Is Your Company Driven by Speculators?

TL;DR
Speculators are not evil.  There is nothing wrong with speculation per se.  The problem is mixing incompatible financial objectives.

Speculation versus Investing
A good, first-order way to differentiate speculators from investors is that speculators are primarily interested in capital appreciation and investors are primarily interested in dividends.

Aligning Objectives
When thinking about whether a certain person or organization is a good fit for your company, alignment on speculation versus investing is fundamental.  Sometimes this discussion is framed in terms of a "lifestyle business".

Where Does Capital Appreciation Come From?
In order for capital appreciation to occur, there must be an upside surprise. A stable company must start growing.  A growing company must start growing faster.  A declining company must slow the rate of decline.  A company that is profitable, but appears to be on a steady trajectory, is not useful to a speculator, but can be very valuable to other stakeholders (employees, investors, customers, suppliers, the community).

A stable, profitable company will encounter problems when speculators are able to influence management decisions.  Of course, sometimes the speculators are the management team due to the incentives they have been given.  Sometimes they give these incentives to themselves 

A Startup is Speculation by Definition
A startup is an organization formed to search for a repeatable and scalable business model.

The Law of the Lid vs. Test Equipment

Test equipment has to be higher quality than the item being tested.

Test software has to be more complex than the software being tested.

This is why the law of the lid by John C. Maxwell is true.  You can only be evaluated by someone who is better than you, whether it be as a musician, a horseman, or a software engineer.

At some level, you have to develop a system that does not require these sorts of evaluations, because there is no one who can evaluate your best people.

This is related to the law of unintended consequences.  Unintended consequences arise when a simple system is trying to control a more complex system.  For example, you couldn't fly an airplane if you could only control the pitch, but not the roll, yaw, or engines.  Adjusting the pitch will affect how the airplane flies, and you may think you are in control for a while, but eventually there will be behaviors that don't correlate with your attempts at control.

Another example of this is when the political system tries to control an economy.  Economies are the most complex systems in existence, which is why all attempts to control them fail.

Why Organizational Change is so Difficult

Organizations protect the status quo.  They want to improve without changing anything, which is logically inconsistent.

People exhibit this behavior as well.  I want to lose weight without changing who I am.  Can't I just take a pill?

If you want to lose weight, you have to become a skinnier person.  If you want to run faster, you have to become a faster runner.  You have to change to become who you want to be.

This is true for organizations as well.  If you want to improve, what are you willing to change? What is off the table? A new CEO?  A reorganization? A change in culture?

The usual approach is to not change anything, and if you have to change something, make sure it doesn't affect the decision maker.  The problem is that the decision maker is more concerned about themselves than about the organization--a classic problem of agency.

Perception versus Reality

Much of life is based on perception.  It is surprising how little is based on reality.

The applicant who is perceived to be the best is the one who gets the job, not necessarily the applicant who is the best.  This is part of what makes hiring extremely complex.

Markets move based on the perceptions of the participants, which can often diverge from reality for extended periods.  Getting a job is part of the labor market, and is therefore based on perception.

Most departments in most businesses function on perception.  Conflict arises at the interface between the perception departments and the reality departments.  Generally engineering and manufacturing have to be based in reality.  As you move further from these departments, you can depart further from reality.

Some functions, such as accounting, are anchored to reality to an extent, but still have significant discretion to diverge from reality when convenient.

Oxymoronic: Investing in a Secondary Market

If you aren't giving your money directly to the company, you are not investing, you are trading.

In secondary markets, such as the US stock market, you are buying shares from another owner, not from the company.  The money goes to the seller, not the company.  You are not investing.  The company does not benefit, except in an indirect manner (lowering their weighted average cost of capital if they choose to sell more stock to actual investors in the future).

If you think you are an investor because you hold your trades for a long time, you are just a long-term trader.

Using Radar to Find Your Future

This Jim Rogers talk presents some interesting, seemingly paradoxical, advice to young people about preparing for their futures.

He sings the praises of studying history and philosophy in college and denigrates business schools and the MBA degree in particular. But then he says that if an MBA is your passion, get there as soon as you can. He praises farming, but says not to do it if it is not your passion.

I see this as a parallel to the way that radar works.  Typically, radars have two modes: search and track.  In search mode they are sweeping the sky looking for anything of interest.  Once they find what they are looking for, they switch to track mode and all of their power is directed at that target.

Until you find your target, cast a wide net to see what interests you and learn about the world along the way. Sooner or later, you will find the precise thing that interests you and you can narrow your focus.

Made You Look vs. Made You Look Again

There are many tricks to make someone look at something.  The goal in business is to create something that people want to look at over and over again.

I saw a very heavy person wearing a t-shirt that said "Made You Look".  People might look once, but they are unlikely to look again.  An attractive person does not need to wear something special to get you to look again.

Shared Offices Inhibit Communication and Productivity

Advocates of shared offices believe they facilitate communication.  They do increase communication of all types, productive and unproductive, voluntary and involuntary, between the occupants. They do this at the cost of concentration and productivity.

Shared spaces also inhibit some valuable communication.  When someone from another office wants to talk to one of the office inhabitants, they have to weigh whether the communication is worth interrupting two or more people, perhaps for an extended period of time.  This acts to inhibit communication from thoughtful, shy, or junior personnel who may incorrectly feel that their need to talk is not worth the cost.

Knowledge workers need to control their environment for maximum productivity.  This implies private offices that are large enough for a couple of visitors, and a variety of other work spaces available for larger groups.

The topic of people with their own offices who insist on using the speaker phone with their door open is left as an exercise for the reader.

The Real Cost of Netflix

You might think that Netflix costs only $8 per month, but the real cost is the time you waste passively sitting in front of a screen.  Time that you could be working on your dream.  Time that you'll never get back.

11 Bosses You Need To Fire Right Now

Christopher Hawkins' post on 11 Clients You Need To Fire Right Now (http://www.christopherhawkins.com/06-13-2005.htm) will also tell you which bosses to fire or never work for.