Month: July 2021

Friday, 7.57pm

Sheffield, U.K.

Doing real world projects is, I think, the best way to learn and also to engage the world and find out what the world is all about. – Ray Kurzweil

If you were going to start a business tomorrow what would you do? For many people, the only model that comes to mind is possibly a technology startup – those are the ones that we see all the time. The kinds of businesses that get started in garages and go on to become huge businesses.

The trouble with basing your ideas on what you see around you is that you’re looking at a biased data set. The companies you see are the one that survived but what you don’t see is the failure rate, the ones that fell by the wayside.

It’s not hard to find opinions on why businesses fail. They don’t know what they’re doing, don’t know what business they’re in, can’t manage their money, don’t have the experience they need. And, perhaps most importantly, no one wants what they provide.

A business has to find a niche to survive. Or, more precisely, it has to adapt itself to fit into a niche to survive. The model that works is an evolutionary one – try something – make a change, cause a mutation – and see if that’s better. If it is, replicate and try again. If it’s not, let that version die away.

I’ve been watching Juran on Quality Improvement – a video series that is a masterclass by one of the pioneers of the quality movement. Quality is something that’s hard to define and easy to get. You know it when you see it. You can tell a good book from a bad one just by reading a few sentences. You can tell the difference between pieces of furniture.

But can you always trust yourself to know the difference? Probably not. Juran suggests that when there is little objective difference between products the consumer is influenced by the company with the better marketing. It’s hard to tell sometimes whether you have the better thing or whether you’ve been convinced that you have the better thing.

But is it possible that the best businesses are the ones that you don’t see, that you don’t hear about. If you started a software business tomorrow you’d be in good company – everyone else you know is probably also starting a software business. But it will probably take you a while to get your first client. If you started a plumbing business, on the other hand, you’d probably have a full diary in a week.

In Felix Dennis’ book How To Get Rich he talks about how people get wealthy doing quite ordinary things. One of the richest people he knows makes his money by digging holes. But that’s one of the things about money – you get it for doing things you don’t want to do. You get it for working. If it’s something you’d do without being paid then you shouldn’t call it work.

But how do you figure out whether you should dig holes or write software, join pipes or push paper? There’s probably something around wanting to work at a desk rather than outside whatever the weather. Some of us are softer than others. Then again, it doesn’t need to be one or the other, it can help if you can do more than one thing.

That’s where you really need to try and get theory and practice working for you – to learn from books and learn by practicing what you’ve learned from a book and trying to see if it really works. That’s the thing about the How to genre. Everyone is desperate to know how to do something and when there is a need it’s filled by something or the other. If you want a book, then a book you shall have. It’s up to you to work out whether what you’re getting is a quality product or not.

There’s that quality term again which brings us to what is perhaps an important point. If I were selecting someone to do something then these days I would want to know that they both understood the theory of what they were doing and they had also done it in real life and had learned from that as well. That’s actually a big ask – because in order to judge whether they’ve done those things you probably need to know enough to those things yourself. After all, how can you judge something you don’t know anything about?

This combination – theory intermingled with practice – the two informing each other seems the only real way to do something that can coexist in the real world and the mental world. Hands and brains together are clearly better than either on their own. For most things anyway. At the extremes – doing pure maths and running away from tigers, you don’t really want a debate about the balance of it all.

What’s my point here.

I think it’s this.

There are many ideas out there. Select ones that you think are promising. Try them out in real life. Do more of what works.

Cheers,

Karthik Suresh

Wednesday, 7.53pm

Sheffield, U.K.

The employer generally gets the employees he deserves. – J. Paul Getty

In my last post I wondered what a business model should look like these days. I suggested we should replace capital and labour with the concepts of leadership and knowledge.

Now, let’s look at compensation. What do you need to provide to build a company – a group of people who work well together and create value for customers?

It’s easy to start by thinking that it’s all about money – that you have to pay more than anyone else. But a better way to think of the compensation package you provide is as a screen, a filter that gets you the people you want and filters out the people who aren’t a good fit for you.

For example, a lot of job adverts don’t provide salary information. Why is that? Is it because they think that some can lure away their staff by charging more? Or because it’s a negotiable thing that you might be able to drive down?

Now, if you’re the kind of person who pays different people different amounts for doing the same thing, then one might wonder whether you’re the kind of person that others would like working for.

But let’s leave that to one side – perhaps we should start by asking what employees are looking for in the first place.

In a paper titled Employee compensation and new venture performance: does benefit type matter? Christopher J. Boudreaux looks at how benefits to employees relate to firm performance. The conclusions of the paper are interesting because you can see how thinking about the question in terms of basic human motivation can help you create effective compensation packages.

If someone wants to work in a company as an employee the chances are that they are motivated by a need for stability, which is essentially the same as safety. This is the second level of Maslow’s hierarchy of needs, usually expressed as a pyramid, which ranges from physiological needs through to self-actualisation needs. They want, in Robert Kiyosaki’s words, a safe, secure job with benefits.

But benefits come in many shapes and sizes. Some benefits are associated with safety – like retirement plans and healthcare. Other benefits have to do with flexibility, the ability to work differently or receive performance related pay, like commission on sales. Some of these benefits are less to do with safety and more to do with love and belonging – one level up on the pyramid.

Boudreax’s research suggests that firms that provide stability based benefits to employees fail less often and have a better chance of making a profit. Firms that provide flexibility have a better chance of making a profit but do not seem to reduce their chances of failure. Stock options turn out to be a bad thing, depressing profits.

Now, this seems to make sense when you look at what motivates people – and for most of us it isn’t money. Money, it turns out, satisfies you only for a short while. When you get some you feel good. But you need more each time to get the same hit. If your compensation package is based entirely around money then you’ll get the kind of people who believe that money makes you feel good rather than people who believe that serving others makes you feel good.

What this suggests as a compensation policy is that you should keep it simple – a competitive salary and with good benefits that promote stability and security. This will attract employees to you that value stability. You might lose the ones that need high levels of variable compensation – like commission based salespeople, but you’ll also reduce your chances of failing which can happen quickly if commission hungry people decide that their need for money is greater than your need to maintain a reputation.

What I think this paper misses is that it is based on the idea that you have to pay to get the best people out there. I think you can also do well if you grow your own team – invest in teaching and training the team you work with, and invest in the way in which you teach and train. A well-trained team is a formidable force in the market.

A strategy to develop your company should therefore be founded around providing people with a good salary, benefits that promote stability and a good training experience. It’s so easy to say that and so hard to do in practice. Maybe that’s why so many people hope that they can just create an incentive package based around a share of winnings and let people loose.

Building a team is, hard and demanding work. But it’s worth doing if you want to build a company that has a good chance of going the distance.

Cheers,

Karthik Suresh

Tuesday, 7.59pm

Sheffield, U.K.

The reason why it is so difficult for existing firms to capitalize on disruptive innovations is that their processes and their business model that make them good at the existing business actually make them bad at competing for the disruption. – Clayton M. Christensen

What kind of company would you really not want to work for?

Maybe it’s a company with a dictatorial owner who puts capital into setting up a business and then hires you for your labour. You get paid as little as possible while creating value for the owner, that makes its way back to them as profits. The company takes your time and your health and limits your opportunities until you are no longer necessary, at which point you are replaced.

That situation, one assumes, was how things used to be not that long ago. Working environments have improved, driven by health and safety legislation – making owners responsible for keeping workers safe has made a big difference in countries where laws have been brought in.

In today’s economy the value of capital and labour have fallen. Money is cheap – people everywhere are virtually begging you to borrow it off them at cheap rates. There is a shortage of good businesses that actually create value and that’s because so many businesses are not capital intensive in the way they once were. Simply taking money in advance, before you provide a product, has made it possible for companies to finance their operations without external capital. And working with your hands is less and less relevant in a world where you can automate processes – not to save money but because you can do things with better quality and faster.

What the labour force brings now is knowledge – it’s a knowledge force that you need to work for you, or is it with you? A company used to mean the group you did things with – and perhaps that’s how you should think of things again – how do you get a group of people to contribute their knowledge and expertise to help you create value?

If you’re the owner, the founder – what you need to bring now is leadership. While there are plenty of people with knowledge, there are fewer people who can provide the leadership needed to bring a company together and keep them together. Leadership is not management – and it’s not really the old idea of leadership either. It’s more to do with creating the conditions that enable value to be created through the contributions of others.

If we accept these two points, that what you need to bring as a founder is leadership and what you need to leverage is the knowledge of your company, that gives you a new way to think about a new business opportunity.

But is the end result still the same – payments to your employees and profits to you? Or do those models need to change as well?

I might spend a few posts exploring the nature of business models and what’s desirable and feasible these days.

Cheers,

Karthik Suresh

Monday, 9.18pm

Sheffield, U.K.

We’re not in an information age anymore. We’re in the information management age. – Chris Hardwick

In my last post I said we would look at some principles of designing an information system. These ideas build on those set out in Peter Checkland and Sue Holwell’s book Information, systems and information systems.

I come across two, perhaps three main categories of information systems these days. There is a rapidly evolving world that’s based around e-commerce – finding you the product you want when you want it. The algorithmic challenges there are huge, from whittling down millions of items to the ones that match your search query to recommending what else you might like to buy. There’s a lot of money to be made in that part of the market and so there are a lot of companies chasing solutions in that space.

We’re not going to talk about those.

The next category of systems has to do with automated control. These are tools that try and do away with human intervention – where flows of information are processed and make things more efficient. Take pensions or banking for example. Not that long ago you had to go and talk to someone to make changes on your account. Now, when was the last time you entered a physical bank? The principle behind automating these services is that you will end up with something that works faster and is of better quality. It’s not really about cost, but if you get it right costs will fall as well.

We’re not really interested in that category of work either.

We’re interested in information and information only matters to people – to the people that are involved in a situation and need to think. An automated workflow doesn’t think in terms of meaning or sense, which are what we associated with the task of interpreting information. It just processes data and moves onto the next step. Information is necessary for people who need to work together and figure out what to do – it supports collaborative action.

It’s this task – helping people collaborate and make better decisions together that we’re interested in for this post.

Recent definitions of quality talk about something as “being fit for purpose”, a change from the previous definition of “being fit for use” according to Juran’s quality handbook. Only humans can talk about purpose, either individually or as a group – so the thing you have to figure out before you do anything is understand what purpose looks like for the group that’s involved. This is necessarily unique because each group is different and each situation they face is different – there are no universal solutions that will fit all people in all situations.

So, before you start doing any work on your system figure out what the purpose of the system is.

Once you have that you can work out what information is needed to support the group. There is always a variety of information that needs to be brought in. If you start with the information you’ll often end up discovering the things you left out are the most important, so you want an approach that is flexible and that can be extended as you realize you need more stuff.

The next thing that happens is that designers and managers make the mistake of thinking that all you have to do is provide people with data and they’ll take the right action. That’s never the case – you need to help people understand the data, get them to collaborate and work together to make meaning from the information they’ve been provided so that they can decide to take action that supports their purpose. How many systems are out there that truly support collaboration. What does that even mean really?

If you don’t already know then you’ll only learn by doing – by starting to talk about things with your team and looking to see if people understand or if there are gaps that need to be addressed. We won’t get this right the first time or the second which is why the whole process needs to be underpinned by a commitment to continuous learning, to an attitude that says, “We’ll work on this together till we figure out something that works.”

The difficulty teams face out there, in the real world, is that all this talk of information systems is too academic, locked away in research that is hard to read and access. In the real world we ask questions like “What app do you use?” rather than “What do we need to put in place so that we can work better together?” You can do it using tools you already have – if you put them together in the right way.

But things are changing, there are examples of how to do this well and the future is going to be built by small teams that work well together, helped rather than hindered by their technology. In particular, you’ll have people who need to get work done working with technical people who can create tools to make decisions that support purposeful action. And we need more of this because there are important challenges that we, as societies, need to deal with.

Cheers,

Karthik Suresh

Sunday, 8.14pm

Sheffield, U.K.

We are drowning in information, while starving for wisdom. The world henceforth will be run by synthesizers, people able to put together the right information at the right time, think critically about it, and make important choices wisely. – E. O. Wilson

I’ve been thinking about information recently – how we use it, how we value it and how we need it. And what’s clear is that in a world where there is so much information we still need people who can figure out what to do with it.

There is a chapter in the book Information, Systems and Information Systems by Peter Checkland and Sue Holwell on the information system that won the war. They’re talking about the network of radar stations and observers that fed information into headquarters and controlled the movement of fighters during the Battle of Britain – crucial months that were pivotal in the Second World War.

Wartime focuses the mind and makes it very clear what the purpose of your work is – it’s to defeat the enemy. But in peacetime or in the normal course of business it’s much harder to work out what you’re doing with information. Quite often it’s treated, argue Checkland and Holwell, like just another service – you get stationery from there, electricity from there, and information from over there.

But information is critically different. Making the right or wrong decisions on the basis of the right or wrong information can save or sink your business. It’s not a question of artificial intelligence or real-time data that matters – it’s how you collect data, select from it those items that matter, understand what they say and then do the things that matter. This is not a technical task but a human one.

I want to explore these ideas, perhaps as another book project, but in this post let’s stick to why you might want to develop an information system that works.

Well, the first question you should ask yourself is why you would want information at all. What advantage would you gain from having one in place? As someone who has worked in markets I can tell you that understanding price movements is like seeing a person’s electrocardiogram – those wiggles tell the story of the health of an economy. But the past isn’t what matters, not when it comes to the future. So what would it be worth you knowing if you are making decisions for the long-term. No – you want to know what the future has in store for you.

To do this you don’t need fancy machine learning or complex algorithms. You need good enough technology. Stuff that’s been around for a while and is still useful. The newspaper, for example. I went through a phase a few months ago when I got a daily newspaper for the first time – a real, paper one. And it was illuminating, in a way that your phone or computer cannot match. Curated information on the things that matter to you written by professionals. No wonder they’re going out of business in a world that only values the new.

When you do have information what should you do? Take big bets – reach for the stars? Or do as little as possible – sit on your hands? Take your time?

All things that are hard to do for us – now that we’ve been trained to be frenetically active. But most of the time you’re best off doing less, doing nothing, stopping doing – than you are doing more. Do the minimum – don’t ask people to track everything, ask them to monitor what matters and just that. And you might be surprised at how those things improve.

Now, if you look around, you’ll find examples of these ideas in use everywhere. It’s the kind of thing Warren Buffett says about investing – and the sort of ideas you find in lean manufacturing. These ideas work and they’re simple to say – but really quite hard to do. And that’s because you have to put your trust in people to do the right thing – something that we are less and less willing to do.

But if that’s the case is there a space for organisations that can do this well – that can develop information systems that are built for the needs of people rather than self-contained technical marvels? Is it worth thinking through what that might look like?

Let’s look at a couple of principles in the next post.

Cheers,

Karthik Suresh

Saturday, 9.00pm

Sheffield, U.K.

Without reflection, we go blindly on our way, creating more unintended consequences, and failing to achieve anything useful. – Margaret J. Wheatley

It’s no surprise that affluent people use more of everything – your income is a good predictor of the emissions you create and the contribution you make to climate change.

We’re seeing more extreme weather patterns in the news and that’s what the climate models and systems dynamics models tell us to expect. A few years ago I sat through a presentation by Dennis Sherwood that showed me how this logic worked – and I started to see what the problem was, perhaps for the first time.

In a nutshell, as the world warms we get more storms, more flooding and more extreme temperatures. All of which have been in the news recently.

The people who have the least responsibility for what is happening might also be the ones that are worst affected. Then again, disaster isn’t democratic or fair. I found this article on climate migration by Jamie Beck Alexander eye opening, because people are moving now to where they think they might be safe, but Jamie also asks you to think where you might be of use.

For those who can’t move, how will they adapt? Do they need technology and money or do they need something else – perhaps draw on their history and lived experience to find solutions that will work for them?

In this TED talk Bunker Roy talks about the barefoot college, a sustainable development project centered around the capability of women to change their situations, creating and engineering their own solutions.

We have to find ways to make a difference where we are, identify points of leverage on which we can act and make change happen. This isn’t easy – in fact it may be harder in developed countries where there is infrastructure in place that locks in unsustainable practice.

I remember growing up in a place where we had a bucket of water and a jug to use for a shower. When it was done, you were done. Now, water keeps coming out of the shower, as if by magic, heated to an unimaginably wonderful temperature, and you never need to leave the cubicle unless you want to. Saving water becomes a choice rather than the default – and that’s the biggest problem for the affluent. They don’t need to turn off anything – so they have to choose to do so. They have to choose to have less, to use less, to do less – and that’s not easy.

There are ways to deal with these problems – ways to help some people live better lives and ways to help others live with less impact and we have to engineer these solutions and create the principles that will help us exert the leverage that’s needed for us to change. It’s not easy but it has to be done. And we have to work out where we can help.

Cheers,

Karthik Suresh

Friday, 7.58pm

Sheffield, U.K.

We basically built a pricing model that surgically identified what people wanted to pay us for and what they didn’t want to pay us for. One of the things we figured out early on was that we could create value for people by creating a product that allowed them to design something that they couldn’t design without us. – Alexa Hirschfeld

I’ve been thinking about products and valuations and business models and thought I’d write about that. So I started searching for business archetypes – something that told me about businesses and categorised them into types, here’s a triceratops, there’s a pteranodon – that sort of thing.

But then I remembered something from my economics lessons – and I think it has something to do with price elasticity of demand but don’t hold me to that. I was just trying to see if I could remember a rule of thumb that might help me figure out what sort of business you should be in.

Here’s a made up example.

Let’s say you want to start a business and have a product. Ask yourself two questions. What’s the size of your market if you give it away for free? Let’s say that’s 10,000 units. And what’s the price at which no one will buy what you’re selling? Let’s say that’s $150,000.

Now you can draw a straight line between these two points and it shows you a price versus quantity graph. It’s sloping down so you can express that using a standard equation for a line.

Now, the sales you make at each point of the line is price times quantity, so if you work that out (y’) you end up with a parabolic shape, making no money if you charge too much and making no money if you give it away for free. Somewhere in between is a sweet spot where you can make the most money.

And you can work that out by taking the differential of the sales curve and finding the point at which that is zero – the tangent – and then using that to work back to the price. In this example, you’ll make the most money if you price your product at $75,000 and you’ll make 5,000 in sales.

Now, I haven’t used calculus in anger for two decades and I don’t really know why it’s useful to do it this way. So I checked my calculations with a spreadsheet and it comes out to the same number. That’s probably faster really, but I just wanted to have a go at the calculation…

Anyway, the point is that this equation tells you all you really need to know about your business model, if you use it sensibly. At what price will you have no business. And if you charge nothing, what’s the size of the market that will immediately contract with you? You’ve got to think about this carefully because even if your price is zero not everyone will do business with you. You’ll only get the people who really really want to be there. A good, modern way to test this is to see how many people turn up to free webinars. Our of a population of billions, it’s probably less than a hundred for the vast majority of webinars while a few rake in very large numbers.

The question for you is whether your product is something that has a large market or a small one and the price ranges that it will support. That will tell you what your optimal pricing strategy is going to be and the sort of revenue you can expect to make. And that is going to lead directly to a valuation of your business – what’s it’s worth when you exit.

This bit of maths is one of the few times I’ve come across something that seems genuinely useful, up there along with compounding. Just need to try and use it a bit more and see if it actually is.

Cheers,

Karthik Suresh

Thursday, 9.11pm

Sheffield, U.K.

Winning teams have the least amount of distractions. They have a really tight group of people working towards the same common goal. – Larry Dixon

What kind of approach should we take when we’re trying to make things better – at home, at work, in society? Is there some way of figuring out what sort of intervention would work?

I don’t really know, but I’ve been seeing a lot of people recently using 2×2 matrixes – that old consulting favourite – and thought I’d have a go at thinking through this.

Let’s start with putting situations on one axis and labelling them as unique or common. Common problems are ones that many of us face a lot of the time – like booking a hotel room, paying for parking buying something from a shop. Unique problems are ones that are specific to a situation. Your budget is going to be different from someone else’s budget – even if you both do exactly the same thing. McDonald’s, the poster example of standardisation, probably has different cost structures for each unit depending on where it is and what the local environment happens to be.

I wondered what to put on the other axis and I’m not sure I’ve got this right, but I went with resolution. The idea that what you do sorts out the situation – when you’re finished things are better – they’re resolved. And sometimes the resolution is about making things easier – and sometimes it’s about getting involved in sorting out hard things. This distinction is not obvious, is it? It’s not that there are easy solutions – but that you can do something to make it easy. But it is the case that it’s hard to sort out some things.

Let’s see if some examples help.

A common situation is booking a hotel and that’s what a whole part of the economy does and that’s what AirBnb set out to disrupt – they made it easier for you to find places to stay and they did that by building a platform that you could use. They essentially created a marketplace, where suppliers and buyers could discover each other and enter into a transaction – my money for your space for a while.

You can solve your budget problem by using a spreadsheet to create a model or by hiring someone to work for you if you don’t know how to. But it’s not hard – not really – although it’s easy to make it hard. But, in essence, it’s something you can sort out and you don’t need a big toolkit to do it. Pen and pencil and a calculator will do, really.

Moving onto the hard to resolve situations, you’ve got things like reducing your impact on the environment. If you’re well off you’re doing more damage to the planet – the link between affluence and consumption is rather strong. So are you willing to give up your lifestyle to save the planet? Do you object when less well off countries pump carbon into the atmosphere as they try and match your level of affluence? Even in a company, you’ll have different views on what needs doing and what doesn’t. The only way to deal with this is to work together, get people on the same page and work as a team. And this is hard when you don’t know what you need to do to make things better.

Then the last example is about poverty – which is fairly common and can persist across generations. What poor people have in common is the lack of money – but it’s much more than that – they also lack opportunity, knowledge – perhaps even belief and hope. Although hope is hard to extinguish – it’s almost a prerequisite for survival. If you want to change these situations you can’t do it easily, you have to immerse yourself in the context and put in place the many kinds of support that are needed to help people stop generational patterns from carrying on.

I’m wondering if this matrix is useful or not – and it’s seems to lead to four types of actions. Depending on the situation in which you find yourself and how hard it is to resolve you might find yourself pointing to a website, opening up a spreadsheet, pulling together a team or supporting someone.

And perhaps it is useful as a diagnostic tool – as something that helps you see what sort of situation you’re in and so suggests what you should do next.

Cheers,

Karthik

Wednesday, 9.59pm

Sheffield, U.K

The best work is not what is most difficult for you; it is what you do best. – Jean-Paul Sartre

A few years ago now I was part of a weekend intensive business experience and one of the coaches there was an architect. We were talking about looking at different capabilities and where we might be and he took out his notebook and draw an image a little like the one above – some horizontal lines and a slash to show where you are.

As images go, it seems simple, but it’s a really powerful diagnostic. You don’t need a survey or questionnaire or spreadsheet – just some lines to figure out where you are right now.

This method popped into my mind when I read a comment on LinkedIn that talked about something Peter Drucker had apparently said. You can look at the things you do and measure yourself against the competition but what is it that’s going to make someone decide to work with you?

For example, let’s say you run a software development company. You’ve got experience in tools and frameworks and have enough people to do the work that needs to be done. You’ve got case studies of successful projects and can show how you add value. You can do all these things and so can many other companies in the same business. So, what makes the difference?

The argument you might make is that people don’t really do a line by line comparison and score you against others and then choose the company with the highest score. Well, they do actually, but I think that process usually ends up with the wrong choice. The selections that work – the ones where the client is happy and you deliver something – is when you do a particular thing way better than anyone else. When you stand out in some way that makes it very easy for the client to decide to go with you.

People don’t hire organisations that are average on everything – those ones are column fodder for tenders. You can get away with being a little better than average if you are a huge company and there is very little choice other than to go with someone like you. But for the vast majority of companies, the small ones that need to stand out to have a chance to be selected, you have a better chance if you do something that no one else can do as well as you.

This has a sound basis in strategy – if you do something no one else does as well then you have a competitive advantage – a moat. This barrier to entry to others gives you an edge, a chance that wouldn’t exist otherwise. So you really have to ask yourself, take the time to figure out, what this thing is, why it makes you better and how you can make the most of it.

What’s your one thing?

Cheers,

Karthik Suresh

Tuesday, 7.46pm

Sheffield, U.K.

Profit is not the legitimate purpose of business. The legitimate purpose of business is to provide a product or service that people need and do it so well that it’s profitable. – James Rouse

In my last blog post I was wondering how to decide what projects were worth working on – how could I tell whether an idea had a chance of succeeding or was heading for failure?

A study by CB Insights lists the top 20 reasons startups run into trouble. The problems range across business functions, from getting the product wrong, to running out of money. For me, however, three things stand out and these are the ones that I will use as a first rough and ready check as to whether an idea is worth investing time in or not.