Stocks

March 4th, 2009

Originally posted to LiveJournal on June 17, 2008.

A word of warning: I suspect that I may be completely off-base here. My understanding of this subject is a mix of antiquated theory and limited anecdote. I’m throwing this out as a snapshot of my current understanding and perceptions.

I’ve been thinking about the stock market lately. Not in the sense of me making investments, but in terms of how it works, how it allocates money to commercial ventures. This is part of a general curiosity about what makes the world tick, but there’s also a specific self-interest in wanting to understand what motivates the companies I work for. My background coming into this is from historical reading and personal experience.

But first, why do I care about the stock market? Well, I don’t, really – not the day-to-day of it. I’m not one of those guys who keeps a stock ticker running on his desktop. But it’s important – these days, it’s responsible for a lot of what gets done in the world. Most of our food, clothing, shelter, medicine, transportation, entertainment, etc. comes from publicly traded companies. Also, the origins and theory of it are kinda cool. Essentially, it’s a mechanism that allows a whole mess of strangers to work together on a venture that’s far to big for any one of them to tackle. When you look at it this way, it’s a really elaborate form of human communication. And humans, I find fascinating. I’m really only interested in economics to the extent that it’s about people. I’m most interested in the microeconomic end of the scale, because it’s really the psychology of decision making. Why do people do what they do? How much is internal motivation, and how much is external constraints? Group behavior is also interesting, as in companies. But as economics gets more macro, it gets away from people and eventually ends up in a bad place full of aerodynamics-grade math.

The other reason for caring about the stock market is that a lot of the companies I might work for are motivated by the stock market. If they’re public companies, they end up making a lot of decisions based on how it will affect their stock. If they’re private, they’re probably thinking about becoming public companies, or getting acquired by public companies, which influences them in similar ways.

My limited understanding of stocks comes from reading about 17th century trading ventures. You want to build a ship, outfit it and crew it, and spend the better part of a year sailing it halfway round the world to bring back spices or silver or lumber or whatever. These are huge up-front expenses and there’s a very real chance that the ship will be lost to storms or pirates. The upside is that if all goes well, you’ll make a ton of money. Almost nobody has the kind of money you need for that initial investment. Even if they do, they can’t afford to lose it all. But if you get a big group of people together, then each can bet a share they can afford to lose. They buy shares, and they get a cut of the profits. Now if you get a really big group of people together, you can fund a bunch of ships and play the averages. Instead of feast or famine, you get a nice, predictable return on investment. Instead of shares in a one-time venture, you have an ongoing business, and the shareholders get yearly dividends. More importantly, without some mechanism like this, the happy consumers in your corner of the world will never know the joys of coffee, chocolate, or potatoes.

So stocks and dividends make sense. You invest in a company. You give them money up front, and they give you a piece of the action. It even makes sense to trade stocks. If you decide you’d rather have a chunk of money now, you sell your share to someone, and they get the dividend every year. It makes sense that the value of that share could go up, if the company prospers and grows, and the yearly dividend goes up. The important thing here is the company’s focus on profit. Profit is a measure of how useful the company is, how well it provides a good or service that people are willing to pay for.

But now we get to the point where I think it starts to peel loose from reality. If you think a company will be successful, and its shares will pay higher dividends in the future, it makes sense to buy them now and sell them for more later. It’s logical, but it’s a critically different way of valuing the stock. You’re buying shares based not on the dividend itself, on the profit from the venture, but on how much you expect to be able to resell the share for later. It’s the shift from investment to speculation. The value of the stock is no longer tied to the expected dividends, but to what people think they’ll be able to resell it for, what they think other people will think it’s worth, which is what they think they’ll be able to sell it for. Profitability, useful products, business value, all of that may still influence the stock price, but they’re secondary factors.

We got a prime example of this in the dot-com boom, where there was really no business justification for the value of stocks. There were companies with no product or customers. They didn’t own anything; they hardly had any employees. They didn’t do anything useful. But they’d go public with a lot of buzz and their stock would skyrocket just because people thought everyone else wanted to buy it. Once investors thought it had stopped going up, they scrambled to get out before it crashed, which ensured that it did. Then the cycle would start over with the next cool idea – there was no end of those.

The key is that the investors don’t actually care about the success of the business, as long as they can get out in time. They want the business to look promising, so others will want to invest and drive the price up, but it doesn’t have to deliver. The rewards for investors became largely detached from value creation, from profit. The fundamental promise of capitalism, that businesses are rewarded for doing useful stuff, is broken.

Something strange and bad also happens to the company’s motivations. Remember that they’re always competing with other companies for investment money. The things they should be focusing on – doing useful stuff – take a back seat to activities oriented around market perception. A lot of that seems to do with growth, or the perception of. If a company is doing useful stuff, making a profit, and plowing that back into the business (buying more ships), it will grow. It will have more equipment and people than it did last year. All well and good. But this gets turned around, and growth becomes the measure of success. So companies start doing stupid things in order to have good growth numbers.

Mostly, they go out and buy a bunch of smaller companies who have little to do with their core business. They end up being less than the sum of their parts. The guys at the little company are less motivated, because now they’re just working to make a bunch of strangers rich. That’s even if you haven’t demoralized them by laying off a bunch of their staff. Even if there are synergies to be leveraged (shudder), there are a lot of hurdles to overcome – cultural, political, technical, and organizational – and no guarantee that everyone will ever work effectively together.

So I don’t know what the answer is, or if I even understand the problem. A lot of this is idle curiosity: There’s a complex and important system that looks kinda broken, and I want to understand how it got that way. It’s not like I run a company, or even manage investments.

But the practical side is that my understanding of this will inform decisions about where I work. I’ve come to appreciate how much the business environment and priorities have a real impact on my day to day job. I’ve worked at the little company that got bought. I have friends who’ve worked for the big company doing the buying. I have friends who have worked for the company that’s hiring lots of useless people to make the numbers look good, and others at the one that’s laying off lots of useful people to make the numbers look good.

If I can go into an interview and ask the right questions about their business, I’ll end up a lot happier. I’m not job hunting now, but understanding this will also help me recognize if my company is going off the rails. Maybe the answer is to find a company that’s not playing this game, where the owners aren’t just looking to cash out, where they’re really engaged in the business. I’ve actually worked at a place like that years ago, a little boutique software shop. It was really nice in a lot of ways. I left it then because I had a lot to learn, but I might be happy going back to that kinda gig now.

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Personal Information Management

July 24th, 2008

Originally posted to LiveJournal on July 4, 2008

Since getting my new MacBook, I’ve been trying to pull off the pure Mac play – sticking with the stock applications, choosing integration over individual features, trying to work with what I’m given. It’s mostly worked out pretty well, but it’s taken a bit of tweaking. At this point, I’m working on a combined Mac/Google solution.

The ingredients are: MacBook at home, Ubuntu Linux at work, iPod, cellphone, old Palm Vx. Of the last three, I figured I should be able to at least ditch the Palm. It’s a workhorse, but it’s old and doesn’t play well with the Mac. I could go for the iPhone 3G in a few days. That would kill off all three, plus my digital camera. Tempting at $199, but the $100 $60 a month service plan is nuts for the amount I’d use it. It would take some sort of radical lifestyle or professional change to justify that. I’m not above throwing money at problems, but that’s just profligate.

Getting all my info off the Palm was pretty straightforward. Jpilot let me save all the calendar and to-do info as .ics files. After a small but annoying bit of tweaking to DOS-format and rename them, they uploaded smoothly into iCal. Similarly for the contacts and Address Book. That was one of the big wins – having all of my addresses, phone numbers, email and IM in the same place. Once that was all done, it all synched seamlessly to my iPod. Nice. The only snag (Apple developers, listen up!) is that the To Do list displays on the iPod in alphabetical order, not by priority. Come on guys; what are you thinking? Notes were also a bit awkward. You have to mount the iPod as a drive and save them as files in a “Notes” folder. No application integration there. Still, it might make sense to start storing To Do lists as Notes. If I work with them regularly, I may get used to them. So that’s awkward, but not a killer.

The killer turned out to be that I can only sync the iPod to one machine. The whole philosophy of the Palm is that you can go from home to work and keep your core info in sync. Even on Linux, there was a decent client that I could run either at home or at work. The iPod will really only talk to my home machine. That’s kinda control-freakish. It means that when I’m away from my MacBook, I would need to write down appointments on paper or something, and enter them in when I got back. That’s annoying enough that it got me playing with Google Calendars.

Google Calendars are pretty slick. You can have multiple calendars, set up different access constraints for them, and view them in a single display. My girlfriend and I each have personal calendars that we share with each other, and then I have an “events” calendar that’s open to the public. There’s probably also a middle ground for friends: Stuff that isn’t really private, but I don’t care to have strangers knowing, like who I’m having dinner with tomorrow.

iCal lets you set up read-only calendar “subscriptions”. So I re-exported my calendars, uploaded them to Google, deleted them from iCal, and slurped them back down as subscriptions. From there, they synched to my iPod just like before. I was also able to set up a subscription to our calendaring software at work (Zimbra). That’s gravy. Normally, I only have to worry about meetings and such when I’m in the office and have access to the calendar directly. But it is nice to have them on the iPod with audible alarms and all.

While I was at it, I discovered that Google Calendars has a handy text messaging (SMS) interface. You register your phone with them, and then you just send messages to “GVENT” (48368). Sending “day” gets a response with today’s events. “happy hour at 5pm tomorrow” creates a new event. You can set up events (individually or by default) to send you a text message alert. So if I’m going out without my iPod, I can have my cell phone remind me when it’s time to move on to the next round of fun. I don’t actually see myself using that a lot, but it’s nice to have as backup.

I watched Merlin Mann’s “Inbox Zero” Google Tech Talk video the other weekend, and I’ve gotten all fired up on that. I’d been letting stuff just pile up in my Gmail inbox because I don’t actually get much mail there. Gmail doesn’t use the normal folder setup, but it has Labels, which let you do much the same thing, and a bit more besides. So I got everything tagged and archived in short order. Set up a few basic filters to handle list mail that I only need to check every day or two. They’re not super sophisticated, but they do the trick. An empty inbox is a nice feeling.

I also started playing with Google Docs. I haven’t done spreadsheets or presentations yet, but the documents are nice. They strike a good balance between features and simplicity. I’m a little paranoid about storing all this stuff on a free “beta” service, so it was nice to find that you can easily export them as HTML (and relatively clean HTML at that).

So I think that may be the winning combination. I could also look at the iPod Touch option, which would give me a way to enter data on the go. Right now, the only problem situation on the horizon is DragonCon, where I have to track a whole lot of events, and I’m not planning on lugging my MacBook along. It could be handy if they would publish an ics file with the complete schedule before we got down there. Maybe a separate one for each programming track or room. Hmm…

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Java Logging

July 24th, 2008

Spent half the day fighting with Tomcat 5.5, trying to get log messages out of my application. I need to rant a bit here.

I’m deploying a vanilla webapp with its own log4j.xml in WEB-INF/classes. Why does this not just work out of the box? Because, hey, maybe you’d want to use some other logging library. Not that there are any out there that don’t suck, but y’know, maybe someday. So we need to leave this all open-ended and configurable.

You see, once upon a time, we had Log4J. It was good. In fact, it was perfectly sufficient. It solved the problem. It did just about everything you could want.

Unfortunately, Sun was also developing their java.util.logging (JUL) around that time. They went through the whole JSR community process, so they started earlier and finished later. It sucked, but Sun owns Java in a very literal sense, so we were pretty much stuck with it. Not in the sense of actually having to use it, thank god, but any poor bastard writing logging tools had to accommodate it.

So then we got Apache Commons Logging. It’s a diplomatic facade that stands in front of either of them so your code can be agnostic about whether you’re using Log4J or JUL under the hood. In practice, anyone who doesn’t have a paycheck from Sun and a gun to their head uses Log4J. Java Developer’s Journal did a comparison of the two. They tried to give a “fair and balanced” report, as in, “there are situations in which JUL might be the better choice.” If you read between the lines, those situations were essentially if you’re writing a toy application that would probably be fine with System.out.println().

There’s something of the paradox of choice here. Trying to leave all your options open is ultimately less effective. Your code has to be way more complex to support everything, and you almost always have some sort of mismatch that forces you into a limited-functionality common denominator. It’s not worth it. Pick something that works and go with it.

So today’s pain came about because rather than doing that, Tomcat 5.5 seems to have slapped yet another layer of indirection and indecision on things. It seems that one of the ways in which java.util.logging sucks is that you can’t have multiple configurations within an application. Why on earth would you want to do that? Well, if your application is a web application server, it needs to run a bunch of java libraries as if they were standalone applications. Kinda killer flaw there, huh? But who can pass up the challenge of hacking around something that thoroughly broken? And hey, it’ll make it standards-compliant.

So you end up with these gems from the Tomcat 5.5 logging page:

the default Tomcat configuration will use java.util.logging.

And a bit later on:

The default implementation of java.util.logging provided in the JDK is too limited to be useful.

How can you say that and still build in support for it? Grow a spine, people! How much simpler would this world be if you just followed that up with, “…so Tomcat uses Log4J exclusively. Don’t like it? Write your own app server.”

But no, what did they do? They hacked together their own implementation of the java.util.logging API. Apparently, it’s not “too limited to be useful,” but it “is not intended to be a fully-featured logging library.” Why bother? You’ve had a fully-featured logging library for the last 6 years. Why would you make the default logging configuration one which by your own admission is really not adequate? Why not make Log4J the default? If you really have to, then you can provide instructions on how to plug in your half-assed substitute.

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Harvard Business Review on the Innovative Enterprise

May 20th, 2008

Notes and commentary on the book.

Apollo 13

Everybody brings up Apollo 13. That seems to be the role model for a high-performance, results-oriented team working under high pressure. Could we maybe pick something a little less dramatic? Remember, this is the same crew of people who put the first man on the moon less than a year earlier. They were working at the height of American Big Science. They were educated and trained as if the future of America, Democracy, and the world rested in their hands, which it arguably did. At the very least, three lives, millions of dollars of equipment, and the scientific prestige of the nation hung in the balance. I don’t care how cool your business plan is, or how much VC money you have, you’re not getting that kind of talent and motivation.

Cost of Creativity

There’s a rant in the “Creativity is not Enough” article about how organizations aren’t supposed to be creative. They are anti-creativity, anti-chaos. The whole point of an organization is to constrain and coordinate people’s actions to focus them on a task. Creativity is mostly a distraction.

It’s not that this guy is an idiot and you should just ignore him; they wouldn’t have published him. He was writing in a different time, witha different focus. For large industrial firms, the goal is well understood, and the main effort is in execution. He wouldn’t think of incremental process innovations as Creativity – that’s just doing things better/faster/cheaper. In a service economy, most of the effort is in figuring out what to do. Success is based more on adapting to the customers – understanding and meeting their needs. And the folks in the trenches have more insight into that than the big boss back in HQ.

But the main point that he’s trying to make is still valid – that creativity and change have a cost. The time you spend figuring out how to do things better is time not getting things done. The time you spend on one innovation is time not spent on others. The payoff has to justify that. And trying to do a dozen new things at once probably means that none of them will be well done.

Summary

Now a quick summary of the key points of the book. Since it’s a number of essays written by different people on the same topic, there’s a fair amount of overlap. There’s also a wealth of supporting detail for these principles.

Pressure always hinders creativity. Don’t confuse a surge of relief at dodging a bullet for the true rush of creativity. If you have real and meaningful causes of pressure, make sure they’re communicated. Meaningless or arbitrary pressure is even worse.

Focus helps. Pressure plus task switching equals stress without productivity. If you have a bunch of different things to do, sequence them; don’t multiplex. Meetings with more than one or two others are fragmented, undirected.

To motivate people, pick an enemy and cast yourselves as the underdogs. The enemy can be imaginary, or just a concept.

Innovation should be constant and pervasive. Everyone should always be thinking of how to improve, how to do their work better. Build a portfolio of ongoing experiments at different stages of maturity. A portfolio spreads the risk. You need both short-term/incremental and long-term/disruptive. You need both blue-sky research and radical solutions to known problems. You need to be willing both to take risks and to abandon unsuccessful projects. Allow for failure; make it cheap. Once an idea is proven, go all-out to make it happen.

Innovation needs to focus on competitive advantage. It has to either benefit your customers, expand your market (meet the new needs of your not-yet-customers), or give you an edge over your competition. Be alert for solutions in search of a problem, innovation for the sake of novelty. Measure performance, cost, benefits, risks. You compete on price, performance, or features. You may need to segment your customers so you can focus on the specialized needs of one group. Plan for your competitors’ response to your innovation.

Build networks of innovation through trusted third parties – investors, executive search firms.

Collaborate with your customers. Quick feedback is better than a polished release. Get them involved before the big investment. Get to know them better than they know themselves. Learn what they do, not what they say they do. Give them what they need, not what they ask for. Show them how it will be used – mock it up, tell a story.

Try to make technology invisible to normal users. Make failure transparent – give the user the information they need to solve the problem. Build tools for power users, so they can scratch their own itches and help others. People learn from experience and peers, not so much from formal training.

Each innovation needs four kinds of support: An on-the-ground champion, an executive logistical supporter, creative idea generators, and practical implementors.

Get outsiders’ perspectives. If you want people to think outside the box, hire from outside the box. Get fresh eyes on your business. Varied backgrounds produce better problem-solving skills. Focus on people who are bright, verbal, assertive, and creative. You’ll need enough outsiders to form a critical mass.

Look at your company through the eyes of your competitors. What are your limits, weaknesses and vulnerabilities? Your competitors are doing your market research for you. If they do better, it’s because they’re meeting a customer demand that you aren’t. If they don’t, you know not to try that.

Learn from the potential customers that don’t choose you. What are you failing to provide them?

Project groups focus on goals, not resources. They minimize turf battles. Align the organization’s goals with employees’ intrinsic motivations.

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Software Pin Factory

January 19th, 2007

I started reading Adam Smith’s The Wealth of Nations. For fun. Because I’m a big dork. Right at the beginning, he talks about division of labor and pin factories. Pins: little bits of wire with a point on on end and a knob on the other. The point is that a single craftsman, without particular skill or tools, could only make a handful of pins a day. In a pin factory, the process is divided into more than a dozen stages, each simple and specific, with its own tools. This process is literally hundreds of times more productive. Businesses have been trying to pull off this trick ever since.

It worked fantastically well in the industrial age. As we moved into more of a service economy, the principle still applied, though not as strongly. In your typical office, you have specialization of skills: Managers, admin assistants, sales, marketing, and so on. In a one person company, that one person can cover all those roles. Things will go smoother when they can divide the work up among several people, but not by a factor of hundreds.

As software development has become a bigger and bigger business, the obvious thing has been to try to apply the same assembly line model: analyze, subdivide, specialize. And so we come to Enterprise Software development, which pretty much follows the old waterfall model: Requirements, architecture, design, implementation, test, support. The business analysts don’t write code, the architect doesn’t write test plans, and the programmers don’t field support calls. The business analyst writes a requirements document, the architect writes an architecture document, and so on. Each stage does their piece and throws it over the wall to the next team. The principle is sound: The more narrowly you divide up the skill set, the more specialized each group will be, and the better at their particular task. Push this far enough and eventually you can replace them with trained monkeys. Very clean, very elegant. Very efficient? Umm… no.

The problem is that there’s a significant difference between an Enterprise Software solution and a pin. A pin is a very simple thing. Everyone knows how it works and can tell at a glance if a given pin will do its job. Unless it’s bent, blunt or missing its head, it’s good to go. If an end user finds that one pin is poorly made, they just throw it away and get another.

An Enterprise Software system is not simple or obvious. Aside from the fact that even the customer often doesn’t entirely understand how they want it to work until they start using it, the amount of information that has to be communicated from stage to stage is huge. Requirements documents can be hundreds of page. None of the workers has any innate sense of whether the information handed to them from the previous stage is complete or accurate. Every misunderstanding is multiplied down the chain. It’s like playing “telephone” with War and Peace.

The key here is that when you divide up the labor in a process, you also incur a communications cost between each stage. It’s a trade-off: Each stage can be done more efficiently, but information about the work has to be passed between them. In the pin factory, the benefit of specialization is huge, and the communications transfer is tiny – as I said, the quality of a pin is obvious. In a software shop, the benefit of specialization may be significant, but the communications overhead is enormous. To come at it from a different angle, I’ve heard it said that a programmer is lucky if they get to spend 20% of their time actually writing code. The other 80% is communications overhead: reading documents, sitting in meetings, writing documents. Add in the time you spend on rework due to miscommunication, and that 20% starts to sound generous. Here, the assembly line is actually less efficient.

So what do you do? The popularity of “Agile” tools and techniques is clearly a response to this, along with component or service oriented architectures. Break the system up into independent, well-defined pieces, and put them in front of the users as quickly as possible. The catch here is that you can’t use trained monkeys. You need people who can talk to the end users and write code, who can carry the product all the way through the process. Maybe they need help from experts like domain specialists or QA engineers, maybe they can divvy up some of the work to tech writers or programmers, but the key is to capture an end-to-end understanding of the product in as few heads as possible.

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