When it comes to building companies, Waste is good!

arts-hs-insider

The common maxims of startups are that “cash is king” and you must “stretch the dollar.”  And that conventional wisdom is just that, conventional. But there’s another side to spending, as the editorial director of Conde Nast, Alexander Liberman, the mentor of the owner S.I. NewHouse, oversaw ballooning editorial budgets and the lavish image of Conde Naste.

You may recall Gordon Gecko in the film Wall Street proclaiming in stentorian tones,”Greed is good!” Well he had nothing on Alexander Liberman, who summed up the company’s ethos when he said: “I believe in waste. Waste is very important to creativity.” And he should know something about creativity, as Liberman was a success in painting, sculpture, and photography before joining Conde Naste.

And as many music and film fans know, a single song or single scene may be redone dozens and dozens of times until the creative person in charge  – the record producer or the movie director – is satisfied. No one cared how many reels of tape were wasted by the Beatles in recording the Sergeant Pepper’s Lonely Hearts Club Band – it was a massive hit, just as no one was counting up the thousands of feet of film left on the cutting room floor by George Lucas, director of Star Wars.

I was taught by VCs that spending should be an investment in the company and should be carefully monitored by management for its ROI. But I was also told by an early investor and mentor after raising many millions of dollars from is firm that, “You’re going to waste a million dollars launching this company. You just don’t know which million.” That advice gave us the freedom to experiment, to fail, and then fail harder the next time, until we finally did get it right and the company became a hit.

As Apple Designer Director Jony Ive points out, problem solving is necessary in creating a great product, but it is creativity that’s the spark that ignites the development process and fuels the fire.

So does that mean founders should add a new line item to their budgets labelled, “Creativity” or “Waste”? Probably not, but I wouldn’t rule it out. What founders do need to do is to make creativity and problem solving the first duties of their staff, not toeing the line in a line item budget. I learned this lesson the hard way. I started Throughline, Inc. as a way to help founders save time and money on the necessary infrastructure of their companies: office space, furniture, servers, telephone systems, etc. I mistakenly thought VCs would love me and promote Throughline to their portfolio companies.  And one VC did buy the story and invested half a million dollars to start the company. And we did acquire a great strategic investor, Silicon Valley Bank – the go-to bank for founders.  But Throughline did not succeed. What I learned post-mortem, and should have learned pre-mortem through customer discovery, was that VCs could care less about operating expenses. What do they care about? Growth! Growth in eyeballs, users, customers, market share, brand, and a talented staff – the top line, not the bottom line.

Management is doing things right, leadership is doing the right things. Leave cash management to your bookkeeper or contractor CFO. As a founder, your first duty is not cash management it’s customer acquisition. Look no further than Uber, which is losing billions of dollars, but has grown faster in both customer acquisition and revenues than almost any other startup in history. As a result, even as a massive money-loser to the tune of one billion dollars a quarter!, Uber is valued at as much as $120 billion.

The true bottomline is that building companies and building products is an art, it’s a creative endeavor. Companies have announced this in their names: Software Arts, Electronic Arts. If you have a great idea, start building!

 

I’m a reformed workaholic and proud of it!

 

workaholic

ILLUSTRATION: JOHN. S. DYKES

After I graduated from college I started a business providing sound reinforcement services to local bands. Building my own Altec Lansing Voice of the Theater loudspeaker cabinet introduced me what was to become a decades-long addiction, not to any drug, but to work. It wasn’t until years later that I came across the concept of flow, but I knew what it was like to be in the zone building stuff. Hours flew by like minutes and the body signals of both hunger and the need to for rest were shut down. That single project introduced me to the addictive nature of work and helped turn me into both a perfectionist and a workaholic. I wrote previously of The Dangers of Perfectionism, now it’s time to tackle the dangers of addiction to working.

As usual it was an article the spurred to write a blog post, this time The Wall Street Journal article by Jason Gray. I always look forward to Jason’s articles on sports in the Journal but the sports columnist tackled a serious business issue in his article Working Like Crazy May Actually Be, Well, Crazy, sub-titled Are you griping about working too much, or bragging about it? If you are too busy working to read the full articlewhich I  highly recommend – here’s my synopsis coupled with my some of my experiences.

Jason provides a great, and typically humorous, self-test for workaholism. Does any of this seem familiar?

I can’t believe how much of a time suck this project has been.

I feel like I’m living at the office.

I’ve forgotten my dog’s name.

I just returned 20 emails on a Sunday.

Peanut. I think the dog’s name is Peanut.

Jason introduces the concept of the workbrag – the element of pride embedded in our complaints about the long hours we work. The Apple team that built the Macintosh proudly wore T-shirts reading “Working 90 hours a week and loving it!” Workaholism seems part and parcel of working in technology and media. The advent of the Internet and mobile phones has enabled the always on 24 x 7 connection to work and the workplace. The two metrics that founders often tout – much to my dismay, as neither correlate positively with a venture’s success – are how many employees they have and how many hours a week they work.

But I fell into the trap of working crazy hours myself. Predating the internet, I remember having at-home access to Software Art‘s Prime minicomputer, enabling me to send and receive email, draft and review documents, and effectively work at home. For someone who ate, lived, and slept his job this was paradise by the VT100 terminal light. And I still remember that when I told my co-founder of my first startup that bought an early flip phone, the Motorola StarTAC, he responded with glee that he could now get in touch with me wherever I was, any time of the day!

At don’t recall exactly when it was that I discovered the downside of working crazy hours – that errors start creeping in when you are pushing past natural limits. Then when trying to correct those errors you end up creating new errors! It finally dawned on me that working past my limits was counter productive. I could actually deliver higher quality work by putting in less hours. That lead me to start monitoring my teams and not so subtly reminding them of our vacation policy, which we made “use it or lose” it to prod our staff to take needed time off. And we added personal days to the company’s benefits package so staff didn’t use up their vacation days or use their sick days when some type of personal obligation – like closing on buying a house – demanded their in-person attention. However, being a workaholic I hired people in my own image, so we had teams full of workaholics! And I was seeing their error rate rising when they exceeded a normal day’s work of eight to ten hours.

Jason’s article is based on a talk he hosted by the authors of a new book It Doesn’t Have to Be Crazy at Work by Jason Fried and David Heinemeier at a Wall Street Journal event in New York City.

The authors are co-founders of the workplace software company Basecamp, Fried and Hansson are successful entrepreneurs who pay their employees to take vacation—not vacation time but the actual vacation. Fried and Hansson’s company used to have one of those “limitless vacation” policies, until they realized that it made employees nervous about taking vacation. Now they insist on three weeks.

The concept of work-life balance hadn’t emerged until years after I did my last startup. Whether or not people actually do attempt to balance their work life with their personal life or just give the phrase lip service I don’t know.

But as a reformed workaholic I’ve learned how to turn off work and spend more time with my friends and family, though I’ve yet to learn how to actually stop thinking  about work when I’m not working!

 

Netflix unusual culture hits front page of The Wall Street Journal!

netflix

Yesterday I wrote a blog post about the culture of Netflix, which is described in lengthy detail on their jobs page. And I wrote that post before I read The Wall Street Journal that morning. A big mistake, because Netflix made the front page of the Journal yesterday!

Typically tech companies crow about getting coverage in the Journal as I did a few times, including one article about SmartWorlds that even included an original cartoon. Both my partner and I neglected to buy the original art, which I regret to this day.. But in the case of Netflix as you can tell from the title and subtitles of the Journal article by Shalini Ramachandran and Joe Flint that the coverage us far from positive: At Netflix, Radical Transparency and Blunt Firings Unsettle the Ranks, sub-titled Buzzwords and anxiety fill the hallways as Hollywood giant tries to maintain a winning culture amid breakneck growth; ‘sunshining’ the ‘N-word’ scandal, This is a very, very long article which I don’t recommend you reading unless you are stuck in airport with no Wi-Fi and nothing else to read – which contravenes one of my business practice of always having something worthwhile to read. Here are the highlights:

Incredible sensitivity to language

Mr. Hastings had recently fired his chief communications officer for saying the “N-word” in full form. The executive, who is white, was attempting to make an emphatic point during a meeting about offensive words in comedy programming and said the slur wasn’t directed at anyone.

Netflix culture, at its worst, can also be ruthless, demoralizing and transparent to the point of dysfunctional.

The keeper test

… asking themselves whether they would fight to keep a given employee—a mantra for firing people who don’t fit the culture and ensuring only the strongest survive. Some managers say they feel pressure to fire people or risk looking soft.

Culture is similar to Bridgewater Associates

Netflix’s culture shares traits with other workplaces that encourage openness, such as hedge fund Bridgewater Associates. Their CEO, Ray Dallo, has even written an entire book on Bridgewater’s culture and management style, Principles: Life and Work.

The culture can come off as being cutthroat

Netflix posted a YouTube video recently to address the company’s culture. “I think we’re transparent to a fault in our culture and that can come across as cutthroat,” said Walta Nemariam, an employee in talent acquisition at Netflix, in the video.

Fear as a driver of employee behavior

“I think some people felt it was a culture of fear,” said Barbie Brewer, a former Netflix vice president of talent who left last year.  “Good, because fear drives you,” Ms. Barragan said, according to people familiar with the meeting. The firings can be insensitive, several former employees said.

Once people are fired, Netflix believes in explaining the reasons. The emails about firings can reach hundreds of employees across multiple divisions and can be painfully specific, calling out an employee’s flaws, while inviting more questions and gossip, many employees say.

360 reviews

Anyone can review any other employee, from the administrative assistants all the way up to Mr. Hastings himself, and many senior executives choose to share the feedback they receive with everyone on their teams.

Brandon Welch, a Netflix talent executive who left in 2016, said that the pressure to give and receive feedback was the “hardest part about the culture.”

The Wall Street Journal spoke with more than 70 current and former employees for this article, which is peppered by stories exemplifying Netflix culture, both pro and con. But the article is not 100% stories, The Journal also provides some excellent benchmarking statistics on employee turnover and happiness. Take note of the caption to this graph:

happy but fearful

There are over a half dozen book about Netflix for sale on Amazon, as its unique culture, coupled with worldwide success, has attracted both authors and publishers. So starting with this Journal there is plenty read about if you find Netflix so fascinating you have to drop reading something that may be more germane to your venture. Keep in mind, your time is a fixed resource and thus what you read or watch or listen to is a zero-sum game. I suggest you allocate some percentage to reading about business and technology while leaving some time for reading as entertainment. And, by the way, Netflix’s vision is bringing entertainment to people, thought I doubt that they expected their own company to be found so entertaining.

 

Netflix Culture and Values

netflix

I’m a strong believer that corporate culture is the dominant parameter in the mix of what makes up a great company.  This blog devotes an entire category to posts about corporate culture. But I’ve never seen anything like the Netflix culture and values document, which is posted on their jobs site. The post is very long and you may not feel you have the time to read it all or maybe your culture is “all set.” While I’m going to excerpt it and annotate based on my own experience,  it I do encourage all founders, especially those at the startup stage, to not only read this document but to use it as a catalyst to document your company’s culture and values.

While Netflix doesn’t use the term mission, the first two sentences of the culture document read like a mission to me:

Entertainment, like friendship, is a fundamental human need; it changes how we feel and gives us common ground. Netflix is better entertainment at lower cost and greater scale than the world has ever seen. We want to entertain everyone, and make the world smile.

I find this very clear and concise, but one reason I subscribe to Netflix is for the wealth of documentaries they provide. Yet their mission is totally focused on entertainment; informing people is not part of it.

Mission and culture go hand-in-hand. Your mission is the purpose of your company and is the lodestar for employees and stakeholders.

Netflix sees itself as highly differentiated from other companies as they:

  1. encourage independent decision-making by employees
  2. share information openly, broadly, and deliberately
  3. are extraordinarily candid with each other
  4. keep only our highly effective people
  5. avoid rules

Before the document spells out the company’s values there’s a real tonesetter paragraph:

Many companies have value statements, but often these written values are vague and ignored. The real values of a firm are shown by who gets rewarded or let go. Below are our real values, the specific behaviors and skills we care about most. The more these values sound like you, and describe people you want to work with, the more likely you will thrive at Netflix.

Thus values are actionable, unlike most companies: people get hired and fired dependent on their congruency with the company’s values. That’s the most powerful method I’ve seen for enforcing values throughout a company. However, the action lacks granularity. Reducing a company’s values to the binary “You keep your job or your fired” doesn’t help much with respect to day to day activities.

Here’s the list of the Netflix values. There’s a lot of them and a lot of text to read. I’m going to simply list them with annotations based on my experience, which ranges from startups to a company doing $7 billion/year in revenue. I do highly recommend you find the time to read this entire document and see how your company’s values stack up. Do you even have a written document delineating your values?

Judgment

As I’ve written elsewhere, startups (and mature companies to a lesser extent) are decision machines. Making great decisions will cause your company to stand or fall. Unlike purely data-driven companies like Google, Netflix see data as only one component in the making of judgments.

Communication

One of my sayings that I convey to my founder mentees is that 90% of problems can be traced backed to poor communications. Of course, I don’t have any data to back this up and I exaggerate to make a point. But it’s obvious that Netflix sees both oral and written communications as mission-critical, as this value is number two in the list.

Curiosity

Curiosity is what drives people to learn. How a company and its staff learn is a sustainable competitive advantage. As a hiring manager I always looked for curious people. In fact I would judge job candidates on the number and quality of their questions to me. And I judge the success of presentations by the number and quality of the audience’s questions.

Courage

This one is interesting, as the article I read yesterday on Flipboard, but unfortunately didn’t save, about Netflix’s culture said that many people live in fear there, fear of losing their jobs, fear of appearing weak if they don’t fire anyone from their team. This may well be an unintended consequence of Netflix’s culture or perhaps Reed Hastings believes that fear is a good and effective motivator. Certainly there are many successful sports coaches who use fear of losing your job to motivate their teams.

Passion

I always looked for self-motivated people when I hired. And the trait I looked for was enthusiasm, enthusiasm for our company, enthusiasm for our products, enthusiasm for their work. Without passion or enthusiasm no one will be self-motivated.

Selflessness

This is the secret formula for winning sports teams, exemplified by the team I’ve rooted for since their inception: The New England Patriots pro football team. Players only care about one thing: winning. Unlike most other athletes they could care less about their individual statistics, wins vs. losses is the only statistic that matters. As Coach Bill Belichick says, “Statistics are for losers.”

Innovation

While I find this word to be one of the most over-used in the English language, Netflix does a great job of spelling out what innovation means to them and how they judge it in their employees.

Inclusion

I’ve always looked for great collaborators, perhaps because I lack any individual skills or expertise and enjoy working with others.  But again Netflix spells out what inclusion means to them in six concise bullet points.

Integrity

While this value is often assumed, it’s clear that Netflix makes few assumptions and spells out what they mean by integrity.

Impact

Last but surely not least (and worthiness imputed by position is one severe problem with lists such as this one).  The key point is focusing on results over process. That’s how to keep bureaucracy – the brewer of processes – at bay in every company.

The Netflix culture document goes on for many pages, touching on what makes a “Dream Team.” I would worry that every candidate and every hire actually reads and retains all this information. The values are single words, amplified by five or six short bullet points. But the Dream Team section is highly wordy, pure text unrelieved by any images or diagrams. And in my experience, people just don’t read. But I do encourage you to read this document. It is truly extraordinary.

I’ll end this annotation of the values and culture of Netflix with their excerpt from The Little Prince by Antoine Saint-Exupery, a book I read in French class but surely did not understand at the time:

If you want to build a ship,

don’t drum up the people

to gather wood, divide the

work, and give orders.

Instead, teach them to yearn

for the vast and endless sea.

Values => Intentions => Goals

values

Sometimes I come across an article that has a kernel of real value to founders even though the article itself may be lightweight. Such is the case with the Forbes article The Most Successful People Don’t Set Goals — They Do This Instead by Jennifer Cohen. The article follows a disturbing trend these days: making assertions without any evidence or data to back them up. I read this article twice and it totally lacks anything that supports the assertion in its title.

However, the key point of the article is of value to founders:  “setting objectives without intentions is a waste of time.” While you may or may not agree with the statement that follows, “Setting a goal is black and white—you either achieve it, or you don’t.” –  after all with a sales objective of $XXX,XXX/yr. you could exceed the objective by 10% or even fall short by 5%, either way it’s not black or white. Other goals, like selling your company before the end of the fiscal year, are black or white, binary goals. You either meet the goal or you don’t.

But behind every goal there should be an intention. Intention implies forethought, premeditation, planning, design, and deliberateness. These are all processes. If you are the one setting a goal you need to make clear to those who have to carry it out what is the intention. If you are asked to meet a goal you should ask what the intention of the goal is. Understanding how the goal fits into the larger plan for your venture will help you to meet that goal.

Equally important is that corporate goals should be rooted in your venture’s values. I’ve written about values in the blog post  Values: the bedrock of startups.

As a founder, one of your first orders of business should be defining, documenting, and communicating not just the vision of your venture but the values the company stands for. Alignment between intentions and values is critical to the success of your venture.

Another worthwhile concept in the article is the idea of responding rather than reacting.  The author quotes business writer Steven R. Covey, “Between stimulus and response there is space. In that space is our power to choose our response. In our response lies our growth and our freedom.” Far too often in startups I’ve seen people react rather than respond. This can lead to either conflict from an emotional reaction or the mishandling of an important issue. Being aware of your intentions can help you respond thoughtfully, rather than simply reacting, thoughtlessly.

Set your goals on a layer of intentions built on the foundation of your venture’s values. Like the author, I don’t have data to support this advice; but it’s advice from decades of experience as well as from my mentors.

Corporate culture rules

 

dg

I’m a big fan of Jean-Louis Gassée, former Apple executive, or more precisely a fan of his Monday Note Newsletter. (I was not a fan of his when he was at Apple running the Macintosh division, but that’s another story.)

JLG has been delivering his high tech bio on the installment plan via Monday Note. He worked for six years at Hewlett Packard, then moved on to become CEO of the French affiliate of Data General.

But by far the most interesting read for me as a mentor to founders was the story of JLG’s tenure as CEO of the French affiliate of Exxon Office Systems, entitled 50 Years InTech. Part 4: The Exxon Delusion.

Exxon hired the Boston Consulting Group, after two oil supply crises in the Middle East. BCG convinced them that Information Is the Oil of the 21st Century. That lead the execs of Exxon to form the Exxon Information Systems to lead the company into its post-oil future. And JLG was hired as the tech savvy CEO of Exxon Office Systems.

Exxon invested $2 billion in this new division, back when $2 billion was real money, not pocket change for the likes of Jeff Bezos et al. And in a typical BiGCo move the first thing they did was buy a disparate bunch of tech companies. Exxon ended up spending another $2 billion on Exxon Information Systems before realizing the error of its ways and going back to “oil is the oil of the 21st century.” You can get the painful details from JLG’s newsletter.

The important take away for JLG was the power of culture, and the negative power of disparate acquisitions.

It was an exciting time, but I soon saw Exxon for what it was: An out-of-its-depths organization that had no feel for the world of bits and bytes, hardware and software engineers, end-user sales and marketing. For Exxon leadership, these concepts were just that: Ideas without a reality. It was impossible for them to make the right choices.

To JLG Exxon, courtesy of Boston Consulting Group, actually had the right idea about information being the oil of the 21 century, but totally lacked the culture to execute. And in companies gigantic and tiny it’s all about execution.

JLG’s comments on corporate culture should be your take away from  this blog piece:

Culture isn’t a set of rational dicta. Culture works below our consciousness, processing, filtering, and labeling raw data before passing the result to our “waking” selves. That’s how we end up with Obvious Truths, that’s how we get to the powerful and destructive It’s How We Do Things Here.

Whether you are building a startup or joining one, the corporate culture will decide your fate. Everyone talks about product/market fit; no one seems to talk about idea/culture fit. But it’s just as important, if less obvious. A venture can recover far more easily from a product/market misfit than from an idea/culture misfit.

 

How to dissent gracefully & live to dissent another day

 

dissentMission statements are all the rage in startups and have been for many years. Every venture wants to change the world, or as Steve Jobs put it, “Put a dent in the universe.”

But according to the article in The Wall Street Journal there’s a downside to having an extremely strong and magnetic company mission that attracts and motivates employees. When You Fear Your Company Has Forgotten Its Principles, subtitled It could feel like you’re risking your job when you speak up, but there are ways to express dissent so that someone hears your concerns.

According to author Sue Shellenberger, ” … intense pursuit of a mission can foster groupthink and resistance to change.” She believes that companies need dissenters to combat these negative outcomes of a very strong mission. Whether or not you agree with this supposition, Sue Shellenberger has some good advice on how to dissent gracefully – and keep your job.

However, she profiles several people who gave up fighting the power of the corporate mission and quit to form their own companies, which tends to dilute her argument. If you are interested in these stories by all means read the full article, but I’m just going to extract the valuable advice how to dissent without losing your way:

IF YOU THINK YOUR COMPANY HAS LOST ITS WAY

  • Weigh the long-term consequences of keeping quiet against the risks of speaking up.
  • Volunteer for internal roles that confer the right to disagree, such as a committee on culture.
  • Seek out potential allies who will challenge your thinking.
  • Suggest solutions rather than just pointing out problems.
  • Frame suggestions as good for the entire company.
  • Acknowledge the limitations of your idea rather than arguing too hard.
  • Avoid judging or attacking those who disagree.
  • Earn others’ respect for your suggestions by performing well in your day-to-day work.

While you may need to think about the potential damage to your reputation and relationships there are even more tips on dissenting without being seen as an antagonist to the company who instead of being listened to, needs to be shown the door. This advice is worthwhile, be your venture a startup or a mature company.

  • Be careful not to argue too passionately for the changes you want
  • Show respect for others’ viewpoints
  • Acknowledge the flaws in your argument to show you’ve thought it through carefully.
  • Be open about your concerns. People who complain in secret are more likely to make enemies and be seen as disloyal.
  • Frame your proposals as benefiting the entire company, its employees and customers rather than just yourself

My belief is that you want a healthy level of dissent in your venture. “Yes people” will follow the leader right down the garden path to bankruptcy. Reasonable people will tend to disagree occasionally and that’s ok. An acquaintance of mine had a rubric with his wife about issues that they disagreed upon: whomever felt that the issue was of significantly more importance to them would get the deciding vote. Over time this tends to even itself out. Whether this is workable in a startup is another question. But a strong culture is built on strong values and guiding principles, not slogans disguised as missions. So when push comes to shove my advice is to revert back to those values and test people’s positions against the company’s guiding principles. Whichever faction’s position has the best values/position fit should prevail. You do have a written list of your company’s values or guiding principles, don’t you? If not you may want to take a look at my post Your company’s guiding principles.