Stephen O’Grady has a piece today, Software is the New On Base Percentage, which proposes that effective use of software is no longer a way for a business to gain a competitive advantage, but rather the price of entry for being a viable market participant.
It begs the question, how does a company gain a competitive advantage these days? My argument would be that the most effective approach is to recruit and retain creative people, and to free them to do their best work. I think this is the real lesson for any business in the Valve employee handbook. Yes, I’m talking about it again.
Valve’s employee handbook is, as much as anything, a recruiting tool. It’s a promise that if you have good ideas, nobody at at the company is going to stand in your way. That’s a great pitch.
At Etsy, we find that the people who are the easiest to recruit are the ones who read the company’s engineering blog, Code as Craft, tried to apply things they learned at their own company, and eventually gave up and just looked for a job at Etsy instead.
Companies that put obstacles in the way of people solving problems find that the first rate employees look for other jobs, and that second rate employees devote their time to using Facebook rather than looking for ways to make things better.
The most effective way to gain a competitive advantage at a company is to create a culture where employees are free to use as much of their brain as they want to build value for the company.
I’m just going to keep posting stuff about Valve until I get tired of it.
Did you read the Valve employee handbook? If not, you should. To catch you up, at Valve, the corporate structure is completely flat. They have no managers, and everyone decides what to work on for themselves. The handbook explains what is expected of Valve employees and how people should adapt to that corporate structure.I’m sure some people find it intriguing and others terrifying.
Succeeding at Valve depends on two things, the application of one’s judgement and influence. Employees use their judgement to decide where they can add the most value for Valve. They use their influence to recruit other people to help them build the things that they have decided are valuable. Find a problem to work on, convince other people to help you solve it. Nobody is empowered to order anybody to do anything.
What occurred to me after reading the Valve handbook is that you or I can work in the Valve style regardless of where we work. If you work anywhere but Valve, you probably have a manager and you may have people who you manage as well. Within the constraints of your job, though, you should be relying on judgement and influence rather than hierarchy in your work, just like a Valve employee does.
If, in your judgement, there’s something more valuable you could be working on, you should be convincing people (like your boss) that your time could be better spent working on that other thing. Just be sure that you’re open-minded enough to accept that your judgement could be mistaken. If you’re right, though, it ought to be easy to convince people that your time could be better spent on a more valuable project.
At the same time, rely on influence rather than authority to get the help you need to get your work done. People generally do better work if they believe in the project they’re working on, and the ability to recruit volunteers is a good sign that whatever you’re working on is worth doing. People sometimes mistake interesting for valuable, but it’s always better to work with enthusiastic volunteers than with people who are doing something just because someone told them to do it.
Obviously if you work on an oil rig or at Burger King, this approach may not work. However, the field I understand best is software development, and if you’re working on software, you should the Valve philosophy to heart. Use your judgement and influence to make sure you’re adding as much value as possible at your job. If that gets you into trouble, maybe it’s time to use your judgement and influence to land a job more suited to your talents.
Apropos of yesterday’s post, today someone has posted a leaked copy of the Valve employee handbook (a PDF). Here’s an except from page 8:
We’ve heard that other companies have people allocate a percentage of their time to self-directed projects. At Valve, that percentage is 100.
Very much worth reading.
Lane Becker and Thor Muller have a new book out about the importance of harnessing serendipity — making your own luck. Becker explains why startups are better positioned to do so than established businesses in an interview with the New York Times’ Nick Bilton:
It’s a problem for start-ups as they grow and become a traditional business, because most businesses succeed through repetition, process and routine. But all of those things are designed for rote predictability. So we engineer our businesses to squash the role of serendipity inside their organizations. Even start-ups, when they get big, and they stop listening to your users, fall into a process of repetition.
I was struck by this explanation because today I also read Michael Abrash’s blog post on what it’s like to work at the game company Valve. It sounds like Valve is structured to cultivate serendipity in exactly the way Becker describes:
If most of the value is now in the initial creative act, there’s little benefit to traditional hierarchical organization that’s designed to deliver the same thing over and over, making only incremental changes over time. What matters is being first and bootstrapping your product into a positive feedback spiral with a constant stream of creative innovation. Hierarchical management doesn’t help with that, because it bottlenecks innovation through the people at the top of the hierarchy, and there’s no reason to expect that those people would be particularly creative about coming up with new products that are dramatically different from existing ones – quite the opposite, in fact. So Valve was designed as a company that would attract the sort of people capable of taking the initial creative step, leave them free to do creative work, and make them want to stay. Consequently, Valve has no formal management or hierarchy at all.
It’s brilliant when it works. I think that Becker is wrong, though, when he says that repetition, process, and routine are the enemies of serendipity. Building the wrong kinds of structures and processes have been responsible for crushing serendipity in many organizations, but the right kinds of processes (or if you prefer, habits) are necessary parts of maintaining the possibility for serendipity as a company grows.
For example, from an engineering standpoint, Etsy’s core practice is continuous deployment. Regardless of whatever else is going on, developers are always testing code, checking it in, and pushing it to production, many, many times a day. It’s that process that enables the company to continue to rapidly iterate even though the engineering team is growing. The process for pushing code is rigid and everyone follows it every single time they need to deploy something. It’s that process, though, that liberates people to be creative as individuals.
I’d be willing to bet that Valve has any number of processes or ingrained habits that serve the same purpose. People there obviously understand how to form teams without being told what to do. They have a common understanding of how Valve writes software that enables them to contribute to any project that the company is working on. Valve creates software that ships in big monolithic releases — engineers there clearly understand what’s expected at each phase of the project so that they can ship.
Of course, I’m responding to one short paragraph from the interview — I haven’t read the book. I think, though, that from a distance people look at creative companies like Valve or GitHub (which I plan on writing about some other time) and think mostly about the liberties people are allowed to take. My guess is that in large part, their success derives from the adherence to norms that are deeply embedded in the cultures of those organizations. Because the team members voluntarily adhere to those norms, they don’t stifle individual creativity.
If this sort of thing interests you, check out the book — Get Lucky.
For a long time, I was shocked by blogs like Etsy’s engineering blog, Code as Craft. I had a sort of old-school “information is power” mentality that led me to believe that letting competitors know about your technology stack would put a company at a disadvantage. Building scalable systems is hard, and I thought it was foolish to give away your secrets. I also prided myself on being able to sleuth the details of a company’s technology stack using URLs, HTTP headers, and page source.
I have long since come around to the opposite point of view, but general attitudes about this stuff hasn’t changed much once you get past the most progressive organizations. Stephen O’Grady explains to the recalcitrant why hiding your technology stack is a bad idea.
The other day I said on Twitter that all problems are user experience problems, except for scaling. And the solutions to those problems are generally so complex and so specific to a company’s product, staff, customers, and existing code base that slavishly copying one’s competitors at meaningful levels isn’t really possible. At most, what you usually get is an idea of what to try next, or issues you may run into down the road.
The advantages of sharing are real, and the disadvantages are an illusion. Go forth and start an engineering blog.
The big news of the week is Facebook’s purchase of Instagram. I wasn’t going to write anything about it because it didn’t seem like there’s much to say that hasn’t already been said, but that may not be the case. For general commentary, I would recommend Paul “@ftrain” Ford’s Facebook and Instagram: When Your Favorite App Sells Out. I want to talk about something specific — Instagram’s filters.
I was on the fence about posting about it, but after The Daily Show made fun of it this week, I felt compelled to do so. I’m not in the business if picking apart jokes, but I see the sentiments in the Daily Show piece reflected frequently in serious commentary as well, and for the sake of all of you out there who are about to start building your own photo sharing apps in hopes of hauling in a huge bag of loot, I want to make sure you don’t emphasize the wrong things.
There are a bunch of iPhone apps that enable you to apply silly filters to your photos, and they are popular. Instagram’s filters are a “me too” feature that seemed to decline in use over time. If you look at the “Popular” tab in Instagram on any given day, you’ll find that photos with retro filters were rarely seen.
What works about Instagram is that it fosters deeper connection between people who are friends on the service and makes it easy to “meet” new people through their photos.
The interface encourages people to share photos one at a time, rather than uploading them in big batches, unlike most other services. The prominence of the “like” feature encourages people to compliment other people’s photos and to publish photos that other people will like, driving the overall quality of the photos on the service up. Unlike the photos people usually post to Twitter or to Facebook, photos on Instagram tend to be composed somewhat thoughtfully.
Instagram makes it easy to see the photos that your friends have liked, which facilitates finding more interesting people to follow. Following is also lightweight, as it is on Twitter. The result is that it’s easy to grow your network on Instagram. Looking at the photos a person takes every day feels more personal than reading their updates on Twitter. You learn about the way they see the world.
Why did Instagram sell for a billion dollars? Not because of novelty filters, but because it provided a compelling place to look at good photos taken by people you care about, and to find new, interesting people and develop relationships with them.
Matthew Yglesias makes the argument that Chipotle is the Apple of fast food. America may not be manufacturing consumer electronics, but it is manufacturing more burritos. It’s an interesting and provocative piece.
For what it’s worth, I love Chipotle. Specifically, the carnitas burrito with rice, black beans, cheese, corn salsa, and hot salsa.
Matthew Yglesias explains how Facebook’s ownership structure insures that if he so chooses, Mark Zuckerberg will have complete control over Facebook for the rest of his life. I find that fascinating:
To purchase a share in Facebook is to bet that at some future point some future person will want to take it off your hands for more money. You’re not getting even a notional slice of control in the company. There are no limits on the CEO’s ability to channel Facebook’s profits directly into his own pocket rather than yours. There’s not even a cheap-talk promise that he’s going to try to maximize the value of your investment. He created the company, he controls the company, he will always control the company, and he’s graciously allowing you to turn some of your working capital over to him.
This article (link via Daring Fireball) makes a sound argument against the concept of “maximizing shareholder value,” a concept which has struck me as pretty stupid from the first moment that I heard it. It’s one of those things that makes sense as an abstraction, but no sense as a way to run a business on a day to day basis. Given that shareholders are the owners of a company, it theoretically makes sense to focus on making sure their investments pay off, but in practice, the approaches managers take to doing so are just disastrous.
As the article points out, what it comes down to is management focused on the expectations market rather than the real market. The article reviews Roger L. Martin’s book Fixing the Game, and quotes Martin thusly:
What would lead [a CEO] to do the hard, long-term work of substantially improving real-market performance when she can choose to work on simply raising expectations instead? Even if she has a performance bonus tied to real-market metrics, the size of that bonus now typically pales in comparison with the size of her stock-based incentives. Expectations are where the money is. And of course, improving real-market performance is the hardest and slowest way to increase expectations from the existing level.
I see the stock market as a game that exists almost entirely separately from the businesses upon which it is theoretically based. This article goes a long way toward validating those thoughts.
Teresa Nielsen Hayden runs down the debacle of PayPal shutting down Regretsy’s toys-for-kids drive on utterly ludicrous grounds. PayPal works fairly well for most people most of the time, but every once in awhile we get these kinds of reminders of how much power PayPal has over your money if you choose to use them to process payments. There is a very troubling lack of accountability here.
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