Category Archives: Heroes

Steve Ballmer and the meaning of money

I am Objectivist and fan of Ayn Rand’s writings.  One of the great heroes in her books is a man Francisco d’Anconia.  He gives a speech that makes Michael Douglas in Wall Street seem impish in comparison.  dAnconia not only explains why profit is great, but the underlying source of its greatness.  One of the exciting things in my life is finding great heroes like d’Anconia that exist in real life, not just books or movies.  My boss Steve Ballmer is one of those gems.

My guess is that outside the sphere of business and technology, most people don’t know the man by name.  If you ask someone in the world of business who he is, they’re likely to tell you he’s served as the CEO of Microsoft during the time the company’s stock has been flat.  In the technology industry, he is pilloried.  His wikipedia article while silent on his accomplishments inside Microsoft besides passively profiting from its stock, hastens to point out:

Steve Ballmer has been known to be very passionate in expressing his enthusiasm. [...] His wild screaming and dancing on stage at an employees convention was caught on a widely-circulated video known as “Dance Monkeyboy.” A few days later at a developers’ conference, a sweat-soaked Ballmer repeatedly chanted “developers” at least 14 times in front of the bemused gathering.

Despite what the business and technology communities might have you believe, Ballmer is not a crazed lunatic nor has he sat idle at the controls driving Microsoft into the depths of irrelevance.

Under his tenure as CEO Microsoft has tripled its revenue from $19 billion to $60 billion.  Operating income has doubled from $10 billion to $22 billion.  Net-income has more than doubled from $7.7 billion to $17.6 billion.  All of this has occurred amidst a crippling persecution by the United Stated Department of Justice and European Union on antitrust charges.  During this same time, the company has endured the commoditization of large swaths of the software industry at the hands of the open source software movement.  The company went from being virtually unused at enterprise scale, lagging far behind Oracle and Sun Microsystems, to the dominant player.

All of that is fantastic.  But my favorite thing about Ballmer isn’t that he guided the company to achieve these fantastic results, but that he takes pride in it and wants you to be just as proud.  I feel a bit privileged every year as an employee at Microsoft to get to attend our company meeting where 30,000 of us pack into a stadium.  It’s impossible to describe just what a spectacle that is.   The best I can say is that it’s kind of like a giant high school pep rally, except with a bunch of wealthy nerds.

Without fail Ballmer comes out at the end of every meeting to loud music, cheering, applause and meets it with the sort of high fives and tenacity that you might expect from a basketball player not a CEO.

He’s so exasperated after running around the floor of the stadium that he has to stop any catch his breath for a moment.  After he caught his breath, I listened as he started in:

I have to say a couple things.  You know everybody likes to focus on the thing they consider the most important thing that they hear and I sit backstage the whole meeting just listening, listening.  What do people really love?  What do they applaud for?

And everybody’s got their own thing.  You mention their group they go nuts.  You show them their product, they go nuts.  You mention [the Entertainment Devices Division] went from profitable to unprofitable, and they go super nuts.

But the one thing that actually makes me go most nuts barely even got a ripple.

My friend over here Kevin Turner, he put up a slide that showed our growth in revenue and our growth in profit.  And I admit that the numbers are so big and so crazy that they’re so hard to understand.  There’s no reason people should go crazy about them.

Yes, I want to remind you how impressive your work is.  60 billion dollars in revenue.  22 billion dollars in pre-tax operating income.

There is no company on the whole planet, on the whole planet!  — that doesn’t sell oil — [laughs] –there’s a foot note–there’s no company on the whole planet now that makes 22 billion.  It’s Exxon and it’s the world’s oil companies and it’s us.

And the growth that we posted in profit, going on 4 billions dollars in one year.  You can say those are just numbers and you can’t relate to them, and maybe you never should.  But you should be able to take the pride in knowing your work is having big broad impact and it’s being valued by people around the globe–valued by people aorund the globe.

And to all of you, to the most amazing success in the history of world business, for that I want to say thank you, give yourselves a round of applause.

I sat listening to him, as a smile broke across my face.  I am proud to have this man as my boss.  And I feel like I am witnessing a part of history that only the 30,000 people around me will get to see.  A record level of success being achieved in business, and observed for what it is by the man without guilt or shame.

In praise of Exxon

With Exxon reporting record profits, count me as one of the few that thinks this is a good thing.  If you have a 401k, chances are you own shares of Exxon’s stock and have benefited.  The company’s largest shareholders are companies like Barclays, Vanguard and Fidelity that manage mutual funds owned by you and me.  Last year alone, Exxon returned $35.6 billion to investors.  If you wrote that as a check to each of the 113 million household in the U.S. it would be $314–talk about a real economic stimulus package!  Meanwhile our government is causing rampant inflation, with its funny money backed stimulus package.  Blame our government, not Exxon, for higher gas prices.  For those paying with U.S. Dollars, oil has quadrupled in price over the past four years.  Four years ago an ounce of gold would buy you roughly 12 barrels of oil; an ounce today would get you roughly 10.

Some observations worth pointing out and concretizing:

  • Exxon reported net income of $40.6 billion over the past year.  In the past year alone, they have grown profits by $900 million.  To put just the $900 million of income growth in perspective, that’s the entire profit from a company like Safeway that operates more than 1,700 stores and works all year to make that much.
  • Over the past 5 years, the company has more than doubled its overall value (i.e. market capitalization), creating over $200 billion in value to investors.  Discounting PetroChina, which is a nationalized company, Exxon is the most valuable company in the world.
  • The company produces on average 6.5 million barrels of oil daily.  After refining, this is enough gas to fuel the average daily driving of some 63 million people.
  • 5 years ago, the company was already one of the world’s largest.  In the past 5 years, they have managed to take an incredibly large company and double its revenue.  During the same time, profits have quadrupled.  Words alone could not convey how difficult it is to take a mega cap business like this and grow it.  General Electric, another mega cap, has tried and grown revenues just 25% and income 56%–fantastic numbers, but pale in comparison.
  • Exxon is also fantastically efficient, employing 106,100 people.  This sounds like a lot, but let’s put that in perspective.  McDonalds employs more than 4 times as many people, yet has less than a 10th the profit to show for it.  Comparing inside the petroleum refining industry, it operates at a higher profit margin than most of its competitors–including BP, Chevron, Conoco, and Shell.  Average revenue per employee is a staggering $3.8 million.  Again to put this in perspective, Google–now famous for hiring geniuses–harnesses just 25% as much revenue from each employee.

There is an excellent speech by their CEO, Rex Tillerson, from a few years ago that crystallizes how their business works and the role they play in the industry.  Some of my favorite quotes:

  • “By the year 2030 – less than twenty-five years from now – the world’s energy needs will be almost 50 percent greater than they were last year, driven mostly by growth in developing countries.”
  • “Such growing demand for energy reflects a growing demand worldwide for escaping poverty, attaining higher standards of living and achieving greater prosperity. Energy use correlates directly with economic development, and in the hierarchy of human needs, energy ranks high.”
  • “So the real question is not whether we will soon reach peak oil, but whether we can reach peak performance in the responsible production and use of oil and other fossil fuels.”
  • “Every day, consumers around the globe use 230 million barrels of energy, measured in terms of ‘oil equivalent’, from all sources. Oil alone is consumed at a rate of 40,000 gallons a second. Put another way, in the time it takes me to deliver these remarks, people worldwide will have used over 50 million gallons of oil.”
  • “About 55 percent of U.S. oil supplies originate in North America. No other region – including the Middle East – meets more than 15 percent of U.S. oil needs. It may surprise some to learn that the United States imports more oil from Mexico than we do Saudi Arabia.”
  • “Federal and state governments in this country have ruled off-limits an estimated 31 billion barrels of recoverable oil and 105 trillion cubic feet of natural gas. And the majority of those amounts are not found in the Arctic National Wildlife Refuge. They are found in the Rockies and off many of the coasts of the continental United States.”

Frank Lloyd Wright autobiography

I just finished reading Frank Lloyd Wright’s autobiography.  This was an awesome book, and I kept having moments along there way where I would cheer one of his brilliant statements.  Some of my favorite quotes…

“But whom are you goign to build homes for?  If you go against their wishes and try to give them what you think right and not what they thing they want?”

“That’s just where a wise creator comes in, Cecil.  I won’t need but one man in ten thousand to work for–even one man in a hundred thousand would keep me more than busy all my life, because that man will need me as much as I need him and he will be looking for me.”

Nine pounds where three are sufficient is obesity.  But to eliminate expressive words in speaking or writing–words that intensify or vivify meaning is not simplicity.  Nor is similar eliminations in architecture simplicity.  It may be, or usually is, stupidity.

Only where culture is based upon the building of character by freedom-of-choice will we ever have a culture of true democracy.

First came the philosophy of the thing in the little story repeated to the trustees.  All artistic creation has its own.  The first condition of creation.  However, some would smile and say, ‘the restulf of it.’

Second there was the general purpose of the whole to consider in each part: a matter of reasoned arrangement.  This arrangement must be made iwth a sense of the yet-unborn-whoel in the mind, to be blocked out as appropriate to concrete masses case in wooden boxes.  Holding all this diversity together in a preconceived direction is really no light matter but is the condition of creation.  Imagination conceives here the PLAN suitable to the material and the purpose–seeing the probable–possible form.

Imagination reigns supreme, when now the form the whole will naturally take, must be seen.

Front-end of Innovation Conference

Wow, I’ve been really latent in posting blogs, but I guess I have to get started again one way or another.  I am actually at a conference this week, so I am getting a chance to lift my nose up from the work immediately in front of me.  I wrote a mail to my team about the conference, and thought it would be fun to share it more broadly.  Here are my notes…

I am attending the Front-end of Innovation Conference here in Boston as a training exercise this week, and thought I’d share some of the thoughts from today with the PM team in case anyone was interested.

Interestingly, the conference started with a quick presentation from Lego.  Everyone got a free set of building blocks and was encouraged to “fiddle” with them while presenters talked.  Their theory being that since the hands are connected with 70-80% of your brain this must be a good thing to use your hands while learning (hmmm, non-sequitor perhaps?).  Anyway, I did think it was poignant that as kids it is easy to just start building whereas we kill a lot of that spontaneity in business by assuming there must be immediate results with a clear plan of action.  It’s also interesting to think what would happen if we brought Legos to our next design meeting… hmmm J

The first in-depth presentation was given by the CEO of Clorox, Jerry Johnston.  He walked through how Clorox has used innovation to go from a $60 million revenue company in 1969 to $4.3 billion in 2004.  These results are all the more impressive, because Clorox is relatively small compared to some of the companies it competes with such as Gillette or Proctor & Gamble, spending far less on R&D.  The presentation went on to focus on how three myths are really not true:

 

Conventional Wisdom Challenge
 Innovation is a game of chance  Chance is dramatically reduced by getting close to customers
 Plant lots of seeds and see what works  Great innovation is about eliminating distractions
 Spend lots of money  Manage where you want to invest vs. sustain

Not surprising, this starts with identifying a company’s purpose, and then developing a product portfolio that aligns to that purpose (i.e. don’t innovate where you’re company isn’t setup for success) and then lastly a set of strategies to engage in those areas.  It was interesting to hear just how much he emphasized staying close to customers, not only in the beginning of the design phase but throughout and not only with marketing but with the developers of the product.  It sounded like I was listening to Soma for a minute.  The product team used their touch with customers to come up with insights (e.g. want a way to control application of bleach) and then turns those into requirements for the product.  In the case of bleach pens, they took a product that sells in bulk for ~$2 and marked it up to $4.  Not only that, but they created a whole new category of products.

Johnston also combated the myth that you have to throw lots of ideas up against the wall and see what sticks.  By cutting the number of projects the company invests in, Clorox is able to focus 50% more resources on the remaining projects and derive 50% more value out of them.  They recognized that in several categories they didn’t need whole new products or platforms, but rather just needed to innovate in their marketing or partnerships.  This was an eye opening point, because I often think of innovation being about developing a whole new product or at least adding features to it, where as in actuality you can milk more value sometimes by simply targeting a new area for marketing (e.g. get people excited about BBQ’ing during football season, in addition to just the summer boosted the bottom line for their charcoal business).  This is actually a great example of why our effort with aftermarket solutions is so critical.  While we’re heads down building new products for 18+ month cycles, there are significant things we can do to enhance the value of products that are already on the shelf.

Peter Senge, who authored The Fifth Discipline, gave the next talk.  He focused on how companies create learning organization, which in turn unleashes increased potential for innovation.  Senge touched on several subjects, so there wasn’t necessarily a consistent thread.  He posited early on that most challenges are not technical ones, but rather social.  The more interesting point he made is analyzing Peter Drucker’s take on innovation management, and why people fall short so often.  Drucker broke down innovation management being a process of:

  • Have a clear mission
  • Define significant results to achieve
  • Continually assess progress

This sounds brain dead simple, but surprisingly often key parts of this are missed.

Senge started by focusing on how many companies start with great missions and values, but when you really talk to people on the ground floor the company moves to a different beat.  One enlightening example was a t-shirt he saw: on the back it outlined the company’s key values such as honesty, integrity, focus on the customer, etc; on the front was the Enron logo.  So often the focus is on “just make money anyway you can and go from there”.  I thought it quip back was interesting: “Money is like oxygen.  Companies need money to survive, but likewise no one lives just to breathe.”  While he’s creating a bit of a false dichotomy, my take away is that you have to appreciate both the path and the destination—they are both connected.  If all you appreciate is the destination, you’re going to be really bored and frustrated on the long journey.  Conversely if all you enjoy is walking on paths, but don’t have a direction (i.e. profitable business) you’re not going to go anywhere either.  This makes me glad one of the key things we focus on at MS in our interview loops is fundamental passion for software and technology.  It’s amazing how so many things will just take care of themselves when you bring in people who are intrinsically motivated rather than extrinsically motivated.  Senge suggested asking yourself a question to reconnect with your company’s core mission, “Who would miss you if you were gone tomorrow?”  This is pretty illuminated for MS, since so many people run their business on our software.  And this is also why managing the product across it’s lifecycle and servicing it is so important for MS.

He spent the rest of the talk focusing on how people mess up the feedback loop between choosing results to go after and measuring progress against them.  Assessment is about objective information that is taken and internal judgment that is applied to it.  So often we come up with a pre-canned judgment and find the data that justifies it.  For example, I desperately want to lock down my spec, so I’ll argue with anyone who says I need to explore a whole new area.  Meetings then become an exercise in arguments where “listening” is “that time where I am waiting to talk” rather than really processing what’s being put on the table.  This boils down to the difference between “discussion” and “dialogue”.  If you really study the etymology of those words, you see that “discussion” is about “breaking apart” and not surprisingly results in arguments.  “Dialogue” comes from the Greek words dia and logos, taken literally it means meaning coming through—letting the dialogue be about getting to a heightened understanding rather than proving a preconceived notion.  He cited the book Car Launch, which looked like an interesting place for more depth on the topic.  The example he cited from there is two teams in the same auto company that at first tried short term fixes without talking to each other; each fix caused ripple effects that hosed the other’s business model.  When the teams looked for more fundamental solutions, the re-work was reduced.  This is sooooooo evident in the work that we do where we are constantly affected by other teams that make short sighted decisions without engaging to see what partners they’ll affect.  I am curious how other companies are able to tighten the loop here while still maintaining a bottom-line efficiency.  There weren’t obvious lessons from the talk, so the book might be insightful.

The highlight of the day was getting to hear a Q&A session which Jack Welch, which really had little to do with innovation I thought and more just a great primer on how leadership works.  Welch is of course the former CEO of General Electric who oversaw the company as it rose to the most valuable publicly traded company in the world with something like a $400 billion market cap (MSFT is #2).  He talked a bit about how he strived to make GE a boundary-less organization where compensation was changed from bonuses to be stock option focused.  This was teams would be willing to give up stars so that the bottom-line paid off.  Interestingly, even though MS employs a stock award model, I really wonder if we get all of the result we should in terms of motivating teams to make the right calls for the company rather than their team.  While I think we hire people that try to do the right thing, there’s really not a tightly matched reward system.  Interesting food for thought….  Welch was all over the place given the question, but a quote I jotted down that I really liked comes to mind: “gut instinct is really just pattern recognition”.  I thought that was a great distillation of something that many people get confused and wrapped up in.  In fact the #1 thing that impressed me about him is how he took complex things and made them simple.  I think it’s no surprise why he was so successful as a CEO when you see this in action.  I thought this was shown even better when he cited another anecdote: while talking to heads of Human Resource departments he asked how many got more time with the CEOs than their CFO peers.  Of course none of them raised their hands, which really didn’t surprise me given the focus on financial results.  Welch pronounced this is “nuts”.  He used the analogy of a sports team, ‘no one in their right mind would you so much time talking to the score keeper when they could be developing their team and acquiring better talent.’  When left in the domain of corporate strategy it’s hard to see this, but Welch’s analogy to sports makes it so clear why developing people is vastly more important.  My other final enjoyment came when an audience member cited a report speculating how America will need more innovation in the 21st century to compete globally and then asked who Welch thought is responsible for this, as if it was some centrally appointed person or a government agency that needed to be formed.  Welch said simply: “you!”  Everyone in America is responsible for innovating.  He pointed out that the only job security is customers, not companies—something that’s so true, yet so under appreciated in America.

Speaking of America, over lunch we listened to Sir Harold Evans talk about his book They Made America.  He started by noting how many critical inventions originated in England, yet only became commercially successful when they were spun up in America.  Throughout the talk Evans focused on the difference between invention and innovation.  The former is useless until the idea is taken into the marketplace (i.e. until innovation happens).  It was fascinating to listen to someone with such great conviction and recognition of this, since Microsoft is really one of the greatest examples of this.  We are infamous for not inventing, but in truth I think our greatest inventions are about realizing how to make software fit into the marketplace and what customers really value.  The key distinguishing characteristic that Evans identifies is the ability innovators have to be system builders.  They don’t just have a great idea in singularity, but rather figure out how to fit it into the broader fabric of society.  I can’t remember the exact invention, but he cited the notion of the innovator who during the nineteenth century gave farmers his harvesting tool for free initially with a promise that they would pay after their harvest, recognizing that farmers would never be able to afford it until after they reaped the benefits.  This seems obvious in retrospect, but in truth was the first time an installment plan was ever used in business.  One of the surprising points is that innovation is not black magic, it’s right in front of you.  The installment plan idea is really not so amazing, so much as it is a careful attention to reality and the current needs of the moment—you just have to open your eyes wide enough to see it.  After lunch, I snagged the opportunity to meet Jack Welch who was sitting right in front of me.  It was cool to shake his hand and say “hi”.  He was very gracious.

The last talk of the day I sat in on was given the by VP of product development at Visa USA.  Reiterating the theme throughout the day, she focused on how she took front-end product development which was black box or “the cloud” at Visa and turned it into a more predictable process.  Her first point was to focus on what the competition really is, not just in terms of obvious competitors for them (e.g. Mastercard, American Express) but other forms that compete (e.g. writing checks, paying with cash).  For software this is obviously critical, since we’re often supplanting something that has no direct competitors in the marketplace.  She went on to discuss various strategies for choosing where to introduce innovation:

Pain Point Analysis: this is what it sounds like.  You figure out what the pain points are for the customer and identify possible solution.  However, you have to focus on the root problem, not just the symptom.  If the root problem is outside the domain of your product (e.g. it’s the banks issue or government regulation), you might not want to go after solving the symptom since the value generated is limited.

Lever analysis: this boils down to recognizing that there are several layers in the stack where you can introduce innovation…

Promote existing product
 Could be a change in messaging or going into new channels.
 
Modify existing product
 Could be a change to the fees or enhancements to the structure
 
New platform
 Could be a whole new product platform or technology
 

 

Often people jump to the conclusion of going after a whole new platform, when it might suffice to simply promote a product that already exists in a new way.  I was thinking how in the acquisitions space, you can align the acquisition to one of these categories.  Pointcast, which was acquired in the dot com boom for ~$1 billion, is arguably just a new feature in IE, not a whole new platform.  When you reconcile it in those terms, it’s easy to see that’ s a ludicrous amount of money to spend.

FRCP: this system postulates that customers decide which product to buy in a hierarchical fashion, first on function, then reliability, then convenience and finally on price.  If you’re losing to competitors you have to figure out where in the stack you’re losing.  If you’re losing on reliability, you’re wasting your time trying to make your product cheaper.  It’s also worth noting that function and price are easier to clone since they are externally visible, whereas reliability and convenience are harder for competitors to clone.

That was all for the day.  Time for me to get some sleep and get ready for tomorrow.

Good news in a newspaper!?!

I sat down for breakfast this morning after plunking down $1.50 for a copy of the Seattle Times.  I usually find myself more distressed than encouraged after reading the paper.  So I was pleasantly surprised when I flipped to the local news section today to read a column titled Woman works to find work by Nicole Brodeur.

The column introduced a local woman, Jennifer Ryan, who’s searching for work.  Apparently she had put an ad in the paper under the section “Work Wanted.”  Interestingly, she was the only person to put an ad in that particular section, which floors me given how much I hear about unemployment.  Her ad read:

West Seattle mom will clean, shampoo carpets, do yardwork, clean gutters, drive errands, detail autos/campers, haul & dump, paint, sm. repairs, baby/pet sit, etc. bldg. maint. background, hard worker, strong, able to lift, honest worker w/eye for detail — rsnbl. rates. Need to Make Ends Meet.

At the end of the column Ryan speaks to her dismay, “They are more willing to help people who don’t want to help themselves.  The more you try, the less help you get, and the less you try, the more help you get.”  She sums up her attitude by saying, “I want my mother to be proud of me, whereever she is.”

I have never met this woman, but I am proud just reading this little bit about her.