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Managing Your Company To Death
puppetman writes "This weeks I, Cringely is a frightening monologue on the plight of over-managed companies: VC's and professional managers who are looking to make a quick buck, even if it consigns the company to the rubbish heap. He praises companies like Oracle and Sun because the founder still runs the company, and is in touch with the core of the buisiness. He also makes an interesting aside about the founders of the Canadian company, Research in Motion (makers of the Blackberry) and their personal contribution of $120 million for research into particle physics, to illustrate what happens when technical expertise and business success can lead to."
the plight of undermanaged companies too! Its like anything - too much or too little of a thing leads to trouble...
I don't read your sig, why do you read mine?
Money is, and always will be a bargaining point. If the benefits are not highllighted properly, research centers are borne to get their funds taken away, or worse, closed down.
"Do something man. Right now."
Many managers have difficulties to understand that there really exists people that are better than them in some areas. It makes them thinking that there own decisions are the best. A good manager can spot good employees and give them responsibility. To manage a company in detail is like fighting several wars at once with multiple fronts. You never get a complete picture down to detail level when you have limited time to read up on everything. Better let someone else do that and check in occasionally to see that it works.
What a big company needs is a clear direction and not what_pen_to_buy decicions.
HTTP/1.1 400
Who is going to do that? The companies? Or perhaps, the goverment will enforce the use of such contracts? Keep in mind that during the months before the telecoms crash, most goverments in Europe actively encouraged common people to go out and buy stock and they used the short-term, noisy, biased indicator that the stock-market is as proof that the country economy was stable, improving, etc.
The truth is, stockmarkets don't work - not in the way I'd like them to anyway - they're just a big bazaar, where wize-guys can go and con other people of their money. So, if a company decides to go for an initial public offering - and thus enter the pit - they'll be getting what they deserve.
I miss my rubber keyboard.(Homepage)
Sometimes I have the feeling that the modern American workplace has regressed into a sort of feudal structure, where management is the aristocracy. The MBA is like a patent of nobility, and once you've got it, you're of the blood, and must never again really worry about your existence. If you toady to higher ranking nobility, you'll get a fief (management job) of your own complete with productive serfs (programmers, etc). If your fief is big enough, you can parcel out sub fiefs (lower tier management) to lower nobles (your business school/ frat chums) and be a liege lord.
And just like back in the day during feuds and other conflicts nobles who lost were almost always treated well by the victors and often were offered chances to switch allegience, today you can easily climb into a good job even if your company tanks (lacking a distinct skill set, managers are fungible; just look at the utterly disparate types of businesses that many CEOs have managed in their careers) and if that fails, there's always the golden parachute.
Back in the day, there were rarely serious consequences to the behavior of nobility as long as it didn't involve treachery towards those above you, and today this seems to be so with our manager class, at least as far as business decisions go. Being noble was enough.
I know this because Tyler knows this.
People will mod me down, reply that I'm an idiot but the fact is still that people who actually know how to make business and sell services and products are vital to any company!
Take a look at the last couple of years pathetic business-models and how many technology companies have been run and have tried to sell stuff.
A couple of examples:
* We are going to expand. No matter if we have customers or not, we are going to expand. DON'T EXPAND JUST BECAUSE ITS FUN! Expandations should in most cases be organic, in small companies it should more or less ALWAYS be organic.
* We are going to spend thousands of man hours (=gigantic cost) and then give our products away for free. Dot-coms and open source development companies are examples of this. FREE DO NOT PAY THE BILLS! Nothing will ever change this fact. And just forget about charging in a later stage. Have you got customers used to the idea of not paying it's extremely hard to change that later.
* We are going to give away this huge product and
sell this tiny thing thats optional. If you do this you have just teached your customers that a huge product doesn't cost anything, and then it doesn't make any sense to pay for a tiny part. This is how peoples minds work. Any business-oriented person knows this but tech-people apperently does not.
* We are going to sell product X or service Y for this cheap stuff. Why do you think people pay so much for support for enterprise server software or enterprise databases? Because the products are expensive, that makes it possible to charge much for support or other third-party products. When the products becomes cheap no one pays as much anymore, it indicate low value. You wouldn't pay $5000 for a car stereo in you fiat, right? Any business or sale-oriented person knows this but most tech-people don't.
Microsoft is possibley the most profitable company at this time. And remember Bill Gates was, atleast initially, more technically inclined. For a moment let us forget about his (questionable) marketing strategies and look at the company. He almost single handedly set up a software empire and that too without an MBA from Harward.
Now regarding the strategy used by Bill, let us analyze this - Bill Gates and John D. Rockefeller built their monopolies using more or less the same technique In the 1980s, Bill Gates got the computer manufacturers to pay him the price for Windows for each computer they manufacture, regardless of whose software is on it. In the 1870s, John D. Rockefeller got the railroads to pay him a rebate for every carload of oil they ship, regardless of whose oil it is. Same deal! How did they manage such deals? I don't want to draw allegations but maybe by bribing the officials of the other companies.
Anyways, according to me, it shouldn't matter who is running the company as long as we have some level headed people at the helm. People who do not get sucked in by heavy jargons and latter blame it on the technology. If the company expands and the owner is not able to control it, then by all means he/she should step down and let others take over. No point in building an empire and bringing it down just for vanity.
...But I'm not going to hold my breath...
/^[A-Z0-9._%+-]+@[A-Z0-9.-]+\.[A-Z]{2,4}$/i
Neither is the presence of a higly trained Harward grads. Why do people fail to realize that one of the oldest companies like Ford etc were not started by mangement guys. These are relatively a new breed of people popping up. I am not diminishing their importance but let me tell you that being totally dependent on these guys is not good either.
Even if you do consider dotcoms, I agree that most of them perished becoz of bad judgement call. But hey, the whole world bought that idea. You cannot just blame some techies for this and brandish them as useless. Even now, I believe that for a company to be successful even it does not have the founder around, it should atleast have some technical guys around not just some fat ass white guys.
To be fair to managers, not all of them are complete gits. To for a technology company to suceed it is not enaugh for it to be run by a 24 carat geek with a high as it gets IQ and who loves to hakck code etc... I have seen a number of companies end up living of 2-3 projects, often all of these projects are financed by the same sposor and when that sponsor needs to downsize... Well what you get then is what the Germans are getting now, as Siemens, BMW, MBB and others cancel projects and we see 45000 bankrupcys happen in one year, which in Germany is a post WWII record. What is really needed is a bunch of geeks, marketing people and managers working together. Then and only then will a company do well. If you take a look at alot of those companies he cites as examples of companies who have not been managed to death it is either because their leadersip is well balaced in these three departments or because they happen to have a leader who has a flair for more than just the tecchnical side but also marketing and management.
Only to idiots, are orders laws.
-- Henning von Tresckow
I was confused about "Borland" being in Cringely's "effectively dead" list as well. Borland has bounced back _amazingly_ over the past couple years under Dale Fuller's leadership. Borland is profitable and has hundreds of millions of dollars in the bank. Delphi 7 is a great release and JBuilder continues to _rule_ the Java tool market. Borland has even recently acquired Starbase and BoldSoft--two very fine software companies that are great complements to Borland's business.
Steve Magruder, Metro Foodist
I think there should be some sort of punishment for company execs that put to much into short term growth and not enough into long term growth. Obviously they need to keep enough money coming in to pay everyone and allow modest growth but it's bad for the company, employees, and economy when they quickly inflate their own wallets and then jump ship before the company pops and sinks.
A great deal of our current economic situation was caused by tech companies doing just this. The worst cases are obviously where company execs sell out leaving all other stock holders and employees holding the bag but it really isn't much better falsely inflating these companies. People are still buying tech. Electronics and other techie gizmos are still hot selling items. Companies are still making a profit from them. There is no real reason for the tech market not to be booming. It's just dead because of the few individuals that were greedy and shortsighted.
Also I think the concept of day trading is partly to blame. People don't buy stock for long term value. They buy it, try to make a few quick bucks, and sell it again. They don't care where that company will be in five years. They don't care where the world will be in ten years. It's no better than a get rich quick scheme.
Research and technology drive society forward. They give us new abilities, raise the standard of living, and give people something new to buy. They may not pay out in an immediate obvious way but they are what fuels our economy and lifestyle and should be protected.
At what price learning? At what cost wisdom? The price is a man's peace of mind, and the cost is his life.
Pardon the tangential subject as we wander from over-managment to bad business models. Really, no amount of good management can fix a broken business model. Good management might rewrite a broken business plan and fix an ailing company, but so might bad management rewrite a perfectly function business plan. But back to the point.
Open source development frequently comes down to an issue of profit through service rather than the product itself. In the case of one kinda big company, they're spending some large money developing and integrating open source solutions to phase out some of their products. Sometimes it works better providing services rather than constantly maintaining one's own proprietary software, or at least it may become easier to maintain when your customers sometimes volunteer improvements.
The same give-away-the-product, sell-the-support system works for some smaller companies who sell to home users. Good tech support is certainly worth plenty, especially when even mature software can sometimes be confusing.
You like splinters in your crotch? -Jon Caldara
I suppose that it should be comforting to know that this a common occurrance, and that I am not the only entrepreneur to have been shagged by VC 'professional management', but it's not! After ten years of being modestly profitable ... oh, we had made some mistakes - like going public way too soon (or at all, in my opinion), but we were surving.
... we, as the founders knew that at a some point other folks would be needed to grow the company.
... what came next very much followed the narrative in Cringley's article. Fifteen months later, the new management had run the company into the ground and disappeared; the VC firm has taken possession of the intellectual property; and the original shareowners (many of them employees) were left with nothing! Now everytime I run into one of my former employees, I am struck with the guilt of having allowed this to happen to them.
... even, then I would seriously consider selling to the employees first.
However, we were missing the dot.com boom and the board decided that additional management and new financing were just what was needed to grow the company. Initially the idea seemed like it may be a good thing: it would raise additional financing, which would allow us to accelerate the development of our product
In hind-sight this turned out to be a bad move
Lessons learned: next time keep the 'professional managers' out until you are ready to detach and walk away
Natty
Maybe the rain Isn't really to blame. So I'll remove the cause, But not the symptom!
This happened to me. What I would recommend anybody in a similar situation is to read Niccolo Machiavelli, The Prince. The book is advice to Princes of small states in Italy in how they should keep control of their states. It was written 500 years ago - but equally applies to Software Start-ups. It is most famous for the quote the "The end justifies the means".
......... they keep no faith with men; and your downfall is deferred only so long as the attack is deferred; and in peace you are plundered by them, in war by your enemies."
Any venture capital company should read the chapter "On Troops and Mercenaries" - substitute - Mercenary for Hired Gun Management. Machiavelli say's "Mercenaries and auxiliaries are useless and dangerous" - further on he says "they [Mercenaries] are brave among friends [read the board and head-hunters]; among enemies they are cowards
Basically what Machiavelli goes on to say is that troops don't really fight for money, but for vision and belief in the Prince. If an employee does not believe that the CEO is in for the long haul why should he be?
I did OK money wise, but this did not stop me going into massive depression for about a year after I was replaced. It feels like somebody messing up your toys....
All of these business models can be traced to having way more venture capital than you know what to do with. I worked for many years for a company that was privately owned. It was extremely well managed, because the owners weren't playing with someone else's money.
In comes some business yahoos (pardon the term) who don't know squat but have lots of financial backing. They conglomerate a bunch of profitable companies and manage to lose a ton of money... of course, not *their* money. Their only goal is to IPO, cash out, and leave the employees and customers holding the bag.
I am working on an MBA and this is simply not the case. Employee satisfaction and well-being is consistently associated with success.
Then how come you guys suck at it so much?
Garg
Garg
Alumnus, Xavier's School for Gifted Youngsters
The one person that really comes to mind here is Steve Jobs. He got forced out in a board room coup and the company went to hell in a hand basket.
Now he's back at Apple and things look golden again.
Perhaps the cure for some of these "sick" companies is to get the founder back to inject some of the old passion back into the company?
Like him or loath him, Steve Jobs has passion - and that shows in the products. Probably more than anyone else. (I still have my old NeXT boxes)
Much of the management behaviors decried in Cringley's article are due to the way the Stock Market works today.
The original idea behind stock was as a way for the company to get money to grow. The stock buyer was counting on getting an annuity - the dividends of the stock. As a result, the upper bound on the current value of the stock was set by the interest rate and the dividends the company paid out - if the interest rate was 10%, and the stock paid $1 in dividends per year, then if the stock cost less than $10/share it was undervalued. If the stock cost more than $10/share, you would do better to invest your money in a bank.
Thus, stock holders were looking at the long term - what is the company doing to increase the dividends?
But then people noticed that if they could make a short-term change in the expected return on the stock, the current value would move. Thus, they began to change the short-term operations of the company, to change the estimated dividends (and thus the current price of the stock), then SELL and move on.
Thus stocks became trading cards, and the current era began. Buy into a company, manipulate the stock price, sell, repeat. (OK, PROFIT! there, I said it, you don't have to.)
Now, consider this - What if the capital gains tax worked like this:
If the gain is realized in less than 6 months, then the gain is taxed at 90%.
If the gain is realized in 6 months to 1 year, then the gain is taxed at 75%.
If the gain is realized in 1 year to 5 years, then the gain is taxed at 50%.
If the gain is realized in more than 5 years, then the gain is taxed at 0% (i.e. not taxed).
Now, consider these scenarios:
You buy into an IPO, sell when the stock peaks a month later, sell. You get nailed for 90%. Since that is the case, there would be MUCH less demand for the stock, and it wouldn't shoot up so much.
You buy into a company, manipulate the stock price by gutting it, and pop that golden parachute a year and a day later. You get nailed to the tune of 50%. You are STILL discouraged from these games.
You buy a house. Five years later, you move from Silly-con Valley to Wyoming, and from a $500,000 house to a $250,000 ranch. You pocket the $250,000, since it isn't taxed.
I was watching a show several years ago on PBS, wherein a representative of the Federal Reserve was debating a person who's position was "The Fed should just leave the damn interest rates alone and let the market correct itself." The Fed guy said "But we have all this information, and it would be wrong for us not to provide feedback to the system".
When he said "feedback to the system" I had an epiphany - I am an electrial engineer, control systems are something I've studied at length. Unlike an economist, engineers are trained in mathematical tools to examine systems for stability. One of the things that will make a system unstable is too much lag from stimulus to feedback response - it's called "phase margin". The economy has a very LARGE phase lag - making a change to interest rates today will not take effect tomorrow. Also, there is "gain margin" or frequency response - the higher the frequency response the faster the system will react, but too much will cause oscillation. Systems with a large phase lag need to have a very low bandwidth, or they will oscillate. What my proposed cap gains tax would do is reduce the bandwidth of the system by reducing the gain at high frequencies.
Now, you can apply a simple check to my proposal - who will it piss off? The Republicans won't like it, since it prevents the very sort of short-term market manipulation that makes money for fatcats. The Democrats won't like it, because it allows middle-class folks to make money long term (so they can retire without relying on the government for assistance).
And I assert that anything that pisses off both the Republicans and Democrats cannot be a bad thing.
www.eFax.com are spammers
Why do "the analysts" feel it's imperative and so ungoldy urgent that a company like Intel must grow ALL THE TIME?
Because growth is what drives stock value - its the combination of current value (what you are selling) plus the value of future growth (what addtional sales, above current, you'll make in the future).
If you are growing, and people believe you will continue to grow, your stock rises to reflect the value of that growth. If you don't grow, your stock drops to the value of your existing revenue stream. If you simply make x dollars of profit month per month, your company is going to have less value than one where the X grows consistantly by 10%.
In the end, it's all about fairly valuing a stock.
I'm a consultant - I convert gibberish into cash-flow.
Your analysis makes sense until you throw out the accusation of bribery. In fact, no bribes would have been necesssary. The conversation probably went something like this between Bill Gates and Michael Dell:
Gates: We've noticed that you were the leading distributor of PC hardware last year. You were our biggest OEM customer... You sold $100 Million worth of Windows Licenses.
Dell: Our new distribution centers are really state of the art.
Gates: Microsoft is trying to come up with a way to save you money on the copies of Windows that you sell. In fact, if you buy a copy of Windows for every PC you sell, we'll sell each copy to you at a 50% discount.
Dell: (thinking to himself that Dell sells 90% of its PCs preloaded with Windows) Hmmm. That would save us quite a bit of money.
Gates: It sure would. Sign here please.
Now, Microsoft makes less money from Dell, but since Dell now has a strong advantage in the marketplace (it can sell PCs for less) other companies are willing to come on board with Microsoft for deals that are less sweet than the 50% that was given to Dell.
The next thing you know, Microsoft has created a pretty massive disincentive for Dell (and others) to look into other OS technology.
Also, every time the OEM license contracts are re-negotiated, Microsoft has benefitted more from the aforementioned disincentive and can ratchet the profits right back where the investors want 'em.
No bribes are necessary. All of the above is completely ethical and is fundamentally no different from lots of business agreements that are made. You may think Michael Dell is stupid for going along with something like that, but look where his company is today.
Amazing magic tricks
Traditions, long careers, and research are aspects of a company that are very difficult to accurately value. Thus, if you are looking at a balance sheet to make your decisions you will likely undervalue them.
What do they mean? Maybe the tradition is to work 12 hour days before a major product release. Maybe long careers are built on the pride of accomplishments past and a look forward at a well-incentivized pension plan. Maybe a company hits the research jackpot frequently and attracts top talent because of how it handles rewards for new patents, etc.
All of these factors effect the competetiveness of a company, and any smart manager will take them seriously. All of the above are simply characteristics of a company. With poor management they will be undervalued and destroyed, and with good management they will be valued and encouraged, and the company will thrive.
You may not be able to declare profits each and every quarter, but that will help keep your stock from becoming overvalued and it will encourage the kind of investors that look deeper into a company than only at its stock price. This will lead to steady, sustained growth and less volitility than the competetor who is run by a short-sighted management team.
Amazing magic tricks
Then i quit.
All I want is a secure system where it's easy to do anything I want. Is that too much to ask ~~ Randall Munroe
That's true, but it's always nice to get into a field on the ground floor. See, one of the problems with professionalism (in the sense of a field's "going professional" and creating, for instance, professional managers) is that it raises the bar for entry, sometimes far too high.
For instance, I'm pretty sure it was a lot easier to get started in business 100 years or so ago -- you had a trade, and you did it, and "managing" wasn't something that you did as a career, it was something that you did to enable yourself to do all that other stuff you wanted to do (say, in Walt Disney's case, making cartoons).
Now, with so many fields professionalizing so rapidly, it's very hard to get into them at all unless you've got the appropriate professional credentials and/or (usually and) experience. (Oh, yeah, having friends in high places helps too.) Woe betide you if you don't have these things, because you will suddenly find yourself having to be twice as good as the existing competition to even get into the field, which can be tough when you're competing against people with 20 years' experience.
And sometimes having your field taken over by august sages and avocationists is not a good thing, either. To use an example I'm most familiar with, look at how dynamic, prolific and vibrant SF publishing was in the 1960s and 1970s. Now that it's been professionalized and commoditized so much, all that dynamism, exuberance (and not necessarily even youthful exuberance), and prolificness (prolixity? although not in the strictest literary sense) has gone out, and it's damn near impossible for a newcomer (of any age) to get published.
All fields need newcomers, beginners, and dabblers, so professionalism is not necessarily a good thing 100% of the time, especially since the trend lately in technology (and other fields) has been to refine, as opposed to innovate. Where are the innovators going to come from, if we don't encourage people to start doing something? You'd be surprised what novel approaches the "beginner mind" can come up with. Ask me about it sometime...
I'm not a geek, I'm just a clever script.
Like the other responder to this I too immediatly thought of Steve Jobs when I read Crigley's bit. I think you can really boil it down to "A company without a soul is doomed to fail."
I am interested in the Wall Street analysis that Apple perhaps has one of the worst board rooms in the industry, but then leadership by commity almost killed the company before. I see Apple as Steve's ship. He doesn't give you a good idea of where he's sailing, but you know that there will be some pretty cool ports of call along the way.
It's not like other companies that flounder around with too much market research or board room squabbles about where the ship should sail. It's almost like Steve puts down a 'this is really cool, we should do this' gauntlet and the board and the rest of the ship pull the oars to get there. If you don't like where Steve's going, well there's always Microsoft or OpenSource.
It would be refreshing is more companies were like this, rather than drafting in Apple's wake.
What if it is just turtles all the way down?
No, I do not. I think personal guns are uncalled for, but military weapons are required for national defense.
In my book, nuclear reactors are no worse than fossil fuel power plants. Our atmosphere is polluted with green house gasses, coal miners used to get black lung or trapped in mine collapses, and we'll run out of these resources. The nuclear industry has a better safety record than the fossil fuel industry, the nazardous waste can be contained, rather than inhaled daily.
And, if you're talking about nuclear weapons, they have kept a third world war from occuring for some fourty years. As long as everyone realizes how catestrophic the next world war will be, it won't happen.
I think Suddam realizes this, but I'm not sure if Bush does. The US government's shyed away from Mutually Assured Destruction. Ever since the Evil Empire broke down in financial ruin, it's been shunned. We need to make sure that every tin pot dictator with a nuke knows that if one of our cities is ruined by an atomic explosion, his capital will a memory. It sounds terrible, I know, it is, but so is war.
Peace is always the answer. The question is, how are you going to ensure it.
Clearly there were some bad business plans during the "boom," but what really killed these companies was not bad business plans per se, but management that focused solely on increasing the stock price of the company.
In short, there was less money to be made in building a solid business than there was in erecting the shell of a business and spending money keeping it afloat until after an IPO. The original investors could then sell their shares at vastly inflated prices and abandon ship. The people building these shell companies could easily quadruple their money. Building an actual profitable company is much harder, and the proceeds are generally far smaller.
On another note. I think that you will find that Free Software service companies (like RedHat) are the wave of the future. The reason for this is simple, they are targetting a business sector that has an absolutely astounding profit margin. Microsoft currently has a profit margin of over 30%. There is still plenty of money to be made undercutting Microsoft's prices. You might not put a $5000 stereo in your fiat, but ask WalMart which stereos make the most money and they will tell you that they make far more money selling $100 stereos than all of the $5000 stereo vendors put together.
Having been a Tech Support professional for several years, I can say that this is the number 1 reason why the quality of tech support has declined throughout the industry. There's a huge push in many companies to make Tech Support into either a profit center, or to minimize the expense of "answering the phones". To that end, the once vibrant job of support rep is now nothing but pure drudgery.
Typically, the management is "business-based" rather than "technically-based" and so they think like accountants. Things that make sense on their spreadsheet don't always make sense in the real world.
Such organizations do not value employees that are multitalented. they tend to force people into a narrowly defined role, with no chance for growth, or advancement, or exploring other ways to help customers besides just answering as many calls as possible, getting the customer off the phone as quickly as possible (never mind solving their problem) - as a result - workers who are bright, creative, more likely to solve problems, are hounded out of such organizations as "poor performers" etc. I've seen this happen more times than I care to recall for you here. And as I call in to support lines at other companies, I see things are much the same everywhere. The trend is away from salaried competent professionals, towards hourly-paid mindless phone monkeys. And this trend is driven by "business-based" management. Where I've worked, when the managers were technical people, it may not have been a volume business, but customers were happy, because when they did get through to a support rep, they talked to someone who could answer their problem. In other organizations where I worked under non-technical people, it was quite the opposite.
These are my friends, See how they glisten. See this one shine, how he smiles in the light.