myShoggoth

The last year and a bit

Hey, I feel like bloggin!

I suspect this is due to the product I'm working on finally being at a point where I think it is usable and useful for enough of the target market that I'm willing to really talk about it and seek out feedback at a bigger scale.

What I'm talking about is VCHub, and the way we like to think about it is we're modeling the startup ecosystem.

There's a lot more to creating a successful new company than just the people in the company itself.  You have law firms, accounting firms, advisers, investors, so on and so forth.

We started with, and the core of the product still is, an online capitalization table.  This is where all the investors, including company founders and employees, are tracked and what portion of the company they own under what terms is tracked.

Most companies currently track this information in a custom Excel spreadsheet, maybe they got it from their law firm or got a hand me down from another company.  I'm not going to spend time in this post on why this is suboptimal, for many I think it will be obvious, and for those who have been in the trenches dealing with the situation the problems are very well known.

Around this core of knowing the corporate structure we also track service providers for the company and those who work with it who may not have a direct investment or option grant.

Then you add on top of that the ability to share this information with others, like the previously mentioned service providers, potential investors, advisers, and so on... and I think we have a compelling product that helps solve an area with lots of current pain, mostly in terms of how much time is sunk into managing, updating, and sharing this information.

I'm going to start to blog about the product, what we're doing, and how I'm building it.  I'm very interested in feedback on all aspects, particularly around technology and how users see the space we're modeling.

The whole thing is early yet, we have beta users and a customer advisory board (and I'm hoping both sets will read this and let me know what they think of where we're at as we go along), but others are certainly welcome to try it out and help influence what direction we take it.

Death by Powerpoint

This is one of the best things I've seen in a long time on effective communication.

Go read/watch it.  Now.

Also consider how by making such interesting and engaging content, the author has basically announced his skills and expertise in a way no resume could ever convey.

How Microsoft Should Re-Invent Itself

I really wanted to spend more time researching and getting details and financial reports and so on to make this post, but a certain *cough* deal has forced my hand.

All of this is my personal opinion and in no way reflects any views of my current or past employers, and in fact I would expect many or most to disagree wholeheartedly.  I'm not in any sort of position to do more than talk, not even influence.  This is me.  Okay?

Microsoft needs to turn into a spin-off machine.

There are a ton of reasons for this, I'll get into as many as I can remember and think of, but the core is that Microsoft's current way of doing business is fundamentally not working, and the recent announcement of the bid for Yahoo! for $44.6 *billion* could be the nail in the coffin.  MSFTextrememakover has a wonderful item-by-item post on why it is a horrible idea.

More importantly to my way of thinking, this deal will increase organizational entropy in a big way.  And that's death.

On the other hand, spin-offs are a wonderful way of resetting entropy, mostly for the company being spun-off, but also for the spinner.

The core of the idea:  Retain and invest in the two cash cows, and use their profits to fund a program of:

1. Spinning off all the existing businesses outside of those two.  Try to figure out what products, suites, and current businesses would work the best together.  Find the right people to lead them (not in terms of internal politics, but as business leaders).  Packaging them will be difficult and time consuming, but I think it would be startling how much value there is.
2. Incubate new ideas and products, focused on bringing them to the point where they can be spun off.  Lots of thought needs to go into how to find people who are ready to be executive management teams for these new spin-offs.  If the idea can't stand on its own as a separate company, cut it and reinvest.
3. There is still plenty of room for acquisitions in this world, but the mindset is totally different.  Now the idea is to buy complimentary businesses to work with incubated products, shoring up their weaknesses before spinning them off, or to dedicate enough resources to take a great idea, repackage it, add significant value, and then spin it back out into the world.  Almost a VC or private equity type of a role.

In fact, that's a great way to think about it in general:  Microsoft becomes a private equity company where the funding comes from the two most successful products ever.

Pros

• Career advancement, and reward paths that don't involve massive bureaucratic politics.  You can help create a new, successful business, and get rewarded with options and new opportunities when the business is spun off as its own company.
• Huge recruiting power due to the above.  You're not hiring into a faceless corporate black hole, you're being recruited into a very entrepreneurial company that is all about incubating and spinning off new businesses.
• By changing the focus of the company, you change the culture.  Things have coagulated, everything is about safety and step-by-step career advancement.  In a more entrepreneurial culture, taking risks is expected and rewarded.
• Most importantly, in this world the reward is tied to the business, not to the chain of command.  You're working to create a successful new business that you want to be spun off, the big rewards come from being a part of that success, not just convincing upper management that you're better Partner material than your peers.
• Get away from the myth of synergy.  A lot of time, money, and careers have been wasted trying to figure out a way to tie everything Microsoft does into a nice package that will magically make a huge multiple more money for the company than the individual pieces.  This has mostly failed, and will continue to fail, and the few successes will not even pay for the costs of the failures.
• Increased focus on the bottom line in all aspects of the business.  Every new business is seen in the light of its potential to create a new, separate company, rather than how it fits into arbitrary goals or organizational politics.
• Managing the company's billions is now an exercise in return on investment, rather than a shotgun of attempts to recapture the old Windows/Office magic.

Cons

• It really hasn't been done before that I'm aware of, it isn't clear the model will actually work.
• The entire management team and organization for the company is ill suited for this kind of a change.
• The company's goodwill and reputation are both pretty well in the toilet, and it would take some time before acquisitions could be made at favorable costs.  Right now it seems like their only leverage is overpaying enormously for what they want.
• It isn't clear that talent the company has attracted/retained over the past half dozen years or so would thrive in an entrepreneurial culture, nor is it clear the culture could make such a huge change.
• Probably plenty more, that's all I can think of immediately.

Epicenter Bellevue Closes (Poorly)

Our damn gym closed, suddenly, and with about three hours warning on Thursday night.

I had an appointment with our personal trainer that night, and my wife was there for her yoga class.  Everyone was running around trying to figure out what was going on, very little was clear, and the staff who were naturally upset themselves at their own predicament had to try to deal with a large number of members who were upset and trying to figure out what they were going to do.

We went to Wibbley's right after to console ourselves, and the woman we know who works (well, now worked) at both was working there and we exclaimed "OMG!  I KNOW!"s at each other.  Another former Epicenter employee was eating and he joined in with his own "WTF!?"s  and we were all like "OMG! I KNOW!"s at him, too.

No warning, very little notice, and hardly any organization.  The management at Epicenter should be just damn ashamed of themselves for their piss poor professionalism at how they handled it.  The Seattle location will remain open, just the downtown Bellevue one has closed.  I note that even two days later now the website has not been updated in any way, still shows the Bellevue information, etc.  I notice that the About Us section has no information about the upper management, owners, etc.  That's probably because they know they have nothing to be proud of.

L.A. Fitness off of 106th bought? was given? all the memberships, so everyone has a membership there now and all their paid personal trainer sessions etc. will move over.  In another prime example of Epicenter management's "uality is job #1" attitude, the head personal trainer at L.A. Fitness (Matt) showed us the printout he had been given with all the information about the clients, the trainers, number of sessions paid for (although this is incomplete).  He was trying to make sense of it while at the same time having to calmly deal with hordes of very angry customers that had been dropped on him in a horrible way.  ETA for the data to actually be successfully transfered to the new gym is Wednesday.  Yes, almost a week later.

It seems like a nice facility with quality people, but that's hard for us to see right now when our vision is pretty much clouded red.  We pre-paid a bunch of personal trainer sessions because our wonderful trainer, Bo Jin, had been working with us for long enough that we felt he was the right guy for us.  He's very unsure he wants to move to the new club, and is looking at assorted options.  If you're looking for a really great to work with personal trainer in the Bellevue area, send me an email and I'll give you his contact info.

We went to the new club earlier this afternoon to see what our options were for the pre-payment money (the membership is not an issue, we're fine waiting until that runs out and decided whether to stay with L.A. Fitness or not).  We want to work with our trainer, but more importantly we feel like we paid for those sessions with reasonable assumptions at a time when the management knew those assumptions were likely to be false but didn't tell anyone.

It isn't L.A. Fitness's fault that Epicenter management handled everything so incredibly poorly.  On the other hand, if their goal is to try to retain the greatest percentage of transferring members for the long term I think they should be extremely gracious about refunds whenever possible.  If I don't feel like there's a risk, and that they're there to help me and not just figure out how to monetize me (this is usually how I feel about gyms, especially dens of scummery like 24 Hour Fitness), they're more likely to have me:

• Give them a honest try as a new gym, and keep me as a member.
• Tell others in the same or related positions that I know who also transferred that they're worth giving an honest try.
• Spread good word of mouth to others in the area.
• Not take action with the credit card company in order to try to get the money back.

Like all customer service, the short term bad choice (give up money you don't legally have to) is often a great long term choice (customer loyalty and advocacy).

Right now they're clearly overwhelmed by the position they're in.

Fascinating Hedge Fund Manager Interview

From my friend Melissa, an interview at n+1 magazine with an anonymous hedge fund manager that talks about not only the state of the market and how we got here, but the homogeneity of that business and how that help exacerbate the situation.

Plus, it is funny:

Yes, but I for one welcome our computer trading masters.

Organizational Dynamics and Entropy

There appear to be forces that act on any organization, causing it to be more dysfunctional and less effective over time, with the only (temporary) fix being big outside jolts that shake things up and reset it back to an earlier state of function.  Organizational entropy, in other words.

Initial State

The first question is the initial state, in many cases this is the original founders and their approach.  I think this is why many angel investors and VCs feel so strongly about the core management team and what kind of corporate culture they will create, not just to make sure that they know what they're doing and are capable of building a business, but they fundamentally steer both what level of entropy the company starts with and how quickly it will grow.

What are the attributes of the ideal case (assume a frictionless spherical company of radius R...) ?

• The management team is focused on the needs of customers/market, and are otherwise ego-less.
• There is transparency: each employee knows what is expected of them, what everyone else is doing, and how it all fits together to meet the needs of customers/market.
• They are ideal managers, maximizing their employee's productivity, career growth, and happiness.
• Every decision is made by perfectly weighing long vs. short term goals with full knowledge of alternatives, trade-offs, and probabilities of outcomes.
• New members are perfectly screened for skills and culture compatibility, are able to be found and hired when needed, and can come up to speed as quickly as required.

The Second Law of Bozodynamics

Deviations from the ideal have different effects at different speeds.  I'll give an illustrative example I've been mulling over, and how it grows the organizational dysfunction over time.

Take a manager at some level in the org who is not perfectly focused on customers/market needs.  When he divides up the rewards (be it prestige, promotion, or cash) he's doing so by some other measure ('delta clue', maybe?) than the ideal.  Now the people in the org will be rewarded against this other measure, and not what they do directly for the business.

The most damaging aspect of this deviation from the ideal is that those who exemplify the non-ideal behavior will tend to be the promoted themselves, and constitute the next layer and next generation of management and decision makers for the company.  This propagates the dysfunction and increases the overall entropy.

Codependent Dysfunction

This does not build purely on an individual basis, there are also team dynamics in effect.  The most successful people in many organizations are the ones that 'manage up', or exhibit the traits valued by the managers above them (which may or may not have any relationship with what traits would help make the business itself most successful).

Importantly, they also find others in their organization that they work well with in this context.  They may not like them or working with them, but they know they are more rewarded working with them than when they are not.  They move through the company as a group, getting promoted generally at the same time, bringing the others with them if they move to a new group (or even new company).  They know from experience they are more rewarded as a unit than on their own.

As they are successful, once again they propagate and often amplify the dysfunction below them in the organization, rewarding people for the behaviors they value and causing new clumps of further entropy.

Critical Mass

As the entropic personnel are promoted to significant decision making positions, their 'delta clue' between what they should be doing to maximize business results and what they actually do from years of rewards for doing something that diverges from that ideal will show.  This may be disguised for a significant time if they inherit very successful and self-sustaining businesses, but eventually it will become clear that their results are not what they should be.

By the time this shows the damage will have happened throughout the organization while these decision makers were working their way up, increasing the entropy below them as they went.

We've seen a few examples of this where the first obvious sign that something bad is happening is a chain reaction of bad decision making that explodes into a huge problem.  Usually this is blamed on "group think", but as you can guess by now I don't think the issue is with a single example of a bunch of people drinking the kool aid or suspending their disbelief for a set of bad ideas.

The organization entropy hit critical mass.

Exercises Left For The Reader

1. If the management team is focused on the needs of Wall Street (for their stock price) instead of the customers/market, how does that effect the starting state of company entropy?
2. What is the entropy multiplier when someone is is promoted to management due to their ability in their field rather than their ability to manage?
3. In what ways can hiring someone from outside the company increase or decrease organizational entropy?
4. What are symptoms of increasing entropy within a part of a company that could be used to identify and address them before it causes damage more widely?
5. Are there any ways to shock and reset entropy for entire organizations or sub organizations?