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The root cause of all things complex is simple (or how to explain the state of US economy)

December 22, 2012 Leave a comment

While attending a recent holiday party and discussing the US Presidential elections, my dear friend suddenly asked me,

“You are a CTO, Leon.  You solve very difficult problems every day.   What’s wrong with the US economy?”

I began my career as a software engineer designing and engineering “must never fail” financial settlement systems.  The core components of the system I was responsible for have been written in Assembler, despite the availability of higher level languages.  Why?  To ensure maximum awareness of the problem context and environment.  This particular system even had its own access method to maximize I/O performance.

I learned a lot in my early career.  But what I am most grateful for is an early encounter with the universal truth that the root cause of all things complex is simple.   I learned the value of this universal truth while spending a few days looking for the root cause of a resilient memory leak.

The state of US economy resembles a classic memory leak – and I believe you will agree.   The virtual address space is fairly large (think of it as the ability of US government to raise the debt ceiling and borrow more money).    So ‘we’ allocated – or created – $16.3 trillion worth of debt.

But why can’t we seem to reduce our national debt?  Referring to what every software engineer knows:  in a classic address space model, there are memory release mechanisms.  Translating to our fiscal reality, the US government collects tax revenue and use some of this tax revenue to pay the interest and principal on national debt, ideally reducing the debt to a manageable level.   That’s why this is classic memory leak:  debt grows faster than the payments towards the interest and principal.

But the question is – why?

I believe the answer is actually quite simple and lies in the labor participation rate which is now at the lowest point since 1981 at 63.5%.

To understand the sense of urgency, one does not even need to be an economist.   You are a homeowner in a neighborhood with 100 houses.  All 100 homeowners pay monthly association fees of $10 towards a monthly association management budget of $1000.  Let’s place 50 homeowners in financial distress who cannot pay $10 a month.   The remaining 50 homeowners still have to cover the basic maintenance needs of the association.  Their monthly dues are now $20 (times 50 = $1000).

The state of US economy is largely equivalent to the problems of the above homeowner’s association.  The US economy lost entire industries in 30 years and did not replace departing jobs with anything that carries the same economic benefit.   Today, fewer and fewer Americans are able to participate in the economy and pay taxes.   Which means that taxes for all of us in the US will go up without any additional economic benefits.

So what’s the solution?

When your US Senator or US Congressional Representative promises to create jobs, ask them to explain how their legislative agenda will foster growth first.   Anyone who talks about job creation without first discussing how to generate growth ought to resign from the Congressional seat.   Better yet, please exercise your right to critical thinking while voting.

Arguably, one of the biggest economic growth drivers of US economy has been the decision to build the interstate highway system, or The Dwight D. Eisenhower National System of Interstate and Defense Highways. Find some time to read this article from History.net.

I hope US Congress will find the lessons from the past just as applicable when trying to solve today’s problems.

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.

How do you retain best people? Answer – how you recruit

November 26, 2009 1 comment

The extent of present economic difficulties have not been seen for a long time.

If you are a software executive with a responsibility to recruit, retain, and lead a team of dedicated people …

– Try to take a pause and ask whether your organization is at risk

– Chances are everyone has to work much harder because the team is smaller

– Some are quietly asking whether all this work is worth it but choose to stay because there are no other opportunities available

– Don’t wait; this is the time to reconnect with everyone again and learn what’s on their mind

The economy will recover.  When it does, the wave of great people (the one’s you want to keep) choosing to leave instead will be unprecedented.

Retention of great people starts with how one recruits.    Despite how memorable the last difficult day at work may be, the most memorable and lasting impression is created by the recruiting process.

Several years ago, I extended an offer to a brilliant software engineer who after 4 phone screens and 2 in-person interviews declined the offer.   I was shocked and called “N” at 8:00pm with an advance apology for disturbing the family dinner.

“N” told me that it was a very difficult decision to say no to a financially attractive offer.  “N” wanted to work in my organization after meeting with me twice.

“So – what happened?”, I asked.

“N” told me that every person in my organization assigned to conduct phone screens did not call on time.   One phone screen, scheduled to start at 10:00am, did not begin until 10:30am.  Another phone screen, scheduled to start at 8:00pm, did not begin until 9:00pm.   The third person did not call on time because of a meeting that never seemed to end.    The fourth and final person was so distracted by e-mail traffic during the phone interview that the candidate was wondering whether this was a good use of everyone’s time.

I listened and thanked “N” for providing me with an honest feedback.

“N” was right in declining the offer.  The organization completely failed to:

– Show the candidate that “N” was 100% important to the organization even as a prospective employee

– Use the recruiting process to create a lasting impression, “This is how we recruit.  Imagine how we take care of our people once you join the team”.

Of course, what happened with candidate “N” never happened again – ever.

Fortunately, there were two other candidates being actively recruited.  Candidate “G” was hired.  Candidate “O” did not receive an offer.  Yet, “O”was so impressed with the recruiting process that – despite not getting an offer –  “O” cheerfully recommended someone who was eventually hired.

The way one retains is the way one recruits.   In today’s economy, this could not be more relevant.

Categories: Hiring, The economy

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.