I'm on my way back to Boston after a great Thanksgiving with the family, and doing some reading catch-up on the plane.
One of the articles that I was really looking forward to reading was a new essay by Paul Graham (founder of the VC firm Y! Combinator), which is about (in a nutshell) the hidden cost of checks and balances–presumably the ones found in big companies–and I don’t agree with him at all. This is the first essay of his that I haven’t
been able to point at and say “yeah, he’s dead on with that.” I thought he was going to discuss the finer
points of skilled labor losing efficiency to time-consuming process (writing to startups like he usually does) but this post is directed to the
companies who buy the startups' products.
Instead of his normal sage advice to startups, this piece makes him sound like an apologist for poorly run startups. I think
his vision may be clouded by the current state of the economy. I hope not by the economic state of the Y!
Combinator startups, but I don’t think that can be ruled out given a glance at
TechMeme on any given day.
For example, Graham writes:
“Checks
on purchases will always be expensive, because the harder it is to sell
something to you, the more it has to cost.”
If you’re a vendor you only have to put this material
together once. Just do it right from the
beginning and it’s a non-issue. If you
don’t have the material and can't get it, you have a much bigger problem, and exactly the problem that those checks on purchases are designed to sniff out.
“And
not merely linearly, either. If you're hard enough to sell to, the people who
are best at making things don't want to bother.”
Riiiiiight. The
bigger you are the harder you are to sell to.
Also, the more money you have. Of
COURSE people who are making things to sell will want to sell to these companies. If you’re small and you’re making it difficult to sell to you that
might be a different story, but I haven’t found that to be the case.
“The
only people who will sell to you are companies that specialize in selling to
you. Then you've sunk to a whole new level of inefficiency. Market mechanisms
no longer protect you, because the good suppliers are no longer in the market.”
I don’t know when the last time was that Paul was
engaged in the non-startup world, but this is absolutely untrue.
“Such
things happen constantly to the biggest organizations of all, governments.”
Governments are an entirely different beast. And it may just become more important to pay
attention to this fact over time because the government is dumping money into the
economy like it’s going out of style, but that’s a very special case. I could go on for hours about problems
with the government, but I won't.
“In
more recent times, Sarbanes-Oxley has practically destroyed the US IPO market.”
Please explain this to me. Yes it’s hard to wrap your head around SOX, but
once you have it down you have a pretty good idea about what it requires from
your startup. If somebody familiar with
SOX is on your team right from the start you should have no problem. Yes it sucks up some time, yes it adds additional work, but really it’s
not that bad. IF you handle WHILE IT'S BEING BUILT. Same thing with Internationalization and Localization, as I learned the hard way. But I
thought this was the type of guidance that VC’s were supposed to give to their
startups. If you’re a software startup
and you’re ignoring SOX, you do not have the type of leadership team that you
really need and that will allow you to grow into an IPO-ready company.
“Programmers, though, like it better
when they write more code. Or more precisely, when they release more code. Programmers
like to make a difference. Good ones, anyway.”
Now Paul has switched arguments entirely, and is looking at it from the startup's perspective, like I thought he would do in the first place. And this, this is absolutely true.
Forcing coders to spend time figuring out internal processes and filling
out forms is a complete waste of money. Take the example of companies that think they’re saving time by forcing
employees into an online system for travel reservations, instead of talking to
a travel agent. Something that would
take a call center agent ten minutes takes me thirty, and those are thirty
minutes that I’m not doing something that only I am capable of doing. Explain the cost savings to me, because I don’t
get it.
But anyway, Paul is once again talking about the bother of dealing
with SOX from a coding standpoint in the startup. Fact
is, this is bunk. If you’re familiar
with the requirements up front, it’s no big deal. I even published a SOX IT checklist a while back–it's not terrible. Probably outdated now, but it does show that it’s
not rocket science.
“For
good programmers, one of the best things about working for a startup is that
there are few checks on releases”
No, that is one of the best things about working for a
startup that is not going to be built in such a way that it could potentially IPO. It is a great thing for a lazy programmer. Bad thing if you want to make money.
“If
you have an idea for a new feature in the morning, you can write it and push it
to the production servers before lunch.”
It is becoming painfully obvious why Paul thinks it’s
difficult to IPO. Honestly, this reflects
badly on the companies he’s backing. After reading this sentence I would never roll out one of Paul's products in a large company.
I have to say I'm disappointed in this essay, because I usually love Paul's stuff. Yes, process for the sake of process is bad, but when you’re selling to
Fortune 1000 companies and the government you’re playing in the big leagues,
where security is sometimes literally a life or death issue. You simply can't push out features in hours or you'll cut your own head off.
If you want to build your startup the short-sighted way, these hurdles will indeed be insurmountable for you—and you are exactly the type of company that these checks that Paul talks about are intended to discover and red-flag. But if your startup is
sound and built with the proper foresight it won’t be an issue. The payoff will certainly be worth it,
regardless of what Paul thinks.
I don’t know about Paul, but I consider the knowledge
of the hurdles you’ll have in your way much more important than not having the time
to jump them. I THOUGHT that this was the secret sauce
that VC’s are supposed to bring to the equation, besides their money. I even asked Paul this question in person once and he said as much, not sure where that line of thought disappeared to.
After having travelled this particular road personally,
and learning about those hurdles the hard way, I simply consider training to
jump them part of building a startup PROPERLY. Not only that, but if you know where the
hurdles are, and your competitors don’t, there's a freebie market advantage for
you.
