The Four Hour Work Week
I recently read the Four Hour Work Week by Timothy Ferriss. The book lays out the case for ‘lifestyle design’, where you, me and Joe the Plumber can become financially independent and use our time to do the things we really want to do–like ballroom dancing, kickboxing, meaningful charity work or otherwise become a Renaissance Man–rather than being chained to a desk in the most fruitful years of our lives. If you detect a faint note of disdain in my description, you are not too far off because that’s how I initially greeted the book and how it was marketed.
The initial chapters of the book reminded me of Aleksey Vayner and of tons of spam that poses as advice on how to become a PUA. If you’re willing to overlook the almost-intentional hokeyness of the early chapters, you can walk away from the book with several thought-provoking ideas on simplicity, the value of time and the virtue of being more effective by working smarter rather than harder.
More than anything else, the book emphasizes the value of time, once the time-money trade off shifts in favor of time. Ferriss ruthlessly condemns conventional wisdom, which advises people to defer enjoyment until they have retired, at which point the change of pace is a big shock and might lead to regrets and aimless time-wasting anyway. He lays out some techniques that will help readers become fully detached and mobile from one’s work; to become financially secure in ways that will help them accomplish their dreams; to trim the fat of unnecessary possessions, ties and expectations from their lives and to take advantage of labor arbitrage to aggressively outsource mundane tasks to others. The last theme especially might give some food for thought to entrepreneurs running Atomized Enterprises.
Above all, Ferriss emphasizes active living, i.e. imbuing everything you do with intentionality, self-awareness and explicit volition. The man’s effort is commendable–what starts out sounding like a tacky, get-rich-quick book winds down sounding like it came out of a Zen text.
It’s good for Tim that he has been in sales roles for much of his life, because those roles can afford a reasonable amount of mobility. At my current workplace, several of the top-performing salespeople are perfectly fine working out of a home-office so long as they are ’smiling and dialing’ enough. As part of the Generation Y ethos, I hope for a flexible work environment, varied activities and travel in my career, but I still expect to spend several more years in a traditional office environment for the kind of work I want to do. But Ferriss’ exhortations on the value of time–the fierce urgency of now if you will–are definitely something to keep in mind as I strive to live a fulfilling life.
I’ve started my next book, Getting Things Done by David Allen, which takes a whole different approach to time management and efficiency. There is a huge online cult following for the book already, but I might report back with some of my own thoughts.
Breakfast with Scott McNEaly: keeping it lightweight
- Buy spot market offerings. As much as possible, buy products and services at going short-term rates, even if it means you end up paying a premium for not agreeing to sign on for a longer term. McNealy said that things change too quickly in our world and that locking in a profitable long-term contract rate might prove to be an impedance down the road. He said that signing on more resellers rather than more salespeople during the dot-com era would have been one example of this principle at work; he added that Sun should have preferentially grown its reseller network over its sales force.
- Minimize fixed costs and overhead. As a parallel to a supposed Japanese business maxim "all inventory is bad", McNealy said "headcount is bad". He exhorted entrepreneurs to keep fixed costs low and concentrate exclusively on their startup’s unique value proposition where they differentiate themselves. In most build vs buy decisions, entrepreneurs should only build that which will enable them to erect barriers to competitive entry by other players.
- Get someone to think you’re crazy. McNealy said that the mark of a good strategy is someone thinking that its creator is crazy. Eliciting a vehemently skeptical reaction means that there is a controversy somewhere in the business plan, which in turn is an opportunity for the entrepreneur to differentiate themselves and their startup.
- Create barriers to competitive entry. McNealy emphasized the importance of creating unique intellectual property (IP) such as patents and trademarks that will inhibit competitive entry into an entrepreneur’s market niche. He was of the opinion that a portfolio of this kind should not be used predatorily but that it is nonetheless a good defensive measure. Sounds like the IP version of the Reaganesque maxim "Speak softly but carry a big stick".
I was struck by the extent to which McNealy’s advice resonates with the themes of Atomized Enterprises that we have discussed at great length on this blog. McNealy does not perhaps espouse atomization to the same extent; for instance there was limited commentary on outsourcing or cloud computing. In one instance, he even wondered why management consultants exist at all because an enterprise should never ‘outsource thinking’.
- Nonetheless, the idea of keeping overheads and fixed costs low is an important idea I took away from the breakfast. Do you think enterprises can still create value while outsourcing the effort behind core value creation (rather than the ideation behind core value creation)? Join the discussion in the comments below!
The entrepreneur-VC hybrid: the philosopher-king of innovation
The act of starting and growing a business takes a lot of faith, passion and endurance. Atomized enterprises and the resulting changes in the economics of starting a technology business, however, have opened the door to a new breed of innovator: one who thinks like a VC but executes like an entrepreneur.
Jeff Bussgang, an entrepreneur-turned-VC has written a fantastic BusinessWeek article on entrepreneurship that explores this theme a little. The central problem Jeff identifies is this:
Unbridled, unfocused entrepreneurial energy can easily be squandered and misdirected. In my last six years as a VC, I developed an appreciation for the attitude and vantage point that VCs have when sifting through business proposals and allocating scarce capital to the best opportunities.
Jeff goes on to talking about how thinking like a VC and executing like an entrepreneurs is desirable for employees, but I want to explore the significance of this advice for technology-enabled enterprises and innovation. Atomized enterprises are capital-efficient ventures born out of momentous, loosely coupled combinations of labor, ideas and capital. To keep permanent overheads low, atomized enterprises must necessarily pursue more rational resource allocation strategies than traditional enterprises.
The tightly-coupled nature (relatively speaking) of a traditional enterprise, where many non-cohesive functions are nonetheless integrated together, means fewer points where rational decisions are made on the basis of market prices. The act of paying a price is a powerful reminder to maintain efficiency and imposes a certain crispness on any transaction. The loosely coupled nature of atomized enterprises has two key implications for innovation:
- more functions are accomplished by relationships to external organizations, which are in turn mediated by rational behavior-enforcing market prices and;
- assuming a relatively liquid market of service providers–which is reasonable for the kinds of commodity functions that are outsourced to external providers–rational decisions to switch to more capital-efficient service providers will be far less expensive.
With sufficiently rational and efficient resource allocation, an entrepreneur may even be able to pull off multiple, loosely associated atomized ventures simultaneously. I came across one example of an atomized enterprise recently when I was speaking with a fully managed Web hosting provider. One of their customers is a dentist who sells dental drug compatibility data online with no overhead of his own, while simultaneously carrying on a full-time dentistry practice. As atomized enterprises become more widespread, I believe we will see more examples of entrepreneurs who manage not one but a portfolio of linked technology-enabled ventures while allocating resources rationally and dispassionately among them. These practitioners of the atomized enterprise, whose passion for execution will be informed by a perspective that enables them to make truly rational decisions, will indeed be the philosopher-kings of innovation.
Some stuff to chew on
As I work on further posts for One More Thing, I wanted to throw out a few links for my readers on the topic of Atomized Enterprises:
- Gartner has recently published some research on a cohort it calls "Generation V". This cohort is defined not by demographic attributes but by behavioral ones–specifically its use of digital technology to demonstrate achievement, collect knowledge and share insights. As with several other things Gartner, Generation V has been neatly segmented into quadrants: lurkers, opportunists, contributors and creators, in decreasing order of engagement with digital media. Forrester analyst Jeremiah Owyang rightfully expresses some skepticism on the supposed demographic-agnosticism of this cohort and adds some of his own color to Gartner’s characterization. The intent of mentioning Generation V here is not to call out anybody on the specifics but rather to emphasize that it is precisely Generation V that raises new possibilities for a workplace and constitutes the flexible labor pool of an Atomized Enterprise.
- On the subject of new ways of working, the most recent Ultra Light Startups meetup featured some content about coworking, a relatively new mode of working that is making waves among the younger segments of the workforce. Some examples of ventures were brought up as having been conceived entirely within coworking communities. These are still early days for coworking and businesses in this arena are still couched as real estate plays. However, opportunities further up the value chain–including business services and even monetizing the carbon credits that may be saved–abound.
- This may be old news but is worth reiterating. BestBuy has switched to a Results Only Work Environment, which enables employees to set their own hours and derive their own definition of a work-life balance. This ultimate focus on results is an important part of how Atomized Enterprises must operate, and will be the focus of an upcoming post in the near future.
Meanwhile, I hope all my readers are having a great summer!
Update: Another noteworthy piece in the New York Times about a flood of higher-value Wall Street jobs being outsourced to India. After blue blooded Wall Street banks started to cautiously explore nontraditional venues for research five or so years ago, third-party research firms (in other words, non-captive operations) are seeing an 20-40% increase in business just this year.
Benkler on transactional frameworks
As some of you may know, I am reading Yochai Benkler’s The Wealth of Networks. Within the context of my thinking around innovation and Atomized Enterprises, I will quote particularly illuminating excerpts from the book as I work through it. I highly recommend you buy the book (or just read it from the full-text online edition). Today’s quote:
(p. 107-112, all emphasis mine)
The first thing to recognize is that markets, firms and social relations are three distinct transactional frameworks…
The point is not, of course, to reduce all social relations and human decency to a transaction-costs theory. Too many such straight planks have already been cut from the crooked timber of humanity to make that exercise useful or enlightening. The point is that most of economics internally has been ignoring the social transactional framework as an alternative whose relative efficiency can be accounted for and considered in much the same way as the relative cost advantages of simple markets when compared to the hierarchical organizations that typify much of our economic activity–firms…
This does not mean that social systems are cost free–far from it. They require tremendous investment, acculturation and maintenance. This is true in this case every bit as much as it is true for markets or states. Once functional, however, social exchanges require less information crispness at the margin…
The difference between markets and hierarchical organizations, on the one hand, and peer-production processes based on social relations, on the other, is particularly acute in the context of human creative labor–one of the central scarce resources that these systems must allocate in the networked information economy… pricing of individual effort can be quite crude. More importantly, as aspects of performance that are harder to fully specify in advance or monitor–like creativity over time given the occurrence of new opportunities to be creative, or implicit know-how–become a more significant aspect of what is valuable about an individual’s contribution, market mechanisms become more and more costly to maintain efficiently, and, as a practical matter, simply lose a lot of information.
The above is an important and refreshing call to bring in the transactional framework based on social relations into the realm of economic analysis in a knowledge-based economy. What I like best about the excerpt above is its balance: neither does it denounce present day capitalism and economic analysis as obsolete in the face of new models of value creation, nor does it define these phenomena of the edge economy as born of a ‘hacker’ mentality driven to subvert all that free-market capitalism has cultivated and cherished. Traditional economic models have fallen short in accounting for social relational transactions in a wide variety of situations (if value creation at the edge these days isn’t a compelling enough example, consider how GDPs of developing countries are often underestimated because they never incorporate nonmarket services–such as socially transacted childcare–which nonetheless generate utility). By giving the social relational transactional framework an even-handed analytical treatment, Benkler does contemporary economic thinking all a great service.
What can disrupt Google?
Google, in addition to making well-regarded products, is hailed as the company that could stand to dominate the technology landscape for a while to come. The company has accumulated a remarkable base of talent (even if some of the bloom has come off that rose) and has built up a formidable infrastructure, both of which enable it to play neatly to an emerging always-online lifestyle. Even as the company goes from strength to strength in its domination of online properties, the golden question everyone loves to ponder is how Google, the golden child of an Internet Age that doesn’t seem to going away anytime soon, might itself get disrupted.
Unlike technology changes like commodity hardware and the Internet, which disrupted IBM and Microsoft respectively, the biggest potential disruptor to Google is in fact Google itself. Google puts a high premium on its ability to maintain the atmosphere of a small, innovative startup, where innovative ideas are heard and translated within a reasonable timeframe into products. Engineers at Google are encouraged to exercise their creativity and passion without much intervention from a traditional corporate hierarchy. The flip side of this heavily peer approval-driven approach is that engineers must build extensive personal networks of influence to increase the chances that their product or feature sees the light of day. As the company continues on a trajectory of hypergrowth though, the laws of organizational physics will pose a challenge to this goal by making this web of relationships progressively harder to keep up. And Google certainly wouldn’t want its own cultural best practices to lead inadvertently to its demise. Until now, most companies that experience this transformation deal with it by creating processes that impose order on chaos, which inadvertently saps the serendipity and hallway conversations that were the life-blood of the company in the first place.
Back when Microsoft was viewed as the innovative young kid on the block, the organizational behavior literature produced several surveys of how Microsoft’s corporate culture enabled its success. MIT Sloan professor Michael Cusumano’s How Microsoft Makes Large Teams Work Like Small Teams is but one example. Now that the legal and technological abilities to form atomized enterprises are emerging, one way for Google to deal with its looming disruption is to look at how to make large enterprises work like small enterprises.
Software development organizations have long realized the value of small, driven teams, but that wisdom doesn’t necessarily translate over to the organizational side of most enterprises, who continue to stick with well-understood models of resource allocation for Traditional Enterprises. Of all the major technology-driven companies in business today, it is Google that can come up with a way of creating a functioning network of independent internal entities that collaborate effectively to advance stakeholder interests. These entities (which, as a practical matter, could be structured as JVs), would not just be maintaining a startup atmosphere–they would in fact be startups! The idea of ‘intrapreneurship’ isn’t new or foreign to Google, but pushing the envelope on that concept and changing the rules of the game are what holds the keys to keeping Google’s innovation engine firing on all cylinders.
the stuff that dreams are made of
Now that we have some idea about what an Atomized Enterprise is, what does such an enterprise actually look like relative to traditional enterprises? Are there existing value-producing models of loosely structured capital, ideas and collaboration that creators of Atomized Enterprises can draw inspiration from? The entertainment industry comes to mind in this context.
Year after year, movie and TV show producers raise money from backers assemble functional teams of skilled professionals to produce content for mass consumption. As studios shepherd a movie through movie theaters, DVD and ancillary merchandising, they assemble sizeable teams with diverse skills, which work together intensively to generate value at each stage, as measured by box office sales and proceeds from merchandising tie-ups. Movie franchises are great at creating value but not especially good, however, at sustaining it. By the very nature of the business, once the consuming audience has moved on, there is little incentive for the creators of a movie to continue delivering value.
A TV show that runs over multiple seasons may be a better model for atomized enterprises to aspire to, because of how the team running it can sustain its value over an extended time period. But even TV show production teams have only limited applicability to how a traditional enterprise functions. By and large, the setting, premise and characters of a TV show don’t change over its extended lifetime whereas an enterprise may reinvent itself over and over. Except for the occasional lead-in, TV shows generally don’t enter into partnerships with other TV shows in a bid to diversify their viewer base. In other words, TV shows sustain value but they don’t innovate.
Enterprises must create value, sustain value and innovate to adapt to changing economic and market conditions. Atomized enterprises can learn a lesson or two from the entertainment industry on how to create and sustain value, but as for innovation, we’re in a brave new world. I posit that another viable working model for an Atomized Enterprise to take inspiration from would be that of teams that develop open source software. The ultimate value delivered by a successful, widely used open source project is the creation and sustenance of active user communities–a strategic Herculean task that goes well beyond simply the code that implements the functionality of a project.
So where does all this leave us with respect to what an Atomized Enterprise looks like? An Atomized Enterprise can learn from the models of value creation, sustenance and innovation mentioned above that it must practice three kinds of discipline to stay atomized: deliverable discipline, communication discipline and retail discipline. Continued practice of these three kinds of discipline will support a loosely coupled entity for value creation where each step of the value chain is specialized and virtualized.
These last few posts have laid out a theory of Atomized Enterprises, but there are others who speak to the theory of Atomized Enterprises much better than I can. We will, however, touch upon the many profitable opportunities that the rise of Atomized Enterprises creates in future posts.
a legal framework for atomized enterprises
Atomized Enterprises have been a realistic possibility for less than a decade now, as reliable, high-quality connectivity spreads globally and connects pools of capital, labor and ideas. It is hardly a surprise then that governance and law, conservative by nature, are still geared towards serving traditional enterprises best. To be sure, these are heady times, when barriers are being broken and power structures are being subtly rebalanced; prophets who proclaim that everything is new in this brave new edge economy are not hard to find. The unbendable laws of physics for enterprises however mandate that any entity that creates and sustains value (atomized or traditional) must have a legal framework to support it.
This is why I was happy to see a news item about Vermont passing tax laws that pave the road for the existence of virtual corporations. Limited liability companies incorporated in most US states are required to have a registered agent, a physical headquarters and in-person board meetings. In an age when it’s possible for corporations to have widely dispersed stakeholders, some of these laws are a little anachronistic. Vermont LLCs dispense with in-person requirements for board meetings, and permit ‘any means of communication, including an electronic telecommunications and video- or audio- conferencing conference telephone call’ for directors to communicate.
The idea of seeking the most efficient labor pools is not new to US enterprises. In practice, however, work would be outsourced to body shops in emerging markets while shareholders, still largely in the US, got rich off the resulting savings. These gains were attributable to little more than smart labor arbitraging, and were not sustainable over the long term because they were often divorced from ground realities and incentives around the world. These new provisions in Vermont’s corporate structure effectively enable directors to be located around the world, along with the full context of where the enterprise conducts its operations.
Let’s not get carried away though. I am not sure I agree with say board meetings over Twitter, or the applicability of these provisions to corporations that exist only in Second Life. No system is immune to scamsters, however, and despite the possibility that these provisions could be gamed, it is a big step forward to quicken the creation of more Atomized Enterprises powered by collaboration among a loosely linked clique of actors.
atomized enterprises: the best is ahead of us
The Atomized Enterprise is not just a theoretical construct. I saw a news item on Friday about Twitter bringing in external software development folks to rework its infrastructure and fix its chronic problems with service availability. This is huge! It ties in well with our earlier definition of the Atomized Enterprise: a pool of talent is being brought in to deliver value efficiently and in a loosely-coupled manner to Twitter’s stakeholders. In this case, the hired guns are being brought in from the local San Francisco area, but there are already companies seeking even more capital-efficient labor pools. Such work currently happens for high-end projects conceived internally at large enterprises, but the learning experiences gained therein will help open the floodgates for more atomization. High quality work, ironclad contracts and adequate intellectual property protection are and will be essential to more fully realizing the Atomized Enterprise.
What’s even more exciting is this quote from the post
Pivotal Labs qualifies its client list with this phrase: “There are more startups that are in stealth mode, and larger clients that are a little shy about us mentioning their names.”
More enterprises are being conceived as Atomized Enterprises from the get go. Traditional enterprises may view offshore product development and other loosely-coupled ways of marshalling resources to create value as little more than cheaper ways of getting a project done. But natively Atomic Enterprises will find ways of allocating resources efficiently because it is central to their very survival.
We will think through some of the implications of Atomized Enterprises in upcoming posts, but meanwhile, this is one item that I didn’t want to miss out on.
not your father’s enterprise
I attended a technology industry event hosted by IBM this week. One of the keynote speakers, an IBM employee, made an offhand remark that stuck in my head. He said, "Today’s IBM is not your father’s IBM, and I expect for many of you, your company is not your father’s". Honestly though, how many companies that exist today were even around when my father was my age? IBM happens to be one of a vanishingly small list of technology companies that have been more or less in their present form (if not in their present business) for more than 60 years. Most of IBM’s contemporaries were founded in the 1970s. How many of these will have earned the right in 30 years to make a statement like that of the IBM executive made? How many such companies exist today that will share a continuous historical timeline with their present selves in 60 years? I contend that we’ll be lucky to find enough of them to fit the fingers of one hand.
The enterprise of the future will be an Atomized Enterprise. A traditional enterprise was essentially a pool of intellectual capital (business model), social capital (employees) and monetary capital (investments) intended to advance the interests of its shareholders. It made sense to establish a traditional enterprise as a separate entity because the means of production were accessible only to a few, communication across vast geographies was limited and employing a captive set of workers lowered transaction costs for the enterprise. Some of these assumptions still apply, especially to successful traditional enterprises with existing operations and resource allocation models. Conditions are ripening, however, for Atomized Enterprises to take root in what we know today as the long tail of enterprises. We will touch on the definition of an Atomized Enterprise in this post and think through some of its implications in future posts.
An Atomized Enterprise is one where pools of intellectual capital, social capital and monetary capital are combined in efficient, loosely coupled ways to create stakeholder value. Perhaps the biggest contributor to the rise of the Atomized Enterprise is the rise and spread of the Internet as an efficient means of communication. After having percolated through developed and emerging markets for just over a decade, the Internet has come to serve as a neutral intermediary among global pools of labor and capital; in so doing, it upends a number of the assumptions underlying the establishment of traditional enterprises. As we will see in future posts, Atomized Enterprises represent a classic, Innovator’s Dilemma-style disruption in the very concept of an enterprise. As with disruptions in other markets, there is immense potential for the creation of wealth for those players who get ahead of the disruption and devise resource allocation models that recognize the disruption.
What are the forces facilitating the rise of the Atomized Enterprise? What will future models of wealth creation for stakeholders (as opposed to shareholders) look like? What opportunities will these create for interested parties? These questions are the beginnings of the kind of conversations I would like to facilitate in this space.
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