Business Models

I saw this tweet today

New startup concept:

1. Make something of value
2. Charge money for it
3. Spend less than you make

I call it “business”. Thoughts?
— https://twitter.com/awilkinson/status/517393404888875008

I've been confused for a long time about why this isn't how modern startups are run.   This is the exact model I had in my head in 2001 when I wanted to start my own business, and for every startup idea I've had. However, I've seen so many multi-billion dollar valuations of companies that essentially have no revenue that I'm starting to wonder...

Is this a class thing? 

I've gotten to know a few rich people in NY, and I can tell you that none of them thinks this way. I can't tell if they're rich because they see the world differently from other people (I sure see the world differently than my parents and have a lot more money) or are these people crazy and excited about no revenue business models because they don't have to worry about making money?

It is difficult for me to maintain my view of the world (businesses should make money) with the data I'm getting about 0 revenue businesses being valued in the billions.  I've heard it put this way: Having zero revenue is great because it allows you to sell the dream of, when we monazite, just imagine how much money we'll make. Where as having a single dollar of revenue changes the conversation to why do you only have $1? And then the dream is *poof* gone when it's confronted by actual data" (mostly I've heard this from Felix Salmon) This makes me think that it's about duping people and not about creating value at all. :-/

Thoughts?

    Why Here?

    This winter in NYC was particularly long.  I am SOOO happy that it's finally summer.  But season of polar vortex after polar vortex combined to make me really quite depressed, and I started wondering... why are we here?  Specifically I mean, why are we coding physically in NYC?

    It's crazy expensive, the weather in the winter sucks, it can be crowded and smelly.  Given that we can code from anyplace we'd like that has power and internet access I understand a bit why silicon valley happened in California.  Who wouldn't choose nice weather?

    Well it seems like a few others in the NY community have had the same exact though (even the same exact location I was contemplating) :

    http://www.hackerparadise.org/

    Sounds like a blast, but even though I'm a freelancer I am at the whim of my current largest client who wants me to basically be a full time employee, on location and all.  The reality is that even though we technically can work remotely, there's plusses and minuses to all of it and the powers that be have decided that it's in the best interest of any particular company to make sure everyone is in the same place at approximately the same time.

    I've never worked for a company that let you work remotely the majority of the time, but it would sure be nice to be able to set my own schedule and location... at least for a few months... in beautiful Costa Rica!

    Phone Screens

    The most recent trend in interviewing developer candidates is the normal phone screen, but with a live window in which you can type and the interviewer can see what you've typed. Something as simple as Skype with a chat window open, or a more complex website like collabedit which gives nice syntax highlighting and auto-indentation, etc. (but not VIM key bindings, grr). I've noticed with this new method the questions are more difficult, closer to standard whiteboard questions than standard phone screen questions where you do not share a code editor. I've also noticed with this new method that I'm suddenly doing much worse on interviews than when they were phone only and/or in person on a whiteboard but I think I've finally figured out why.

    Human behavior is complex and determined by lots of factors. All kinds of things can bias your decision making and your performance on tasks like this. I think the specific bug that's being triggered is something called priming

    Priming is when something (usually unnoticed) in your environment changes your perception and thus your behavior.  When psychologists were testing to see if irrelevant details affected our behavior, it turned out they do.  The most famous example is that people who are holding hot cups (coffee) have a more favorable opinion of an interview candidate (hey, maybe  should ask my phone screeners to grab a cup of coffee before we begin ;)) as compared to those who had no beverage.  The exact opposite happens when people are holding cold beverages, they have a more negative view of a candidate.

    I think the fact that I'm sitting in front of a computer with a text editor open is affecting the way I think about problems.  I type very quickly, and normally when I have my editor up I already know how to solve the problem I'm attempting to solve because I've already white boarded it with a colleague.  Basically my instinct in this environment is to code, not think (if that makes sense), and this is hurting me.  When I'm at a whiteboard, I know that hand writing out the code is going to be slow and so I want to make sure that what I'm going to be writing out is already the near optimal solution before I start writing. This isn't the case with the text editor open, my unconscious instinct is to start coding something that works quickly, and optimize later. 

    Hopefully now that I recognize what's happening, I'll be able to override my unconscious instincts and behave more like I'm in front of a white board, because I don't think my request to not code live will go over so well ;)

    Perka recruiting

    Every now and then I receive emails from various recruiters trying to find technology people for their company.  I was surprised when I came to New York that there were head hunters, and that they were looking for tech people.  I had heard of executive head hunters, but as far as I can tell there's not really a head hunting/recruiting market on the west coast.  But the second I started working in NYC, the calls from LinkedIn started pouring in.

    Most of these recruiters are terrible, and know nothing about the technology they're for which they're recruiting.  In general, anecdotally I've seen that most founders of startups in NYC are not technical but rather sales/marketing people in Publishing, Marketing, or Fashion.  

    Anyway, I'm at the point in my career where I'm interviewing companies just as much as they're interviewing me so I like to send back to these blanket emails some questions of my own.

    Here's the most recent letter I received from Perka

    Hi Jim,

    I am reaching out because our engineering team is very interested in your engineering background. We are currently looking for Sr. Java Engineers to work with our Sr. team in building new frameworks, improving our architecture with sophistication and advancement and mentoring our engineers with projects. I would like to know if you would be open to a chat about Perka - I’ve included some info below. We are also looking for mid-level Java, Android, Software Developer in Test and JavaScript Engineers.

    Perka is on it’s way to conquering one of those categories yet to be conquered - Loyalty.Here is some info about us to give you an idea of where we are headed and why…

    Our current Engineering team scaled from 5 at acquisition to currently 13 and we will be adding 10 Engineers to support our Platform/Architecture, build new frameworks and tools, Mobile Products and Merchant web products. We are a relatively flat organization and this position reports directly into our CTO/Co-founder as well as work along side him and our other Sr. Engineers all like yourself with impressive backgrounds. This is a very smart team and we need to add to our talent in helping us deliver the world’s mobile loyalty brand and keeping up with the brand and trust as we grow.


    About Us

    Perka is a customer loyalty platform started in 2011. Our mobile and web apps have made millions of days a little brighter in free coffees, yoga classes, ice cream cones, and thousands of other ways of saying thanks.

    In October 2013, we were acquired by First Data — one of the world’s largest payment processors — as an independent subsidiary. That gives us access to enormous resources and infrastructure, while retaining our startup culture and values.

    Now we’re deploying our product at a scale that we could previously have only dreamt of. We’re building a team of inspired problem-solvers who want to help us reimagine the way that people all over the world interact with their favorite shops and restaurants. Join us.

    What we offer
    A clear product direction with a solid growth plan and balance and the extraordinary opportunity to work under the direction of very successful co-founders
    Really really really good company culture-you’ll be saying it’s your favorite place to work too!
    We open source and big fans of community development and events.
    Competitive salary according to market and experience
    Unique annual cash bonus program
    Full benefits (health, dental and vision)
    Life insurance coverage
    Flexible spending account options
    Generous PTO and paid holidays
    Super duper MacBook Pros and 27” thunderbolts
    Plenty of snacks for you and your super smart teammates along with super fun tees and great swag!
    In August 2014, we are expecting our swanky new loft build out in SoHo to be complete with yes a ping pong table!
    — Email from recruiter

    And here was my response questions

    Hello,

    Thanks for getting in touch. A few questions:

    You say your engineers have impressive backgrounds, but you don’t mention what they are. Can you elaborate?
    How big is the loyalty program market place and what percentage does your company have?
    What is the most pressing technological challenge your company currently faces?
    What is the most pressing business challenge that’s preventing you from having explosive growth?
    Would you describe your company as primarily technology driven (ideas for new products and services come from the engineering team who also implements them once vetted for soundness by the business) or sales and marketing driven (engineers are told what to do by the business)?
    When you have an idea for a new product or service, how do you test the idea in the marketplace?
    What does your technology stack look like today? What does it look like 5 years from now?

    Thanks,
    Jim

    It's been a couple days and I haven't heard anything, which makes me think they have little interest in an engineer who cares about the business and how it's run but are rather just looking for someone who will do what they're told. After all they're the geniuses with all the brilliant ideas, and you're just some code monkey who should be GRATEFUL for the OPPORTUNITY to be paid in fake money (shares/options) for working on such a great idea!  Know your place engineers, you're the blue collar workers of the information economy and they're the smart management.

    I'm being a bit hyperbolic here, but I don't think I'm too far off the mark based on conversations and general discourse with 'idea guys' in NYC. I can't help but feel that computer programming is definitely seen as a second class citizen (if only subconsciously).

    Africa has better tech than NYC

    One of the most surprising things to me when moving to NYC was how often I would NEED CASH.  It seems, anecdotally, that most restaurants and bars in the village are CASH ONLY (also most cabs prefer you pay in cash, and can be real dicks if you try to pay with a card even though legally required to accept them)

    Personally I would rather not carry cash for security reasons, as well as convenience reasons and it seems like the rest of the world is headed in that direction (I remember when it was a big deal that McDonald's started accepting credit cards).

    The other day I heard a story on Marketplace about how no one in Africa uses cash anymore, instead they all do mobile to mobile payments.

    NYC has always seemed a little techno-phobic to me (also obsessed with OLD things: antiques, old apartments, etc.) and I think this explains why many businesses here don't accept mobile (or even credit card) payments just as much as the additional overhead cost (not to mention that you can better hide cash transactions from the tax man)

    But now I'm just embarrassed that Africa seems to have better payment and p2p transfer technology than NYC in the country that invented the mobile phone.

    Must See Tech Talks

    I was super happy when this link was passed around the office and I had, in fact seen the majority of these talks.  They are almost exactly the same list I would have created so definitely check it out

    http://brikis98.blogspot.com/2014/05/must-see-tech-talks-for-every-programmer.html

    The Fun ones are particularly hilarious!

    I would include any talk by Jeff Hawkins on machine intelligence if you're interested in that topic such as this one

    I actually went to the Numenta Hackathon last month and will have a blog post/podcast about that hopefully soon.  It was awesome. Enjoy!

    Announcing MockingJay

    MOCKINGJAY

    A crazy simple python web server and javascript chat client that enables group chat over the LAN via a browser. Intended for use when security policies or politics or whatever get in the way of using IRC or Hipchat and such. Also intended to only be used on a Local Area Network (LAN) due to the lack of security features.

    Basically I want to use Hipchat at work, but due to information security policies we can't use external services. Sad panda.  So I wrote this.. extremely easy to install, no database required No Redis install (looking at you Hubot).  But with great features for programmers:

    FEATURES

    • Syntax highlighted and formatted code
    • Easy sharing of images and files via drag and drop (screen shots, memes, reaction gifs)
    • Coming soon: plugin architecture for even easier extension

    STEM Shortage

    tl;dr There’s no shortage of engineers in this country.

    All my life I have heard about the incredible shortage of engineers in the United States. There’s just far too much demand for engineering talent, and our schools are simply not producing anywhere near the number of graduates we need to fill these positions.

    Heck, I chose engineering in large part because of this shortage. I thought if I could succeed in this industry then I would have a job guaranteed for life. Although it does help that building stuff is actually really cool. :)

    Back in April of thisyear, a study was released from the Economic Policy Institute which has shed some light on this story:

    http://www.epi.org/publication/bp359-guestworkers-high-skill-labor-market-analysis/

    from the paper:

    • The flow of U.S. students (citizens and permanent residents) into STEM fields has been strong over the past decade, and the number of U.S. graduates with STEM majors appears to be responsive to changes in employment levels and wages.

    • For every two students that U.S. colleges graduate with STEM degrees, only one is hired into a STEM job.

    • In computer and information science and in engineering, U.S. colleges graduate 50 percent more students than are hired into those fields each year; of the computer science graduates not entering the IT workforce, 32 percent say it is because IT jobs are unavailable, and 53 percent say they found better job opportunities outside of IT occupations. These responses suggest that the supply of graduates is substantially larger than the demand for them in industry.

    •  

    Notice those last two bullets? Basically we are graduating about 2x as many engineers as can find jobs, and the second bullet says that it’s not because the kids aren’t good enough at engineering (a common complaint from employers) but rather they were offered better opportunities in other fields.

    Basically I have been scratching my head since I learned about economics with this simple question. “If there is a shortage of engineers, why are they not the most highly paid workers in an organization?”

    I would have thought the laws of supply and demand would bear out salaries that were higher than lawyers (of which there seems to be no shortage) or even possibly CEOs, which based on compensation you would think we have a major shortage of in this country. We should be begging Congress to allow highly skilled CEOs from other countries to come in on H1B Visas in order to help us compete as a nation.

    Now I realize the compensation is potentially more complicated than this, but it’s always bugged me.

    The reality is this: There is NO lack of engineering talent in the United States. There is only a lack of cheap talent. When CEOs stand in front of Congress and decry how they can’t possibly fill their engineering positions, what they’re really saying is “we can’t fill our engineering positions at the price we’re willing to pay”.

    When H1B Visa workers come to the United States, they are basically tied to the employer who brought them here. Because of the rules, they aren’t free to jump ship if that employer treats them badly, or if another employer offers them a better opportunity. Although by law H1B Visa candidates have to be paid comparable wages to non-H1B candidates, their inability to go after better opportunities stagnates their wages which in turn winds up stagnating the wages of non-H1B candidates at large corporations like Microsoft, Google, Amazon, etc.

    What I want is for the H1B program to be available to more people with less restrictions on employment.

    Extroverted Developer #20

    This week Ben and I just chit chat about some goings on around NYC in technology. I kinda talk a lot this episode.

    Show Notes

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    Extroverted Developer #19 - Brian Guthrie

    This week Ben and I talk with Thoughtworks developer Brian Guthrie about learning computer science, agile development and Test Driven Development.

    Show Notes

    Listen