[book] The Goal

This book came recommended by none other than Amazon founder Jeff Bezos, and he’s right: it’s one of the better business books I’ve ever read. Written in a breezy, dialog style, it reads as much like a novel as a how-to book.

The “goal” in the title refers to the fundamental purpose of any business: Turn a net profit, with high ROI, while maintaining cash flow. How you do that: reduce operational expense and reduce inventory while simultaneously increasing throughput.

These principles are generalizable to any situation where you want to be more efficient, and the author suggests a “theory of constraints” based on a set of “five focusing steps” to help you do this:

1. Identify the system’s constraints (aka bottlenecks) that prevent the organization from obtaining more of the goal in a unit of time.
2. Decide how to exploit the constraints to get more out of them.
3. Subordinate everything, realign the entire organization as necessary to support the decision above.
4. Elevate the system constraints, making any other major decisions necessary to increase the capacity at the constraint (bottleneck)
5. If in these steps, a constraint is broken, go back to step 1. Never allow a constraint to continue solely due to inertia.

Like most good theories, these ideas seem obvious – nearly trivial – when you finally notice them. I suspect the applications are more obvious in well-established systems than in situations where you’re building something new. But even then, it’s healthy advice to be aware of bottlenecks to manage your system as efficiently as possible

I can see how they apply to the field I know best (software development), and I’m surprised I haven’t run into this book before.

Why they failed: Zeo, Green Goose, 100Plus

Zeo was, for many of us, our favorite QS company: great, consumer-oriented low-cost hardware that measured something useful (sleep) to give insights we couldn't have had otherwise. After $20M+ in funding over the better part of a decade in existence, they went bankrupt, abruptly -- so quickly in fact that many customers couldn't even get their data off the machines.

In one of my favorite sessions at last week’s Quantified Self Conference in San Francisco, Zeo co-founder Ben Rubin joined a few other co-founders to discuss why their original dreams didn’t quite pan out.

Zeo’s biggest success factor, says Ben, was "persistence" -- to build a great product, get retail distribution in places like Best Buy, expand internationally to the UK, build a portable Bluetooth version -- but the same persistence was also the seeds of their undoing, when they continued to push sales- and marketing-wise even when it was clear that the mass market didn't want the headband they were selling. Sleep measurement alternatives popped up from the fitness band companies, and although they weren't nearly as precise, it became harder to explain the Zeo advantage. Zeo needed a similar passive solution (maybe something you attach to your bed, like Beddit), and they were working on it, but persistence takes a toll on founders -- one left in 2010, Ben left in 2011 -- and the professional management team that remained found themselves confronting the worst of all worlds: a market that said not "yes" or "no", but a dreadfully-ambiguous "maybe".

Ben’s advice to anybody thinking of a similar venture is to fit, somehow, into the lives that people live right now. You may be trying to change behavior (isn’t that the point of measuring it?) but the mass market wants a straight line from where they are right now. You can’t ask them to uproot existing habits to use your product.

So what happened to Zeo's assets?  Will the products ever be revived? Ben obviously has to be discreet when discussing confidential information, so all he would say is that it was an asset sale by “a medical company interested in sleep." So who knows.  He also, sadly, confirmed my worst fears, that he knows of no way  -- even through reverse-engineering -- to get your Zeo data. The company failed so quickly that the people in charge of maintaining the servers had no time to close things gracefully. It's gone.

Brian Krejcarek, founder of Green Goose, had another exciting product that failed: $4 attachable "stickers" with embeddable sensors you can place throughout your house -- on your toothbrush, your bike, your dog. It was a brilliant idea, and they quickly attracted $1.3M of funding. But the direct-to-consumer company is super-tough – how do you get the word out? how do you handle the logistics? Meanwhile, technology marches brutally forward, and the wireless base station that originally made the stuff work at great (but elegant) engineering cost, is now available on Bluetooth 4.0 and your iPhone for next to nothing.

Chris Hogg, co-founder of personalized health prediction startup 100Plus, had a comparatively happy ending: his company was sold, to Practice Fusion (a $70M Series D funded medical records company). But Chris left when that happened, because he was always more interested in the “personal” side of health, not Big Enterprises, which is where the company ended up making its first money. In fact, that was one of his pieces of advice: “be careful where you get that first dollar, because that’s all next your investors will want to talk about.”

That’s the tension in every new business: on the one hand, you want to be flexible and listen to your customers; but on the other hand, you want to be true to your original mission.  When you find that consumers don’t bite, either because the product’s wrong or the technology has moved on or that enterprises turn out to be more interested, you may find that your original dream no longer applies.
All three entrepreneurs knew their original ideas were worthwhile and we’ll get there someday. But sometimes the future happens later than we’d like.

[book] Daniel Pink on Selling

Business author Daniel Pink first impressed me on an Econtalk episode a few years ago with his ideas about what motivates people (the subject of his book Drive). Earlier this month he published a new book, To Sell Is Human, and I heard him talk about it today. (I always enjoy seeing an author in person!)

The central claim of the book (at least, based on what I took from his talk) is that although 9% of the American workforce works in a “sales” job (more than double the percentage that works in all forms of government, by the way), the rest of us spend a big part of our day trying to “persuade people to part with something of value, in exchange for something else”, which Pink claims is basically the same thing.  The talk (and the book) is mostly about ways to enhance our abilities to sell: “Increase your power by reducing it”, “use your head as much as your heart” and other good, practical advice.

Successful selling -- persuasion – requires a good understanding of the other person’s needs, but it turns out that high-status and “powerful” people (managers, politicians) are often pretty bad at that.  In fact, a 2006 paper by Kellogg business school profs Galinsky and Magee shows that power and self-orientation are often correlated. Conclusion: we need to be better at empathy.

But empathy – understanding the other person’s perspective – isn’t about understanding their “feelings”.  People who do best at selling are better at considering what the other side “thinks” more than what they “feel”. Interesting…and it matches my own experience and intuition.

My favorite part of the talk was Pink’s discussion of “social cartography”, and how good salespeople are instinctively able to tell who’s who in a given room, who matters for the decision-making and who doesn’t.  That’s a great skill, and Pink shows a wonderful chart to illustrate what we all know intuitively: that often the people who do the most talking are the least important.

He points to upcoming research from Adam Grant, a professor at my Alma Mater, that claims that while extroverts tend to be hired and promoted much more often in sales positions, they don’t perform that much better than introverts. Although this seems like good news for a natural introvert like me (assuming I wanted to be in sales), I take research like this with some skepticism.  Everything depends on methodology, it seems to me.

In fact, this is one of my biggest questions about Pink’s thesis. It might be possible to make claims about the art and practice of persuasion in general, but like most things, it seems to me this is highly situation- and context-dependent.

Frankly, I’m not sure it’s much of an insight to claim that everyone is selling.  I mean, even in a highly-specialized world, all jobs require some degree of just about every job.  Few people are full-time negotiators, for example, but all of us do it some of the time. Only a small percentage of people are “making stuff” in the sense that old-fashioned factory workers did, but broadly enough defined, we all make something. Saying that everyone is a salesperson seems to me to be a bit of a stretch.

That’s a quibble.  Daniel Pink provides some insight that is worth considering, but I would add that successful managers know to think like a team and that the right mix of skills, personalities, and experiences are as important as individual high performance. Though not mentioned in the book, Pink answered my comment about this with a pointer to the work of Brian Uzzi, from Kellogg.

I’m sold.

Gregory Slayton on Innovation

Dartmouth Tuck School of Business Adjunct Professor Gregory W. Slayton was in Beijing this month to give some talks about innovation.  Although creativity and innovation are of course important to me, I haven’t focused on this, partly because I think of it as an art (that you learn by doing) rather than a science (that you learn by studying). Obviously it's a little of both, and as a professor he’s studied it academically, so it was nice to get an overview of the state of the science.

He divides professional creativity into four components:

• Product: what you make
• Process: how you make it
• Interpersonal: who you partner with
• Strategic: future directions

Companies as well as people can be analyzed on these dimensions, and he asks us to rate ourselves (our “Creative Profile”) on each of the four components and assess where we want to be in five years.

He recommends three classic books on creativity:

• Creativity: Mihaly Csikszenthmihaly
• The Medici Effect: Frans Johansson
• When Sparks Fly: Harnessing the Power of Group Creativity: Leonard-Barton and Swap

as well as some readings I thought were useful about Pixar,  Alessis, and a highly-quoted HBR article by Teresa Ambile.

Other suggestions:

• Keep a creative journal to write down new thoughts or ideas as they come to you
• Appoint a “Creative Board of Directors”, mentors who will give you feedback on how to be more creatively successful

Gregory has an interesting background: Harvard MBA, McKinsey consultant, Silicon Valley businessman, and Consul General to the Bahamas. He's also had a longtime interest in Asia, and I enjoyed the short conversations we had during the breaks, talking about his thoughts on China and more.

Are we in a recession?

Everything I know about macro-economics I learned in classes from my old finance professor Jeremy Siegel, so I basically trust everything he says, and he says no in a new podcast from Knowledge@Wharton.   He's an optimist like me, and I've watched him come a long way since last year when he said 25%, then 30% chance of a recession, until now he thinks "professional economists" say the odds are 50-50.   Bottom line: the Fed's recent cut will help, the politically-inspired government giveaway won't, and property prices will fall about 15% before bottoming out.  Interestingly, he thinks there are some parallels to the bubble situation in Japan in the 1980s, but says we're responding far more appropriately.

I've been fairly cash-heavy for the past several months so at these new stock market prices, I'm going on a buying spree.