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Zen and the small business

25 May 2010

Jason Fried and David Heinemeier Hansson, the authors of Rework, are right to call it ‘a different kind of business book for a different kind of reader’. With their passion for doing a few things really well it has some of the qualities of that enduring classic, Zen and the Art of Motorcycle Maintenance. Fried and Hansson are resolutely practical and pragmatic, but this is also a work of philosophy that challenges most of the conventional wisdom about measuring business success primarily in financial terms.

For them business is not about ambitious business plans, getting big fast and exit strategies, but doing good work you care about, being different, and frugal. Their own software company, 37 Signals, founded in 1999, is successful despite still only having 16 employees. Rework is basically a set of maxims for doing likewise, and they make it clear that they are not starry-eyed idealists – ‘a business without a path to profit is just a hobby.’ The vast majority of small businesses have only the tiniest chance of becoming a giant corporation and very few aim to do so. This is pretty much the path I decided to follow myself when I turned my back on corporate life and became an independent management consultant.

Why, ask the authors, should expansion always be the goal? ‘Small can be a great destination in itself’. Staying small means that you can stay flexible and true to what you really care about – you may also be able to resist becoming a workaholic. You also avoid having to raise external finance, which takes you away from attending to customers and running the business, and will probably mean you lose control of your baby. Investors always want to ‘cash out’, which distorts priorities. Fried and Hansson compare founders who become more interested in their own exit strategies than the long-term health of the business to meeting a divorce lawyer on your wedding day. There’s no commitment – ‘building to flip is building to flop’.

Their core value is frugality, a quality not much prized during stock market booms like the great NASDAQ bubble of 1995-2000, when so many dotcoms burned so much cash. Start-up for Fried and Hansson is a word that suggests profligacy and playing at business. Spending other people’s money fosters the notion that it’s all a game and can easily become addictive. According to them, most new businesses need much less money than they think – they could often easily work from home instead of acquiring fancy premises, outsource manufacturing and IT, and do their accounts using Quicken.

They’re mostly right, but there is a danger with this line of argument. In some markets, scale really is important and networked markets can tip very quickly towards a single supplier. That’s fine if you happen to be that supplier, as Craigslist, a business which shares some of Rework’s values, turned out to be. But many software and Internet companies have been drowned in the wash created by big players like Microsoft and Google. And sometimes the opportunities arise to become very big, very quickly, as they did for eBay and Amazon. If they hadn’t seized theirs decisively, they could easily have been marginalised or crushed by bigger, more determined players.

Rework is mostly right about business plans, which it describes as guesses about the future. ‘Writing a plan makes you feel in control of things you can’t really control.’ But businesses ignore strategy, and in particular competitors, at their peril. In fact Fried and Hansson believe strongly in differentiation, though they can’t bring themselves to use such a business school word. What they advocate is ‘decommoditizing’ the product and ‘pouring yourself into it’, fine precepts.

I’m also uncomfortable with their view that learning from mistakes is overrated – it is surely essential to experimentation and exploration. They’re quite right to say that evolution doesn’t linger on past failures, but builds on what has worked. That is not inconsistent with learning from mistakes, which doesn’t have to mean breast-beating about failures. It’s basically about always seeking ways of doing better, which is something they’re very keen on, so the differences between us may be more semantic than real. We all make mistakes and they sometimes provide our most valuable learning experiences. If something fails badly, as happened recently to financial capitalism, it behoves everybody to try to learn from it. If we don’t we’re surely condemned to repeat the miserable experience.

These are fairly minor quibbles. This is a refreshing, sensible, witty, occasionally wise work, which offers a healthy corrective to the snake-oil salesmanship of so many self-help business books. Next week I’ll offer my own suggestions on questions every business, large and small, should ask itself when entering a new market.

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