Anyone interested in business should slowly read these notes from a recent Q&A session with Warren Buffett. It’s making its way around the blogosphere for good reason.
Here’s Charlie Munger’s USC speech I’ve blogged about – also worth reading.
Finding the Unexpected: Creative Accidents
A reader pointed me to creativity expert Michael Michalko’s blog, and it’s terrific. One of his recent posts speaks to something I have thought and written about:
Whenever we attempt to do something and fail, we end up doing something else. As simplistic as this statement may seem, it is the first principle of creative accident. We may ask ourselves why we have failed to do what we intended, and this is the reasonable, expected thing to do. But the creative accident provokes a different question: What have we done? Answering that question in a novel, unexpected way is the essential creative act. It is not luck but creative insight of the highest order.
Absolutely. The key, then, is to do stuff to allow such creative accidents to happen.
Even when people set out to act purposefully and rationally to do something, they wind up doing things they did not intend. John Wesley Hyatt, an Albany printer and mechanic, worked long and hard trying to find a substitute for billiard-ball ivory, then coming into short supply. He invented, instead, celluloid— the first commercially successful plastic.
So don’t hold too rigid to your business plan or life plan — they can become straitjackets which prevent you from seeing the new opportunities on the sidelines. Here’s my post on wandering without a map and on agile software development mapped to life.
B.F. Skinner advised people that when you are working on something and find something interesting, drop everything else and study it. In fact, he emphasized this as a first principle of scientific methodology. This is what William Shockley and a multi-discipline Bell labs team did. They were formed to invent the MOS transistor and ended up instead with the junction transistor and the new science of semiconductor physics. These developments eventually led to the MOS transistor and then to the integrated circuit and to new breakthroughs in electronics and computers. William Shockley described it as a process of “creative failure methodology.”
When to drop everything else and study it is the tough question. When to throw massive amounts of energy behind a project. Until then, maintain a diverse portfolio of activities and don’t focus too much.
Richard Feynman, a Nobel Laureate physicist, had an interesting practical test that he applied when reaching a judgment about a new idea: for example, did it explain something unrelated to the original problem. E.g., “What can you explain that you didn’t set out to explain?”and, “What did you discover that you didn’t set out to discover?” In 1938, 27 year old Roy Plunkett set out to invent a new refrigerant. Instead, he created a glob of white waxy material that conducted heat and did not stick to surfaces. Fascinated by this “unexpected” material, he abandoned his original line of research and experimented with this interesting material, which eventually became known by its household name, “Teflon.”In principle, the unexpected event that gives rise to a creative invention is not all that different from the unexpected automobile breakdown that forces us to spend a night in a new and interesting town, the book sent to us in error that excites our imagination, or the closed restaurant that forces us to explore a different cuisine. But when looking for ideas or creative solutions, many of us ignore the unexpected and, consequently, loose the opportunity to turn chance into a creative opportunity.
In other words, expose yourself to randomness. Take a different route home from work. Pick up the chance book. Start reading blogs outside your field.
Ten Laws for Being SaaS-y
Byron Deeter of Bessemer Venture Partners has a great post on SandHill.com with the Ten Laws for Being Saas-y. Required reading for anyone running a hosted software company or debating whether to jump on the software-as-a-service bandwagon. His ten laws (details on his post) are:
1. Your key business metrics are: CMRR (Contracted Monthly Recurring Revenue) and Cash – “Bookings” is for suckers.
2. It takes at least $300K of CMRR to climb the Sales Learning Curve – Stop at three sales reps until at least two of them are making $100K MRR quotas.
3. Separate your “hunters” and “farmers” – As soon as you’ve climbed the Sales Learning Curve, begin ramping your sales force by hiring renewal-oriented account managers. Keep the hunters moving, and let farmers tend to the crops.
4. It’s a whole new ecosystem – Channels are very hard for SaaS companies to build, so don’t base your plan on SIs and traditional ISVs. You will need to sell directly for a long time.
5. Stay local – Prove your business in North America first. Only after reaching $1M in CMRR should you consider hiring European sales and services execs behind customer demand. Save Asia for post-IPO.
6. One datacenter – Invest early in backup and disaster recovery, but stick to one data center, at least until well after IPO.
7. Single instance, multi-tenant – Have only one version of the code in production. Really. “Just say no” to on-premise deployments.
8. By definition, your sales prospects are online – Savvy online marketing is a core competence (sometimes the only one) of every successful SaaS business.
9. Constantly trade off cash vs. growth – If you must replenish supplies while still crossing the desert, optimize your growth rate (sales rep recruitment and marketing spending) so that you maximize your recurring revenue run rate when you need to fundraise next.
10. Be prepared to cross the desert – SaaS requires R&D and sales expense up front for a multi-year stream of revenue, so it demands enough investment capital to fund 4+ years of runway. Load up for the long trip and pace your consumption of calories!
Quotes on The Meaning of Life
"Aphorisms are literature’s hand luggage. Light and compact, they fit easily into the overhead compartment of your brain and contain everything you need to get through a rough day at the office or a dark night of the soul." – A loveletter to aphorisms, in the IHT
I love quotes and proverbs. (But maybe that’s a sign I’m an alpha male CEO.) Currently my favorite quotes are scattered among my many blog posts, del.icio.us "quotes" tag, and an offline document. I need to consolidate. In the meantime, here’s another set of quotes on the meaning of life from the How to Live blog:
"It is true that the unexamined life is not worth living, but it is equally true that the overexamined life is also not worth living."- John P. Avlon
"The sunrise and sunsets in life are sublime, and every night we see that it is darkest just before the dawn, but on a deeper level we know that the sun never actually goes down – it’s just an illusion caused by the world spinning around. Nature is nudging us, offering fresh evidence for hope and faith, love, and persistence against all appearances." – John P. Avlon
"Choose the meaning of life from one of the four listed below:
1. Life has no intrinsic meaning beyond what we attribute to it. Our task is to infuse our lives with whatever meaning will ensure we stay with it to the end.
2. The meaning of life is way beyond our grasp. Naturally, we do the best to grasp it, but it essentially ungraspable. Our life is a continual process of seeking that meaning, and living in the heart of that seeking. When we stop seeking we have either given up on it or decided that we have it figured out. In either case we are wrong, and life begins to die from there.
3. Life means love. Our lives are treasure hunts for love. When you find the treasure, you find yourself; you are love, you are life, you live.
4. Life is an experiment. Can we bear to live without meaning? If we can live without meaning, we will be destroyed. If we cannot live without meaning, we will destroy ourselves. If we find meaning, we will fight to live. If enough people find enough meaning, humankind will live. If a critical mass does not find meaning soon enough, the experiment will be complete, and humankind will be gone." – Wend Stewart"No one ever finds the meaning of life – they simply become suitably satisfied by love, children, or career, and these become the outcomes of the quest and human fulfillment of purpose… If you are ever consistently hounded by longings to uncover the meaning of life, it’s you telling yourself that something is missing in your existence. Stop reading books about the subject – that’s the equivalent of reading romance books when you’re lonely. Get out and open yourself up to new experiences. You’re being set up for an internal battle with your own desire for security." – Peter Davison
"Give more than you take. Do your best to leave every situation better than you found it. Seek beauty in all its forms. Chase dreams. Watch sunsets. Endeavor to use more than 10 percent of your brain. Don’t stifle your deep-from-the-gut, cleansing laughter. Take a moment to ponder the enormity of the universe, then admit to yourself that you can’t possibly be the center. Breathe deeply. Swim into the dark water. Let yourself cry when your body tells you to. Love more. Delight in silliness. Don’t be bitter. Forgive. Forgive. Forgive." – Katy Rhodes
"Enjoy your life to the fullest, do what you truly love to do, and be with those you love as much as possible." – David Seaman
Assessing What Matters in School: Intelligence and Beyond
The latest Educational Leadership has a good piece on how to create better types of assessments / tests to fully measure the capabilities of a student. The author, Robert Sternberg, is president of the American Psychological Association, one of the most prestigious posts in the field, and he starts the article relaying an anecdote about how both he and the preceding president received a C in their intro psych college course. This irony serves as the jumping off point for a rebuke of the traditional multiple-choice and fill-in-the-blank assessments in schools and on the SAT which "assess primarily remembered knowledge and analytical skills applied to this knowledge."
When I look at the skills and concepts I have needed to succeed in my own field, I find a number that are crucial: creativity, common sense, wisdom, ethics, dedication, honesty, teamwork, hard work, knowing how to win and how to lose, a sense of fair play, and lifelong learning. But memorizing books is certainly not one of them.
But how do you test someone’s creativity or wisdom or practical abilities? Sternberg has designed a test which assess these things and others. Here are two examples of his "Success Intelligence Model" questions:
In science, we might ask (1) What is the evidence suggesting that global warming is taking place (analytical)? (2) What do you think the world will be like in 200 years if global warming continues at its present rate (creative)? (3) What can you, personally, do to help slow down global warming (practical)? and (4) What responsibility do we have, if any, to future generations to act on global warming now before it gets much worse (wisdom)?
In mathematics, we might ask (1) What is the interest after six months on a loan of $4,000 at 4 percent annually (analytical)? (2) Create a mathematical problem involving interest on a loan (creative); (3) How would you invest $4,000 to maximize your rate of return without risking more than 10 percent of the principal (practical)? and (4) Why do states set maximum rates of interest that lenders can charge, and should they do so (wisdom)?
This seems good for school use, but how to scale it to the level of a nationwide test like SAT? Don’t know. Sternberg has good reasons for working on this stuff. First, he thinks a more holistic test is fairer. Multiple choice tests are biased in favor of those cognitively suited to the task — if you’re good at one multiple choice test, you’ll be good at another, regardless of content. So it primarily tests your multiple-choice-taking skill, instead of the content of the multiple-choice test. Second, he says it is a far better predicator of freshman year college grades. Third, today’s times call for a range of intelligences, not just raw analytical or memorization ability, so it’s probably a better life success predicator, too.
By the way, school assessments failing to be a reliable predictor of career / life success isn’t just limited to psychology. Law bar exams are notoriously disconnected from reality. One famous example is when the former dean of Stanford Law School, Kathleen Sullivan, who’s argued cases in front of the Supreme Court, failed the California Bar Exam a year or two ago.
(hat tip: Eide Neurolearning)