Squeezed Books Recent Updates

Rework

2010-08-26T02:08:56Z

Rework is an invaluable book, I'd love to buy 1,000 copies and distribute them across the Pentagon. Here are some of my favorite quotes from the book (there are many):

The real world isn’t a place, it’s an excuse. It’s a justification for not trying. It has nothing to do with you.

If you write a big plan, you’ll most likely never look at it anyway. Plans more than a few pages long just wind up as fossils in your file cabinet.

Working without a plan may seem scary. But blindly following a plan that has no relationship with reality is even scarier.

The easiest, most straightforward way to create a great product or service is to make something you would want to use. That lets you design what you know – and you’ll figure out immediately whether or not what you’re making is any good.

What you do is what matters, not what you think or say or plan.

Ideas are cheap and plentiful. The original pitch idea is such a small part of a business that it’s almost negligible. The real question is how well you execute.

Embrace the idea of having less mass. Right now you’re the smallest, the leanest, and the fastest you’ll ever be. From here on out, you’ll start accumulating mass. And the more massive an object, the more energy required to changes its direction. It’s as true in the business world as it is in the physical world. Mass is increased by:

Long term contracts
Excess staff
Permanent decisions
Meetings
Thick process
Inventory (physical or mental)
Hardware, software, and technology lock-ins
Long-term roadmaps
Office politics

Avoid these things whenever you can. That way, you’ll be able to change direction easily. The more expensive it is to make a change, the less likely you are to make it. Huge organizations can take years to pivot. They talk instead of act. They meet instead of do. But if you keep your mass low, you can quickly change anything: your entire business model, product feature set, and/or marketing message. You can make mistakes and fix them quickly. You can change your priorities, product mix, or focus. And most important, you can change your mind.

“I don’t have enough time/money/people/experience.” Stop whining. Less is a good thing. Constraints are advantages in disguise. Limited resources force you to make do with what you’ve got. There’s no room for waste. And that forces you to be creative.

So sacrifice some of your darlings for the greater good. Cut your ambition in half. You’re better off with a kick-ass half than a half-ass whole.

When we start designing something, we sketch out ideas with a big, thick Sharpie marker instead of a ballpoint pen. Why? Pen points are too fine. They’re too high-resolution. They encourage you to worry about things that you shouldn’t worry about yet, like perfecting the shading or whether to use a dotted or dashed line. You end up focusing on things that should still be out of focus. A Sharpie makes it impossible to drill down that deep. You can only draw shapes, lines, and boxes. That’s good. The big picture is all you should be worrying about in the beginning.

When things aren’t working, the natural inclination is to throw more at the problem. More people, time, and money. All that ends up doing is making the problem bigger. The right way to go is the opposite direction: Cut back. So do less. Your project won’t suffer nearly as much as you fear. In fact, there’s a good chance it’ll end up even bigger. You’ll be forced to make tough calls and sort out what truly matters. If you start pushing back deadlines and increasing your budget, you’ll never stop.

The core of your business should be built around things that won’t change. Things that people are going to want today and ten years from now. Those are the things you should invest in.

Whenever you can, divide problems into smaller and smaller pieces until you’re able to deal with them completely and quickly. Simply rearranging your tasks this way can have an amazing impact on your productivity and motivation. For example, break that list of a hundred items into ten lists of ten items. That means when you finished an item on a list, you’ve completed 10% of that list, instead of 1%.

Never hire anyone to do a job until you’ve tried to do it yourself first. That way, you’ll understand the nature of the work. You’ll know what a job well done looks like. You’ll know how to write a realistic job description and which questions to ask in an interview. You’ll know whether to hire someone full-time or part-time, outsource it, or keep doing it yourself (the last is preferable, if possible).

You want a specific candidate who cares specifically about your company, your products, your customers, and your job. So how do you find these candidates? First step: Check the cover letter. In a cover letter, you get actual communication instead of a list of skills, verbs, and years of irrelevance. There’s no way an applicant can churn out hundreds of personalized letters. That’s why the cover letter is a much better test than a resume. You hear someone’s actual voice and are able to recognize if it’s in tune with you and your company.

Too much time in academia can actually do you harm. Taking writing for example. When you get out of school, you have to unlearn so much of the way they teach you to write there. Some of the misguided lessons you learn in academia:

The longer a document is, the more it matters
Stiff formal tone is better than being conversational
Using big words is impressive
You need to write a certain number of words or pages to make a point
The format matters as much (or more) than the content of what you write

It’s no wonder so much business writing winds up dry, wordy, and dripping with nonsense. People are just continuing the bad habits they picked up in school. It’s not just academic writing either. There are a lot of skills that are useful in academia that aren’t worth much outside of it.

Bottom line: The pool of great candidates is far bigger than just the people who completed college with a stellar GPA.

Own your bad news. When something goes wrong, someone is going to tell the story. You’ll be better off if it’s you. Otherwise, you create an opportunity for rumors, hearsay, and false information to spread. When something bad happens, tell your customers (even if they never noticed in the first place). Don’t think you can just sweep it under the rug. You can’t hide anymore. These days, someone else will call you on it if you don’t do it yourself. They’ll post about it online and everyone will know. There are no more secrets. People will respect you more if you are open, honest, public, and responsive during a crisis. Don’t hide behind spin or try to keep your bad news on the down low. You want your customers to be as informed as possible.

Made to Stick: Why Some Ideas Survive and Others Die

2010-08-20T18:03:55Z

We can engage people's curiosity over a long period of time by systematically "opening gaps" in their knowledge - and then filling those gaps.

After the lead, information is presented in decreasing order of importance. Journalists call this the "inverted pyramid" structure - the most important info (the widest part of the pyramid) is at the top.

Becoming an expert in something means that we become more and more fascinated by nuance and complexity.

When you say three things, you say nothing.

Palm Pilot and James Carville (on the Clinton Campaign) had teams comprised of people who were knowledgeable and passionate about their work - had the capability and desire to do a lot of different things to argue every issue and engineer every feature. Yet in both cases the team needed a simple reminder to fight the temptation to do too much.

People are tempted to tell you everything, with perfect accuracy, right up front, when they should be giving you just enough info to be useful, then a little more, then a little more.

Schemas in Hollywood - Use analogies - Speed was pitched as Die Hard on a bus.

Understand a compact message because they invoke concepts that you already know.

There is value in sequencing information - not dumping a stack of information on someone at once but dropping a clue, then another clue, then another. This method of communication resembles flirting more than lecturing.

Unexpected ideas, by opening a knowledge gap, tease and flirt. They mark a big red X on something that needs to be discovered but don't necessarily tell you how to get there.

Sinatra Test - If I can make it there, I'll make it anywhere

When one example alone is enough to establish credibility in a given domain

Testable credentials - Are you better off now than you were four years ago? Ronald Reagan in the 1980 debate against Carter. Instead of focusing on statistics of inflation, employment rate, interest rates, he deferred to his audience.

The problem is that when you hit listeners between the eyes they respond by fighting back. The way you deliver a message to them is a cue to how they should react. If you make an argument, you're implicitly asking them to evaluate your argument - judge it, debate it, criticize it - and then argue back, at least in their minds. But with a story, Denning argues, you engage the audience - you are involving people with your idea, asking them to participate with you.

Someone tapping a tune can hear the song in their head, while listeners of the tapping cant.

Stories can almost single handedly defeat the Curse of Knowledge. In fast, they naturally emboady most of the SUCCESs framework. Stories are almost always concrete. Most of them have Emotional and Unexpected elements. The hardest part of using stories effectively is making sure that they're Simple - that they reflect your core message. It's not enough to tell a great story, the story has to reflect your agenda.

Ultimately, the test our success as idea creators isn't whether people mimic our exact words, it's whether we achieve our goals.

The first villain is the natural tendency to bury the lead - to get lost in a sea of information. One of the worst things about knowing a lot, or having access to a lot of information, is that we're tempted to share it all.

The second villain is the tendency to focus on the presentation rather than on the message. Public speakers naturally want to appear composed, charismatic, and motivational. And, certainly, charisma will help a properly designed message stick better. But all the charisma in the world doesn't save a dense, unfocused speech.

To beat decision paralysis, communicators have to do the hard work of finding the core. Lawyers must stress one or two points in their closing arguments, not ten.

The Curse of Knowledge, is a worthy adversary because in some sense it's inevitable. Getting a message across has two stages: the Answer stage and the Telling Others stage. In the Answer stage, you use your expertise to arrive at the idea that you want to share. Doctors study for a decade to be capable of giving the Answer. Business managers may deliberate for months to arrive at the Answer.

Business managers seem to believe that once they've clicked through a PowerPoint presentation showcasing their conclusions, they've successfully communicated their ideas. What they've done is share data. If they're good speakers, they may even have created an enhanced sense, among their employees and peers that they are "decisive" or "managerial" or "motivational". But, like the Stanford students, the surprise will come when they realize that nothing they've said had impact. They've shared data, but they haven't created ideas that are useful and lasting. Nothing stuck.

The Communication Framework:

For an idea to stick, for it to be useful and lasting, it's got to make the audience:

Pay attention - Unexpected
Understand and remember it - Concrete
Agree/Believe - Credible
Care - Emotional
Be able to act on it - Story

Symptom: Apathy - No one seems fired up about this

Solution: Remember the Mother Teresa effect - people care more about individuals than they do about abstractions. Tell them an inspiring Challenge plot or Creativity ploy story. Tap into their sens of their own identities like the "Don't Mess with Texas" ads.

Curse of knowledge tempts people to use language that is sweeping, high-level, and abstract: The most efficient manufacturer of semiconductors? The lowest-cost provider of stereo equipment! World class customer service!

Psychologists have uncovered situations where the mere existence of choice, even choice among several good options, seems to paralyze us in making decisions.

Three barriers to talking strategy - The Curse of Knowledge, decision paralysis, and the lack of a common strategic vocabulary - emerge for different reasons, but they can be overcome in similar ways.

Be concrete - Specific and sensory - So everyone understands you message in a similar way.

Say something unexpected - Don't waste your time communicating a common sense strategy - Identify the uncommon sense - new or different aspects of the strategy.
Tell stories - A good story is better than an abstract statement

The conventional wisdom is that leaders should spend a lot of their time presenting and discussing strategy. The most common refrain in strategic communication is repetition, repetition, repetition. Keep repeating the strategy, again and again, until it finally sinks in. Here's the problem: Repetition doesn't prevent the Curse of Knowledge or encourage two-way communication.

Rather we are proposing that leaders treat strategy as a two-step process: Step 1 is determining the right strategy. Step 2 is communicating it in a way that allows it to become part of the organizational vocabulary. Both are necessary.

If strategies are to be living and active - if they are to become embodied in the actions of employees and outside partners - they must be woven into day-to-day conversations and decisions.

If your frontline employees can talk about your strategy, can tell stories about it, can talk back to their managers and feel credible doing so, then the strategy is doing precisely what it was intended to do: guide behavior.

To make an idea simple, then, first find the core of your lesson, then anchor it in knowledge that your students already have.

Sticky = understandable, memorable, and effective in changing thought or behavior.

SUCCESs: Simple, Unexpected, Concrete, Credible, Emotional, Stories

The Villain: The Curse of Knowledge - It's hard to be a tapper. Creativity starts with templates: Beat the curse with the SUCCESs checklist:

Simple
1. Find the Core - Commander's intent - Determine the single most important thing. Inverted pyramid. Don't bury the lead. The pain of decision paralysis. Names, names, names.
2. Share the Core - Simple = core + compact. Proverbs: sound bites that are profound. Visual proverbs: The Palm Pilot wood block. How to pack a lot of punch into a compact communication:
  1. Tap into existing schemas: The pomelo
  2. Create a high concept pitch: Die Hard on a bus
  3. Use a generative analogy: Disney's cast members
Unexpected
1. Get Attention: Surprise - Break a pattern - The surprise brow: a pause to collect information.
2. Hold attention - Interest - Create a mystery - Highlight a knowledge gap. Use the news-teaser approach.
Concrete
1. Help people understand and remember. Write with the concreteness of a fable. Make abstraction concrete by redefining it. Provide a concrete context. Put people into the story. Use more hooks in your idea.
2. Help people coordinate - Find common ground at a shared level of understanding. Set common goals in tangible terms - Our plane will land on runway 4-22. Make it real. Why concreteness helps - white things vs white things in your fride. Create a turf where people can bring their knowledge to bear. Talk about people, not data.
Credible
1. Help people believe
2. External credibility - Authorities and anti-authorities
3. Internal credibility - Use convincing details - Jurors and the Darth Vader toothbrush. Make stats accessible - Nukes as bbs. The Sinatra Test. Use testable credentials.
Emotional
1. Make people care - Mother Teresa principle - If I look at the one, I will act
2. Use the power of association -
3. Appeal to self interest
4. Appeal to identity - Don't mess with Texas
Stories
1. Get people to act
2. Stories as simulations - Tell people how to act
3. Stories as inspiration

Influence: The Psychology of Persuasion (Collins Business Essentials)

2010-04-06T19:41:28Z

Key Points

Core concepts All things being equal, consumers will…

Reciprocity - Give something of value to get something of value
Consistency and Commitment - Will be consistent with a path or approach
Likability - Are more likely to purchase from someone they know, trust and like. AND, more impotantly, someone who knows, likes and trusts THEM.
Authority - Purchase from an authority
Social proof - Purchase based on the recommendations of others
Scarcity - Purchase if quantities are perceived to be scarce.

Important take aways

How to say NO.

Not only does Cialdini explain to readers the many ways that these, "weapons of influence" are used against us, he also explains how we can avoid falling prey to them, and even turn them against the complience proffessionals who use them.

Reciprocity-- The rule of reciprocity states that we must return favors in kind. Thus if a person attempts to employ the reciprocity rule to extort a favor from you need not give the favor. They have attempted to trick you. A just echange does not involve decieving the other. In this case you are perfectly fine to decline the favor.

Consistency and Commitment--Trust your gut. The best way to keep from falling prey to this technique is to trust that sinking feeling that your stomach gives you when you know something is not right. This technique has been employed in a number of ways and verying degreess of consequence including even getting loyal soldiers to betray their country. Trusting your gut and realizing that you have been tricked into writing or saying something you don't honestly believe is very important.

Sometimes however the gut just won't cut it. In these cases there is another powerful protector installed in the body; emotions. Studies and research have demonstrated that just for the briefest of times we are able to feel completely true and honest emotions before cognition sets in. These feeling must be trusted. Think about the situation as a whole and react on that VERY first emotiont hat you feel.

Liking-- To prevent being taken by someone convincing you that you should like them is very difficult. Often times we like a person for reasons totally unconcious, or biologically preprogrammed, such as with looks. In these cases we must analyze how much we do like the person. Once we estimate how much we like the person you must compare that to just how long you have known the person, and how genuine is your relationship. If your liking is disproprtionate to either you may know you have been dooped.

Social proof-- Social proof is extremely powerful tool. It is also extremely useful for societies, and often a very good thing. It prevents us from having to constantly be overwhelmed by the little innconsequential matters. However this use of "autopilot" to guide our actions can be very dangerous in the hands of a skillfull complience professional. The good news is that often times the use of social proof is glaringly obvious. When we see ads with what Dave Barry has named, "consumers from mars" giving clearly fake testimonies TUNE OUT. If the testimonial is clearly being done by a paid actor or spokesperson with no authority in the area their testimonial is meaningless.

Authority-- The key to saying no to authority is never to be the rebel that we all think we are as kids, and always ALWAYS question authority. The three key things to question; is their authority genuine, is their authority relevent, and what do they stand to gain. If their authority is not genuine such as with a con man, then we have no reason to trust anything they say. If they have authority, such as an actor who plays a doctor on tv, is their authority relevent to THIS situation. Finally those who have something to gain from the exchange are never to be trusted based solely on their credentials. We are all business people at heart and they may be trying to make their dime off of their title.

Scarcity-- The key to not being taken in matters of scarcity is to check our emotions. A person must force themselves to not fall trap to basic insticants and fear of survival that comes with a resource disappearing. this primalistic view is programmed into our species and was key to our early survival, but in a society with so many substitutes and other options this panic is undue. In addition we must also remember that while the value and prestige that go along with a scarce object may go up its utility does not. In otherwords, the rarity of an artifact may make it more desirable to have, however simply being more rare will not make a brand of cookie taste better.

Summary

Links

Links to other sites - authors, book’s web site, etc…

StrengthsFinder 2.0: A New and Upgraded Edition of the Online Test from Gallup's Now, Discover Your Strengths

2010-03-03T06:10:36Z

Core concepts:

Focusing on our natural strengths, instead of improving our weaknesses, results in far more growth potential
Employees who feel their job plays right into their strength zone, are more emotionally engaged in their work
Knowledge, skill and practice are most helpful when they amplify your innate talents, in this case talents serve as a multiplier
7/10 surveyed by Gallup did not have the opportunity to focus on what they do best on a daily basis
Employees who do not use their strengths at work become detrimental to themselves and the organization that employes them
There is minimal gain to improving your weaknesses
34 themes of talent were extracted from over 100,000 talent-based interviews conducted by Gallup and classified across four general categories - Striving, Thinking, Relating, and Influencing

Assessment:

Strengths Finder 2.0 provides an online assessment of talents. Once completed, you will receive a "Discovery and Action-Planning Guide" that includes a report of your talents and ideas for how to capitalize on them.

Little Black Book of Entrepreneurship

2010-03-01T09:49:35Z

The regrettable reasons to be an entrepreneur

To be unemployed
To hate your boss
To hate your company
To not be under the orders of anyone
To balance your personal and professional life
To have flexi-hours
To have more holydays
To earn more money
To recover the money and fortune of your family
To show how good you are to others
To show how good you are to yourself
To show how good you are to your fathers
To get rich quick
To help develop your city, county, country
To work in what you love, which will be imposible if you don't create your own company

Entrepreneur and firemen

What you need to travel to businessland

It's better to be alone

Who will go with you to hell?

Partners and pacts

Why will you fight with you partners

The idea doesn't matter

Why you should never start in a new sector?

The good banks

Never put all your eggs in the same basket

An acrobat will never be an entrepreneur

Sales enslave us, profits free us

Entrepreneurs and Managers are cousins, not brothers

The E-Myth Revisited: Why Most Small Businesses Don't Work and What to Do About It

2010-01-19T11:16:49Z

Technician, Entrepreneur, Manager

The reason most small businesses don't work is that they are run by a "Technician", someone who knows how to do the technical work involved in a job, without much thought to two other, equally important roles described in the book, the "Entrepreneur" and the "Manager". These are not separate people, but distinct elements of our personalities. In other words, while we might be biased towards one, we all have all of them, and to successfully run a small business, they must all play a role.

The Technician is someone - a bicycle mechanic, computer programmer, cook, etc... - who is an expert in his or her craft. This often leads these people to go into business for themselves - they're good at what they do, and they know it, so why not reap the rewards of their labor? The technician is happiest doing the work they are good at and ignoring the rest, which is, in the end, a recipe for failure.
The Entrepreneur is the dreamer, the one who sets out to do something new, who reaches for the stars. The Entrepreneur lives in the future, thinking about what could be (rather than in the present). The Entrepreneur is often frustrated by how slow the world seems to move.
The Manager is the detail-oriented one, who dots the i's and crosses the t's, the one who remembers to pay the bills, and wants a well-organized world with no surprises; a world where things happen in an orderly, predictable manner.

All of these components are necessary in the founder of a business: without the Entrepreneur, you might as well keep working for someone else as a Technician. Without any technical ability, the Entrepreneur must rely on others to get anything done, and without the organizational abilities of the Manager, the other two would probably find themselves with the electricity in the office turned off because they had other things to do than pay the bills.

The "Franchise Prototype"

If the business is to thrive, it must move beyond the founder: a business that is wholly dependant on the founder and their abilities is not really a business, but rather a very burdensome job for founder. Every time you are out sick or take a vacation or are otherwise absent, the business stops too.

A real business is one where the founder has created a system so that the business can run itself without their constant presence. The book describes this as the "Franchise Prototype". The inspiration for this comes from franchise businesses such as McDonalds, Subway, Burger King and so on, where there are manuals describing in minute detail how to run the business, so that customers will have the same experience the world over. The book does not suggest that you necessarily try and create a business to be franchised, just to treat it as if it were in some critical aspects: you need a well-documented system to run the business. Instead of running the business (fixing bicycles, writing computer programs, cooking), you need to work on the business - you need to spend time creating a business that is an entity that can operating and thrive on its own.

The Model

The model your business should follow must have these attributes:

It provides consistent value to your customers - it can't be great one day and lousy the next.
It should not require brilliant people to work: certainly, you may need someone with some bicycle mechanic training if you're running a bicycle shop; the idea is not to have people with no skills, but simply to not depend on having people of rare talent in order to work, and indeed to utilize the people with as little skill as possible. The system is what takes ordinary people and enables them to consistently do high quality work.
Everything about the business should be documented in operations manuals.
Everything about the model should be uniform: from the dress code to the facilities, everything should follow previously agreed upon standards.

Innovation, Quantification, Orchestration

Innovation is creativity applied to providing a product or service in a more efficient, higher quality, or more profitable way. You need to be continuously innovating in order to improve your business.

Quantification is combined with innovation to determine what actually works. If you're not measuring it, how can you tell if a change is good or bad for business? If you spend money for a new web site, and you're not measuring how much money is coming in through it, how can you tell if the money spent on it was worth it? You need as much data as possible - with time you'll learn what the critical numbers are, and be able to tell how things are going by keeping an eye on them.

Orchestration is the standardization of what works: once you've tried and measured some particular innovation, it must become part of "standard operating procedure". Once something has been orchestrated, it becomes a part of the business that everyone has learned and knows, not some secret recipe that lies only within the mind of the founder. This ensures consistent quality for your customers.

Aims, Objectives, Opportunities

The author explains that in order to make your business work, you must have a "Primary Aim" in life - not business, but your life. Without that, your business may come to consume you.

Your "Strategic Objective" is what you want to do with the business in order to fulfill your "Primary Aim" in life. This could be simply to sell the business on for a million dollars after 10 years, or develop a business that generates $100,000 in annual revenue without your involvement, or whatever else will allow you to live your life as you see fit. There are several important considerations, the first of which is money, and how much if it you are aiming to make.

The second thing to consider is whether a given opportunity is, as the book says, an "Opportunity Worth Pursuing"; something that can meet your financial needs, first and foremost. The key question to ask is: "does the business I have in mind alleviate a frustration experienced by a large enough group of consumers to make it worth my while?". Another key consideration when determing what kind of business your in, is to look not at the thing you sell, but the feeling you create for your customers about your product and business. An insurance company sells you a financial instrument, but the feeling they are really selling is "peace of mind". A flashy car is more than just a bunch of metal and plastic, it's an image, and a feeling.

Organization Strategy

Rather than starting out and just "jumping in", you need to determine, from the beginning, what roles your company needs, and who will fill them. The example given in the book lists 12 positions, and explains how they are divided up between two founders in a company, who must not only fill those roles, but define them so that they can, as the company grows, easily find people to place in those positions, with a well-defined structure and environment for them to thrive in. "Replace yourself with a system", to quote the book. Each position should have a "position contract" with a list of things for which that position is accountable, and even if few people are performing multiple jobs, they should agree to and sign those contracts.

Management Strategy

The management strategy outlined is once again, a matter of having systems in place. Certainly, you need people that believe in what your company does to make those systems work, but having a system in place that doesn't require a fantastic manager.

People Strategy

The people strategy is outlined as a sort of "game" to be played

The 'game' is not simply a condescending way of getting people to do what you want.
Make sure it's something you'd be happy to do yourself; otherwise other people wont' want to participate either.
Allow for rewards and victories, but don't make it so that people can reach the 'end' of the game.
Be open to change when it's necessary.
It is not self-perpetuating - it has to be nurtured.
It has to make sense. Weird and arbitrary rules discourage people.
There has to be fun involved - maybe not always, but without it, work is only dreary, something to get away from as early as possible every evening.

Marketing Strategy

You must speak to people's unconscious minds - all the rational arguments in the world won't win over someone whose unconscious mind has already said 'no'. You need to learn about your key demographics, and how they think and regard not just products, but the world around them. You need to gather data about who they are. Learn about how other people market to similar demographic targets.

Systems

The book discusses three kinds of systems that are important for your business, with an eye to adopting them in order to make things ever more predictable and consistent.

Hard systems are physical things that systematically resolve problems and free people to concentrate on meaningful work for your customers. They are things that are introduced to solve time consuming problems that do contribute to the success of the company. An example might be a tool to make cleaning a kitchen faster and more efficient.
Soft systems are "people systems" - those practices and methods put in place to give people a framework for doing their job. These systems, in many cases, make it so that relatively less-skilled people can do high quality work, because they're following a system created by an expert.
Information systems are systems put in place to gather information and data about the business and its operations. With actual data, it's possible to test different hypothesis and see which ones work the best. With data, it's possible to know how the business is doing compared to the same metrics at an earlier date in time.

Outliers: The Story of Success

2009-12-15T10:40:41Z

Key points

Hard work is critical to success, but,
Successful people were often lucky to be in the right place at the right time, AND
10,000 hours of working on skills seems to be a rule of thumb

How to sell ideas

The truth is that the stories expressed in Malcolm Gladwell’s books, while compelling and mildly entertaining, are far from revolutionary. The genius of Malcolm Gladwell is his style.

A book by Malcolm Gladwell is unlikely to :

require analytical thinking
tell you something you don’t already know
or make a statement that you might disagree with.

In this they are highly accessible. (like a drug without any side effects). Outliers is no different - the key concepts of the book are that yes, it takes a lot of hard work to be successful, but that there’s some luck involved in getting to be in a place where that work counts for something, or is even possible. The rest of the book is anecdotes and interesting digressions that make for pleasant reading, but are essentially filler.

Outliers is not so much The Story of Success so much as it is A New Way of Thinking About Success. This spin of title points to the true value of Malcolm’s body of works. For just as each of Malcolm’s case studies is really only a conjured aberration to serve as prototypal concept in the formulation of a conceptual illustration of success, so too is the subject of each of his books merely an embodiment of a common yearning.

To be an Outlier, to reach a Tipping point and to create in a Blink, each is an undeniably accessible human longing. Each in itself a fabled silver bullet to success. Each an aberration, a mirage, masking the valley of success of its obstacles and challenges.

To the man on the ground, the path to success may seem treacherous and vast. Malcolm’s works represent a collection of bird’s eye views, bringing the solitary soldier above the canopy for a glimpse of hope. A new way to think about his plight.

These frames of reference, these new ways of thinking about success are made of lovingly crafted analogies and honest speculation.

Scientific? No. Profitable? Very.

The artificial experience orchestrated by Malcolm will probably not help you technically in scaling whatever obstacle you now face.

But when you’re deep in the trenches fighting with all your strength losing sight of the goal on an empty tank, Malcolm’s words may help you just when it matters most. A glimmer of hope to refresh your directive before you have a chance to throw in the shovel.

This Malcolm Gladwell delivers in spades.

Just Ask Leadership: Why Great Managers Always Ask the Right Questions

2009-11-03T21:27:52Z

Key Points

Good leaders don’t just tell people what to do, they ask questions. Questions are often a better way of guiding people than giving orders; everyone will be better off if you manage to help others in your organization think things through to determine the best course of action, because they will be convinced of it in their own minds. Asking good questions is important to help understand your, and your organizations values and understand strategy and direction.

Summary

Links

This link is mentioned as a test for examining your values: www.co2partners.com/cardgame/index.php

BrandSimple: How the Best Brands Keep it Simple and Succeed

2009-07-16T14:49:42Z

Key Points

The author drives his thesis that simple brands are more likely to succeed.
He describes a process to create simple and relevant brands

Summary

The process of developing simple brands:

Establish your brand idea

A simple and meaningful point of difference that consumers should associate the brand with
Includes the 3 components:

Who you’re talking to
Who you want to beat
How you’re going to beat them

Often a solution to a simple, everyday problem that is not obvious to anyone else. Research is a great tool to identify the idea, but requires creative stimuli (e.g. good concepts to test)
“To (1) frugal people, Motel 6 is the (2) alternative to staying with family and friends that provides a (3) welcoming, comfortable night’s rest at a reasonable price.”
Not all ideas following these criteria are good ideas. Aim for a specific but durable idea, and try not to be influenced by too many second opinions.

Capture the essence of your idea

Formulate a brand driver that captures the core meaning of the brand idea
A brand driver is a single phrase or sentence that can be grasped intuitively by co-workers and provide clear direction that every branding signals should follow
A good brand driver talks to peoples’ guts, is crystal clear and easy to remember
GE: “Imagination at work”
The brand driver is a clarification of the brand idea, which complements it by being inspirational and providing guidance

Get the employees engaged in the idea

Communicate the idea inside the organization
Demonstrate what it means to make “on-brand” choices in day-to-day activities
Often a program that makes people understand how and why the brand idea is important, makes them excited about what they do, and engages them in an interesting way
The engineers designing the brakes at BMW know that they are building the “ultimate driving machine”. They don’t need a cookbook recipe, they know the ingredients.
Internal communication of the brand is a way of relating the brand idea and brand driver to the employees’ daily tasks. Best case, they understand all the touch-points with the consumers and what is expected of the brand in that stage.

Consider your brand’s name

The most important branding signal
An even simpler form of the brand idea than the brand driver
The best names resonate with (1) brand strategy, (2) consumers, and (3) the law
“Timberland” – a wonderfully suggestive and expandable name

Create branding signals, beyond the name

Establish a couple of power signals to focus on
Assess where the brand has the best opportunity to connect with the consumer
Can be next to anything in the market mix: product design, web site, retail environment, etc
Apple’s premium packaging and in-store environments are examples of branding signals, whereas KFC’s symbol is a true power signal

Links

Links to other sites - authors, book’s web site, etc…

Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant

2009-06-19T04:25:07Z

Key Points

Moving into untapped or uncontested markets (blue oceans) is a preferable strategy to fighting it out in saturated markets (red oceans).
Innovation is the key to creating blue oceans. Create something that is new, and you will reap the rewards.

Summary

The authors introduce a “Four Actions Framework” to systematically create blue oceans: Analyzing a business that is competing in a red ocean: 1) Eliminate a part of the offering that is expected 2) Introduce a new offering that is unexpected 3) Reduce an offering 4) Augment an offering

This creates a new offering that is uncontested - at least until it is imitated, which may create a need to apply the same discipline again.

Links

http://www.blueoceanstrategy.com/

Good to Great: Why Some Companies Make the Leap... and Others Don't

2009-06-17T22:10:13Z

Key Points

“Level 5 Leaders” - leaders who have both “personal humility” and “professional will”. These are not rock-star leaders whose companies go into decline when they move on. They are diligent and hard working - more bite than bark. Celebrity leaders often work for a time, but appear to be damaging in the long run, because they don’t create sustained results.
Get the right people on the bus - that has to happen before the “what” decisions are taken. That can change if you have the right people, but the wrong people will certainly make the enterprise fail.
You must always be willing to “confront the brutal facts”. Don’t ignore reality in favor of what your hopes reflect it to become. Only by having accurate information can you achieve success.
The “Hedgehog concept” means having a simple, extremely clear concept of what their business is. That business is something they can
1. Make money at
2. Be passionate about, and
3. Be the best in the world at These are also known as “The Three Circles”
A culture of self-discipline is critical, because it creates an environment where people work within a defined system, and yet, because the confines of the system are known, gives them more freedom to act within that system.
Technology is an accelerator, not an agent of change. Good companies use it to execute better, but it won’t save a mediocre company.
“The Flywheel” refers to the idea of momentum - keep pushing in one direction and you’ll build up a lot of it that will help you to overcome obstacles. Momentum is built a little bit at a time - it’s not a dramatic, revolutionary change, but constant, diligent work.

Summary

The idea that sparked this book was to answer questions about how good companies might become great companies, and how they went about doing so.

Methodology

The study looks at companies from 1965 to 1995, looking for those that, for 15 years, either tracked or underperformed the stock market, followed by a transition, and subsequently returning at least 3 times the stock market for at least 15 years. The goal was to eliminate “flash in the pan” success from the results. Further filtering was performed in order to ensure that companies also outperformed their industries, so as not to include spurious results showing entire industries that grew by leaps and bounds in a given period. Eleven companies were located that matched these criteria, and were studied in depth, and compared to competitors in their fields

The companies studied were:

Level 5 Leaders

All the companies studied had what Collins describes as “Level 5 Leaders”. Despite sounding like something from a space-alien worshiping cult, what the term refers to is an individual who is very humble on a personal level, but who possesses a great deal of drive and desire to succeed, where “success” is not personal, but defined by creating something great that will outlast their time at the helm. These are people with an unwavering will and commitment to do what is necessary to drive their organization to the top. Most of the good to great executives discussed luck as an important factor in their success [and perhaps cynical readers of The Black Swan will agree with that assessment more than the factors Collins cites - davidw]. Level 5 leaders, are, in any case, the kind of people who do not point to themselves as the cause for an organization’s success. The chapter closes with a discussion of whether Level 5 Leaders are born, or made, with the conclusion that many people probably have the kernel of abilities and attitude necessary to attain that status.

First Who … Then What

During the transformation from good to great, rather than concern themselves first with the “what” - products, direction, strategy - the companies studied ensured they had the right people “on the bus” before anything else. By having a strong team, these companies avoided the pitfall of the “lone genius” CEO. For example, think what would happen to Apple’s share price were something to happen to Steve Jobs. “Great” companies are those that have a very solid foundation, and don’t depend on the brilliance of any one person.

The research indicated that compensation did not correlate at all with the “good to great” process. No particular compensation scheme appeared to be advantageous.

Also important was that, while the companies were “tough” places to work, they were because of the general high quality and hard-working mindset, not because of ruthless management. Some practical tips for how to be rigorous:

Don’t hire someone unless you’re %100 sure that they’re the right person. It’s better to wait and get someone that you know is a good fit.
Once you realize you need to fire someone, don’t put it off. Do it quickly and fairly, but do it and be done with it, rather than put it off.
Give good people good opportunities, rather than the biggest problems. Fixing problems makes you good, but taking advantage of the right opportunities can make you great.

Good to great teams were mostly composed of people who had a good sense of balance with the rest of their lives - family, church, and so on. Of course, they had a deep commitment to their companies, but not one that blinded them to the other important things in their lives.

Confront the Brutal Facts

One of the key factors in the success of the great companies was a series of good decisions. The good decisions flowed from the fact that they all made a consistent and thorough effort to confront reality, internalizing the facts relevant to their market. Having lofty goals can be good, but you can never lose sight of what the reality is on the ground, no matter how much you will it to be different.

In a large organization, where it’s impossible to personally poke your nose in all corners of the company every day, it is crucial to create a climate where honesty is valued and honored. If people aren’t telling it like it is, those at the top may not realize the truth until too late. Some tips to create this kind of climate:

It’s often better to ask questions rather than dispense “answers”.
Encourage healthy debate. It has to be real debate, not a show put on to make people feel included. It should also not just be argument for the sake of argument - reach a conclusion and move on.
When things go wrong, investigate to avoid repeating the mistake, instead of assigning blame. If people are too worried about protecting themselves, it becomes difficult to honestly analyze and learn from failures.
Create mechanisms, “red flags” that allow people to communicate problems instantly and without repercussions, and in a way that cannot be ignored.

Amidst these “brutal facts” that must be faced, you must also have faith in your final goal. By maintaining this vision, and keeping your ear to the ground, it won’t be necessary to motivate people - if you’ve got the right people, they’ll be motivated of their own accord.

The Hedgehog Concept

The “hedgehog concept” refers to a parable of a hedgehog and a fox, where the fox knows many things, but the hedgehog knows one big thing. The good to great companies were by and large built by “hedgehogs” - this doesn’t mean stupid - au contraire - it just means that they were able to focus on one big important thing that made their companies great. Sometimes it takes real genius to see through all the clutter and grab the one, simple, unique thing that gives you the advantage.

The “three circles” is an idea regarding how to find your “hedgehog concept”: think of three interlocking circles, representing 1) what you are passionate about, 2) what you can make money at, and 3) what can you be the best at. At the intersection of these three things lies the winning target. If you can bring all three things to bear, you have found a way to excel. Learn to realize, as well, what you will never be the best at - those are things you must avoid, if possible. The economics of various industries varied widely, but the good great companies were winners, even within industries that weren’t rising stars. One consistent rule of thumb is to identify a ratio, profit per X, (where X could be customer, web site user, per unit sold, per employee etc…) and focus on that. Sometimes it may not be obvious.

Passion, on the other hand, does not come from executive rah-rah sessions with employees, but by doing things that make people passionate on their own. Passion isn’t something that can be forced on people, it has to come from a mission that they truly believe in, that’s more than just a paycheck.

Another practical suggestion is to create a “Council”, of between 5 to 12 people, to discuss and gain insights into the organization. It should meet regularly, not a one-time group. Its members should bring to the table a deep understanding of some portion of the firm. They need to freedom to speak their minds, and always have the respect of the other Council members. The Council exists to help the chief executive, not reach a consensus. It is an informal group, in the sense that it is not spelled out in official documents or org charts.

Culture of Discipline

Great companies have both an entrepreneurial spirit and a sense of discipline. They are both necessary - without the drive to try new things, and some degree of independence, a company becomes a rigid, stifling hierarchy. Without some sense of discipline, things begin to break down as the company grows. The best companies have both latitude for individual action, as well as a culture of disciplined behavior. This begins, once again, with the right people. It’s useless trying to create rules to force the wrong people to behave correctly - it simply won’t work. Instead, you need to find people who have an innate sense of self-discipline that doesn’t come from above. There is a big difference between having a “tyrant” that enforces a culture of discipline by fear, and finding people who naturally adhere to a disciplined approach. The former will disintegrate when the leader moves on, the latter creates a lasting system.

One helpful approach to discipline is to have a “stop doing” list. Stop doing the things that aren’t central to your business. Stop doing the things that are just clutter, but even more importantly, stop doing even things that might be seen as important, if they are not in your “three circles”.

Technology

“Great companies adapt and endure” - technology is not a differentiator in and of itself, but rather something that enhances great companies. They use it to further increase their leverage, in a conscious, directed way, rather than rushing to embrace it for the sake of its newness. Technology won’t light a fire where there is none, but where there is already good momentum, judicious use of technology can help accelerate it. Technology is an enabler of change, not the cause of it - but the “people factors” must be in place before application of technology will do any good. Technology as a reaction - to the latest fashion, to the competition - was not what was found in great companies. These companies possess a drive all their own that pushes them to be the best in their chosen field, and picking the right technology is a natural part of that.

The “Flywheel” and “Doom Loop”

These two concepts represent positive and negative momentum. A flywheel is a heavy wheel that takes a lot of energy to set in motion - to do so usually requires constant, steady work, rather than a quick acceleration. Great companies’ transformations were like this as well. There was no magic recipe or no ‘aha’ moment when everything changed. Rather, with everything in place, lots of hard work slowly but steadily got the great companies going faster and faster, with a lot of momentum. Once it’s in motion, all that stored energy tends to keep it moving in the right direction.

Conversely, the “doom loop” is the vicious circle that unsuccessful companies fall into, rushing first in one direction, then another, in the hope of creating a sudden, sharp break with the past that will propel them to success. Some attempt to do this through acquisitions, others through bringing in a new leader who decides to change direction completely, in a direction incompatible with the company. The results are never good. The difference between the two approaches is characterized by the slow, steady, methodical preperation inherent in the flywheel, as compared to the abrupt, radical, and often revolutionary, rather than evolutionary changes within the company.

Built to Last

The results from this book were obtained without regards to Collins’ earlier work, Built to Last, but when all was said and done, Good to Great is what has to happen before a company becomes Built to Last. Much of what is present in Good to Great was present during the creation by their founders of the Built to Last firms. Companies that have endured have a raison d’être beyond simply making money - they have distinguishing and unique characteristics, goals and ways of operating that go beyond a simple desire to make money. These core values are preserved, while tactics change continuously to deal with an restless, tumultuous world that never stops.

The “Big Hairy Audacious Goal”, a concept introduced in Built to Last can be either good (as motivation, something to pursue), or bad (if it’s impossible or a bad fit). Good BHAGs are those formulated from a deep understanding, whereas bad ones come from brash recklessness without regard for the actual values and capabilities of the company.

Why greatness?

Because it’s not really that much harder to be great than good, and if you’re not motivated to greatness, perhaps you should consider doing something else where you are.

Notes

Interestingly, CEO salaries don’t seem to be a major factor in terms of their correlation with “good to great” companies.

Links

http://www.jimcollins.com/

Detailed criticism of the book: Why “Good to Great” Isn’t Very Good

Built to Last: Successful Habits of Visionary Companies

2009-05-25T08:51:14Z

Jerry Porras’ and Jim Collins’ Built to Last is a philosophical blueprint based on research into the development of some of the United States’ most successful corporations. Recognizing struggling competitors whose businesses disappear after a period of time, Collins and Porras focus their research towards 18 bona fide, “visionary” companies and analyze them in accordance with guidelines they’ve set on what makes a good company. Selection criteria and research between the two authors was extensive, with attention paid towards companies with average founding dates of 1897 and prior along with a surefire system evaluating companies as start-ups, midsize companies, and large companies. In the face of sociological events, Porras and Collins wanted to answer the question “what makes the truly exceptional companies different from the other companies?” with an emphasis on timeless management principles instead of trends and innovations like employee empowerment and shared values.

Porras and Collins learned that their prior beliefs were misfires. During a six year research process, they “unlearned” much of what they learned with large corporations’ successes. In place of former beliefs lays a new groundwork for what exemplifies visionary companies. Here are some of the former myths removed with their research:

A great idea is needed to start companies
Visionary organizations need charismatic leaders
Maximizing profits is the dominate goal with visionary companies
Visionary companies focus on beating competitors
Hiring outsiders as CEO’s is the best way to spark an organization

Some of the core beliefs Porras and Collins discuss in Built to Last include preserving a core ideology, the BHAG (Big Hairy Audacious Goals) concept, owning a cult-like culture, trying new things, refusing the idea of a “great idea” to start a company, and consistent innovation. Preserving a core ideology allows companies stay in tune with competition through the constant evolution of products. The BHAG (Big Hairy Audacious Goals) philosophy encourages organization leaders to conduct paradigm shifts with their products by constantly launching missions, like new products and the building of “firsts.” Both authors also dive into the “cult-like culture” mantra, where every single employee in the company must adapt to a leader’s vision and become cohesive and non-fragmented to survive. Porras and Collins provide the examples of fantastic department store sales people and companies’ devotion to technological products as milestones.

Other philosophies described in Built to Last include constant innovation, “refusing the idea of a great idea”, and embracing evolution. According to the authors, innovating allows companies to keep products and services updated to beat the competition. They use Boeing Engineering as an example of an innovative leader and rival McDonnell Douglas as a company struggling to meet industry standards. Porras and Collins denounce the “great idea” based on research that found many past founders did not start companies with established ideas (i.e. Hewlett Packard’s involvement with failed products prior to discovering electronics as a niche.)

In essence, Built to Last is an analysis of how visionary companies should operate. It revolves around value arrangement and does not specifically ask companies to fire employees, remove resources, etc. It asks for companies to assume a workmanlike culture and keep an eye out for tomorrow and the long term.

Chapter Summaries

Chapter 1 – Best of the Best

This chapter reiterates the author’s intentions of describing visionary companies, not visionary product concepts, market insights, or visions. Porras and Collins define a visionary company as a “premier institution in their industries, widely admired by their peers and having a long track record of making a significant impact on the world around them.” They define a visionary company as an organization and describe powerful individual leaders and ideas as inevitably short-lived. Both authors ask readers to compile a list of visionary companies according to reputation, contribution to society, life before 1950, and more. Porras and Collins outline their goals of selecting visionary companies and “comparison companies” that don’t quite match visionary status.

Chapter 2 – Clock Building, Not Time Telling

In this chapter, Porras and Collins liken the longevity of a company to time telling and clock building. According to the authors, time telling is “having a great idea or being a charismatic visionary leader” and clock building is “building a company that can prosper far beyond the presence of any singer leader and through multiple product life cycles.” Porras and Collins explain the importance of building an organization’s “core value system” instead of relying on great product ideas, charismatic leaders, and paying too much attention to profit. They denounce the idea of charismatic leaders and explain the “great idea” myth by pointing out Bill Hewlett and Dave Packard’s ventures into non-electronic products and Masaru Ibuka’s Sony Corporations brainstorming sessions on which products to make after starting the company.

Chapter 3- More than Profits

In this chapter, Porras and Collins talk about how important it is to recognize that core ideology alone does not make a visionary company, since everything around you is always changing. In order to meet the demands of a changing world, companies “must be prepared to change everything about itself except its basic beliefs as it moves through corporate life.” According to the authors, companies must preserve its core ideology while allowing room for the manifestations of the core ideologies to change. This means product lines, profit strategies, cultural tactics, and organization structure can change – but a core ideology should not. “Preserving the core and stimulating progress” tactics are discussed.

Interlude – No “Tyranny of the Or” (Embrace the “Genius of the And”)

In this chapter, Porras and Collins make reference to their use of the yin/yang symbol from Chinese philosophy in order to explain the visionary mentality of not “oppressing themselves to the tyranny of the OR” – which means hell for those that cannot live with two contradictory ideas at the same time. According to the authors, inferior companies hold proclamations such as – “you can invest for the future or do well in the short-term” and “you can have low cost or high quality.” This limits companies to a short-minded frame of reference where there is only one choice, but not both. The authors ask readers to embrace both extremes and to figure out a way to have both choices. Visionary companies find ways to do well in the short-term and long-term, rather than sacrifice one for the other. They don’t look for a balance – rather, acquiring both to the max. The purpose of the yin/yang symbol is to illustrate this concept.

Chapter 4 – Preserve the Core/Stimulate Progress

This chapter describes the ways companies should do business by being able to adapt and change over time in response to market conditions. Over time, competencies, strategies, and goals change but the core ideology must remain intact. One visionary company Porras and Collins use as an example of one preserving its core is Boeing and its fleet of 747 jumbo aircrafts. In the 1950s, Boeing ventured into new territory and took a gamble on building commercial airliners instead of sticking to military aircraft, which earned most of its profit. As a result, its rival Douglas Aircrafts was left in the dust.

Both authors sat that the drive for change in a visionary company is internal, where philosophy takes precedent over external forces like market conditions and profit motives to make them change. Visionary companies must have the confidence to set the “big hairy audacious goals” discussed in the next chapter. They also instill mechanisms in place to preserve the core and stimulate progress.

Chapter 5- Big Hairy Audacious Goals

Chapter 5 discusses a visionary company characteristic of taking risk and “setting super goals” as a hallmark for success. It starts off with Boeing’s pursuit of the commercial airline market in the 1950’s, which was underdeveloped and needing a major player for jet aircrafts. Unlike its rival Douglas Aircraft, who avoided entering the commercial market, Boeing took a gamble and developed a prototype for the commercial airliners used today.

This chapter introduces the “BHAG” concept as a way for companies to enhance team spirit and shooting for goals to become visionary. Porras and Collins describe BHAGs as nearly impossible, but possible with confidence and a bit of arrogance on behalf of the company. It stresses high commitment and working outside of a comfort zone. The Kennedy moon mission is also an example of a BHAG.

Chapter 6 – Cult-like Cultures

Porras and Collins discuss visionary companies as not a great place to work for everyone. All employees within a visionary company must adapt and embrace the core values assigned to them in order for the organization to make strides. According to the authors, visionary companies are demanding of its employees to seek accomplishment and to follow the core ideology. The authors outline four common characteristics of cults that apply to the visionary organizational philosophy – fervently held ideology, indoctrination, tightness of fit, and elitism.

Fervently held ideology – All employees believe strongly in the company ideology.
Indoctrination – Management is responsible for introducing and encouraging the proper work culture to employees.
Tightness of fit – Employees not believe in the same ideology should switch positions or be fired altogether.
Elitism – Recognizing the sense of responsibility that comes from being a member of a visionary company.

The beginning of Chapter 6 uses Nordstrom as an example of a visionary company where an interviewer tells an interviewee what is expected of him, in accordance with the company philosophy of excellent customer service and starting from the bottom to work your way to the top.

Chapter 7 – Try a Lot of Stuff and Keep What Works

This chapter discusses Porras’ and Collins’ visionary company research and how they’ve come to the realization experimentation, trial & error, accidents, and opportunism were ahead of detailed strategic planning. An example of Johnson & Johnson’s accidental discovery of using talc as a skin soother after customers complained of skin irritation from medicated plastics they were producing. They sold packaged “baby powder” soon after. Other example companies include SM getting into the masking tape business and Walmart introducing people greeters.

Both authors describe opportunistic experimentation through trial and error as a way to make evolutionary progress. According to Porras and Collins, five ways to make evolutionary progress includes:

Giving ideas a quick try
Accept mistakes and letting the weakest die
Taking small steps to achieve small failures in order to get ahead
Persistence
Building a “ticking clock” as described in Chapter 1 to turn the aforementioned points into a process.

Chapter 8 – Home Grown Management

Porras and Collins describe a characteristic of visionary companies as likely to hire inside employees to high positions as opposed to other organizations that “hire from the outside.” This allowed for consistent excellence in leadership from within the ranks, from employees who have adhered to the company’s core ideology. In the overall picture, this is a way for companies to preserve the core while stimulating progress – a mantra discussed in Chapter 4.

To support their claims, both authors cite comparison companies are six times more likely than visionary companies to hire their CEO from a pool of outside applications. At visionary companies, only 4% of CEOs came from the outside.

Chapter 9 – Good Enough Never Is

In this chapter, Porras and Collins ask wannabe visionary companies to ask the follow question: “how can we do better tomorrow than we did today?” instead of lesser questions posed by lesser companies like “how well are we going” and “how well do we have to perform in order to meet the competition.” They reject the idea of a “finish line” and define a visionary company as one who is never satisfied with its results. All visionary companies hold high standards and reject the practices of comparison companies that make money off successful products. Porras and Collins stress investing for the future and adapt to newer ideas and technology earlier than others. Out of 18 companies researched, 16 were found to drive themselves harder for improvement.

Chapter 10 – The End of the Beginning

In this chapter, Porras and Collins use the “end of the beginning” concept to explain how visionary companies translate their core ideologies into the every day workings of the organization. Core ideology is translated into the strategies, behaviors, business practices, and goals of the organization. Porras and Collins used Hewlett-Packard as an example of a “core ideology into practice” organization with their management methods of providing well defined objectives to employees and allowing them as much freedom as they wanted to work towards that goal with the intention of recognizing the individual’s efforts throughout the organization.

Some business practices Porras and Collins explain are paying attention to details, combining pieces to perform tasks (i.e. employee talents), asking if a practice is appropriate to a company’s ideology and goals instead of “is this practice good?” and taking care of misalignments within the organization.

Chapter 11 – Building the Vision

“Building the vision” is a rearrangement of values intended to stimulate progress. It asks potential visionary organizations to strive for self-improvement day in and day out and to invest in new technologies and new management methods to take risks instead of lying back and remaining conservative. An eye should always be kept for the long term instead of the short term, even when it is hard to do so.

The Snowball: Warren Buffett and the Business of Life

2009-05-19T14:10:35Z

Biography

Since this book is a biography, it’s not really possible to summarize it. However, I’ve found it to be a very good read so far, and I thought I’d take a few notes, and add it here to make it available for discussion. Feel free to add your own notice - things that struck you as notable about the book.

Notes

It’s impressive just how focused Buffet was on making money from an early age.
He generally seems to have been a pretty honest and fair guy in terms of making his money, but there are definitely some things that left me scratching my head, too. For instance, there’s a quote about him borrowing neighbor’s cars and returning them with the tank empty. Also, there’s a bit about him buying up this old stock in a Nebraska company from more or less clueless farmers that had already been swindled once. It didn’t seem the nicest of things to do to people who had already been screwed once by ‘big money’ type people.
In terms of applicability to today’s market, Graham’s approach strikes me as being sort of ‘quant’ like - he looked for the companies that had certain numbers, and bought them. That was, however, ‘easier’ in a sense, in those days, because they didn’t have computers to whip through thousands of stocks in a few seconds to dig up the ones with matching numbers, so they actually had to spend time and effort to find the “cigar butts” (as they’re called, over and over again, in the book). Would Graham have been so successful today?
It’s interesting to notice that his aversion to the technology sector is something that was not just limited to the dot-com era. He had a chance to invest in Intel as it was being formed, and passed on it because of his lack of understanding of the field they were operating in. In hindsight, it was a huge missed opportunity, but you also have to credit him for sticking to his guns, and who knows, if he’d bought into Intel, maybe he would have bought into a number of losing propositions as well.

Links

http://en.wikipedia.org/wiki/Warren_Buffett

http://www.berkshirehathaway.com/ - the annual reports are, of course, great reading.

http://www.tnr.com/story_print.html?id=12ef5554-1023-4be9-ad93-681003b280ef - Extensive review of the book, with lots of details.

The Innovator's Dilemma: The Revolutionary Book that Will Change the Way You Do Business (Collins Business Essentials)

2009-05-14T14:44:18Z

Key Points

Disruptive technologies or innovations are innovations that upset the existing “order of things” in a particular industry. The usual process is a lower-end innovation that appeals to customers who are not served by the current market. With time, because the capacity/performance of the innovation exceeds the market’s needs, the innovation comes to displace the market incumbents.
Incumbents generally don’t react to disruptive innovations until it’s too late, because they don’t represent an interesting market, being low end and often low cost. One successful strategy might be to hive off a separate “company within a company” that is responsible for the firm’s response to the disruptive technology. A smaller, more nimble organization is better placed to work in the initially smaller and less lucrative market that the innovation is creating.

Summary

Initially, Christensen examines why firms fail despite being leaders in their market, willing and able to compete with the best, and capable of continuous innovations within their industry.

“Sustaining technological changes” are not the problem for leaders in an industry. Time and time again, they showed their ability to compete in the high end of their market, innovating and at times dealing with radical technological changes. Yet, because these are sustaining innovations, they are almost always best utilized by the firms that already have the best position in an industry. These are changes that follow an “s-curve”, increasing performance as their customers come to expect. New market entrants attempting to compete by means of these sorts of innovations often fail, because the established firms nearly always have more money, more established relationships with clients, a better reputation, and more technological prowess in the market. “The leaders … did not fail because they became passive, arrogant, or risk-averse or because they couldn’t keep up with the stunning rate of technological change.”

However, the story changes radically when it comes to what are called “disruptive innovations” - these are the “changes that toppled the industry leaders”. These are not radical improvements - quite the contrary, disruptive innovations are usually an innovation that are either so much cheaper that they open a new market, or start in a niche that the industry doesn’t care about because it’s too small. However, often the performance of the disruptive technology grows faster than users’ needs, with time catching up to, and surpassing the more high-end or mainstream technologies that are the domain of industry leaders.

An example that has nothing to do with “high tech” comes from the mechanical excavator industry. This industry was dominated by steam shovels until the 1920’s, when gasoline powered engines began to replace them. This was, however, not a disruptive innovation, but a sustaining one, even though the design of the machines changed radically from that of a steam-powered system of cables, to that of a gasoline engine driving a system to extend and retract the cable connected to the bucket. The new engines were more capable than the old ones, and were better at doing more work more reliably, and cheaper than the old system. Despite the radical change in the industry, the same firms that were strongest in steam shovels stayed on top. The disruptive change came with the introduction of hydraulic-actuated systems after World War II - a change that eliminated nearly all of the established players by about 1970, in favor of companies that entered the market with hydraulics. The first hydraulic-based excavators were less capable than the cable systems that were in existence, and certainly couldn’t compete with them. However, they were small enough that they could be deployed for jobs previously done by hand, opening up a new market, in which the desired attributes were quite different from the big jobs that the cable actuated excavators were used for. The technology involved in hydraulics continued to improve, however, and with time eventually equaled and then surpassed the needs formerly filled by cable-based systems. In the meantime, though, the established firms were still going strong, and didn’t do much, if anything, to deal with the new competitor (because it wasn’t really seen as a competitor, not being sufficient for their existing clients’ demands) until the new arrivals were “in the midst of their mainstream market”. By the time the established companies introduced their own hydraulics, however, it was too late, and the later entrants were by then better positioned with the new technology.

Links

http://www.claytonchristensen.com/

http://en.wikipedia.org/wiki/Disruptive_technology

The Seven-Day Weekend: Changing the Way Work Works

2009-05-09T07:59:01Z

Question everything about your company (3x why)

Get rid of command-and-control management style: treat employees as adults

Let the employees decide when, where and for whom to work (as teams and individuals)
Let them choose their own salary (known to everyone in the company) - Predicated on completely transparent company finances
Let them choose what meetings they go to
Instead of defining the business (as a founder), let your employees shape it with their talents, efforts, interests, and initiatives.

Get rid of:
structure and org chart
business plan, company strategy, and mission statement
(most) executive positions
standards, practices, reports, expense accounts, and other employee monitoring
profit and growth as the only success metrics

Instead, let democracy rule. This means:
Give people room to explore their talents and interests, and they will merge their personal aspirations with the company’s goal (both of which will bend to merge together).
employees can veto anything from a new hire to product ideas / business ventures - key measurement for employee interest in any new initiative is attendance of the meeting/interview/etc.

Caveats
This kind of company (especially the part about profit not being the only consideration) does not play well with Wall Street: it’s better to hold it private

TBD

Summary

Links

Links to other sites - authors, book’s web site, etc…

Ricardo Semler on wikipedia: http://en.wikipedia.org/wiki/Ricardo_Semler

Information Rules: A Strategic Guide to the Network Economy

2009-03-13T04:45:28Z

Notable quotes

“Ignore basic economic principles at your own risk. Technology changes. Economic laws do not.”
“We won’t tell you that devising business strategy is like restoring an ecosystem, fighting a war, or making love. Business strategy is business strategy”
“If you think your position as a market leader is totally secure, try reciting the following mantra three times: ‘CP/M, Wordstar, VisiCalc’“.

Summary

This book discusses the principles behind the economics of “information goods”.

Prices

In the language of economics, information involves high sunk costs, and very low marginal costs - in other words, information is expensive to create, but costs next to nothing to reproduce, and there are virtually no limits to the amount of copies that can be produced. Information commodities trend towards the marginal cost: zero, meaning that selling information commodities is not likely to be successful in the long run. There are two sustainable structures for an information market:

In the dominant firm, the largest company in the market has a cost advantage through economics of scale.
A differentiated product market, like the film industry, involves a number of firms producing the same type of information, with many different varieties.

This leads to the conclusion that the strategies to follow are to either differentiate your product, or be the cost leader in your market. A price war may lead to a victory that isn’t worth winning because of the extremely slim margins. If you are the dominant player in the market, don’t be greedy - it’s often better to sacrifice some of your margins in order to keep out competitors. Don’t start a price war unless you are sure you can win, but if you are, be seen as willing to “drop the bomb” and slash prices. By sending this signal, you make other companies wary of encroaching on your territory, knowing that they won’t recoup their investments if you cut prices to the bone.

You have some room to maneuver with regards to pricing and your product if you are fortunate enough to have a unique source of information. To capture as much value as possible, personalize your product to its target as closely as possible. Targeted on-line advertising is an example of this.

Whatever your business, knowing your customer is valuable, and need their feedback in order to improve, and better target your product. The internet makes it much easier to collect current and pertinent data about your customers.

Price discrimination is the art of attempting to match as closely as possible the curve describing what people will pay for your product. A few people will be willing to pay a lot, but if your price is high, you exclude all the people willing to pay less money. On the other hand, too low a price, and you lose out on the money the high spenders would have been willing to pay. There are three ways of implementing differential pricing:

Personalized pricing - each user buys at their own price.
Group pricing, where different groups (students, retirees, etc) get their own price.
Versioning - different versions of the product that the user can select from.

Many web sites, especially airlines, and even amazon.com, change prices for each individual on the site based on their behavoir. Information products sold on the internet offer a great deal of flexibility in setting individual prices.

Reasons why it may make sense to target groups rather than individuals.

You can offer different prices to different groups depending on how sensitive they are to prices.
Network effects: by exploiting the fact that a product becomes more valuable the more it’s used, by offering incentives to standardize on a single product, it may be possible to acquire an entire market segment. Network effects are covered in greater detail later.
Lock in: Once a product has been selected and acquired, changing may be very costly.
Sharing: it may be easier for a group of people to pool resources to utilize information goods.

Versioning

The concept of versioning refers to the practice of creating different versions of the same product at different price points. In the world of books, hardback versions are usually released some time prior to paperbacks. Those who are willing to pay more will purchase the hardback, while those who are more price sensitive may choose to wait for the paperback. In this way, the publisher maximizes revenues, because customers self-select into groups who are willing to pay more or less.

The key to versioning is to select the aspects of your product that are important to some users, and less so to others. Several strategies that may prove effective are:

Delaying cheaper versions. Real time stock information costs money, whereas free quotes are available after 15+ minutes.
A more elaborate user interface for higher paying customers. They’re the experts, usually, and want a pleasant, efficient experience.
Image Resolution.
Speed - cheaper products are slower (sometimes artificially so, so as to be able to differentiate between purchasers).
Flexibility - often times more expensive products are more flexible in what they permit the user to do.
Capabilities, features and functions.
“Nagware” - it’s free to use, but pops up windows and reminders within the program itself that since you downloaded it for free, and are enjoying its use, perhaps it would be good of you to pay the registration fee.
Support - if you actually pay, you are entitled to some support, for free.

Customers may find the concept of versioning annoying, but remember that that segment of the market might not have been served at all were it not for a cheaper, reduced feature version.

Another useful tactic is to utilize people’s “extremeness aversion” in order to steer them away from a cheaper product. By creating three versions, people will naturally tend towards the middle one as the “safe” choice, even in cases where the low end version would meet their needs.

Bundling can be an effective strategy, where one of the included products is not something the customer would have been likely to buy by itself. An example is the Wall Street Journal on-line edition, which is offered at a low price to people who are already print subscribers. If, on the other hand, the customer would likely buy both products at their full price, bundling is likely to lose money.

Promotional pricing is a technique used for price discrimination that works because of the “inconvenience” involved. A sale might only last a few days, and you may have to wait for it to occur. Rebate coupons are often not redeemed. Through this inconvenience, people self-select - those who can pay the full price do, but there is still an opportunity to collect money from those who can’t or won’t and are willing to put up with the inconvenience to get the better price.

Be wary of getting into a competition based only on price, though, because you risk turning your product into a very low margin commodity.

Intellectual Property

Content publishers have traditionally had to content with two costs that are significantly changed by digital technology: reproduction and distribution.

Rather than fighting lower distribution costs, you need to make them work for you. By giving away free samples, you are likely to increase sales. Make sure the free samples direct customers back to you, though. Information that is time-sensitive is more naturally easier to defend against illicit copying. By the time it has been copied and illegally distributed, it may not be relevant any more.

Lower reproduction costs are not an entirely new phenomenon, either, despite the fact the digital reproductions aren’t just good, but perfect copies of the original. Once upon a time, in the 1800’s, libraries were viewed with suspicion by the publishing industry. However, the availability of books to read at a low cost drove many people to learn to read, thus expanding the market for books. Video rentals in the 1980s followed a similar pattern, with videos being expensive to purchase, and vcr’s costing hundreds of dollars, video rental stores made the technology available to more people. Initially, Hollywood was unenthusiastic about this development, but eventually reaped huge benefits.

In order to determine the ideal rights management program, an analysis of the demand curve is in order. The more liberal terms, the more copying and sharing there will be, but it will also be more valuable for your customers, moving the demand curve up. Tighter restrictions will reduce demand, but also reduce illicit use of your product.

It’s also important to take transaction costs into consideration for the “hassle” they create for customers. The lower they are (the easier it is to purchase your product), the better.

Lock-in

Lock-in is the rule, rather than the exception in information industries. Think about changing cars vs changing operating systems. Buying a new car is easy, even if you purchase a Toyota instead of a Ford. Moving to Linux from Windows is a significant challenge even for an expert. To understand the potential for lock-in, “look ahead and reason back”. Even small switching costs can have a large effect. Consider changing email addresses, for example - even though hotmail and gmail are both free, you may not wish to change from one to the other even if you like the service better, because your old email is stored with the other account, and in any case, that’s the email address that most people have for you. “Switching costs measure the extent of a customer’s lock-in to a given supplier”. Companies need to look at the total switching costs - what the customer pays, and what the company pays to acquire a new customer. For instance, with long distance carriers, simply offering a customer 10 dollars to change merely transfers the costs from the client to the company, meaning there is no net reduction. Offering free minutes, on the other hand, where the client values them more highly than the company, creates a net reduction in switching costs. If a business has high margins, this kind of offer is an attractive way of reducing switching costs. If you can easily measure the switching costs, you can calculate your expected profits from a customer as equal to the total switching costs, plus the value of the value of other competitive advantages in terms of a superior product or lower costs, with regards to rivals.

Types of lock in include: contractual commitments, durable purchases (purchasing expensive, durable equipment that can be used for many years), training specific to a particular product, data conversion costs for information and databases, specialized suppliers, search costs (finding other suppliers) and loyalty programs.

The product cycle for lock-in looks like this:

Brand selection - looking at what options are available.
Sampling - testing out a particular option.
Entrenchment - switching would be expensive.
Lock-in - switching costs are prohibitevely expensive.

As a customer, you must understand lock-in in order to deal with it effectively. The two key elements in your strategy are to strike a tough bargain at the beginning of the lock in cycle when your choices are still open, and throughout the lock-in cycle, to attempt to minimize switching costs. By bargaining initially when you have levarage, you improve your situation further down the road.

Sellers desire locked in customers, and to acquire them, need to:

Be prepared to invest to build the initial customer base. Smart clients will know that they face lock in, and your competitors will also want locked-in clients, so competition is fierce to offer attractive terms for the initial purchase.
Aim to entrench customers by creating products that your customers will have a stake in and be prepared to invest in.
Leverage your existing user base. For instance, influential buyers are worth even more, and should be offered corresponding discounts. Consider selling complementary products, as well as access to others to your installed base (be careful not to irritate your users by going too far, though).

Network effects

Whereas the firms of yesteryear - petrochemicals, cars, chemicals, steel, and so on - were relatively stable oligopolies where a few companies dominated an industry, temporary monopolies are what is observed in the world of high tech. The difference is in the economics of scale, versus the economics of networks and positive feedback, which reinforces the strong, and hurts the weak. This tends to create one or a few very strong winners, and few other companies in a market. The “old” companies worked with supply-side economies of scale - whoever could grow the most could cut costs and grow profits because of the efficiencies created by their massive size. Information companies instead work with demand side economies of scale: people value a product because a lot of other people use it. This creates a virtuous cycle for winners - since a lot of people use your product, even more will decide that they need to as well. Products with fewer users lose those users to products with more users, falling into a vicious cycle.

Economists use the term “network externalities” to indicate the effects of belonging to a network that creates value for its users. For example, someone buys a phone who didn’t have one before. That makes the phones of her friends and relatives more valuable because they have one more person they can call with their phones.

Of course, not every market will be dominated by these effects, leaving a lone winner. If there are widely accepted standards that allow people to switch platforms, there market will not “tip”. The markets for operating systems is dominated by Microsoft, but the market for computers is not dominated by any one company, because the owner of a Dell can interact with the owner of an IBM in terms of sharing files, email and so on, with no problems.

The two strategies that companies utilize in an attempt to deal with network externalities are an evolution strategy in which a migration path is offered, so that users of the network do not have to ‘jump’, making it easier. The ‘revolution’ strategy is painful for users in that they do have to make a leap from one platform to another, incompatible one. You must offer a strong incentive, such as vastly superior performance, in order to give them an incentive to make this happen.

Another important balancing act is in openness versus control. Make an open standard, and more companies are likely to make interoperable products, growing the market for everyone, but leaving you with a smaller portion of it. By controlling it too rigidly, you risk controlling all of a significantly smaller market. Examples abound, such as the IBM PC (open), vs the Apple Macintosh (closed).

Battles over “networks” have been fought in the past, and there is much to learn from them. Instructive case studies are to be found in the telephone industry, as well as color television.

Cooperation strategies

Competing in networked markets presents problems that are different from those in content markets, let alone “traditional” markets. Standards are almost always positive for users, because they create a larger network, reduce the uncertainty of a purchase, reduce lock-in, and create competition within, rather than for the market. Depending on the standard and what it specifies, competition is more likely to move towards price, rather than features. Competitors in a market with a standard have strong incentives to add their own, proprietary extensions that enhance the value of the product in order to make a play to extend their control in the market.

In a standards market, winners include consumers, and producers of complements to the standard product. Incumbents often view standards as a threat. Useful tactics in a standard setting context:

If you can move faster than your competitors, participating might not be in your interests - the standards process may only slow you down.
Keep moving, and don’t suspend development during the standards process.
Keep an eye out for potential side deals.
Carefully search for any patents that key players may hold that will give them an “ace in the hole”.
Vague promises mean nothing.

Allies can be very useful in standards battles, because a larger overall market for everyone results in a net win.

Standards wars

A standard war is what happens when two incompatible technologies clash. VHS versus Betamax is probably one of the most famous. How can you come out ahead?

Standard wars can be classified according to the relative incompatibility of the two technologies. Where one technology is incompatible, that signifies a ‘revolution’ strategy, against an ‘evolution’ strategy when backwards compatibility exists.

The capabilities and assets necessary to win a war in a network market include:

Control over an installed customer base.
Intellectual property rights.
Ability to innovate.
First-mover advantages.
Manufacturing abilities, if supply side economies of scale come into play.
Complements for the product in question.
A strong reputation and brand name..

Whether you are pursuing an evolution or a revolution strategy, two important tactics to utilize are: 1) preemption - by being the first, you are more likely to be able to put the positive feedback cycle of network externalities to your use. 2) Managing expectations - by sending signals to the market that your product will be very popular, people may avoid purchasing a rival product.

Winners of a standards war can’t rest on their laurels, and must be wary of future developments, because the world of technology moves quickly. You also need to pay attention to your product’s complements, preferably by creating a competitive market that you don’t interfere with. Tactics to defend your position are also important, although you must keep in mind antitrust laws. Attractive terms for important complementors is a common tactic. Many companies offer discounts and assistance for their developers. Exclusivity provisions in contracts are powerful, but walk the line of what is legal. Another way to stay ahead is to develop an open standard, but by means of an intimate knowledge of the technology, develop prioprietary extensions and features that might put you in control should they become de facto standards at some point in the future.

Should you fall behind in a standards war, it is usually impossible to regain the dominant position in the market, so your best bets are either in a niche where you are strongest, or to bide your time and aim to win in the next generation. A common strategy for weaker players is to create ways of interconnecting with the dominant player (for example, emulators that let you run another operating system’s programs on your operating system). Slashing prices may be a tempting tactic, but it should be avoided because it sends a signal of weakness to the market and has historically not been effective. Lawsuits are a last resort, if the leading firm has promised openness and not delivered.

At times, a fierce battle will kill or cripple a technology altogether, so be careful not to win the battle and lose the war.

Policy implications

With some ideas about the economics of information, a discussion of government policy is in order.

Price differentiation is covered by the Robinson-Patman Act in the US, which says that differential pricing is permitted only if it doesn’t lessen competition. However, it’s clear that differential pricing is quite common. The key points to remember are: you can lower prices based on lower costs, you can set differential prices to respond to the competition, and differential pricing is only dubious should it “lessen competition”.

Competition policy is relatively vague, with the critical concept that a monopoly may arise from competition, if a firm offers lower prices and better quality - “it is not illegal to have a monopoly, only to monopolize”. Regulation may be called for only when a monopoly is unlikely to be toppled with time by new competitors.

#

Links

Hal Varian

Professor Varian’s columns in the New York Times are good reading if you liked the book.

Carl Shapiro

Predictably Irrational: The Hidden Forces That Shape Our Decisions

2009-01-27T15:15:32Z

Key Points

People are not the rational “homo economus” of classical economics, but they are irrational in predictable ways.
Most customer comparisons are relative, rather than absolute: you compare something you’re thinking of purchasing with other similar things, rather than judge the features and price in a vacuum.
Anchoring has large effects on prices.
“FREE!” has a striking effect on people, causing them to make irrational decisions.
Social interaction and market interaction are two distinct fields, and mixing them can have unintended consequences.
People’s emotional state can have a major impact on their decision making process.

Summary

Links

http://www.predictablyirrational.com/

The Big Switch: Rewiring the World, from Edison to Google

2008-12-21T14:37:17Z

Key Points

The world is switching to a model where computing power resides with large providers, in “the cloud”, rather than hosted locally. This is similar to what happened with electricity - instead of being generated locally, it is now purchased from the electricity grid.

Summary

Links

http://www.nicholasgcarr.com/bigswitch/

The Wisdom of Crowds

2008-10-10T14:37:36Z

Key Points

The thesis of the book, as the author states at the beginning:

under the right circumstances, groups are remarkably intelligent, and are often smarter than the smartest people in them. Groups do not need to be dominated by exceptionally intelligent people in order to be smart.

Summary

Part I

Chapter 1

The book begins with a series of examples of “crowd wisdom”, ranging from the TV show “Who Wants to be a Millionaire?” and its “ask the audience”, to the stock market indicating the company most likely to be at fault hours after the Challenger disaster. These cases all demonstrate the four conditions that comprise wise crowds - independence, diversity of opinion, decentralization, and a way to aggregate the results. Similar results are to be found in sports betting, and in Google’s results, determined by examining the number of links pointing to any given page. One way to take advantage of this wisdom of crowds is through the use of ”prediction markets”, such as the Iowa Electronic Markets, where people buy and sell probabilities as if they were stocks. In the right circumstances, prediction markets are an excellent way of turning the knowledge of many people into reasonably accurate predictions.

Chapter 2

The importance of diversity is covered in the second chapter. A crowd can’t be wise if everyone always picks the same answer as everyone else. Examples include product markets, where there is usually an initial wide range of different attempts in a new market, which is quickly winnowed down to the successful designs; and honey bees, which send out scouts in all directions, but only return to those areas where flowers have been found. Diversity is important to “wise crowds”, because it expands the range of possible solutions proposed. In large groups, diversity comes naturally, but in smaller groups, it’s necessary to support and actively encourage it, to avoid the dangers of “groupthink”. When people give in to their conformist tendencies, and are afraid to stick their necks out, the quality of decisions suffers.

Chapter 3

Independence of action and thought is important for the wisdom of crowds. If everyone thinks alike, then they’re less likely to arrive at a good answer to a given problem, because they’re less likely to fall into “groupthink”. “The more influence we exert on each other, the more likely it is that we will believe the same things and make the same mistakes”.

American Football coaching is cited an example of the “herd mentality”, based on the work of David Romer examining the “best 4th down strategy” (pdf). It turns out that statistically, most teams would be better off trying to make the touchdown or 1st down, rather than going for the field goal, in many cases. However, since the accepted wisdom is to kick, going against the grain of the relatively small pool of decision makers (professional football coaches) would not be an easy choice to make consistently, especially for the risk averse.

Herding behavior often occurs because people seek safety in numbers, but it can lead to problematic results when independence is required. “Information cascades” are what occurs when an initial decision is made by a few people, and then more or less accepted uncritically by more and more people. This isn’t necessarily a recipe for disaster, as we can’t all evaluate everything in our lives, but must trust others to come to good conclusions. However, at times, it can be disastrous when the original information and decisions were wrong, but continue to be accepted by an ever-wider circle. Luckily, for most people, the more important a decision is, the more likely they are to examine the facts themselves, rather than simply fall in line. Information cascades actually work reasonably well much of the time, but the basic problem is that they are a sequential, rather than parallel process. If you’re trying to harness the wisdom of crowds, you must attempt to have all decisions made at the same time, rather than one at a time.

Chapter 4

This chapter covers decentralization - where it works, where it doesn’t and what can go wrong. Decentralized, aggregate behavior is a key aspect of things like free market economies, flocks of birds, and is something that has been touted as a virtuous way of running a company as of late, with small, self-organizing teams. Decentralization allows people, or more generally, components of a system, to act freely and independently of one another, and still interact to produce coordinated results.

Linux is cited as an example of a decentralized system with a central aggregator - Linus Torvalds. As most people know by this point, Linux is worked on collaboratively by many programmers throughout the world, but often, different people come up with competing solutions to the same problem. This is good at finding and testing diverse approaches to see, in practice rather than in theory, which one actually works the best. Ultimately, however, the ‘best’ solutions are not selected by popular vote, but by Linus, who is responsible for taking the results of the decentralized development process, and aggregating them into something useful by selecting the ‘best’ bits and pieces.

Also discussed is the decentralization of the intelligence community, and the negatives involved in the difficulty of sharing information, cited as one factor in the failure of the intelligence community to predict and prevent the 9/11 attacks. The problem, however, was not decentralization, but decentralization with no way to aggregate the results into something useful.

One such way of aggregating information was a proposed futures market based on potential events in the Middle East, and elsewhere, which was, however, not allowed to get off the ground due to squeamishness about the idea of buying and selling bets about, say, a leader’s chance of being assassinated in any particular year. This market could have been a useful tool, perhaps not in predicting precise events, but in collecting information about the general state of things in places where information is at times difficult to gather, and unfettered freedom of expression suppressed.

Chapter 5

This chapter covers what are known as “coordination problems”, which are defined as problems that don’t necessarily have an objectively “correct” answer, but which are framed in terms of coordinating actions with everyone else’s actions. For instance, driving on a freeway requires that you coordinate your speed and actions with those of other drivers, and possibly even the time of day when you drive in order to avoid getting stuck in traffic. Groups are not guaranteed to come up with optimal solutions, but often do.

One solution to coordination problems is central planning - having one omniscient authority that makes some calculations and tells everyone how to act as a consequence. This is, however, often not possible, feasible, or desirable.

Coordination problems are often quite difficult to solve, with one example being a bar, where, if it’s more than 60% full, no one enjoys themselves, but do if it’s under that capacity. Several computer models have been built with agents that follow simple strategies and do manage to coordinate well enough to keep the bar at around 60%.

In some cases, cultural references help us solve coordination problems, both by giving us reference points (ask two people to meet at a given time without communicating the time to one another, and they’ll likely pick 12 noon), or norms, such as “drive on the right”. Conventions also lower the amount of thinking you have to do about certain situations - it’s easier just to follow the rules or guidelines rather than make a conscious decision after weighing all the possibilities. This often frees us to think about more important things.

Corporations are supposed to operate in order to maximize profits, and should be immune to things like social conventions - yet it turns out that they’re not nearly as rational as might be imagined. One example cited is movie theaters, which charge the same price for the latest hit, as for flops that are on their way out. Charge too much for hits, and you risk losing out on concessions, where movie theaters actually make a lot of their money, but by that logic, lowering the price for less popular movies would get more people into the theater.

Markets can also be effective coordination mechanisms. Experiments conducted with students, who know only the maximum price they will pay, or minimum they will sell for, show prices rapidly converging on an optimal price, even though that price is higher than buyers would like, and lower than what sellers would prefer. Real markets often lack lots of information, and indeed the students found the experiment “chaotic and confusing” - and yet, the market worked. Markets aren’t perfect, of course, but they are often the best, if not perfect, way of coordinating disparate buyers and sellers.

Chapter 6

Cooperation problems are superficially similar to coordination problems, but with a key difference: coordination problems can be solved with all players acting in their own interests, whereas cooperation problems require players to “look at the bigger picture”, as part of an organization or society.

Behavioral studies have demonstrated that people will forego a reward in a simple game in order punish someone perceived to be playing unfairly, even when doing so does not benefit them at all. In other words, people, being social animals have a sense of ‘fairness’, even if this isn’t rational in economic terms. This extends to a sense that rewards should be correlated to efforts and accomplishments, and this sense is part of the reason why large organizations can exist in the first place.

Trust is often secondary to long term relationships in terms of promoting ‘fair’ behavior: if you know you’ll see someone again and again, you’re less likely to attempt to cheat them.

Capitalism works in part because it’s possible to trust those beyond an established circle of friends and family, and only works where there are institutions that promote this trust. When you are reasonably certain that you can buy a product and that it will work as advertised, you don’t need to inspect in detail each and every thing that you purchase. This makes the flow of goods and services, and increases the general welfare of a society.

Chapter 7

This chapter discusses the idea of ‘coordination problems’, using traffic as an example, beginning with a discussion of London’s “congestion pricing”. Because traffic was so bad, a market-based solution was found that pushed people to evaluate their access of downtown London via a car: during the day, it costs a certain amount of money to drive into central London. This accomplishes two things: rather than dictating to drivers what they can and cannot do, it leaves everyone free to do as they so choose, but puts a direct cost on accessing the downtown area during certain hours. People who really do need to go there at that time will pay the money, but find the roads less crowded. Other people, without such strong necessities, will take the time to walk, cycle or use public transportation. London is hardly alone in using such a system; Singapore has used congestion charges since the 1970ies, although clearly implementing that kind of unpopular policy is easy in an authoritarian country.

The discussion continues, touching on the subject of traffic flow, and the ideal conditions that produce, a smooth, steady flow, rather than traffic jams, or erratic start and stop conditions. Surprisingly, having just the right amount of cars on the freeway is important: two many creates obvious problems, but two few causes problems as well; with two few cars, people tend to speed up and slow down more erratically than with a steady stream of traffic.

Links

The book’s web site: http://www.randomhouse.com/features/wisdomofcrowds/

Wikipedia page on the book: http://en.wikipedia.org/wiki/The_Wisdom_of_Crowds

Don't Make Me Think: A Common Sense Approach to Web Usability (2nd Edition)

2008-05-30T02:43:43Z

Note: This isn’t really a business book, but it’s one of my favorites, and I think most businesses are on the web these days!

Key Points

“Don’t make me think” refers to the idea that when a web site makes you stop and think about what you’re doing, it’s making your life harder, and perhaps isn’t designed as well as it could be.

Summary

Don’t make me think.

Things that make you think add to your brain’s workload. It might not be much, but these things add up, so every bit of clarity that can be added is welcome. Nobody likes feeling like they’re not sure what to do.

Not everything can always be self-evident. If not, settle for self-explanatory.

How people use the web

Most people don’t read an entire web page, but simply scan it for the first thing that looks good, which they then proceed to click. People don’t attempt a thorough understanding of a web site, but prefer to satisfice - making do with what seems like pretty good choices.

Therefore:

Design pages for scanning, not reading

Create a clear visual hierarchy.
Nest text to show what belongs to what.
Conventions are useful. Stick to them unless you have a really good reason, because they help people to avoid thinking.
Clearly define portions of a page.
It should be very clear what is clickable.
Try and avoid “noise”.

Mindless choices are good

In the sense that people don’t mind clicking more, if they are confident that they’re clicking on the right thing, and the choice was easy.

Writing for the web

Keep it brief.

Get rid of half the words, then get rid of half of what’s left.

Instructions are often useless - it’s far, far better to make things self-evident.

Design for both browsers, who click around to find what they want, and searchers, who go immediately for the search box.

Some problems with browsing, as compared to the more ‘human’ experience of a store, are the lack of a sense of scale, no sense of direction from one place to the next, and no sense of where we are, exactly.

Navigation exists to guide us, to give us something to grasp, tell us where we are, tells us how to use the site, and if it works well, increases our confidence with the site.

“Persistant navigation” appears on every page, and usually refers to:

Site ID
Sections
Home link
Search link or box
Extra utilities

The home page, however, may be an exception to this rule, as well as pages that exist solely to provide a form to be filled out.

Sections can also be called the “primary navigation” and are links to the main sections of the site.

Utilities are useful things that should be readily available, yet are not part of the hierarchy. They shouldn’t be as prominent as the sections.

Page names

Every page should have a name, and it should be in the right place: framing the page’s content.
The name should be prominent, as well as matching what you click to get there!

Breadcrumbs are a useful technique, but shouldn’t be used in place of high quality navigation. The navigation should show at least the top two levels without having to resort to breadcrumbs.

Tabs are a great means of doing navigation because they’re very obvious, impossible to miss, and look good, to boot.

“The trunk test”: if you’ve been blindfolded and locked in a car trunk, you should be able to answer these questions about a site immediately when your blindfold is removed:

What site is it?
What page am I on?
What major sections does this site have?
Where can I go from here?
Where am I in relation to the rest of the site?
Where can I go to search?

Home page

The home page is tough, because everyone tries to pull it in a different direction. It must accomplish/contain the following:

Site identity and mission.
Hierarchy - give an idea of what the site contains.
Search box.
Teasers for content.
Current content.
Promotional offers.
Shortcuts for the most frequently viewed data.
Registration/login.

It should also show you how to get what you want from the site, tempt you with things you didn’t know you were looking for, show you how to get started, and also give a good impression.

A home page is also the place where you need to spell out the big picture. Remember not to write too much, and include these elements:

tagline - next to the site id, sums up the whole site.
welcome blurb - a terse description of the site.

Be sure to test the home page with other people who are not ‘blind’ to the site because they’ve been looking at it as much as you have.

A good tagline is clear and informative, normally between 5-10 words, and also convey what’s different about your site, rather than vague, generic text.

Web design arguments are often a waste of time

Avoid useless debate between team members. Rather than debate what “most people like”, look at what works for your site, and test it.

Simple, cheap usability testing

Testing doesn’t have to be perfect, because any testing is far better than no testing. The earlier testing occurs, the better. Testing is an ongoing process - keep doing it as your site evolves. Cheaper tests are better, because they are more likely to happen at all, and happen more often.

You only need a few people, 3 or 4.
Almost anyone will do, you don’t need to carefully select people.
You don’t need much planning to do tests - just decide what you’re going to show and do.
Costs will probably be under $400, with a small ($50-$100) stipend for your users’ time.
Debrief immediately after the test and put the knowledge gained to use.

Basic testing requires an empty room with a desk, computer, a few chairs and to show what the user is doing to others, a camcorder, long video cable and tripod. The video setup is used not to videotape the session, but simply to broadcast it into another room where interested parties (anyone who is interested - developers, designers and management are all welcome) can observe the session and discuss it freely. A more advanced setup might utilize a video recorder aimed at the user’s face in addition to one following the screen. Another possibility is a screen recording system that records exactly what’s happening on the computer’s screen.

Tests should consist of several parts:

See if they understand what the site is about, why it is valuable, how it works, and so forth.
Ask the user to perform some tasks on the site, and see how well they are able to accomplish these.

Once you’re done, review the results immediately - try and determine what the problems were, and how to go about fixing them. Ignore problems where the user had a little problem but then found the right way. Being unclear on the overall concept, not finding the works they seek, and being overwhelmed by too much information are common problems. If you fix something, make sure it doesn’t break other aspects of the site.

Usability - comment courtesy

Depending on their mood in any given moment, most people have a “reservoir of goodwill”. Each problem they encounter on a web site drains it (and when things work well, maybe it gets added to). When they hit their limit, they’re likely to leave your site unless they absolutely must use it.

“Don’ts”

Don’t hide information users want.
Don’t require the user to adhere to the site’s dictats (phone numbers should be ok with our without dashes, dots or whatever).
Don’t ask me for information you do not need.
Don’t be phony.
Don’t get in the way of using the site with fancy features.
Don’t make an amateurish looking site.

“Do’s”

Make the things people want easy to do, and obvious.
Tell people what they want to know.
Don’t make people jump through any more hoops than they absolutely must.
Put some effort into it - users will see it and appreciate it.
Know, and show, answers to common questions.
Add extra touches, like printer friendly pages.
Make it easy to back up and try again in case of user errors.
Apologize, if the site simply doesn’t do something a user wants.

Accessibility

By ”accessibility”, we mean making it so that, for example, a visually impaired person using a screen reader will be able to navigate and utilize your site. You should make your site accessible, because of “how extraordinarly better it makes some people’s lives”. One very simple test is to view the site with a greatly increased font size, and see if it still looks ok.

Getting accessibility right is difficult, but there are five things you can do immediately:

Fix the usability problems that confuse everyone.
Read this article: http://redish.net/content/papers/interactions.html
Read one of the following books:
- Building Accessible Websites by Joe Clark.
- Constructing Accessible Websites by Jim Thatcher.
- Maximum Accessibility: Making Your Web Site More Usable for Everyone by John Slatin and Sharron Rush.
Use CSS
Low hanging fruit:
- Add alt text to all images.
- Make sure forms work with screen readers.
- “Skip to Main Content” link at the beginning of each page.
- Ensure that it’s possible to navigate by keyboard alone.
- Be careful with javascript.
- Use client-side image maps.

Links

Steve Krug’s web site: http://www.sensible.com/

Recommended reading: http://sensible.com/recreading.html

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Chapter Summaries

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Chapter 2 – Clock Building, Not Time Telling

Chapter 3- More than Profits

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Chapter 4 – Preserve the Core/Stimulate Progress

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Chapter 6 – Cult-like Cultures

Chapter 7 – Try a Lot of Stuff and Keep What Works

Chapter 8 – Home Grown Management

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Chapter 10 – The End of the Beginning

Chapter 11 – Building the Vision

See also

The Snowball: Warren Buffett and the Business of Life

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Question everything about your company (3x why)

Get rid of command-and-control management style: treat employees as adults

Get rid of:

Instead, let democracy rule. This means:

Caveats

This kind of company (especially the part about profit not being the only consideration) does not play well with Wall Street: it’s better to hold it private

Summary