If you’ve followed the stuff I’ve written here and elsewhere, you’ll know I’m a sucker for academic exercises, game theory and business strategy. Combine the three and you know I’ll be hooked.
It’ll come then as no surprise that I’ve been fascinated recently to read about Valve’s amazing corporate structure (TL;DR no management at all and an incredibly empowered workforce). If you haven’t been following along:
I desperately want to learn from their experiment, but there are some things I’m really struggling to get my head around. I hope someone from Valve can stop by and help out. I’ll start with just three questions. I think all of these three actually relate to the same underlying confusion of mine - of what fills some of the vacuum that must be left without any management at all:
1 - How do you balance personal desires with what’s best for the company?
I understand how you mainly avoid people slacking off (explained in the economics post). I don’t quite understand how individuals balance personal desires against company performance. It feels like it could easily descend into a tragedy of the commons where everyone was working (very hard) on long-term fun long shots and no-one was maintaining the cash cows.
Do some people suck this up and take one for the team to work on less fun but highly important projects out of a sense of duty? Do they resent others swanning around having fun on crazy projects?
2 - How do you decide when and whom to hire?
First the when - in most companies this would be a core function of management - estimating capacity and demand and choosing what roles needed filling.
I can just about imagine this self-organising with individual teams hiring people when they need them - but given that they can just wheel their desks off somewhere else and join another team, it’s not clear that they would actually be making a good decision for the company (indeed, if you can’t recruit internally, it should indicate that you have an unpopular project, no?).
Whom - as you’ve said, the whole thing relies on having only very self-motivated and disciplined people working for you. With (presumably) no company-wide hiring process and no way of enforcing specific gatekeepers on hiring, how are you better than your average company at what is one of the key determinants of your success?
3 - How do you get unglamorous work done?
Related to the hiring question - it’s not clear to me what it means to (for example) hire a bookkeeper. You can hire a person and start them off doing bookkeeping - but from their first day, they can wheel off their desk and start “adding more value” somewhere else. How do you hire for unglamorous roles (and retain people in those roles)?
Some questions that are probably more sensitive but that I also don’t understand:
I just about get the process for allocating a salary budget across the whole company via a democratic process - but not how that budget is decided? I asked about this on Quora but didn’t get a good answer
How does anyone ever get fired / laid off? (Does anyone ever get fired / laid off?). It can’t possibly be democratic can it? A popularity contest?
I just read about the Brixton pound (Google it) after seeing it tweeted by a local politician and it occurred to me that it looks like it was created by someone with no understanding of economics.
They have reimplemented a currency without all the good bits. With no secondary market and no floating exchange rate, it strikes me as pure pr puff.
If it had those things, there is a chance that local disadvantages could be overcome (particularly if you could borrow in this currency). This is a similar argument to how poorer countries in the eu might be better off with their own currency rather than being forced effectively to tie their exchange rate to the economic powerhouse of Germany.
I think the fact they won’t let you exchange them back for sterling is the most compelling argument that they aren’t really worth a pound sterling (and therefore shouldn’t have a fixed exchange rate).
Without these features I think I’d always prefer pounds sterling over Brixton pounds. If a pound sterling can always buy a Brixton pound but not vice versa, wouldn’t anyone?
Am I wrong? I’m not an expert in economics. Would love to hear where I’m wrong and how this actually does help regeneration.
Bonus points for selling Bing.com (the domain) to Google
Partner with Facebook to lobby aggressively to prevent Google using their (new-found) monopoly in search to grow G+
Just a thought experiment. Written very much to provoke debate rather than to espouse an actual point of view. As Scott Adams says:
Warning: This blog is written for a rational audience that likes to have fun wrestling with unique or controversial points of view. It is written in a style that can easily be confused as advocacy or opinion. It is not intended to change anyone’s beliefs or actions. If you quote from this post or link to it, which you are welcome to do, please take responsibility for whatever happens if you mismatch the audience and the content.
Pinterest has a massive gap between its terms and its marketing
I hate the complexity of copyright law. As someone who runs a business operating in the US and the UK, I particularly hate the international differences.
you represent and warrant that: (i) you either are the sole and exclusive owner of all Member Content that you make available through the Site, Application and Services or you have all rights, licenses, consents and releases that are necessary to grant to Cold Brew Labs the rights in such Member Content, as contemplated under these Terms
These “rights in such Member Content” include (emphasis mine):
to sublicense, to use, copy, adapt, modify, distribute, license, sell, transfer, publicly display, publicly perform, transmit, stream, broadcast, access, view, and otherwise exploit such Member Content
Meanwhile, the about page says (again, emphasis mine):
Pinterest lets you organize and share all the beautiful things you find on the web.
Seriously Pinterest? Your marketing copy encourages me to pin “all the beautiful things [I] find on the web” while your terms of service have me warrant that I either own the images I’m pinning or I have a license to grant you the rights to license or sell those images?
I’m not a lawyer, so I may have missed something here (and I’d love to be corrected by a lawyer who knows the area as I love the beauty of Pinterest). I understand why the DMCA means that Pinterest has to push the onus of non-infringement onto their users, but I don’t see any good reason for it being OK to have such a gap between the ToS and the marketing copy.
Side-note - if you remove the granting of a license to sell all pinned images, I’m strongly in favour of copyright law working in a way whereby this kind of curation and evangelism is indisputably legal but I don’t know what kind of changes that would require to IP law.
At university, I studied game theory (my thesis was on combinatorial auction theory - a brilliant, often NP-complete branch of auction theory). I try really hard not to apply it to everyone I meet all the time.
Having said that, I’ve had to learn how to act in social situations, and game theory is actually pretty great for this (see a beautiful mind).
In many situations, the key is to view life as a series of events taking place over time rather than one-off experiments (it is this that “fixes” the prisoners’ dilemma). And it was to this that I turned when reading Wil’s post.
(Before I get into the meat of my thoughts, note that I don’t believe we have compensation completely right at Distilled - but that’s a post for another day). Here are the game theory issues that sprang to mind for me when I read Wil’s post:
Anything expected is part of compensation - you can’t decouple these things. If people know they are getting a bonus (and know the approximate size of it from the quarterly updates) then they will treat it just like salary. To the extent that money is what motivates them, they will choose where to work based on total compensation (with some risk premium thrown in)
You get what you reward. If you reward longevity, that’s all you’ll get. There’s no particular reason to think that rewarding longevity will result in more effort / output / productivity except to the extent that you keep good people around
Company performance-based bonuses (shared according to a pre-defined formula, rather than on personal performance) are (once people treat them as part of compensation, see above) ways of giving people pay cuts in poor years. This is how investment banks work. Bankers wouldn’t work for their base salary(*), and bonuses form part of compensation. It’s one of the few fields where pay cuts from one year to the next don’t (always) cause deep unhappiness / exodus.
(*) ignoring all the 1% debate for now - that’s another post
It seems like some of this can be fixed by tying bonuses to individual performance, but there are issues here too:
Bonuses based on personal performance reward that particular metric, but tend to encourage selfish behaviour which may result in lower overall performance (damnit)
It’s hard to couple meaningful bonuses to personal performance in most areas. To get enough upside to cause real behaviour change, you have to push such significant risk of downside that the individual becomes better off running their own thing and taking 100% risk
If it’s not tied to overall company performance (and either isn’t purely financially-related or doesn’t clawback in underperforming areas) you run the risk of large individual bonuses in times when the company-wide prospects look relatively bleak
Ignoring the theory, the practicalities of determining appropriate reward systems are also complicated by the fact that the people in charge of small businesses skew towards higher risk / faster change / less certainty than average. I find it can be an area where it’s hard to put yourself in others’ shoes.
I’m going to be doing loads more thinking about this. Thank you Wil for being so amazingly open in your post and I hope to have more fruitful discussions about this stuff.
[Sidenote - I wrote this post today on the Distilled blog and the kind of reasoning I refer to above is the stuff I was talking about in the “heads-up” part of the leadership section.]
I have been hugely impressed by Launchrock. I initially thought it sounded like the perfect example of Feature Not A Company but I’ve been convinced that if what they have is a feature, it’s one that should be present in every email provider’s toolkit.
In particular, I’d like Mailchimp to buy them please.
Yesterday, we ran a "ship-a-thon" at Distilled (like a hackday, but designed to be more inclusive of everyone who isn’t a developer / designer - the idea being that we all spent the day shipping stuff to make the company better).
I worked with 4 colleagues to ship an internal alpha launch of a product we are calling “DistilledU” - a learning platform for internet marketing. The first thing we shipped (in good “lean startup” methodology style) was a pre-launch landing page. Obviously we could have built this pretty easily on our own, but I was very impressed by how easy Launchrock made it to create a great-looking page with all kinds of embedded social sharing etc. and a 43% conversion rate.
Yes. You read that right. So far we have had getting on for 1,000 sign-ups at a 43% conversion rate.
I was amazed by the tweets it generated and the great feedback loop that resulted in ever-more signups. When you combine that with the analytics in the back-end, really the only thing missing is integration with Mailchimp. So - to Mailchimp - I don’t care if it’s a feature, I’d like it integrated - even if you have to buy it.
It’s easy to feel the hate for MBAs - especially if you hang out in the startup or online marketing world (e.g. 1, 2).
I have a very different viewpoint.
After my undergraduate degree (pure and applied mathematics at the University of Cambridge) I stuck around in Cambridge for a one-year course entitled “part III” - effectively a one year masters in mathematics.
Part III is described on the website in typical Cambridge style as "not an easy course". This is a bit like maths professors using the word “trivial” when they mean “very hard, but previously solved”. I found part III hard.
One of the courses I took was financial modelling at the Judge Institute (the business school in Cambridge). This course is part of the MBA syllabus and we sat alongside MBA students. It was not easy for those of us doing it as part of an immersive mathematics course. The MBA guys were doing this across a whole range of disciplines and it’s probably this that is the source of my respect for the institution as a whole.
Although I don’t have the patience to go back into academia now and I love building a business in the real world I am always watching out for ways I can learn more about the theory of business.
I think the biggest three distinct benefits of an MBA are:
Learning to think with academic rigour - diving deep into specialist subjects and getting an advanced education in diverse areas - see the example of the financial modelling course above
Real case studies. One of the reasons I love articles from the Harvard Business Review and would love to attend in-person lectures on business case studies is the power that history has for teaching us about the future. I hated history as a subject in high school, but I increasingly seek out “history” as a source of learning. The majority of books I read are biographies or other factual accounts and I’m increasingly structuring my business learning around real world stories
The people / the network. I got huge value out of being surrounded at university by people who are smarter than I am. I am also increasingly seeing the value of watching those people go on to successful and powerful careers. With the extra experience typical for the average MBA student, I imagine the big MBA programs expose you to another level of interesting people.
I’m not realistically about to embark on an MBA and I think I have the rigour from my degree and just have to push my own flywheel on the network side of things. Which is why I’m focussing heavily on case studies.
The online world is dominated by young companies and young business people. Many of Distilled’s competitors are run by people no older than Duncan and I. We need to learn from history both to grow our own business and to help our clients truly effectively.
Aside: if you have no idea why I’m talking about flywheels, go read this or this (or, ideally, this)
I have recently been reminded of how hard it is when you’re starting out at something. When we started Distilled, it took us a long time to get any kind of momentum going (see the presentation I gave at my old high school over the summer). Recently, we have been the lucky benefactors of the flywheel effect - that once you have been pushing hard in a consistent direction for a length of time, it seems to get easier and easier to build momentum.
When you don’t yet have that flywheel, it is hard to sell, hard to convince and hard to reach people.
You may know that we are building out conferences in the US. You may not know that we are not going to sell out our upcoming conference in NYC. There. I said it. We have poured blood, sweat and tears into the content and the promotion, but we are simply not yet as well known on the east coast as we are in London or Seattle. The conference will still be amazing, but it’s painful to feel that we could have done more to reach more people, to pack out the room.
And it’s a big but.
Some of us have been here before. It’s only 4 or 5 years ago that Duncan and I were excited to be “selling out” our little shared office hallway to give presentations to 20 or 30 people at £20 / head. We have come a long way. And we’ve done it by turning that damn flywheel. Every damn day.
I’m writing this publicly, even though it should probably be an internal email. I’m doing that because I want our whole team to see that I mean it. Many of our team joined recently. Very few of them (2?) ever worked in our tiny underground office. To you guys: this is real. This is what it’s like. And this is winning. It just doesn’t always feel like it.
There is no shame here. We will continue to work to get the best speakers, to push them to deliver their best content, and to give our delegates the best conference experience we possibly can. We will carry on:
hustling to get the right people there
building our email list
building our social presence
hosting free events
testing and making improvements to the booking platform
… and doing all of the other dozens of things that you have all poured time and effort into
And it will pay off. Maybe not this year. Maybe not even next year. But if I’ve learnt one thing, it’s that pushing the flywheel is something close to magical, and by the time it’s going so fast that you couldn’t stop it if you tried, you will feel like the king of the world and we will sell out events that will make this one look puny.
Finally, I want you all to remember the bigger picture. To put things in perspective, up to 2008, maybe 100 people total had attended a Distilled event. In 2009 I think it was about 200. In 2010, 320. In 2011, by my count, we’ll sell about 950 tickets across all events (and that’s not counting the hundreds of people who have bought videos).
The flywheel is spinning, we just need to keep pushing. Welcome aboard. It’s going to be a helluva ride.
Oh, and I should mention, you can still buy tickets, and don’t worry - we have enough people coming that it’s going to rock, we’re just kinda ambitious around here…
I recently got a new favourite coffee shop in Balham. It’s a little surprising, as I don’t think I’m really in the target market. It’s a boutiquey shop selling cute little trinkets. Not really my style.
So why the love?
They sell Monmouth coffee. Terrifyingly expensive, but totally worth it. The best coffee I’ve ever tasted.
I say terrifyingly expensive. It retails for about £6 / 250g in roasted beans.
That’s a lot compared to ordinary supermarket coffee, but when coffee is the thing you do? I’d argue it’s hella expensive not to buy coffee this good.
Imagine you run a coffee shop
Let’s do the math. 40 cups / pound, let’s guess at £3 / pound wholesale for Monmouth coffee, or £1.50 / pound for “nearly good enough” beans. That means you save about 4p / cup if you choose not to buy great beans.
I understand margins are tight, but surely price elasticity isn’t so great that you can’t go from £1.85 / cup to £1.90 / cup?
When it’s the main thing you do
Please, small businesses, don’t skimp on the main thing you do. I don’t care if you buy cheap computers for the back office, I don’t care if you hand-write your menus to save money. But please, please don’t skimp on the main thing you do. If you run a restaurant, buy great meat. If you run a coffee shop, buy great coffee. It’s not rocket surgery, folks.
First, the big news: Distilled recently participated in an angel round of investment in Server Density, a cloud-based server monitoring startup. I wanted to write a little bit about the experience.
Some background: I have recently begun writing down longer-term goals (partly shamed by Danny Dover’s amazing list, I have to admit).
I have had some success in my personal “getting things done” system from separating out today’s tasks from “current” tasks from “someday” tasks and I thought this was a natural extension. Previously I had thought of these more as goals than tasks - things to aspire to rather than things to do.
It turns out that there is a level between non-actionable ideals and today’s todo list - I think it may be the level that David Allen (of Getting Things Done fame) calls the 30,000 feet view. There are higher views which are things like “be a great father” - but these tend not to be particularly actionable - they should just shape the levels beneath them. I’m talking here about the top level of tasks or todo items
One of the tasks on this long term (5-10 year) list (when I made it at the end of last year) was become an investor.
The problem with making these kinds of lists is that I am also trying to train myself to Get Shit Done(TM). This sometimes results in extreme failure to procrastinate.
So it turns out that the opportunity to become an investor came around sooner than I expected.
But that’s the point of 10 year plans right? To do them this year?
Anyway, here are some lessons I’ve learnt through the process of making a small (£5-figure) investment in an early stage (but profitable) startup:
it’s not about the financials - I’d made the decision to invest before even seeing the exact revenue numbers
it’s not about the exact percentage. Who cares? It’s either going to make it or not - startup outcomes are essentially binary
it’s definitely about the team - I was introduced to the founder by a trusted smart guy - that was nearly enough in itself
it’s not (just) a punt - I’m excited about lending my skills and hopefully influencing the outcome
it’s probably the cheapest way of getting my consulting input - hell, it costs them negative money. I’m essentially paying for the privilege of consulting with this company. The way we’ve structured Distilled, it’s relatively rare for a client to work much with me personally (not trying to sound like a prima donna - that’s just the way it is) so this may not only be a cheap way, but in fact almost the only way which is an interesting thought
money is a funny thing - I wouldn’t (haven’t) spent this much on a car, I could do with the cash to do up the kitchen, and I’m sure my wife and daughter could spend it - although our business is going well, it’s not like I’m personally that flush. This is a different kind of money though - venture money (in my head). It’s not the same money as the money you buy groceries with. Ask any business owner (or poker player). They’ll tell you that this money isn’t the same as that money…
I’m going to write more about what this means for Distilled - it changes nothing dramatically, but it’s exciting and I hope it’s the beginning of a lot more excitement…
(Note that technically, it’s Distilled making the investment - I’ll write more about that later too).
I was reading Fred Wilson’s post on marketing for start-ups the day it was published. This morning I also saw Rand’s response. I started writing a tweet, but realised I had a lot more than that to say on the subject.
Rand has done a great job of covering the counter-argument so I won’t rehash that here. My only extension is that I think startups often do a bad job of assessing how much to spend on advertising (not talking all of marketing here - just advertising - particularly paid search).
We come across far too many companies spending money without a defined path to return or an understanding of the conversion of visitors into cash. Conversely, I often think many startups miss a trick by not spending money on great channels. Etsy (mentioned in Fred’s article) is a prime example - if they didn’t have a paid search budget almost from the word go, then I think they left money and growth onthe table.
But that’s not my main point. My main point is to pick up on what Fred says about the difficulty of hiring marketing people and agencies. I am slightly putting words into his mouth, but I’d be willing to bet he’d extend the same back-handed compliment to sales people.
From everything I see and hear, sales and marketing are the two roles that are hardest to hire for. I think this is down to two main factors:
the unrealistic expectations of some business owners in the “magic” of sales and marketing
Fred is wrong that he’s not a marketer. He’s a skilled marketer and I would guess that his portfolio businesses are likely to be environments where the right kind of marketer could thrive. If, however, they have been hiring marketers who didn’t live and breathe the organic acquisition channels that high-growth consumer-focussed startups need, then it’s no wonder that hasn’t been working out well for them.
In the early days of distilled, we read a lot about traditional “sales and marketing”. I remember being told that if we (personally, as company founders) didn’t continue to make dozens of cold calls every single day the company would die slowly and painfully.
TL;DR we didn’t. It didn’t.
Instead we did things like comment on blogs, write insightful articles, build an email list, attend conferences. Things that have a momentum to them. In the early days, these were just as unsuccessful. There is no magic to it - no overnight success - it was years of graft before we got the momentum going where we could announce a conference call and have hundreds of people sign up to it.
However, this means that now, we haven’t done any outbound “marketing” except to people who have signed up to hear it (e.g. email, twitter) for years. At the same time, our pipeline is healthier than ever.
At least 50% of everything I do is either sales or marketing for Distilled. I bet the same is true of Fred and of the founders of many of his companies.
It looks as though I’m going to be giving a talk to the ~500 or so students leaving my old high school this summer. I’m going to be talking about business lessons I wish I’d known when I left school. I’d love to hear others’ ideas for inspiration (one of the lessons is that using other people’s ideas for “inspiration” is fine after you leave college!).
I’ll probably post some here as I go along. The first few I’ve come up with are:
Read Getting Things Done before you go to university
"Networking" is BS. Making friends in the business environment, on the other hand…
Continuing that theme, plant seeds - do things for other people even when you don’t have to
School distorts the people you hang out with. Starting now, you can be much more selective about who you spend time with. Choose wisely. You will grow to be similar. Pick motivated, smart, nice people
The biggest skills they don’t teach you (well) at school (in my opinion) are: getting shit done (see above), technology and computers, the value of risk-taking. Expose yourself to these things.
Give it a shot. Most people don’t know what they’re doing (see "never compare…").
I’m fascinated by this stuff. As someone considered smart at high school, who discovered much smarter people at college, I’m interested in the common high school drop-out company founder vs. PhD (I’m neither).
I value my analytical abilities, but I think I can have a tendency to over-think or over-complicate.
One factor I’ve never seen well-addressed in these studies is the higher opportunity-cost of turning down a regular job for more intelligent people who have higher expected regular earnings.
In founding Distilled (which isn’t a high-tech classic “start up”) I definitely earned less for a good three or four years. I still earn less than I could elsewhere but the ownership means my net worth this way has finally overtaken what it would have been as an employee.