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What can software industry teach Washington? A lot

September 6, 2011 Leave a comment

The software industry is a remarkable microcosm of how economic wealth – shared by everyone (employees, shareholders, customers) – can be created and more importantly become a very powerful force to influence the creation of new markets … leading to more cycles of wealth creation.

Can the software industry teach Washington and perhaps Brussels (EU) something of value?

I rarely write about political topics (although I am very much engaged).   This is the first time I decided to write a blog entry which will hopefully resonate with everyone.

Let’s imagine a conversation where your child will ask you several questions.   Children have a rare, non-biased ability to see through the ‘mist’ and ask very direct questions.

1.   Daddy, I would like to become a software engineer in 10 years?   Will I have a job in the United States? 

Yes.   But only if you make a fundamental commitment to become the best problem solver first.   Then – you must become a master of technology who creates software that works correctly, the first time.   Nothing less will do.

Chances are you will be quickly hired by a small, dynamic company and later acquired by Facebook or Google because both companies cannot hire great engineers fast enough and choose to acquire smaller companies because of the talent these companies were able to find and develop.

Do not plan to enter the software industry because of high compensation alone.   The software industry is going through a fundamental shift:  software everywhere means more complex, 100% reliable software everywhere.    Mediocre engineering skills are no longer needed.

2.  Mommy, what if I don’t have enough money for college? 

In the US, official unemployment is approximately 9%.   Unofficial unemployment is much higher.    Yet, software companies cannot find enough qualified candidates.   Why?

“The mind is a terrible thing to waste”.    During the last 20 years, the United States educational system simply failed to produce enough engineering talent.

It gets worse.    Foreign-born engineers and entrepreneurs are moving back to their home countries and creating businesses there instead of the US.    Fewer business means slower employment growth and less revenue for the cities, states, and the Federal government.

Can it get worse?  Yes – public education spending is under severe pressure while private colleges are becoming more expensive, exceeding the rate of inflation by a wide margin.

Can it get any worse?   Yes – many parents took equity loans from their houses to finance the education of their children.    The housing crisis,  the recession of 2008, growing unemployment, and depreciating housing values left many parents no choice but to file for bankruptcy.

Message to Washington:   while running for office, almost every candidates talks about “better education for our children”.    Scorecard after being elected?   Poor at best.

3.   Daddy, what if I get sick after graduation and do not have a job yet?   What will happen to me? 

Very good question.    How does one put a price on a healthy work force?    Why does Switzerland see the healthcare problem differently than the US?

I know many small software companies that failed because they were simply not large enough to obtain the best prices for health care coverage for their employees.   What if they could obtain reasonable coverage for their small, but very bright work force?   How many future “Apples” are not longer in business?

Message to Washington:   please stop using labels, such as Obama Care without offering real and practical alternatives.    Please solve this problem.   Or – do not run for reelection to allow other, more capable citizens to work together and solve this problem.

4.   Mommy, what is better?   More government or less government?  

The real purpose of government has been forgotten in this debate.    The amount of air time dedicated to “what Obama should do to create jobs” has exceeded every record (if records were to be kept).

Unless Obama puts everyone on White House payroll, the debate will continue without any tangible outcome.

The real purpose of the government (any government):   create a regulatory and legal structure to deliberately influence the economic development in a certain direction.  Measure and adjust as needed.

Then – within this structure, the market and economic forces will flourish.

Does everyone remember the promise of “green jobs” during the last Presidential election?

Just recently, Solyndra – a  US based solar panel manufacturer in Fremont, CA – filed for Chapter 11 bankruptcy and laid off all 1,100 employees.  Solyndra was also a recipient of a $535M loan guarantee from US government with a very visible visit by President Obama in 2010.

During a visit to the Solyndra facility in 2010, Obama said the factory is “a testament to American ingenuity and dynamism and the fact that we continue to have the best universities in the world, the best technology in the world, and most importantly the best workers in the world.”

Ignoring for a moment the fact that Chinese competitors enjoyed bigger subsidies from Chinese government, that Tulsa billionaire George Kaiser, a key Obama backer who raised between $50,000 and $100,000 for the president’s election campaign, is one of Solyndra’s primary investors …

… what are the lessons learned?

Message to Washington:  the market consists of sellers and buyers, not just sellers of solar panels.   Do not stop at giving Solyndra money.   Create tax incentives for cities and home builders to use solar panels.   Create a market where sellers will begin to buy products from an emerging industry segment.

Be honest with competitors who get the benefit of deep subsidies.   That’s what trade tariffs  are for.     Moreover, treat taxpayer’s money like your own.   Manage the investment.

5.   Daddy, why is Apple so successful?  

Companies where innovation is the key enabler of success enjoy much higher gross margins than any other business.

Software is a high margin business.   Higher margins mean being able to hire valuable people who get paid more.   And these employees will have a larger impact on economy by being able to spend more.

It’s back to basics.    The economic impact of one $100K per year job is much greater than the economic impact of four $25K per year jobs.

Message to Washington:    please stop perpetuating the futility of empty economic promises  which have very little to do with a very difficult road ahead to put this amazing country back on the right track.

–       Focus on creating a legislative and regulatory environment where new high margin businesses can grow and prosper

–       Be honest with yourself.   Are you really doing everything possible “for the people and by the people”?

–       Do you remember the oath you have recited when taking office?

“I do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter. So help me God.”

–       Do you have the strength to tell your constituents that someone else should be doing your job instead?

Message to voters:   on this Labor Day, get ready to vote in November.    Or – do not complain.

Put yourself first by taking the last place (how to sleep well at night after being acquired)

May 19, 2010 2 comments

Software is a highly rewarding, yet an intensely competitive business.   The rules are simple:  grow, become extinct, or be acquired.   There are very few software companies that manage to idle for a prolonged period of time.

When one software company acquired another, every employee wants to know, “Will I have a job in the new organization?”

One of my clients (a growing software company) purchased one of their competitors.  It wasn’t difficult to see why the company being acquired could not compete:

– There was evidence that some members of the sales team were more interested in making commissions than solving customer problems

– There was a lot of tension between Product Management and Engineering executives.  The product development team was busy justifying why it could not deliver certain functionality instead of understanding what was required to deliver a world-class product and then proposing the right budget

But the product was very well-engineered by some very talented and passionate software engineers.    All of these engineers – despite the post acquisition uncertainty in the air – continued to operate without being concerned.    All of them exhibited what I call the Golden Rules:

1.  Customers come first;  their pain is our personal pain

2.  Product comes second;  our business is to make an incredible product which makes the customer pain go away in a sustainable manner

3.  Then comes the team:  no one can succeed alone;  the enemy is outside – not inside

4.  Then come my own priorities

It became very clear why this acquisition was a bargain.  In addition to purchasing a well engineering product, the company also acquired an engineering team which lived and breathed the Golden Rules.

This team and its culture became the foundation for a new product strategy that will comfortably leave the competition behind.   To answer the question raised earlier:  every engineer in the acquired company had a job and never looked back.

Always practice the Golden Rules … and sleep well at night.

Leadership 101; back to basics

January 5, 2010 2 comments

Two events prompted this blog entry.

First – I spoke to my former colleague last night.  “M” is a brilliant software engineer, working on a new feature that will be instantly behind the times at launch.  Competitors already have this capability for quite some time. “M”‘s company competes in a market, where “me too” software release does not influence the sales pipeline.

“Did you talk to your manager”, I asked.    “M” indicated that his manager is not a leader, capable of accepting and channeling accurate (painful) feedback.

This is not surprising.  CNN reported on January, 5, 2010 that US job satisfaction hit a 22-year low.  Poor leadership is undoubtedly one of the factors.  Leaders are tested even more so during stressful economic times.  Warren Buffet said it best in his letter to the shareholders of Berkshire Hathaway Inc. in 2001:  you only find out who is swimming naked when the tide goes out.

Second – Doyle Slayton posted a very interested question on Linkedin.

“What is the biggest problem with leadership? What is the solution?”

Doyle’s question could not be timed any better.

The biggest problem is that leaders forgot the fundamentals of leadership, i.e. what leader should be doing. And very few companies have implemented internal controls to ensure that great leaders remain and grow, while not-so-great leaders depart before doing more harm than good. The exceptions to the rule are companies that understand the risks of having poor leadership: Pfizer, PepsiCo – where I spent 7 years, GE, and many others.

Leaders plan, organize, control, and lead, where “lead” includes making decisions, motivating, and developing people (50% of one’s time in more senior roles). These are the four pillars of good management. Note that “lead” component is the last one and for a good reason.

“Plan”. One cannot lead an organization without a plan to achieve a set of goals. No amount of motivation can convince a team to pursue a poorly defined goal.

“Organize”.  One cannot lead an organization without an organizational structure that reinforces shared goals. Imagine a software company with a great engineering team but very weak sales team … or the other way around.

“Control”.  One cannot lead an organization without controls in place and metrics. Imagine a sales deal which may not be profitable due to excessive support costs over the deal lifetime. Good leader knows how to create an organizational structure and controls which will trigger a conversation to solve the problem – and quickly.

“Lead”.  Once “plan, organize, control” work in a transparent manner, then “lead” becomes the most important component: how to build and motivate the organization to achieve the goal.

I want to share a few thoughts about feedback, something that appears to lack in my former colleague’s company. It’s true – leaders have a tremendous responsibility to collect, distill, and the communicate feedback.

Good leader knows how to acknowledge feedback and inform the organization that a different course needs to be pursued in a transparent, direct manner. Yet it’s OK to disagree and make a difficult, yet balanced decision that can be understood by everyone.

Feedback can be very uncomfortable for some. One of the best leaders (and an exceedingly difficult person I ever worked for in the past) told me,

“Actively seek discomfort. When it’s really uncomfortable, you will never notice”.

“Make every loser feel like a winner and you will know what leaders do”.

Categories: Hiring, Side conversations

Who will buy enterprise software (or the next bubble)

November 17, 2009 Leave a comment

It’s tough to build enterprise software.  It’s even more difficult to sell it.  Enterprise software runs the business of many companies and the buyers are very demanding and diligent in their evaluation efforts.

But what if the corporate community of enterprise software buyers cannot buy the software because their financial performance does not allow them to think beyond immediate cost-cutting measures?

No one wants to see another bubble to burst in the fragile fabric of US economy.  Yet it’s prudent to ask whether another bubble could be around the corner.

This November 15, 2009 news article from New York Post (The Next Bubble:  Spike in PE-owned firm defaults ahead) was very troubling.  According to the article:

“In December 2008, the Boston Consulting Group, which advises PE firms, predicted that almost 50 percent of PE-owned companies would probably default on their debt by the end of 2011. It also believed there would be significant restructuring at these companies, leading to massive cost cuts and difficult layoffs.

A rain of defaults is already starting. From January 1 through October 31, 2009, 175 American companies defaulted on their debt. That is almost double the number for all of 2008. Half of those companies have been involved in transactions with PE firms at some point in their corporate life, according to the Standard & Poor’s rating agency.”

American software industry is the leader in innovation which fuels traditional and new business models.   I hope future enterprise software buyers will still have the budgets to buy the right solution to help them grow and expand.

Conversation with Seat 11B continued while getting luggage (Part 2 – what’s going on with US economy)

November 4, 2009 Leave a comment

I had no idea that my conversation with “Seat 11B”  would receive such attention.  Many readers of my blog wanted to know how the conversation concluded.

My conversation with “Seat 11B” continued while we were standing next to the conveyor belt, waiting for the luggage to arrive.    Ironically, the luggage took about 20 minutes to appear.  This turned out to be just enough time for me to ask “Seat 11B’ about his opinion about the state of US economy.

He replied, “The US economy has the equivalent of H1N1 flu.  This particular strain is however very different, because there is no vaccine or a quick fix that American society has gotten so used to.  This virus is called cumulative failure over time to do the right thing“.

The truth is “Seat 11B” and I talked longer than 20 minutes as the passengers around left ran to the their next destination. Worthy items of interest follow:

– One can easily see how the financial markets forgot to the the right thing. Mortgage-backed securities were designed to increase liquidity and promote home ownership by allowing mortgage originators to replenish their funds. What started as financial innovation, turned instead into a desire to collect transaction fees. What happened to the fundamentals of creating quality credit assets regardless of whether they might be packaged and sold as securities?

– Securities and Exchanges Commission – SEC – also forgot to do the right thing, while credit rating agencies were placing investment-grade (stamps of approval) ratings on questionable mortgage-backed securities. In late 2008, SEC did approve new measures intended to strengthen oversight of credit rating agencies.

– The top four US depository banks also (conveniently) forgot to do the right thing during several years prior to the financial crisis. These banks moved approximately $5.2 trillion in assets and liabilities off their balance sheet into special purpose vehicles. In essence, this approach enabled them to effectively bypass existing regulations regarding minimum capital ratios. Leverage and profits increased during boom. But the losses were dramatic during the crisis, leading to the failure or near failure of companies that were deemed too big to fail.

We talked about many other topics where the root cause was failure to do the right thing, ultimately by people either in the government or private industry.

I exited the airport while remembering a lesson from my Management 101 class at Pace University.

One of the most important jobs of a leader is to balance the needs of customers, shareholders, and employees.

Categories: Side conversations

Conversation with Seat 11B or what’s going on with the US economy

November 3, 2009 6 comments

I usually have a good book to read on a long flight home but this time I found myself without any reading materials. My trusted ThinkPad X31 is a perfect laptop for working on the plane. Its  12″ screen is small enough to survive an attempt by the passenger in front of me to abruptly recline the seat. But this time, without a spare battery and no book to read it was going to be a long flight.

The passenger next to me in Seat 11B turned out to be an economist. After short introductions, he asked me, “What do you think is going with the US economy?”. Although I mentioned that I was not an economist, he was still interested in my perspective.

I paused and quickly realized that even a long flight was not enough to give this conversation its due.  Starting at the very beginning seemed to be a good approach.

– It is widely reported that US consumer spending is about 70% of GDP. However, this number includes about half of the $2.5 trillion healthcare spending, or how much US government spends on Medicare. Still, consumer spending is a huge economic driver.

– Bubble #1: The financial crisis began to plant its seeds many years ago. The US economy was being artificially stimulated to encourage more home ownership than the market could create on its own. When the housing bubble burst, billions of dollars were spent on – to put it simply – on unproductive assets. In 2003, former CFO of Washington Mutual predicted this crisis but very few listened.

– Bubble #2: Four jobs paying $25K / per year are not equal to one job that paid $100K / per year but was eliminated in the US and recreated in an another country. Personal incomes are still dropping. Globalization can and does lead to transfer of wealth across borders and this process always produces those who benefit and those who don’t. The middle class in the US is not a beneficiary of this process. It is shrinking.

– Bubble #3: Healthcare. Anywhere between 25% and 50% (there is an ongoing debate about this statistic) of all personal bankruptcies in the US are attributed to personal health emergencies. Approximately 40 million Americans do not have health insurance (again – this number is also subject to an ingoing debate). But one fact is true. There is an urgent need to separate employment from ability to obtain basic and emergency healthcare services. Moreover, there is also a need to guarantee basic healthcare services. Imagine a recently divorced mother who chose not to work while she was raising the kids trying to get healthcare on an individual market …

Seat 11B asked me why I started my conversation by mentioning the US consumer.

The US consumer is not spending because of unprecedented, structural changes in the US economy.

Yet, I believe the US economy will recover a lot faster when all of us exercise our right to vote.

The conversation with Seat 11B turned out to be very interesting.

Categories: Side conversations