Entrepreneurial Best Practices

Quoted from Facebook’s S-1 (IPO) filing:

We have cultivated a unique culture and management approach that we call the Hacker Way.

The word “hacker” has an unfairly negative connotation from being portrayed in the media as people who break into computers. In reality, hacking just means building something quickly or testing the boundaries of what can be done. Like most things, it can be used for good or bad, but the vast majority of hackers I’ve met tend to be idealistic people who want to have a positive impact on the world.

The Hacker Way is an approach to building that involves continuous improvement and iteration. Hackers believe that something can always be better, and that nothing is ever complete. They just have to go fix it — often in the face of people who say it’s impossible or are content with the status quo.

Hackers try to build the best services over the long term by quickly releasing and learning from smaller iterations rather than trying to get everything right all at once. To support this, we have built a testing framework that at any given time can try out thousands of versions of Facebook. We have the words “Done is better than perfect” painted on our walls to remind ourselves to always keep shipping.

Hacking is also an inherently hands-on and active discipline. Instead of debating for days whether a new idea is possible or what the best way to build something is, hackers would rather just prototype something and see what works. There’s a hacker mantra that you’ll hear a lot around Facebook offices: “Code wins arguments.”

Hacker culture is also extremely open and meritocratic. Hackers believe that the best idea and implementation should always win — not the person who is best at lobbying for an idea or the person who manages the most people.

To encourage this approach, every few months we have a hackathon, where everyone builds prototypes for new ideas they have. At the end, the whole team gets together and looks at everything that has been built. Many of our most successful products came out of hackathons, including Timeline, chat, video, our mobile development framework and some of our most important infrastructure like the HipHop compiler.

To make sure all our engineers share this approach, we require all new engineers — even managers whose primary job will not be to write code — to go through a program called Bootcamp where they learn our codebase, our tools and our approach. There are a lot of folks in the industry who manage engineers and don’t want to code themselves, but the type of hands-on people we’re looking for are willing and able to go through Bootcamp.

The examples above all relate to engineering, but we have distilled these principles into five core values for how we run Facebook:

Focus on Impact: If we want to have the biggest impact, the best way to do this is to make sure we always focus on solving the most important problems. It sounds simple, but we think most companies do this poorly and waste a lot of time. We expect everyone at Facebook to be good at finding the biggest problems to work on.

Move Fast: Moving fast enables us to build more things and learn faster. However, as most companies grow, they slow down too much because they’re more afraid of making mistakes than they are of losing opportunities by moving too slowly. We have a saying: “Move fast and break things.” The idea is that if you never break anything, you’re probably not moving fast enough.

Be Bold: Building great things means taking risks. This can be scary and prevents most companies from doing the bold things they should. However, in a world that’s changing so quickly, you’re guaranteed to fail if you don’t take any risks. We have another saying: “The riskiest thing is to take no risks.” We encourage everyone to make bold decisions, even if that means being wrong some of the time.

Be Open: We believe that a more open world is a better world because people with more information can make better decisions and have a greater impact. That goes for running our company as well. We work hard to make sure everyone at Facebook has access to as much information as possible about every part of the company so they can make the best decisions and have the greatest impact.

Build Social Value: Once again, Facebook exists to make the world more open and connected, and not just to build a company. We expect everyone at Facebook to focus every day on how to build real value for the world in everything they do.

Quoted from Facebook S-1, Page 69

(Found online)

Ask the question, “If Steve Jobs (or his clone) showed up at our company asking for a job – would we give him one?”  Don’t forget, the Apple Board fired Steve Jobs some 20 years ago to give his role to a less creative, but more “professional,” John Scully.  Mr. Scully was subsequently fired by the Board for creatively investing too heavily in the innovative Newton - the first PDA – to be replaced by a leadership team willing to jettison this new product market and refocus all attention on the Macintosh.  Both CEO change decisions turned out to be horrible for Apple, and it was only after Mr. Jobs returned to the company after nearly 20 years in other businesses that its fortunes reblossomed when the company replaced outdated industrial management philosophies with innovation.  But, oh-so-close the company came to complete failure before re-igniting the innovation jets.

Examples of outdated management, with horrific results, abound.  Brenda Barnes destroyed shareholder value for 6 years at Sara Lee chasing a centralized focus and cost reductions – leaving the company with no future other than break-up and acquisition.  GE’s fortunes have dropped dramatically as Mr. Immelt turned away from the rabid efforts at innovation and growth under Welch and toward more cautious investments and reliance on a set of core markets – including financial services.  After once dominating the mobile phone industry the best Motorola’s leadership has been able to do lately is split the company in two, hoping as a divided business leadership can do better than it did as a single entity.  Even a big winner like Home Depot has struggled to innovate and grow as it remained dedicated to its traditional business. Once a darling of industry, the supply chain focused Dell has lost its growth and value as a raft of new MBA leaders – mostly recruited from consultancy Bain & Company – have kept applying traditional industrial management with its cost curves and economy-of-scale illogic to a market racked by the introduction of new products such as smartphones and tablets.

Meanwhile, leaders that foster and implement innovation have shown how to be successful this last decade.  Jeff Bezos has transformed retailing and publishing simultaneously by introducing a raft of innovations, including the Kindle.  Google’s value soared as its founders and new CEO redefined the way people obtain news – and the ads supporting what people read.  The entire “social media” marketplace is now taking viewers, and ad dollars, from traditional media bringing the limelight to CEOs at Facebook, Twitter and Linked-in.  While newspaper companies like Tribune Corp., NYT, Dow Jones and Washington Post have faltered, pop publisher Arianna Huffington created $315M of value by hiring a group of bloggers to populate the on-line news tabloid Huffington Post.  And Apple is close to becoming the world’s most valuable publicly traded company on the backs of new product innovations. 

But, asking again, would your company hire the leaders of these companies?  Would it hire the Vice-President’s, Directors and Managers?  Or would you consider them too avant-garde?  Even President Obama washed out his commitment to jobs growth when he selected Mr. Immelt to head his committee – demonstrating a complete lack of understanding what it takes to grow – to innovate – in today’s intensely competitive information economy. Where he should have begged, on hands and knees, for Eric Schmidt of Google to show us the way to information nirvana he picked, well, an old-line industrialist.

Until we start promoting innovators we won’t have any innovation.  We must understand that America’s successful history doesn’t guarantee it’s successful future.  Competing on bits, rather than brawn or natural resources, requires creativity to recognize opportunities, develop them and implement new solutions rapidly.  It requires adaptability to deal with new technologies, new business models and new competitors.  It requires an understanding of innovation and how to learn while doing.  America has these leaders.  We just need to give them the positions and chance to succeed.

. (PAUL ZANETTI / Sydney Daily Telegraphi / Cagle.com)

Link to Forbes Article Merrill Matthews, 07.07.10, 11:49 AM EDT

ObamaCare will mean fewer insurers and fewer hospitals, leading to higher prices and lower quality.

My comment:

In a free market, a market leader may buy a competitor to weaken competition. When government legislates change, the dirty work is done for you and at no direct cost (save the lobbyists and voters)

Armando Galarraga pitched a perfect game on Wednesday, June 2. SO WHAT you ask? Including Dallas Braden (Oakland A’s) on May 9, 2010 and Roy Halladay (Philadelphia Phillies) on May 29, 2010, there have been only twenty (yes 20) perfect games since 1900 (110 years). Baseball has been blessed with two (three) perfect games in the last 30 days compared to an average of 1 perfect game every 5 years.

I feel sorry for Umpire James Joyce for making a bad call. To his credit Umpire Joyce apologized to Armando Galarraga and agreed he missed the call. Unfortunately, MLB may correct this egregious error by pitching Umpire Joyce back to the Minor Leagues.

In my opinion, Bud Selig should strap on his bollocks and overturn Umpire Joyce’s call for the good of baseball. Yes, it sets a precedent, but a good one. Right is right and replays from 6 different camera angles never lie.

Why on earth would an investor offer $5MM when the original business plan only asked for $1MM? Redraft the business plan based on $5MM funding. How would you spend the money differently? Play out the best case and worst case scenarios with $5MM in funding. Present these cases to the potential investors and see if they walk away when assets are legitimately deployed.

BTW, what would happen to your house, stocks, other investments if you were personally held liable for a $5MM default? A personal guarantee isn’t just a piece a paper. Think of the consequences. If all you have is a broken down car, are 3 months behind in rent, and are leveraged over your head, who cares? Get in line with the rest. If, on the other hand, you have great credit, lots of assets, cash in the bank, then kiss them all away. You deserve the consequences if you fall for this scam.

The most likely scenario is the investors place $1MM in escrow, ask you to guarantee the entire $5MM loan, pay out the original $1MM through their sham front man, then fold the company leaving you on the hook for the whole $5MM. As an officer of the corporation, the shill will have super-majority voting rights, his vote representing 51% or more will trump minority investors (You, your friends, family, and everyone else that got you this far).

There is no free lunch. If you take this deal, you are pigging out neck deep from inside the trough. Take off the rose colored glasses, come back to earth, stop the meds, take a cold bath, gather your thoughts and ask yourself:
Why on earth would someone offer more money than I asked for?

Read the following blog for more information:

http://www.shariahfinancewatch.org/blog/

specifically the article titled The Shariah-Compliant Finance Myth

The US Federal Trade Commission might sue GM over claims of paying back their loans in full. Despite claims made by Chairman and CEO Ed Whitacre in recent TV ads, General Motors is using taxpayer money, not operating income to repay government loans. Here are the details.

http://www.foxnews.com/politics/2010/04/23/gm-hot-water-ftc-truth-advertising/

* GM received $49.5 billion — $14.5 billion pre-bankruptcy and $30.1 during bankruptcy.
* Of the $30.1 billion, the $16.4 billion was placed in an escrow account.
* $2.8 billion in the escrow account was used to resolve Delphi’s bankruptcy reducing the escrow account to $13.7 billion.

In return, the government received:

* 60% stake in the new GM.
* $7.1 billion in interest bearing debt ($0.4 billion was paid back in July 2009).
* $2.1 billion of preferred stock.

General Motors used TARP money that was placed in escrow by the Treasury Department to repay the remaining interest bearing debt of $6.7 Billion. In other words, the Treasury approved the repayment of the loan with the escrow fund, which is similar to using your credit card to pay the monthly mortgage.

The U.S. Treasury hopes to recover the remainder of their investment by selling common stock after GM’s initial public offering that is intended to take place later this year.

(Originally published May, 2010)

The United Auto Workers (UAW) contracts with the Big 3 Automakers included “Job Bank” provisions. Laid off workers were paid up to 90% of their base salary for NOT WORKING! This provision cost GM over $400 Million in 2006 alone. 2007 brought some much needed changes to the Big 3 labor contracts, saving an estimated $1,000 per car.

Take the NUMMI plant in Fremont, California as an example.

As a General Motors plant, the UAW closed the plant four times with strikes and sick-outs between 1963 and 1982. In the final year, reportedly up to 20% of workers were absent without excuse. The plant employed 4,000 workers and it took an average of 34 hours to build a car.

After NUMMI reopened as a joint venture between GM and Toyota, absenteeism dropped to just 2%, the factory employed just 2,200 workers, and build time dropped to just 20 hours.

Toyota’s inclusionary management style and simplified work rules fostered cooperation and efficiency, providing stark contrast to GM’s experience.

General Motors expanded under Alfred Sloan’s leadership in the 1930’s.
Sloan was a visionary who created the “Ladder of Success” pricing structure – Consumers move up the product ladder as aspiration and wealth increases from Chevrolet to Pontiac to Oldsmobile to Buick and ultimately Cadillac.

Sloan also introduced planned obsolescence with annual styling changes driving consumers to aspire to the latest and greatest styling and gadgets. Ford resisted and kept the same styling for years, propelling GM to industry leadership for 7 decades.

In contrast, Rick Wagoner (1998-2009) focused on controlling costs. He consolidated engineering organizations w/o cutting headcount. Individual brand and model identities were homogenized by combining design divisions across shared platforms. Chevrolets, Pontiacs, and Buicks were essentially the same cars with minor trim and color differences between them. GMC and Chevy trucks differed solely in name. GM’s brand strategy and the “Ladder of Success” that took seven decades to build was undermined in just one decade.

This time around it was Ford that was introducing new models with innovative styling and the latest gadgets. General Motors filed for bankruptcy in 2009. Ford didn’t and continues to regain market share.

(originally published May, 2009)

General Motors’ Annual Reports revealed a very sick business.

* Every GM Division was losing money
* A disproportionate share of profits came from high-margin SUVs and trucks
- Of the top 20 profit contributors, only 9 were cars
* Customer demand shifted toward smaller cars and trucks that have lower margins, thus lower contribution margins
* GM cars sold slowly even with financial incentives

Rick Wagoner’s report to Treasury relied on steadily increasing contribution margins to meet GM’s financial goals and avoid potential bankruptcy. Unfortunately, contribution margin at GM dropped annually, dropping to only 30.4% in 2006 and 2007.

(originally published May, 2009)

This is the first in series of blogs looking in the rear view mirror at the automotive industry in the United States.

Early in 2009 as it appeared that the Big 3 car makers were sinking faster than the Titanic, I started thinking about buying stock in GM and Ford. I believed the auto industry was nearing the bottom and was due for a turnaround. My reasoning was fairly simple. Sales were slow because potential buyers were struggling through a deep recession and kept their aging (but debt-free) cars longer than they normally would during better economic times. The Big 3 were stuffing the sales channels shoving 2009s at dealers who couldn’t find room to store all the unsold 2008s.

In preparing a bid for the Saturn Motors Division, I researched publicly available SEC filing and investment research reports on the Big 3. While normal people were watching the Super Bowl, I was reading through thousands of pages of annual reports. Frankly, I was taken aback by how much unsold inventory was piling up, how much money each company was losing, and how daunting a task it would be to try keeping these sinking ship afloat.

My first reaction was to short Ford and GM stocks…

(originally posted May, 2009)

Use low-cost tactics to accomplish stretch goals.

As an example, I contracted employees for specific projects to avoid adding to long-term payroll. Projects have a tendency to expand and fill whatever time is budgeted to them. So, break large undertakings into smaller, well defined projects with clear goals, measurable milestones, and finite time lines.

Assemble all the talent you need, give them the freedom to come up with crazy ideas, but strictly enforce all deadlines. Doing so empowers your team, saves time and money, but gives you the option to change contractors or adjust the process if things don’t work out the way you first thought.

This method minimizes risk, accomplishes more with less, and enables your company to achieve what most competitors can’t even imagine…