Tim Marman's Loosely Coupled

Weekend Reading #5

Tim — Fri, 24 Apr 2009 10:36:29 GMT

It's a big one today as I'm still getting caught up on a backlog from my treatment weeks.

General/Business:

Startup:

Technical:

Entrepreneurship, Ambiguity and Risk

Tim — Tue, 07 Apr 2009 13:06:00 GMT

It's now been a little more than a year since I left Goldman Sachs to work on Notches full-time. Initially, many of my family and friends talked about how impressed they were about me taking such a "risk". In fact, that's the thing that scares most people out of starting their own business – they just consider it too "risky" to be out there on their own.

I always said that what I'm doing really isn't all that risky, since I had just finished my law degree and leaving Goldman was an inevitability. The big question was whether I would try to follow the well-worn legal career path: join a law firm, bill a lot of hours and eventually make partner or try to become in-house counsel somewhere.

Ultimately, I wanted to forge my own path. I decided to start my own business because I felt it gave me an opportunity to put my technical, legal and business skills and creativity to work in a way that I could create value, in a way that was appreciated instead of marginalized. Building something of your own is certainly rewarding, but I think what really appealed to me were the possibilities.

In other words, there was no road map. There was no set path – entrepreneurship is, by definition, creating something new. It was these possibilities that I did not see at Goldman or in a legal career that really rang out to me.

As Reid Hoffman put it, in the current economy and job market, we're all entrepreneurs now – but that isn't always true especially within larger organizations.

Jim Collins (of Built to Last and Good to Great fame) made this point very well in a recent Inc. interview.

How do you define entrepreneurship?

I take a broad view of it. The traditional definition -- founding an entity designed to make money -- is too narrow for me. I see entrepreneurship as more of a life concept. We all make choices about how we live our lives. You can take a paint-by-numbers approach, or you can start with a blank canvas. When you paint by numbers, the end result is guaranteed. You know what it's going to be, and it might be good, but it will never be a masterpiece. Starting with a blank canvas is the only way to get a masterpiece, but you could also blow up. So, are you going to pick the paint-by-numbers kit or the blank canvas?

It has to do with your ability to handle risk, no?

Not risk. Ambiguity. People confuse the two. My students used to come to me at Stanford and say, "I'd really like to do something on my own, but I'm just not ready to take that much risk. So I took the job with IBM." And I would say, "You're not ready for risk? What's the first thing you learn about investing? Never put all your eggs in one basket. You've just put all your eggs in one basket that is held by somebody else." As an entrepreneur, you know what the risks are. You see them. You understand them. You manage them. If you join someone else's company, you may not know those risks, and not because they don't exist. You just can't see them, and so you can't manage them. That's a much more exposed position than the entrepreneur faces. But there's lower ambiguity on the paint-by-numbers path: very clear but more risky. The entrepreneurial path: very ambiguous but less risk. Of course, the truth is that it's all ambiguous, anyway. If you think you can predict the future, you're crazy.

This distinction between ambiguity and risk is an important one. Starting a capital-efficient technical business wasn't really risky, in the sense the sense that I really stand to lose anything. Mostly, it comes down to opportunity cost and even there it's not clear I really lost anything. Though I do not collect a salary, we have adjusted our lifestyle accordingly, have a very low cost basis, and saved for this upfront. On one hand, I could have made, say, $150,000 if I joined a law firm in NYC as a first-year associate. On the other, I have gained experience and knowledge and had leadership opportunities I would have never had at a law firm or at Goldman. Ultimately, I have to believe that I will have even better opportunities available to me now that may be worth well-more I have opportunities available now that I never would have had last year.

Whether or not Notches is ultimately successful, it has certainly taught me that I'm happier when I follow an entrepreneurial path – not because of the risk but because of the ambiguity. I relish the ambiguity, because the ambiguity is what brings possibility.

The Crash-Test Solution: Using physics to predict economic downturn

Tim — Fri, 03 Apr 2009 13:18:17 GMT

There's a really interesting article in the latest issue of Portfolio that suggests that the latest economic downturn wasn't an unpredictable black swan – but rather that we're using the wrong tools (and wrong people) to try to detect it.

A small but growing cadre of scientists are arguing that our current crisis was in fact predictable and that the technology exists to make sure that it won’t happen again. The problem may be that we’ve used only economists to try to solve our economic predicaments. Instead, the solution may be found by physicists and other scientists accustomed to studying complex systems.

To anticipate the next crisis and find our way out of this one, we may have to cast off economic and financial dogma and adopt ideas inspired by physics and other natural sciences, disciplines in which the notion of unstable and unpredictable systems is nothing new. For instance, the technology now exists to go beyond economics to build a massive, complete computer model of the modern economy, from the corner store to the city bank and the Federal Reserve.

With such a model, physicists would be able to track changes in the economy dynamically. There have even been calls for an ambitious effort akin to the Manhattan Project, which built the atomic bomb, to bring the most sophisticated mathematics and computer modeling to bear on managing the world’s economies more aggressively than has ever been attempted.

It's clear that our economic woes are in part because of increasingly complex and intertwined. Bailouts are necessary simply because the death of a single (even small) corporation (which is what I and most other "true capitalists" might prefer) can have a dramatic ripple effect on the rest of the ecosystem.

On that note, I can't think of a system more complex and intertwined than nature; it will be interesting to see how science can be applied to this other "unpredictable and complex" system.

Weekend Reading #4

Tim — Fri, 27 Mar 2009 20:59:00 GMT

Startup:

Technical:

Weekend Reading #3

Tim — Sat, 21 Mar 2009 12:29:00 GMT

General/Business

IntenseDebate Plugins: Blog Comments as a Platform - building an ecosystem around their own JScript plugin
Reid Hoffman Tells Charlie Rose: “Every Individual Is Now An Entrepreneur.”
Doctor's Orders: Don't Review Me Online
Framing Facebook's Growth
Writing Decisions: Saving space without losing meaning
A signature cadence

Startup

Technical

Adversity

Tim — Fri, 20 Mar 2009 20:56:00 GMT

A lot of people keep telling me they're amazed at how positive I've remained through this all. Frankly, I'm not sure what other choice there is. Yeah, my body has taken a beating over the past two months between the surgery and chemo. When I say I'm feeling good these days, that means something a lot different than it did six months ago. I can look in the mirror and see the toll it is taking.

As taxing as it has been, at no point did I feel I couldn't get through it. In the grand scheme of things, it's not that bad – and certainly not compared to the alternatives.

In that sense, I've been thinking a lot about adversity. I think my ability to deal with this comes from playing sports. Sports, like life, are full of crushing defeats, victories (both small and glorious) and a lot of hard work (the "time and effort") in between. Having participated in sports from a very young age, I've learned that when you invest yourself in a positive way, things have a tendency to work out better in the end – even if they seem to suck while you're going through it. My body felt pretty banged up towards the end of a football or wrestling season, but I eventually bounced back, just like I know I'll bounce back at the end of this.

To quote Harold & Kumar, "the universe tends to unfold as it should". That's not to say that things will always work out as you planned, but ultimately I do believe that if you invest yourself fully and positively then things will work out in a good way. (Conversely, I think if you're not fully invested, then you should stop doing whatever you're doing because it's just a waste of time.)

There are similar parallels with building a business, and one reason I find being an entrepreneur so rewarding. The road is paved with ups and downs. It's easy to get discouraged when things don't progress as smoothly as you would have liked, but I believe that if you're approaching it in the right way you will a return on that investment. Of course, those returns can manifest themselves in different ways – and it doesn't mean my business will necessarily be successful – but it does mean I will have been better off for doing it.

Adversity isn't a bad thing – I see it as necessary to personal improvement. Just as you need to push yourself when working out to see gains, sometimes you need to test your character and resolve. Adversity builds character and makes us stronger.

Personally, I welcome the opportunity. Bring it on, cancer.

Cross-posted on Beating My Cancer

Weekend Reading #2

Tim — Sun, 08 Mar 2009 11:42:00 GMT

General/Business:

Startup:

Design/Usability:

Weekend Reading #1

Tim — Sat, 28 Feb 2009 14:01:00 GMT

I am going to start posting a weekly digest of interesting links every Saturday morning.

Many of these are things I had intended on blogging about but just didn't have time. I thought about syndicating everything I tag on Delicious, but it doesn't necessarily fit into my workflow so I decided to manually post a cultivated list on a weekly basis.

General Business:

Startup:

Technical:

Enjoy – hope you find them useful.

The End of the Billable Hour

Tim — Thu, 26 Feb 2009 13:19:00 GMT

Like Jason, I've always thought the billable hour was an antiquated system that needed to go (and in fact part of the reason I never considered going to BigLaw after graduation). It looks like the economy is finally starting to make law firms to rethink the billable hour.

As a technologist, I find the whole system appalling. It rewards inefficiency. There is absolutely no incentive to be productive – if you can bill an extra hour by printing and binding stuff (charging the printing and binding costs to the client of course) as opposed to reading it electronically, so be it. Think about it this way: if your gating factor is the number of hours you bill to a client, there is a disincentive to work faster. If you accomplish the work in half the time, there is no real benefit. Sure, you can take on a second client and bill them, but you can never increase your overall profits beyond what you can bill in a single day.

The billable hour has a fundamental scaling problem.

Contrast this to, say, investment banking, in which fees are calculated largely on a project basis and based on the size of the deal. During my time at Goldman, we spent a lot of time trying to make the bankers more efficient, because the more deals they could do the more money they could make.

The billable hour is especially scary to early stage companies who are likely on very light budgets. There was a recent nextNY thread about flat rate legal services, prompted by a flat fee schedule (pdf) offered by MasurLaw. (Personally I think the fees are on the high side for largely boilerplate, but at least it's a known quantity).

As Roman (who obviously offers flat rate billing as well) put it on the thread:

I believe that flat fees should and can be extended to most legal work and not just to early stage startups or initial documents. Many moons ago, before becoming an attorney, I ran a video production company and I recall how disheartening it was when our lawyers billed by the hour and how awful I felt knowing that when I called them the meter was running. So when I started my law practice flat rate billing and range billing were an integral part of my service commitment.

Hopefully, this is a trend that continues – the billable hour is a broken system that doesn't really work for anyone.

The Barnacle and The Boat

Tim — Wed, 25 Feb 2009 13:37:00 GMT

Back at the nextNY October Community Conversation, David Kidder talked about the differences between being a satellite company and a planet company. We use the barnacle and the boat analogy, but the point is the same – there are companies that stand alone and have gravity, and there are those that exist by attaching themselves to other companies that have that gravity.

Obviously, it takes a lot longer to build your own boat than it does to attach yourself to someone else’s. As a result, the boat is ultimately worth more and more resilient – something that, as David stressed, is increasingly important in this kind of economic environment.

In other words, building on the Facebook platform is a great way to gain “easy” access to a lot of users and traffic, but it’s important to remember that ultimately Facebook “owns” those users. If Facebook blocks your application or launches another redesign which further downplays your visibility, will your business survive? Can your business stand alone outside of the traffic you take for granted?

The common element between Facebook and other “planets” like Google and Microsoft is that they’re building core value that stands alone and, where applicable, creating an ecosystem around that. Facebook has this influence because of the number of users it has, not technology – as it demonstrated by recently open-sourcing much of their platform.

For those of us trying to build new, sustainable businesses, I think it comes down to finding the right balance between being a boat and being a barnacle. If you focus solely on the long-term value, you will struggle with traction and attracting users. If you focus on solely on leveraging users that exist on other platforms without "converting" them along the way, you are at the mercy of the other boards.

With Notches, we're trying to build a boat - something unique that has built-in barriers to entry, is not easily duplicated, and an ecosystem that generates that gravity. At the same time, we recognize that we’re not going to build the boat overnight and the only way we can gain the traction to get to the point where we have gravity is by having a presence on the sites that do have a lot of users and traction today.

Cross-posted to the Notches Blog