealing. Read it and appreciate what you're up against.

Burn Rate, by Michael Wolff
Wolff details where the bodies were buried during the Jurassic days of the Net, back when people thought that content would make money. The account of how he sold his bookmarks file for millions of dollars to a gullible publisher is classic.

Startup, by Jerry Kaplan
A terrific first-person account of one of the biggest VC disasters ever (only exceeded by the current bubble-bursting debacle): pen-based computing. Hundreds of millions flushed down the toilet. What's uplifting is that the idea (and most of the people involved) were ultimately successful, a testament to the Valley's skill in reinvention. I wonder what Kaplan will write about the Egghead/Onsale disaster?

Here are some other books that, while entertaining, are utterly useless for entrepreneurs.

The New New Thing, by Michael Lewis
The story of Jim Clark, Netscape's founder. Folks, don't try this at home.

Nudist on the late shift, by Po Bronson
This is how East Cost folks see the Valley. Don't mistake for reality.

The First $20 Million Is Always The Hardest, by Po Bronson
Great title, fun book, but as dated as Larry Ellison's first Network Computer venture. Also, makes Stanford Product Design students seem a lot sexier and more glamorous than they really are. I speak from personal experience.

Monday, March 05, 2001

Saving your way to prosperity:

Essential Lesson #42 for aspiring entrepreneurs: DON'T SPEND MONEY! Not your company's, not your investors', and certainly not your own. Here's why:

Every "investment" has a payback period.
If someone tries to justify spending money by saying, "It'll pay for itself," ask her the length of the payback period. The instant you write a check (or swipe your credit card), that money is gone. That's fine if you get paid back in a week. In today's uncertain business climate, payback periods are always longer than you think, sometimes infinite. Better to do without.

Spending money has "hidden" costs.
Spending money is even more expensive than it seems. Not only are you spending post-tax dollars (which means that you'll need to earn close to twice as much to compensate), every transaction generates overhead as well. Every time you spend, you need to create purchase orders, book expenses, and audit the transaction. And if you don't spend your money up front on good accounting, you'll spend it later on wasted time, shrinkage, and migraine medication.

Purchases stretch your "stomach" for expenses.
Just like eating big meals stretches your stomach, spending the big bucks stretches your stomach for expenses. Once you start, it's hard to stop. Both you and your employees become inured to six-figure expenses, and when that happens, you can kiss your cash reserves goodbye.

Yes, it's harder to find alternatives to spending money, but it's like eating your vegetables: It'll make your company stronger in the long run.

Friday, March 02, 2001

In praise of obstinacy (part II):

Obstinacy defines entrepreneurship. This may come as a shock to some, but until very recently (and probably again in the future), a career in entrepreneurship was viewed with the same welcoming attitude as having your children run off to join the circus. Entrepreneurs were seen as starry-eyed dreamers, stubborn fools, or both. The smart money was on becoming a doctor, lawyer, or, if you were really wild, and investment banker. Generally, an entrepreneur became such because he or she couldn't work for someone else.

The past few years witnessed the elevation of the entrepreneur to demigod status, making it attractive to the best and brightest, who, being pretty sharp, gravitate to whatever promises the most money, prestige, and sexual appeal. This meant that a lot of otherwise mainstream individuals started companies, hoping to get rich quick.

These new-look entrepreneurs did what they always had done to succeed: follow the rules, and execute to the letter. When VCs said to "get big fast," they booked television campaigns and gave away products. When magazines emphasized the importance of hype, they committed the equivalent of 10X revenues to a PR campaign. And when the tide turned, they had nowhere to go--except back to whatever conventional wisdom dictated was the best bet. Companies like Goldman Sachs that couldn't beg a second-tier MBA to join them two years ago now have their pick of Harvard and Stanford MBAs.

The true entrepreneurs are obstinate to the point of stupidity. They doggedly find ways to keep their companies alive, and keep fighting and scratching for every last dollar. And those entrepreneurs will be around and thriving, long after the new-look entrepreneurs and their $50 million venture rounds have gone the way of the velociraptor.
Forget about Reality TV--if you really want to be entertained, tune into Reality Check Television, brought to you by the capital markets.

Survivor:
Outwit, outplay, and outlast your fellow dot com entrepreneurs in the funding desert. Every day, another contestant gets voted out--and onto the pages of F*ckedCompany. Take the Downsizing challenge to win immunity from Chapter 11 for another week. Whoever is the last man standing wins the grand prize: a bridge loan with 200% warrant coverage.

Temptation Island:
Tune in to see what happens as struggling entrepreneurs are tempted by the siren song of B2C and B2B (back-to-consulting and back-to-banking). Watch as contestants break down in tears when confronted with videotapes of McKinsey recruiting events. If you're still your own boss 6 months later, you've won.

The Mole:
One among them is a management plant. Try to spot the mole as our intrepid team of dot-bomb employees works together to steal company laptops and dodge successive rounds of downsizing.

Big Brother:
24-hour, round-the-clock coverage of employees locked in a sea of cubicles. Watch as they try to hide their forays onto Monster.com, HotJobs, and beapimp.com from their eagle-eyed managers. See the 2-hour lunch breaks, and the office supplies stuffed into khaki pockets. Marvel at the extreme boredom of watching the same gray wall, hour after hour, without any new stories on ESPN.com.

So I Used to be a Dot-com Millionaire:
Nah, too depressing.

Wednesday, February 28, 2001

In praise of obstinacy (part 1):

The #1 lesson that I've learned from my business experience is that I should trust my own instincts. When I was younger and less experienced, I often deferred to my elders, believing them fountains of hard-won wisdom and experience. What I've discovered (and this should come as no surprise to anyone who has worked in any business organization) is that older doesn't mean wiser, it just means closer to death.

Get this through your head: No one knows what they're doing. Not your boss, not your co-workers, not your professors, not even your parents. Regardless of how sure someone seems of their convictions, if they don't make sense, they're probably full of excrement.

Trust your instincts, and don't let your fear of being an asshole override your better judgment. I did, and it cost me over $5 million.

Tuesday, February 27, 2001

You can't teach an old dog new tricks. Perhaps unfair to geriatric canines, but quite applicable to the workplace.

I've gone through a heck of a lot of management training and theory, and that one adage probably explained more to me about management than years of study.

The simple fact is that people can't change what they are. If an employee is impatient, she'll always be impatient. If an employee is sloppy, he'll always be sloppy. A poor manager complains about this fact. A good manager uses it to her advantage.

It's like the old joke about heaven and hell. Heaven is where the French are the cooks, the Italians are the lovers, the British are the cops, and the Germans are the engineers. Hell is where the British are the cooks, the Germans are the lovers, the Italians are the cops, and the French are the engineers. The point is, know what people are good at, and don't expect your German engineer to be a love god. That's just not who he is. (Pop quiz: Name one modern German sex symbol)

I had to fire people who would have been perfectly capable employees, were the circumstances different. But a methodical bureaucrat should't work for a startup, and an impatient cowboy shouldn't work for General Motors.

Every employee (even you, you budding capitalists) is imperfect. Just make sure that his role emphasizes his strengths and hides his weaknesses.

By the way, this principle also helps prevent one of the most common management mistakes: spending time improving poor performers and neglecting your stars. Face reality: Your dead wood should be fed to the chipper so that you can spend your time working with the top talents in your organization.

And for your employees out there: if you choose your role carefully, you can avoid being Fargoed like Buscemi.

Monday, February 26, 2001

Lies, damned lies, and Internet statistics. Boy did Mark Twain get that one right.

If there's one thing that you should learn from the dot-com meltdown, it's that most of what you see in print is a total lie. And I'm not just talking about fake press releases or even faker news stories, I'm talking about that 9th level of dot-com hell, the statistic.

Don't get me wrong, statistics can be very useful. Seldom, however, are they true. Take online advertising for example. Every couple of months, the Internet Advertising Bureau and AdKnowledge release glowing reports on the rapid growth of the online advertising market, and the steady advertising rates. Guess what? They're lying.

Take AdKnowledge, for example. They can go ahead and claim that rates are stabilizing, but as long as companies like 24/7 and Engage are teetering on the edge of bankruptcy, their claims have all the value of eToys stock options. But perhaps that's to be expected--after all, Engage *owns* AdKnowledge.

What's far more frightening is that the media accepts and publishes numbers from these house organs. And it's not just the online advertising companies (though they were probably the worst offenders). It's every industry.

As a raging capitalist, I still believe that caveat emptor applies: you should always treat statistics with an appropriate level of skepticism. The problem is that too many people don't. Why? Because it would be inconvenient. It would be inconvenient to have to find the answers to hard questions, to abandon existing business models, to close down a company that doesn't have a Snowball's chance in hell. Even the VCs, who are typically more cynical than a NYPD cop, had no problem tossing tens of millions of dollars at business plans that were based on the very statistics that they knew were a crock.

Guess what guys, no one's buying it anymore, no more than they're buying Dr. Koop stock. Mark Twain* would be proud.

*Of course, Mark Twain died in poverty, having gullibly squandered his money on foolish investments. No word on whether any of those investments promised to change the world.

Friday, February 23, 2001

Even a raging capitalist has to take some time off. Today, I left work early to go to the San Francisco Food Festival, an extravagance made possible by the fact that my wife and I will be working a volunteer table. For the cost of an hour or two of my life, I'll be able to sample the cuisine of the finest chefs in San Francisco.

Whenever I do something like this (e.g. trade off time for money), I'm reminded of how many times I've heard an employee say, "We should spend $X, because it will more than make up for the cost in time saved." I find this a particularly egregious fallacy. Yes, there are times when you have to spend more in order to get a product out more quickly, but far too often this priniciple is invoked not to save time, but to redistribute it. To reduce tedious-but-essential work and increase interesting-but-useless work. To reduce the amount of time that people work, but without reducing time-to-market.

Let's get this straight: in a world in which everyone except consultants are on salary (more on them in a later entry), time is not money unless it reduces time-to-market. Saving time doesn't put money in anyone's pocket unless changes a timetable.

I also hear this fallacy expressed the other way, as in: "I'm so highly paid, it doesn't make sense for me to do X (boring but important), when I could be doing Y (exciting and prestigious)." That's a load of horsecrap. Unless I missed something, there's no magical black box that converts your time into cash!

Remember: the only time that saving time counts is when it actually increases profits. Any other attempts to save time are simply increasing leisure time--a worthy goal, but not on my payroll!

Thursday, February 22, 2001

For the past couple of weeks, I've been listening to Steinbeck's "The Grapes of Wrath" on my daily commute (no, not these guys). As a person, the massive dislocation suffered by the dust bowl farmers seems horrifying and sad: an entire way of life that had persisted for generations, destroyed in less than 5 years. As a capitalist, however, I wonder why it took so long.

For those who haven't read (or listened) to the book, the combination of the Great Depression, a ruinous drought, and poor soil management turned the midwest breadbasket into the "dust bowl," and forced the wholesale migration of the tenant farmers (who, like sharecroppers, did not own their land) to California. In their place rose the agribusiness industry, highly consolidated, heavily mechanized, and orders of magnitude more efficient.

And while Steinbeck writes of how this new era broke the old tenant farmers' quasi-mystical "connection to the land," the simple fact is that such a transition was inevitable. Nature abhors a vacuum, and economics abhors an efficiency. The tenant farmers were doomed the instant modern mechanized agriculture developed. The dust bowl migration merely finished off the dying beast. And, despite the individual tragedies suffered by the Joad family, the result left the country and the world better off.

I can't help but be struck by the potential parallels between the dust bowl and the dot-com drought that is now upon us. Yes, it's terribly sad that thousands of people are losing their jobs, but business doesn't have an obligation to provide jobs. It has an obligation to remove economic efficiencies and create value. Today's latter-day Joads would do well to focus less on bellyaching and more on making themselves valuable.

Wednesday, February 21, 2001

The New York Times ran an article today about dot-com layoffs. Like most stories of its ilk, it decried the heartless and clueless actions of inexperienced dot-com managers.

What it neglects to mention, like most stories of its ilk, is that the laid-off employees should have been fired months earlier.

It's no secret that every organization has its deadwood. What's remarkable is how reluctant people are to fire. I should know. Firing people was the hardest thing that I had ever done...and now that I've done it, I wish I had done so months earlier.

If an employee isn't a true star, he or she is probably a drag on productivity. That holds doubly true for dot-coms, which provided lucrative employment to an otherwise useless generation of liberal arts majors.

Let me put it this way: my company has eight people. It used to have 37, and we're getting twice as much done now as we did back when we were a big company.

Deep in your heart, you know it's true. Every time that you check out ESPN.com, or a porn site, or work on your personal email. Let's face it, even when you're reading this weblog.

So the next time you read a story about layoffs, don't think, "Too bad," think, "It's about time."

Tuesday, February 20, 2001

It wasn't supposed to be like this.

Let me make this very clear: I did it for the money. That's why I started a company. Though the search for funding forced me to wax eloquent about my entrepreneurial vision to revolutionize human existence, all I wanted to do was to find a way to throw together a company and sell it to a greater fool, preferably for cash.

It's been almost two years now, and alas, any dreams of getting rich quick are gone. All that's left are the memories of the millions my company spent (all of which I wish I had back), and the kernel of a business that just might work. And that's enough.

After all, isn't that what entrepreneurship should be about? At least, that's what I said in my B-school interview to get in.