Flirting With Models

15 years ago, to start business that relied on servers, databases, and distributed computing, with built in monitoring, redundancy, fail-safes and logging, you would have needed a staff of IT professionals.

Today, I just built a service launched on Heroku.  Every part is built and monitored by an outsourced team of professionals.  All I do is build the pipes to connect them.

• Distributed Workers: Heroku Dyno’s using Resque built on Redis (managed by Redis To Go)
• Database: Mongo managed by MongoHQ
• Service Monitoring: StillAlive
• Log Management: Heroku Logging + Loggly with archiving to Amazon AWS bucket
• Exception Management: Exceptional (though, exploring Airbrake)
• SSL: Piggyback SSL on Heroku (for now)
• Deployment: git on Heroku
• Tasks: cron on Heroku

When speed is not mission critical, out-sourcing the management of each of these components helps me know that everything will just work.

I don’t have to worry about database backups, monitoring, or building a visual management unit — MongoHQ does that for me automatically.  I don’t have to worry about managing Redis — Redis To Go does that.  Building an exception dashboard?  Exceptional did it.  Making my logs easily searchable and archiving them for me?  Loggly did it.  Application monitoring?  A few easy recipes on StillAlive and I’ll get e-mails when things go wrong.

The best part is, in “building” an app, I can do it for almost zero cost.  Once I get everything up and running, I can increase my “plans” as need be, so I scale my costs as the application grows.

2012 will be the year I outsource everything.

Words are powerful tools; they define the very way we are capable of thought.  They shape our world, our beliefs, and our perceptions.

Especially powerful are “yes” and “no”.  They are absolute indicators.

The redundant use of one or another begins to set a precedent.  Not only does it anchor your mind, but it anchors the minds of others.

When you have a habit of saying “yes” and using “no” sparingly, your “no” carries more weight.  People will also be more willing to approach you with new ideas and proposals.  You are positive.

When you have a habit of saying “no,” not matter how much gravity your “yes” holds, people stop asking you.  They are fearful of rejection.

Sometimes, however, the situation doesn’t warrant a simple “yes” or “no” answer.  What if a business partner or client requests something of you that you want to provide a flat “no” to?  Before giving a “no,” think about what it would take for you to fulfill that request and make you happy.  Then give that response back — even if you know the other party will flat out refuse.  At least you didn’t say “no.”

You set a precedent for trying to work together.

Humans are emotional creatures.  Sometimes our emotion can be positive, like a passion that drives us to succeed.  Sometimes our emotions can be negative, like greed blinding us.

As a leader, controlling your emotions is important.  A recent quote I heard was, “only use emotion in business when it is to your advantage.”

It was the end of a quarter and the financial statements were being prepared.  One of the accountants brought the final documents in front of my father.  Quickly scanning them, my father knew they were wrong.  ”Go back and do it again.”

Later, the accountant returned.  ”You were right.  They were wrong.  These are the final documents.”

Taking a look at the numbers, my father said, “Go back and do it again.”

The accountant again returned.  ”You were right.  They were wrong.  These are the final documents.”

My father once again looked at the numbers.  ”Do you have your calculator with you?” my father asked.

“Yes.”

“Can I see it?”

The accountant handed it over.

My father proceeded to throw it on the floor and jump up and down on it.

“Wha…whaaa?” Sheer terror took over the accountants face.

My father calmly looked at him and said, “You got it wrong three times.  I know you wouldn’t make these mistakes, so it must be your calculator.  Now go get a new calculator and do it again.”

The accountant came back later.  This time, the numbers were correct.

Emotion can be a powerful tool.  Controlling it makes it even more powerful.  As a leader, know when to use emotion.

In 1991, Dell, ZEOS and Gateway were rocketing in success.  Computer superstores were popping up everywhere.  The digital age was in full force and it was becoming clear that every person would soon own a personal computer.  To buy an IBM, Compaq, HP and Apple, however, you still needed to have a face-to-face experience.  There was no mail-order, no catalog, and definitely no internet sales at the time.

My father helped found PCs Compleat with the vision that using mature enough software, the business could create a over-the-phone purchase system that would be both faster and “better” than the traditional face-to-face experience.

Not everyone agreed.  Ted Dintersmith from Charles River Ventures, the lead investor in the seed round of the business, said something to the effect of, “I can’t see people buying computers over the phone.”  Talk about a confidence booster: the lead investor didn’t even think the business plan would work.

Ted wasn’t wrong: PCs Compleat almost went out of business.  It wasn’t for lack of customer demand, though; it was because it was difficult to convince vendors to change their sales paradigm.  However, once IBM, HP, Compaq, and NEC were signed on, sales grew to over $25m/month.  Ultimately, PCs Compleat was acquired by CompUSA in 1996 — my father still has a letter from a investor saying it was their best venture return ever.

What is the lesson learned?  If you have vision, you need to have the self assurance to consider everyone’s opinion, but listen to your own instincts.  If you want to please others or care about their opinions, you probably shouldn’t be an entrepreneur.  My father always told me, “I never would have started ANY of my businesses if I had listened to the majority voice.  Or my wife.”

When my father was raising money for BeFree, he found himself in a tough situation: Michael Dell was on the phone, asking to invest in an already oversubscribed round.

There were two choices: tell Michael Dell “no,” or cut back the other investors.

My father chose the latter, hoping to leverage the relationship to get Dell as a customer and get access to Michael’s Rolodex.

Two weeks after announcing Michael’s investment, Dell announced that they signed a deal with BeFree’s #1 competitor.  On top of that, Michael never felt comfortable opening his Rolodex.  He went on to make something like 20x his investment in BeFree.

On the upside, our family did get some pretty cool Dell Family holiday cards.

What’s the point?  Money isn’t just money.  My father made a strategic decision about who to let invest in his business.  It may not have worked out, but the thinking was dead on.  All entrepreneurs should think long and hard about who they let invest in their business: it is a hugely important decision that you will have to live with for a very, very long time.  You might as well think of it as a marriage.  Do your due diligence on the investor:

• Make sure your goals are compatible.  Do you want long-term growth or a short-term hit?
• Does the investor have a history of supporting entrepreneurs or blowing them out at the first sign of dark clouds on the horizon?

Around 1980, my father was still in the start-up stages of MicroAmerica, working hard to pull in manufacturers that he could distribute.  He managed to get Epson printers on the line, and within a year, the company went from $150k/year in revenue to over $1m/month.

After such a tremendous year, Epson invited him, along with other distributors, to Japan to be honored.  There, he was wined and dined.  He even attempted to learn Japanese to give his thank-you speech.

He returned from that trip fat, dumb, and happy — only to find a cancellation notice from Epson sitting on his desk.

Obviously, things had not gone to plan.

My father should have been exploring various “what if” scenarios and modifying his plan to take into account the risk of having one mega-vendor (80-90% of his sales) BEFORE he was cancelled.  Instead, he stuck with his initial plan and was now looking at a potential 90% revenue loss.

Fortunately, he scrambled and was able to secure a large bank line to make a massive buy from Epson that would carry him over until he found a replacement.  He was able to work closely with OKI Data to replace the Epson line, and the loss didn’t end up being the impact it could have been.  Being in a growth market didn’t hurt either.

But “luck” is not a plan.  It was lucky that my father was able to secure the bank line, lucky that Epson let him buy a huge stock, lucky that OKI Data was able to replace the products, and lucky that he sat in a huge growth market.

Most of the time, plans are worthless anyway.  Instead, you should be asking exploring every “what if” scenario you can, creating plans A-Z and doing everything you can to mitigate risk.

One evening, my father and mother sat down to watch a movie.  Or so my mother thought.  My father, on the other hand, decided that he needed an impromptu board meeting.  He organized a call and had the meeting that night.

At the time, they were in the middle of a secondary offering.  When the offering went out, the stock was trading in the $50 range.  At the time of the call, it was trading in the mid $30s.  The board was clamoring to have the offering pulled.

My father, on the other hand, staunchly believed that they had to go forward with it, despite the board thinking that they were giving the stock away too cheaply.

You see, the board looked at the recent $50 price and exclaimed that they weren’t getting nearly enough in the $30s; they were living in the land of hockey-stick sales forecasts.

Hockey-stick sales forecasts aren’t reality, though.  My father recognized this, crunched the valuations, and saw that even in the mid $30s, the offering was still a great deal for the business.

As my father has taught me, having “vision” does not mean being able to see around corners.  Having vision in business means that you see things how they really are.  The board wanted to believe that sales were hockey-stick shaped and that the stock would return to $50.  Having vision means having the filter to see things how they really are and not how you hope or want them to be.  Having vision means assigning risks to your actions.

In this case, my father recognized that the market could go either direction.  An offering in the $30 was still a great deal for his business, but he risked cash-flow issues if the market kept going down.  Waiting for the market to possibly rebound to $50 was too risky.

The board reluctantly went through with the offering in the mid-30s.

A year later, the stock market had crumbled and the stock was at $0.87.

The lean startup movement has a dramatic focus on a quantitative pivoting strategy: measure everything and adjust your business to capitalize on what the data is telling you.

But this idea is nothing new.

In 1991, my father was the CEO of PCs Compleat.  They were running out of money and nobody was buying the desktop computers they were selling.  My father took the summer off from running the business to solely focus on getting big names such as Compaq, IBM, Toshiba and Apple into the line.  They all required storefront and limited sales to a geographic region.  PCs Compleat represented a completely new business model at the time and helped pioneer call-to-order for the computer market.  The long-short is that the business model eliminated the need for storefront and regional limitations.

Eventually, Toshiba allowed them to sell their product nationwide via their catalog and direct marketing efforts.  To “get started,” Toshiba wanted them to take on 6 high-end color notebooks, whose cost to PCs Compleat was $5500 each.  My father assumed that it was just a trick to get him to take the line that nobody else would touch, but he needed the Toshiba brand so he chalked it up to the cost of doing business with them.  Pay the $33k now for the ability to use the whole product line.

The units were sold within two days.

My father and his partners quickly re-evaluated their business and went on to become one of the largest resellers of high-end notebook computers in the world, peaking at 10,000 units per month in 1995.

By the time PCs Compleat was acquired, the business looked absolutely nothing like the original business plan.  While wrong in their initial market intuition, my father stresses that they were “at least savvy enough to tack our boat and sail with the strong wind rather than keep fighting it.”

I touched upon this concept in a post a while ago (The Suffering Startup), but I think it deserves its own post.

There is a belief that hard work brings success.  It isn’t entirely wrong, but often gets misconstrued into the concept that just blindly pouring time into a task will make it a success.  This isn’t true.  Just because you work hard doesn’t mean you will succeed.

Recently, the concept of “working smarter, not harder” has come to light from Tim Ferriss’s book, The 4-Hour Workweek.  The book’s focus in this area is about applying “life hacks” to be more efficient in your time usage.  While this does allow you to work “smarter,” it ignores the fact that you are still performing the same tasks.

The real question you should be asking yourself is: is this the right task in the first place?

Working smarter means questioning the status quo and identifying whether your methodology is the most effective means of getting something done.  Life hacks and tricks are short steps in working smarter, and may improve your efficiency, but they don’t get you to fundamentally remove yourself from your own shoes and ask the question, “is my process stupid?”

There is an old chain e-mail that gets circulated among engineers that tells the story about a toothpaste manufacturer that I think helps shed some light on “Smarter, not Harder”:

A toothpaste factory had a problem: they sometimes shipped empty boxes, without the tube inside. This was due to the way the production line was set up, and people with experience in designing production lines will tell you how difficult it is to have everything happen with timings so precise that every single unit coming out of it is perfect 100% of the time. Small variations in the environment (which can’t be controlled in a cost-effective fashion) mean you must have quality assurance checks smartly distributed across the line so that customers all the way down the supermarket don’t get pissed off and buy someone else’s product instead.

Understanding how important that was, the CEO of the toothpaste factory got the top people in the company together and they decided to start a new project, in which they would hire an external engineering company to solve their empty boxes problem, as their engineering department was already too stretched to take on any extra effort.

The project followed the usual process: budget and project sponsor allocated, RFP, third-parties selected, and six months (and $8 million) later they had a fantastic solution — on time, on budget, high quality and everyone in the project had a great time. They solved the problem by using some high-tech precision scales that would sound a bell and flash lights whenever a toothpaste box weighing less than it should. The line would stop, and someone had to walk over and yank the defective box out of it, pressing another button when done.

A while later, the CEO decides to have a look at the ROI of the project: amazing results! No empty boxes ever shipped out of the factory after the scales were put in place. Very few customer complaints, and they were gaining market share. “That’s some money well spent!” – he says, before looking closely at the other statistics in the report.

It turns out, the number of defects picked up by the scales was 0 after three weeks of production use. It should’ve been picking up at least a dozen a day, so maybe there was something wrong with the report. He filed a bug against it, and after some investigation, the engineers come back saying the report was actually correct. The scales really weren’t picking up any defects, because all boxes that got to that point in the conveyor belt were good.

Puzzled, the CEO travels down to the factory, and walks up to the part of the line where the precision scales were installed. A few feet before it, there was a $20 desk fan, blowing the empty boxes out of the belt and into a bin. “Oh, that — one of the guys put it there ’cause he was tired of walking over every time the bell rang”, says one of the workers.

http://www.lixo.org/archives/2008/07/21/networks-are-smart-at-the-edges/

(there is a great follow-up conversation about the story on Hacker News here – with my favorite comment being this one).

Before you accept the status quo, plow hours of work and dollars into a “solution” — do your best to take a step back, give yourself a blank slate, and get creative.  You’ll be working smarter in no time.

My father was looking to hire a new employee for his business Microamerica.  The interview was scheduled for really early in the morning, so my father was the only one in the office.  This also meant that my father’s car was the only one in the parking lot; or, at least, that is what Mr. Bill thought.  My father had actually parked his new Porsche behind the building, so the only visible car in the lot was the ’63 Falcon that  belonged to the overnight cleaning crew.

Despite liking the business, Mr. Bill almost turned down the offer because he thought my father’s car wasn’t nice enough.  This may seem shallow at first, but it was being used as a metric to see if my father’s previous businesses had been successes.

Another anecdote that my father told me was how he used to host VC dinners at our house when he was trying to raise money.  In conjunction with going to VC firms, he would have them over for dinner and try to have his house do the speaking, hoping that the VCs would leave saying, “if he has a house this big, his previous companies must’ve been big successes, and therefore he must know what he is doing; so let’s give him some money.”

Yes, these are examples of incredibly shallow human behavior: but that is the truth of our nature.  Sometimes, we are very shallow creatures.  We often have expectations of how people should dress or behave in certain positions.

A study in Inc. magazine claimed that success in start-ups largely depended on the CEOs ability to convince stakeholders that the company is operational.  Stakeholders are more likely to work with you if you appear to know what you are doing.  The study goes on to say that the founder’s education or previous experience were not indicators of success.

Lesson from my Father: ”Start-ups are like a game of chicken — never let anyone see you sweat.  You may be dying on the inside but the world has to see you smiling.”  Do all the little things to show stakeholders you are a real company.  Strong leadership is key.  Always be sending out letters and proposals from your office, and celebrate every success you have.

tl; dr: First impressions are often lasting impressions.  Dressing and acting the part can often do a lot of instill confidence in those with whom we are speaking.  People are often influenced by these factors, whether they are conscious of it or not.  Use that to your advantage!