What's the objective?

Most people think the Iraq war was a miserable failure. It wasn't though - it's probably one of the most successful military campaigns, not to mention social campaigns, ever waged.

Wait? What!?

If you don't agree with me then you probably don't think the objective is what I think it is.

If you think the objective of the Iraq war was to find Weapons of Mass Destruction, remove a dictator from power, and return our troops home as quickly as possible, and do so with a minimal loss of civilian life, well then of course, the Iraq war was a miserable failure.

If however you believe as I do, that the objective of the Iraq war was to establish a permanent military presence on massive oil reserves, create a situation whereby a presidential successor wouldn't be able to withdrawal combat forces, and get the American people to buy off on this permanent military presence, regardless of civilian casualties or human rights abuses, then the Iraq war has actually been extraordinarily successful.

We haven't removed all combat troops from Iraq (We've renamed them to "advise and assist" but they're still combat troops) and we never will.

In business, in technology, and on projects, you'll often see people disagreeing over the best way to do something. Problem is, people usually assume that everyone's objective is the same as theirs - and this is usually never the case.

Do you think there are so many C-Sections in this country because American women have suddenly become unable to give birth? Or is it possible the Doctor's objectives (don't get sued) aren't quite in alignment with the mothers?

Was the objective of the democratic party for the last two year to make major change? Or was it to make a little bit of change while continuing to serve the same masters that both parties serve?

Next time you find yourself trying figure out how to best lead a team of people, complete a project, or simply to make a point, take a step back to figure out what the objective actually is.

You might still be frustrated, but at least you'll be seeing things clearly.

The ship of life

I think looking at our lives as ships - yes, physical ships - can help us make the decisions that are most likely to make us happy. And likewise, it can steer us clear from making decisions that might make us miserable for a while.

A cruise ship for example, is a pretty awesome sight. To see up close something that is essentially a skyscraper floating on water is something to behold. There's all the food you could eat, a climbing wall, 15 bars, swimming pools, stages, room for thousands of people, and on and on and on.

In fact, I'd love to have a cruise ship, wouldn't you?

But wait, what if you want to go water skiing? Or what if you don't want to depend on carbon fuel? Or what if you want to be able to travel inconspicuously? Or what if you don't want to have a staff of 300 people to manage?

Hmm. Maybe I don't want that ship after all.

Okay, how about a speed-boat? That's a great ship! It's quick, nimble, pretty unremarkable so you can travel in secret, doesn't require a crew, and you can water ski behind it. Awesome!

But wait, what if you want to have a party on your ship? Damn, maybe that speed-boat isn't right either.

Most of us were raised that what was right was to get an education, get a job, get more education, buy a house, buy a bigger house, by a bigger house again, by a bigger car, make a bigger garage on our bigger house so we can fit our bigger car in it, and on and on and on.

And if you have a business we're taught to scale, get bigger, get faster, become more efficient, make more money, work on your business - not in it - make more money, make more money, make more money, and make more money.

But what if you don't want that ship? What if you don't want the burden of employing people? Or what if you don't mind having employees, but you don't want to hire someone to do the one thing that you're great at?

Or what if you're more concerned with how you're business can give you more time with your family instead of how it can get you a fancier watch or a faster car?

My point is that our lives, and our businesses, are like ships. There are trade-offs. Get one thing, give up another.

Are you getting what you want? Are you giving up something you need?

Life is a ship. Spend some time thinking about which kind you want to build.

The problem with managing by influence

One of the most common things you hear HR professionals and middle managers talk about is the concept of "managing by influence". I despise this notion, and think it's an old, outdated, and harmful concept in today's business world.

This isn;t to say that leadership doesn't matter. It is of course as vital now as it ever was before. And good leaders can indeed get people to perform at levels they might not otherwise have performed at. Great coaches, teachers, and orators can certainly influence people, but it's a by-product of their leadership.

I'm talking about the idea that if someone performs poorly, it's the failure of someone to properly influence them that's the problem. Under this notion, it's not George Bush's fault that we went to war in Iraq, it's the fault of the war protester for failing to influence him.

Absurd.

Martin Luther King wasn't a failure because there are still racists. Al Gore isn't a failure because we don't have more electric cars. And Ghandi wasn't a failure because there are still wars. Yet they all failed to influence thousands (or more) of people. An HR professional very well might have told each of them to spend some time trying to influence the people they'd never reach - all the while ignoring those that were seeking their leadership.

The same holds true in business and on projects.

Daniel Pink teaches us in "Drive" that what motivates people in today's economy isn't money, or carrot's and sticks, but is instead the freedom to do our jobs and our creative work in a time, place, and way that we want. People need enough direction to understand what needs to be done - and then they need managers to get the hell out of their way.

What's even more dangerous about believing in the power of "managing by influence" though, is that while a manager is busy trying to influence a poor performer, those that excel are being held back. I have worked on dozens of projects in a variety of organizations - from fortune 500 companies, to medium sized companies, to those that have just a few employees - and the single biggest frustration of people who were awesome, was management's inability or unwillingness to remove the people that were holding them back.

It's time for less management by influence and time for more more rewards for performance.

(And if you think reward means money, you still don't get it.)

Happy Columbus Day

[without commentary]

"They... brought us parrots and balls of cotton and spears and many other things, which they exchanged for the glass beads and hawks' bells. They willingly traded everything they owned.... They were well-built, with good bodies and handsome features.... They do not bear arms, and do not know them, for I showed them a sword, they took it by the edge and cut themselves out of ignorance. They have no iron. Their spears are made of cane.... They would make fine servants.... With fifty men we could subjugate them all and make them do whatever we want."

From the Diary of Christopher Columbus

via A People's History of the United States of America by Howard Zinn

Is Facebook worth $33 Billion Dollars?

A couple days ago, David Heinemier Hansson of 37signals wrote a post saying that Facebook was not worth $33 Billion dollars. It was in response to numerous articles valuing the company at $33 Billion - based on the price that a few investors were willing to pay for a slice of the giant social network.

He then got slammed by Joel Spolsky for not understanding basic investment terminology and valuation principles on Hacker News. I'm pretty into finance discussions and follow Mish, Andrew Horowitz, ZeroHedge, PeterShiff and Solari pretty regularly, so I thought it would be fun to chime in with my thoughts on the whole "what is Facebook worth?" discussion.

While this is certainly obvious, I feel like I need to acknowledge I'm no DHH and I'm no Joel Spolsky. Not yet anyway. :) Each of them are titans in the software world in their own right and I have enormous respect for both of them.

I find it really interesting though when people of their caliber disagree so strongly about something, and I think this is an important discussion that's missing a perspective not being taken into account. So, I'm going to jump in with my thoughts on the matter.

Heres the short story: they're both right in the short term, and Joel is in the camp of people massively speculating.

Was that $800,000 dollar house in 2006 worth $800,000? Yes, because someone was willing to pay that much for the house. But also no, because that house was valued during a credit bubble, one which couldn't last, and the smart people sold their homes knowing they were not in fact "worth" what the market was willing to bear.

DHH saying that facebook isn't worth $33B reminds me of Schiff talking in Vegas to a bunch of mortgage brokers about the coming housing crash.

I like the housing analogy for more than just the sake of bubble comparisons though. Just like a home, a business should be valued based on the following: is the money coming in greater than the interest that would have to be paid on a loan to buy said business, plus expenses? If yes, it's worth the purchase price. If not, then it's overvalued.

This simple equation is what told the smart people that the housing bubble was real and was about to blow. A $5000 mortgage on a home you could rent out for $3000/mo makes no sense. Yet, a lot of people put themselves in this exact situation.

Why?

Because they were speculating that the value of the house would continue to rise. It's the same scenario with Facebook.

Let's now use the above math to figure out whether it would make sense to buy Facebook at $33B. Let's be EXTREMELY generous and say you could get a $33B loan at 4% interest for 30 years. This would be nearly impossible by the way. Most business loans are 5 or 10 year loans - but lets stick with 30 since it'll keep us going with the housing analogy.

This would give you an annual interest payment alone of roughly $1.2 Billion, and this would be before any expenses were paid.

Unfortunately, since Facebook is a private company, no one really knows what Facebook's revenues are. Estimates vary widely from $500 million to $1 Billion for top line revenue and it's anyone's guess as to what their profit is - if they're even profitable at all.

But let's again be super, SUPER generous and say that Facebook has $1 Billion in revenue and $500 million in profit. This would give them a 100% profit margin and put their expenses also at $500 million.

So, if you were to buy Facebook at $33 Billion dollars you would have $1.7 Billion dollars in interest and expenses to tend to with revenue of $1 Billion, putting you in the red to the tune of $700 Million a year right from the start. (Another way to look at it - if you took your $33B and spread it across thousands of CDs at 3.5% interest you'd make about $1 Billion a year in interest and have zero risk.)

And again, this is under the most generous circumstances from both obtaining a loan and from guessing at Facebook's revenue. REMINDER: It's not even clear that Facebook is profitable right now. It's entirely possible that my little company has a higher profit than Facebook.

Now, is it possible that Facebook can find a way to make more money out of their users? Absolutely. I personally am fascinated by the reality that if Facebook started charging $25 per year and only kept 20% of their users they'd have revenue of $2.5 Billion and could fire everyone that's trying to figure out how to make money selling ads.

So, is Facebook "worth" $33 Billion right now? Sure, the market seems to be indicating that price right now for a piece of the company, but only because of massive speculation. But, it seems like one hell of a lousy investment without a significant overhaul of their revenue model.

(Side note: Spolsky inexplicably claims that Chicago is a "city with no other internet industry" apparently forgetting about Groupon, Orbitz, and a host of others. Now might be a good time to remind Joel that the speculative mania that nearly brought down the entire US economy was born in New York.)