Tag: Business

Resignation

johnjpeebles1 Comment

A few weeks ago I resigned. I drafted the email, proofread it, and sent it in. It was pretty standard – I thanked the company for the opportunity, mentioned I was proud of what we’d achieved together, and wished them well.

No, I didn’t resign from Administrate – I resigned from my post as a Non-Executive Director (sometimes abbreviated NED, sometimes NXD) on the board of Snap40, one of Scotland’s most promising startups.

I love helping out startups, mainly because I’ve received so much help myself over the years from others. I know first hand how hard it is growing a company, and some of the advice, time, and mentorship I’ve received has come at critical points along the journey.

Just over a year ago I was asked to join the board at Snap40, and while initially surprised that I was asked and skeptical of the company, I was ultimately impressed with the market, product, vision, and team. I thought I could learn a lot as well! But before I agreed to join, I made it clear that I would resign every year, and the company could either accept or reject my resignation.

Why?

In a fast growing startup, particularly when things are at an early stage, the type of advice and support a company and CEO requires changes quickly, just like everything else. I’ve seen other founders struggle with the awkwardness of how to ask board members and advisors to step aside when they no longer had anything to add, and it was important to me to demonstrate that I viewed my appointment to the board as a fixed term, renewable every year. If the resignation is accepted, no problem! If not, I’m here for at least another year (unless I need to be replaced before then).

I’d encourage other startup CEOs and board members to consider this model for board and advisor appointments. In my view, it’s important that the board members resign proactively as it demonstrates a willingness to step back and acknowledge that their time has potentially come to an end. Nobody likes to think that they’ve been outgrown, but it’s a fact of life, so lets not ignore it.

As for me? My resignation from Snap40 this year was rejected. I’m really excited about the company, the team, and the progress we’re making. I’ve learned a lot already and can’t wait to see what this coming year holds.

Now it’s back to work!

How to Ask for Advice / Feedback About Your Startup

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One of the things I’m passionate about is helping other startups and the community of entrepreneurs we have here in Edinburgh (and in Scotland).  Since becoming more intentional about “taking the pledge“, I’ve been meeting with lots of folks locally, and been surprised by the amount of requests!

So much so that other team members here at Administrate are helping me shoulder the load, according to areas of expertise (thanks Mike and Patrick!) and time constraints, and I know of many others in the community who are donating their time and expertise.  Helpfulness and support has always been a hallmark of the Scottish startup scene, so this isn’t anything new, but there’s so much more activity now, so many more companies, and so many more entrepreneurs now!  It’s great to see!

I’ve found that sometimes people don’t know what to expect, so I thought I’d lay out a brief framework to help everyone get the most out of the time.

  1. Remember that most advice is delivered within a context vacuum.  Don’t take my advice (or anyone else’s) without fully thinking things through and satisfying yourself.  Bad advice can come from really great people.
  2. In order to be at all helpful, I need context.  Things I usually ask about are: the problem you’re trying to solve (as a company), your business model (SaaS, etc), your market, some metrics around revenue, customers (people paying you money), team size, how long you’ve been going, growth, and churn.  It’s ok if you don’t have all of this information, but the quicker we can rattle through these items, the faster we can get up to speed.
  3. It’s totally cool if you just want to chat, but I’ll usually ask you what you’re biggest challenges are – we have these at Administrate and sometimes they feel cyclical (first we’re worried about sales, then tech, then support, then sales again, etc.).  Even if everything is going well, the question will often be “ok, how do we double down and make it even better?”
  4. I probably can’t help you too much with hiring (particularly “line” staff) – my network is mainly in the USA (so not local), and we’re in high growth mode here at Administrate, so if I know of any devs or whatever we’re probably going to hire them!
  5. Expect me to be very, very blunt.  If you’re British it may come across as almost hostile sometimes.  Sorry.  When I get into problem solving mode or analysis mode, I tend to interrupt, ask lots of questions, and don’t filter much.
  6. Expect me to play devil’s advocate.  Expect me to really push you on a few things.  Expect to be challenged.  The best advice I’ve ever received was from someone telling me they thought I could be a lot more ambitious, which annoyed me at the time, but really made a difference.
  7. One thing you won’t get from me is griping about raising money in the UK, finding a team, or complaining about Scottish Enterprise or Scottish Development International.  If you’re annoyed about these things, fine, but expect an argument from me!
  8. I’m not going to be very helpful to you with introductions to angels, VCs or syndicates.  These people all make their own decisions and won’t look at you in any different light if I make an intro for you.
  9. I won’t share anything about our conversation unless you specifically tell me you don’t mind.  I also expect the same in return.  This means I don’t mind if you want to ask me about challenges I’m facing now, etc.  We like to be transparent, and often it can be comforting to hear that someone else is going through something you’re struggling with.
  10. The majority of my experience and expertise is in high growth Business-to-Business Software-as-a-Service.  So be aware I’ll bias towards that style of company.  I don’t like most B2C ideas because they are riskier, require more funding earlier, require a lot of traction to be successful and are often harder to build and/or monetise.
  11. A couple of times things have gotten emotional (really!).  That’s OK! Building a business can be really hard.  Relationships are involved. It can feel overwhelming.  That’s normal.  Don’t be embarrassed.  It’s not the first time.
  12. Unfortunately, you may have your appointment changed around a few times.  Sorry, but Administrate comes first!  Also, it may be awhile before we can meet, and depending on what you’re looking to talk about, we may provide someone else from our team to give you a better perspective.

Hopefully that helps you get an idea of what to expect and makes everything run just a bit smoother!  I’ve enjoyed all of the conversations I’ve had and am always encouraged by the amazing people we have in Edinburgh working away on building things and solving problems.

Startups, Take the Pledge for Your Community

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We’re about to kick off another year, resolutions have been made, lots of parties have been attended, a bunch of milestones have been reached, and it hopefully feels good to get some closure on a year and plan for another.

I’d like to challenge you to add one more resolution to the list, and instead of thinking of it as a resolution, treat it as a habit, a lifestyle, a core part of your duty as being a member of your startup community.

As a bit of background, my startup Administrate is founded in Scotland, backed by Scottish investors, and a member of the fledgling Edinburgh startup community.  Using the term fledgling to describe a group of companies that has produced two unicorns (Scotland has the highest rate of unicorn production per capita in the world) seems a bit weird, but it’s true.  Like most non-Silicon Valley, non-Boston, (dare I say non-American?) locations, the community here is fairly young.  Most of the founders and senior management teams are first timers here.  All of us are trying to tackle the inherent challenges of building a sustainable business while learning as fast as we can, hoping to not commit that fatal mistake (last piece of learning?) along the way.

It Doesn’t Get Easier, You Just Go Faster

In cycling they say that it never gets easier, you just go faster, and I really believe the same is true with startups.  This stuff is really hard.  Even when things are really rewarding, you know you’re on the cusp of making it, you’re getting that positive press coverage, you’ve just raised money, you just signed that huge deal, whatever the milestone is, it’s still really, really hard.

And here’s the thing – if you’re a senior team leader or founder, there’s not many options for support.  Your spouse won’t fully understand what you’re going through.  Your board isn’t the right venue for a freakout.  Your direct reports have problems of their own that they need support to help address.

Feeling alone is one of the worst feelings, but it’s also one of the most common in a startup.

A Solution?

I’ve found that the single best avenue for support as a founder, CEO, or senior team member is to talk with a peer, usually someone who is ahead of you on the journey.  I don’t even mean support as in therapy, I mean support as in “I’m having this problem, how did you solve it?”, roll-up-the-sleeves style problem solving.

In the last 2 years, there’s been several key moments where I’ve received advice/suggestions/thoughts from members of our community that have caused me to rethink, come up with a plan, and have ultimately seriously transformed our company and helped make it one of the fastest growing tech startups in Scotland.  Things would have been very different if I hadn’t had that time from others who were ahead of me on the journey.

Take the Pledge

Spend 30 minutes every week helping other startups within your community.

You can spend an hour every other week, two hours with one person, etc., I’m not bothered about the mechanics, but just make sure you’re investing.  You can still run a highly structured calendar, you can ask people to come with a specific question or problem, you can implement this however you want, but the key is to be available, be supportive, and spread as much knowledge as possible.  Even if you don’t know how to help your fellow startup, refer them to someone who might, or tell them to read a book or go to a conference.

The funny thing about this is that the people that helped transform Administrate by spending time with me usually didn’t remember the conversation when I went back and thanked them.  I’ve had several instances of the same thing happening to me when someone mentions what a great help I was and it turns out it was a 10 minute conversation at a party.  These things add up, but they can only do that with consistent attention, over time.

The other interesting thing about this is that it’ll help you run a better business too! Taking your head out of your problems to focus on something else can provide clarity, and I’ve never found a situation where I couldn’t learn something from another company.

Lets Talk

If you think I could be of help, let me know! Hit me up on Twitter, email (if you don’t have my direct email, send it through the main Administrate email), phone, etc.  Sometimes it’ll take a week or two to get something arranged, sometimes it’ll be via the phone, but hopefully it’ll be helpful.

I’ve Never Wished I Was Less Technical

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I got an early-ish start with computers when I was about 6 or 7 years old.  My dad created an MS-DOS boot disk that got me to a DOS prompt on the one of the hard diskless IBM clones in his office.  Once I had booted to the command line, I’d put another floppy disk (these were 5.25 inch floppies, the ones that really flopped) in the B drive, type in the commands which I quickly memorised, and my six year old self would be ready for some hardcore word processing.  Using Multimate at first, but then moving on to PC Write, I penned a few short stories and would love to visit the office and use the computers.  My Dad’s staff even gave me access to the holy of holies – the one real IBM PC (not a clone) which had a 5 megabyte hard disk, and was protected by a password.  I was solemnly lectured to never disclose the password, not to anyone, and I never have, even to this day.

And so it was against this backdrop that I became interested in computers.  When I was nine my family bought our first computer from a back alley vendor in the Philippines.  It was an IBM compatible XT Turbo, which was technically an 8088, with a twenty megabyte hard disk and a monochrome CGA monitor.  It was outdated when we bought it, as the 386 had just been released, but I loved it.  I spent hours learning different software packages like Norton Commander, PC-Tools, and playing games like the Commander Keen trilogy.  We kept it until I was twelve, and then gave it to a Chinese friend when we replaced it with a 486 DX-33 we picked up in Hong Kong.  Built like a tank, it is probably still in operation somewhere.

Despite this early introduction to computers, I didn’t get started programming until I was sixteen.  It was harder then – we had just got the internet but the tutorials and blogs and wealth of easy information we have now didn’t exist.  It was also difficult to get the necessary software you needed – thanks to living in China I could buy a pirated copy of Borland C++ or Microsoft Visual C++ for about a dollar, but they were a bit overwhelming to setup.  I finally found someone who knew how to program and begged him into giving me a few sessions.  He had a book, helped me setup my compiler, and agreed to meet with me once a week to teach me.  I even managed to get these sessions accepted as school credit during my junior and senior year.  I still keep in touch with Erik now, and he was one of the groomsmen in my wedding.  Together we even managed to cobble together two “junk systems” from spare parts and after a few weeks of constant trial and error, we got Slackware running in 1998, still one of my proudest technical achievements.

Every American college bound student knows that their junior year of high school is crucial for getting accepted into their university of choice, and I began targeting computer science as my major.  I was heavily advised that I should focus on a business degree instead.  At the forefront of that group were several of my math teachers, who knew that I didn’t do well in that subject, but there were also many others who thought that I shouldn’t “waste” my people skills in a technical role.

But I was really enjoying programming!  My first real project was a string indexing program which could accept a block of text (much like this blog) and then create an alphabetical index of all the strings (words) and the number of times they appeared.  Written in C, I had to learn about memory management, debugging, data structures, file handling, functions, and a whole lot more.  It was way more mentally taxing than anything I’d ever done in school, and it required a ton of concentration.  I wasn’t bored like I often was in classes.  It was hard.  Erik would constantly challenge, berate, laugh at me, and most importantly, accurately assess me using an instructional style that I’d never been exposed to before – he only cared about the results, not the trying.

Although I was dead set on computer science, I really liked making money too.  My parents noticed this and for one semester during that crucial junior year they offered me financial rewards for grades achieved.  After I’d hosed my dad for over a hundred bucks due to my abnormally high grades that semester, he announced that “grades should be my own reward” and immediately discontinued the program.  There were plenty of people telling me that a degree in business would better suit these talents of mine, and if I was honest, at the time I knew they were probably right.  I was great in my non-science subjects, I could mail it in on papers and still get an A, and I knew that diligence, attention to detail, and math were weaknesses.  Getting a business degree would be stupidly easy.  Getting a computer science degree would be pretty hard, at least for me.

I was close to changing my mind when Erik mentioned, “You know, I’ve never wished I was less technical.”

This is advice that I really took to heart.  It rung true when I was seventeen.  It’s even more true today.

For me, the advantage that I incurred by getting a computer science degree meant that I could start my own consulting company and be one of the technical contributors while also being responsible for the business stuff.  It helped me obtain positions of leadership because I didn’t need technical middle men to explain things to me.  If things were going poorly, I could help manage the crisis effectively, and when things were going well I could explain why and point out the technical decisions that had carried us to success.

Guess what?  I got to do all the business stuff too!  Having a technical background has never limited my business acumen or hampered me in any way.  I haven’t coded for money since 2007, but I use my knowledge and experience every day, and I stay up to date with technology as much as possible.  I love it when our technical lead shows me the code behind the latest feature.  If anything, having an appreciation for complexity, code, and systems design has only helped me design and implement better budgets, business models, and pricing schemes.  I’ve never met any “business person” who is better than me at Excel, the language of business, and much of that stems from just knowing how to program.  This has made me the goto guy in almost every planning or budget meeting I’ve ever been in.

Unfortunately, it doesn’t work the other way.  People who aren’t technical will always struggle in any technically related environment.  I’ve met so many people who have struggled and struggled to make their great idea a reality chiefly because they weren’t technical, couldn’t contribute, couldn’t cut through the bullshit, and therefore couldn’t effectively manage their way to success.  Sometimes, they’ll try to fake it and just lose the respect of the programmers.  As many times as I’ve thought to myself how glad I am that I have a technical background, I’ve had others voice to me the frustration that they just wish they knew more about technology.

If you’re reading this, and you’re trying to figure out which way to go in life, make sure you get technical first.  If you didn’t choose that path, there’s still plenty of time – get out there and learn to code.  There are so many resources.

This is what the “everyone should learn to code” movement is really saying – not that everyone should be a coder, but that everyone could benefit from understanding the environment, pressures, and disciplines that drive a huge part of our economy.  It’s not just business either – artists can benefit from more creative displays and better performing websites, not-for-profits could benefit from volunteers who know how to help out in technical areas, and it’s just nice sometimes to be the guy who can get the projector working in a foreign country!

So get technical.  You’ll never regret it.  And if you’re a programmer and you ever see a kid who wants to learn, help them out, you may just find a friend for life.

High Speed Passenger Rail for America: Thanks But No Thanks

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Most of you know that I really like trains.  Model railroading is a hobby of mine, and I grew up consistently riding trains in China as alternative transport options either didn’t exist or were really unsafe (read: 80’s era Chinese airlines).  We generally travel by train in Europe when we visit.  However, most people are usually surprised that I don’t support any plans for high speed rail in the US and don’t envy the extensive passenger networks that exist overseas.Passenger service requires the presence of several factors which are almost never available in the United States:

  • Relatively short distances (less than 4 hours).
  • High population density.
  • Good local public transport one you’ve reached your destination.
  • High schedule density (a lot of trains providing lots of schedule options).

Passenger rail is incredibly expensive to operate by itself even with the presence of those four factors.  The last requirement of sufficient schedule density imposes a lot of constraints on the rail network that aren’t readily apparent to observers too.  As an example, The Wife and I often choose to ride the Amtrak from South Florida to Orlando instead of making the drive.  It’s more expensive at roughly 100 bucks for both of us round trip compared with a tank of gas at 40 bucks, but the 27 dollar toll for the turnpike makes things a little closer.  It’s roughly an hour longer too, but it’s nice to be able to read or watch movies on the train instead of driving.  Most importantly, and what prevents us from using it a lot more is the schedule: you can depart at 9:30 AM from South Florida, or 1:30PM from Orlando, and that’s it.  Compare this to Europe where most cities have an hourly service and you can see the difference.  There are several points in this little anecdote: the schedule, the cost, the need for pickup upon arrival in Orlando (thanks Sara’s family!) and the time all conspire to eliminate huge swaths of potential customers.A more insidious issue: once you’re at sufficient schedule density, you basically invalidate your rail network for freight traffic.  Here’s something you may not have known: the United States has the world’s most efficient railway system (See here, and here: the US enjoys the cheapest freight rates in the world).  This is because it’s entirely freight based which allows the railroads to maximize what trains are really good at: moving huge amount of cargo extremely cheaply and efficiently.  Adding in passenger traffic (particularly dense traffic) with its priority trains would essentially destroy the efficiency we have or require incredibly expensive infrastructure investments.  Even with those investments it’s generally not feasible to run freight and intense passenger service on the same trackage.  Most freight in Europe travels by truck in case you didn’t know.Passenger rail, even where it’s “successful” in Europe and Asia is still a chronic money loser requiring subsidy support.  In a wholly unsurprising development, China’s extensive new (and darling of the media) high speed passenger network is essentially insolvent.  This is the ideal which Friedman and other breathless watchers of China and India have been prescribing for the United States for years.  Says Chinese professor Zhao Jian:

“In China, we will have a debt crisis — a high-speed rail debt crisis,” he said. “I think it is more serious than your subprime mortgage crisis. You can always leave a house or use it. The rail system is there. It’s a burden. You must operate the rail system, and when you operate it, the cost is very high.”

I’d rather have the railroad system the US currently has, thank you very much.  A privately funded, operated, and most importantly, wildly efficient transportation system that’s designed to move big bulky stuff.  As gas prices fluctuate and we continue to import a huge percentage of our manufactured goods, we’re sitting pretty.

Some Quick Thoughts on the Kindle

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I got an iPad for Christmas.  For me, it was a relatively simple decision.  I fly/travel a lot and was burning a lot of space carting books around, especially newer hard cover books.  I also already use an iPhone 4G and have been extremely happy with the platform and device, so I was excited to see a lot of my favorite applications make their way to the iPad.  Essentially, I was looking for an eReader that had good battery life (at least 8 hours) which would provide flexibility to do other things.  This ruled out the Kindle eInk device and the Nook but I felt like the Kindle bookstore was more mature, had better selection, and was more portable (available on more devices).  All of my iPad reading is done with the Kindle application.The Kindle application ecosystem has gotten a lot of things right.

  • The highlighting is a killer feature.  Read a book, non-destructively highlight it, view your highlights on kindle.amazon.com.  This makes note taking SO much faster, easier, and portable.
  • The device syncing is fantastic.  I generally will read on the iPad most places but read on my phone if I’m biking at the gym.  The iPhone app syncs up where I left off and I don’t have to think about it.  Yes, this is a little feature and an obvious one, but it makes a big difference.
  • The book selection is very good.  Only when I’m trying to find more esoteric books is it a problem, and then I dutifully click “Tell the Publisher”.  Amazon should give you an email when it becomes available, but they don’t seem to do that right now.
  • The desktop applications are nice and consistent with the mobile applications.
  • The one-click buying is ridiculously convenient, and the books downloads almost instant.
  • Page turns are instant, and pleasant.
  • The built-in (and offline) dictionary is used a lot more than I thought it would be.

The Kindle software needs to improve on a few things:

  • I can’t find a good way to export all of my annotations in plain text.  I’m wondering if this is some sort of DRM policy to prevent people from highlighting the entire book (which I haven’t tried) then exporting it.  Anyway, I have to copy and paste my highlights directly from the web page right now which is not the end of the world, but is annoying.
  • It’s super annoying that the iOS Amazon application doesn’t include the Kindle eBook store.  You have to use your web browser to hit the store and purchase a book.  It literally does not exist within the mainline iOS Amazon app.  Search for a book there and it won’t show you if it’s available on the Kindle.
  • Their DRM policy is really stupid.  This is something everyone says to me when I mention I use a Kindle.  Almost all DRM complaints would go away if Amazon let you do an time unlimited lend of a book to another account which prevented you from reading that title while it’s lent out.  Currently they let you do one lend (total, ever, never to be lent to someone else after that one-time lend) for up to 14 days.  Stupid, stupid, stupid.  My response to those complaining about these restrictions is that it’s relatively simple to strip the DRM, and just like that, Amazon is only hurting it’s paying customers and providing an incentive not to buy and to pirate.
  • The Kindle app should start supporting every file format out there that’s available.  I know they’re starting to do this, but seriously, what’s the holdup?

Things I’m unsure about / haven’t tried yet.

  • It’s unclear to me how PDFs work.  I’ve got a bunch that I’d like to have for reference, etc., and locally manage (or access via Dropbox), and you can’t just drag a PDF into the app and have it show up on your device.  Very annoying.  I get that there’s some sort of post-processing that needs to happen for eInk devices, but it seems like this could all be easier.  Maybe you could post-process yourself on your desktop app and save everyone the trouble.
  • Haven’t done much note taking.  I’ve found note taking to be almost unnecessary when you can just highlight content and move on.

Parting ThoughtIf I was involved in an eInk company today, I’d be doing everything I could to bridge the “tactile gap” that still exists for most people.  The Wife has emphatically stated that reading for her is half tactile.  She likes the page turning.  The physical pages.  The weight of the book.  The smell.  She’s like an alcoholic who loves everything about the experience: the glass, the ice, the sound of the pour, the smell.  It’s easy to dismiss this as a triviality but it’s going to be a long-term battle for the next twenty years at least.  The company that can make an eInk page that feels like paper inside a book with pages to turn might have a shot at interesting these people.  Nice leather cover, plenty of pages (a thousand?) to accomodate 95% of books out there.  Pages to turn, etc.  It’d be like the book lover’s smokeless cigarette.Maybe I’m just out to lunch, but I’d love to see a double-blind study with a well-worn eInk “book” compared to a normal book and see if people could tell the difference or would care.

China vs. the United States: What about all this debt?

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It’s almost impossible to mention China in a conversation now without hearing about them owning a large portion of our debt.  Based on my own unscientific and anecdotal perception (I asked a bunch of people), most would answer that China owns “most” or “close to half” of our debt, and I’m commonly asked “when I think that Mao Zedong will be on the hundred dollar bill.”Before we begin, I’d like to make clear that I am a fiscal conservative.  I believe the US should not routinely run a deficit, particularly a large one.  I live in a state (Florida) with a balanced budget provision in our constitution and even though it’s ignored from time to time, I think it would be a good thing to have nationally, and I believe it to be extremely unwise to routinely run deficit spending.

One of the best resources for understanding the national debt is, unsurprisingly, the US Treasury.  You can read up to date reports on outstanding debt and its holders here.  Wikipedia has a slightly outdated but directionally graphical correct representation of this data here.  From this, we can see that somewhere around 30% of all US Treasuries are held by foreign and international interests.  The rest are held by insurance companies, other investors, pension funds, mutual funds, and the government itself (mostly the Social Security trust fund).Already, this is probably not the picture you expected.  Less than a third of all US debt held by foreigners.  The treasury helpfully breaks this down further here, listing each country by holdings and the dates of the holdings.  Of that debt, China is indeed the leading holder at roughly 20.8% (as of July 2010), but Japan is right behind at 20.2%, then the United Kingdom at 9.2%, then oil exporters (5.5%), Brazil (4.0%), Hong Kong (3.3%), Russia (3.2%), and Republic of China or Taiwan at 3.2%.

After just a few minutes of basic research, we’ve learned that China has roughly 6% of our national debt under its ownership, and of the rest of the countries on that list, Japan, the UK, Taiwan, and Brazil would be counted in the friendly-to-America column, or at least in the “choose America over China” column.  It can be argued that Hong Kong is essentially China, but it still doesn’t change the general picture at all.China, along with other countries, just doesn’t own that much of America’s national debt.  In fact, I’d say in light of all the political rhetoric, 6% is a shockingly small amount.

Still, lets say that the nightmare scenario happens, things went sour with China, and they wanted to begin flexing their muscle, using our debt against us as a weapon.  What would their options be?

  • They could sell their holdings.  This would immediately depress the value of treasuries and probably cause some amount of alarm.  However, were China to begin selling their nearly 800 billion in treasury bills, the market for these bills would rapidly cause their existing holdings to plunge in value.  In other words, by selling, they’d screw themselves fairly quickly, and they’d be forced to take that money and place it somewhere else.  Where?  The EU has proven recently to be a less than stellar investment.  Their own domestic market wouldn’t be able to absorb a nearly trillion dollar capital injection without being inflationary.  Not to mention that the Fed could simply step in like they did with TARP and buy up the 800 billion dollars that China would sell, at rock bottom prices.  Our allies could also mobilize considerable buying pressure so that their own holdings wouldn’t devalue.  At the end of it all, China would probably lose the most from this maneuver.
  • They could unpeg their currency to the US Dollar. China today artificially keeps their currency pegged at an unfavorable exchange rate (to them) in order for their products to remain cheaper for Americans.  Unbelievably, most of the current US diplomatic effort on economic issues is centered around trying to get China to remove this peg, thus making things more expensive for Americans.  Derogatory terms like “dumping” are used to describe China’s gift of subsidized products to millions of Americans.  By demanding that China unpeg its currency, we’re basically saying “remove your artificial subsidy on goods that middle and lower class Americans predominantly buy, and that will help us.”  Smarter people than I have written on this elsewhere numerous times.
  • Are there other options here? I’m trying to think of them, but the reality is this – Chinese businesses are flush with dollars.  There’s a reason almost all of the countries that are major holders of US debt are manufacturing or commodities export driven (China, Taiwan, Brazil, Oil Nations, and Japan).  They receive dollars for their products, and need to buy materials to make their products.  These materials can and do often come from other economies, so it’s advantageous to use the world’s reserve currency to procure these materials.  Notice how India is absent from the list – they’re a knowledge exporter (mostly services and knowledge work like software), and therefore most of their income is paid in wages to individuals who then spend the cash within their own economy, not paid to other economies to procure raw materials.

If you were to obtain a large sum of money (in the billions or trillions of dollars), you’re going to need to make decisions regarding the investment of that money using long term, macro-level criterion.  Government stability comes into play, geopolitics becomes important, and all of a sudden in addition to a rate of return, you’re faced with the difficult decision of who do you trust with your money – but on a national scale.  If you’re China and you’re looking around the world to invest your US dollars, you can choose Europe, a handful of economies in SouthEast Asia that are just as invested in the US as you and are competitors to yourself, Africa, or South America.  The world just got a whole lot smaller.  In that context, the US is by far the most stable recipient for your investment, and its markets are also the driver for your current economic success.Deng Xiaoping, the former leader of China and the architect of China’s reforms that shifted the country to free-market capitalism, is famous for his quote that China should stick to its economic policies for one hundred years.  China is thirty years in and has already taken enormously expensive steps (subsidizing exports by pegging to the US dollars for example) to ensure stability and continued growth.  Reasons for this are also steeped in history, as we’ll in see future posts.

Sure, China is investing more in Europe, as the recent debt offerings from Spain and Portugal illustrate, but the broader context here is that a global economic downturn hurts China just as much or more than any other economy.  Their domestic markets aren’t big enough or sophisticated enough to sop up the spare manufacturing capacity that would be created by a global downturn.  China’s economic interests are driven by political and historical goals that go unseen by Western economic analysts.

The analogy to this situation is simple:  as a construction company, you build a house, then rent it to a tenant who can also beat you up.  You sell furnishings to him too.  You’ve invested a lot in the home that you build, and all of a sudden, your tenant starts having trouble paying you back.  Unfortunately, the house is so big and lavish that there’s nobody else who can afford it, or if they were to buy it, you’d have to sell at a steep or near-total loss.  What do you do?  You follow the wisdom that banks who own their own mortgages follow: you do what you can to work out a payment plan and look to keep the tenant in the house, while not humiliating him in the process.  This way, both of you make it through hard times, and you can sell him a nicer house when he’s back on his feet in a few years and is looking to upgrade.

China is not about to jeopardize its future by focusing on short term issues and America needs to stop wringing its hands over non-issues.  The problem isn’t China’s holdings (or any other foreign entity’s holdings) of our national debt, the problem is the national debt: it’s us.  It feels a lot better to fear monger, but at the end of the day, we’re the problem.

An Open Letter to Mint.com: Stop storing my bank credentials!

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A lot has changed over the last few years.  It seems like forever ago, and yet, it was only in 2005 that AJAX sprang forth and ushered in the buzzword of Web 2.0.  And it’s great – rich applications that are delivered quickly and efficiently allow me to do things online that I never thought possible. And yet, there’s a dark side to the Web 2.0 craze for APIs and tools and importing and exporting data, and that is that we’ve taught our users to embrace man-in-the-middle attacks.  Every time I see a website asking me for my Facebook password I cringe, but nothing pales in comparison to the nightmare that is Mint.com.

I love Mint.com.  They have spectacular visual design, a great product, an entertaining and informative blog, and a great iPhone app.  I know tons of people who love Mint.com, and yet, when surveying my digital life with a critical eye, I know of no greater security risk than Mint.com.  It’s still astounding to me that Mint could grow from a small startup to being acquired by Intuit in the space of a few years and essentially retain unlimited liability by storing user’s logins and passwords to their entire financial lives.  Yikes. 

If I were turned to the dark side, I would immediately attempt to hit Mint for their millions of users credentials which provide me completely unfettered access to their accounts, most of which are not FDIC insured.  This means that when someone hacks Mint, they’ll be able to pull out all of my money, transfer it, etc., and I’ll be responsible because from the financial institution’s perspective they aren’t liable for me entrusting my credentials to a third party. Sure, Mint encrypts their password database, but somewhere that password is known or stored.  It has to be because they have to use my unencrypted credentials to login.  Sure, there are a bunch of ways they could monitor this access and mitigate risk, but at the end of the day there are usernames and passwords floating away.

There is simply no technical reason the financials institutions out there can’t work with Mint and every other API providers/consumers out there can’t implement an OAuth authentication solution.  For the nontechnical of us who are reading this, an OAuth solution is essentially a token based method of authentication.  A key based authentication mechanism doesn’t necessitate handing over your username and password to a third party, instead, you grant a key (and depending on the API, limited access) to Mint which can then login and grab the information you need.  If Mint gets compromised, your financial details might be stolen, but at least they can’t access the upstream account with the same type of access.  In fact, this is what I was really hoping would come out from the Intuit acquisition: for Quicken you used to have your financial institution give you a separate login or key for Quicken specifically. To be clear: this is originally the financial institution’s problem.  They should be providing OAuth based services for Mint and  others to consume.  However, this has now become Mint’s problem to address.  Also, hindsight is 20-20.  What may have started out as a great application for a developer to track his personal finances with an acceptable risk quotient has ballooned into one of the largest and best avenues for tracking finances in the world.

The simple fact is that today, when you change your financial institution credentials, Mint breaks, which means they’re scraping the content from financial institutions.  Financial institutions are in on it too – it should be easy to see that a large percentage of their traffic is coming from one domain.  Even those sites that use a two-factor “security questions” approach are accessed via Mint by saving all possible security questions!  Financial institutions could easily block Mint by adding CAPTCHAs to their login protocols, but since I personally know several users who have changed banks to use Mint, my guess is there’s sufficient pressure to maintain Mint’s access. Some might say that I’m being overly paranoid because we’re used to saving usernames and passwords on our local machines and while it is true that from a direct comparison perspective Mint probably has the security edge over my Macbook Pro, from a risk management perspective it’s quite a different story.  All of a sudden it pays to hire a team of evil programmers for a million bucks to gain access to Mint’s millions of users.  Consider too the fact that most people re-use a single username or password as much as possible – this means cracking a lower security database (a web forum, etc.) can leapfrog access into those same user’s Mint accounts.  The less we’re using usernames and passwords for services, the better. What’s the solution?  I think a three pronged approach should be considered by any modern technical service that holds data of value:

  • Institutions should provide rich APIs in the first place and aggressively prevent screen scraping.
  • APIs should clearly segregate between “read only” and “read and write” access levels.  Mint.com can “read” my financial data but can’t “write” and pull money out of my account for example.  API access could further be segmented to only allow access to pieces of data (e.g. financial sums only and not transactions, or both, etc.)
  • APIs should use account credentials for access, but instead should be key or token based.

This might sound complicated, but in practice it’s very straightforward.  I simply login to authorize a request made by an application (anyone authorized a Netflix device recently?) and that’s it. In an increasingly networked world, application service providers bear increased responsibility to provide safe computing to users.  The old standards of storing usernames and passwords within applications need to change to reflect a different risk model.  This means both providers (financial institutions) and consumers (Mint.com) of data.  I want to use Mint and recommend it to others so I’m hoping that they can bring their clout to bear and work things out with financial institutions to solve this problem.

The Non-Technical Tech Talk

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Two weeks ago (was it three?) I spoke at an ACM sponsored Tech Talk at Purdue University.  My mission was to give perspective on what it takes to run a large and quickly growing software team.  Many startups (including some I’ve been affiliated with in the past) will grow from very small teams to departments of over a hundred in a short time.  That kind of growth is explosive so as I thought about what to say during the presentation, I was struck that very rarely do I hear much about the human element of running a software organization.  I never heard about it in school. Focus on the people side of software construction has been one of my major recurring management themes because, as I told the group of students at Purdue, software development is one of the most human-intensive, human-dependent disciplines/arts/crafts/industries that exist.

To many, this might exemplify a supreme irony, but this has always been a core belief of mine: you can’t build great software without great people.  You can’t build great software without great teams.  Hardware and tools are easy to come by now, and the end result is that in today’s software industry, people are the only variable that means anything.  That’s why software companies should be psychotic about keeping turnover low.  Everywhere I’ve been I try to minimize bureaucracy.   I encourage telecommuting and spend money on great tools.  I like to setup team building, fun activities that appeal to technology workers like playing video games together once a week.  These are all downstream things that I focus on to maintain my upstream asset: people.

What does working on a great team with great people look like?  For students still in school, this is hard to visualize.  Group projects are almost universally hated.  Internships generally involve working as someone’s grunt on some meaningless or semi-solo system or task.  But I got all heads nodding when I asked if while they were doing their horrible group projects with their horrible group members if they remembered that one group who got up in front to present that was clearly happy to be working together, who had enthusiasm for their work product, and had spent an inordinate amount of time on their project.  Did they seem tired or annoyed?  No.  Was their project the best in the class?  Yes.  That is what a well-gelled software team feels like, looks like, and that’s the kind of product it produces. I talked a little more about great teams and how to recruit them and run them as we all munched on pizza.   Afterwards the organizer walked up and stated that I had given the most non-technical tech talk ever, but that he felt it was important and something that often gets missed.  

I definitely agree about the missing piece, and we got invited back for more pizza and another tech talk so we’re grateful for another opportunity.  I’d say that was mission accomplished.

Book Review: When China Rules the World

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Reading is one of my favorite things to do, and it’s become harder and harder to make time for books over the last few years.  However, over Christmas I was given Martin Jacques’ book  “When China Rules the World” and I read most of it on the six flights we took over the holidays.This is an extremely important book, in that I feel Martin accurately distills and describes a few integral pieces of China and the Chinese mindset that are almost universally missed by Western commentators.  These pieces, when placed in the proper context can often combine to explain the more (to Western eyes) puzzling questions about China, events that happen within China, and China’s reactions to external pressures.One of the reasons why I enjoyed this book is that the author is a master at providing historical context and to illustrate and reinforce his ideas.  With a history as long as China’s this isn’t a small task, but he accurately makes the point that few nations are as cognizant of their history and traditions as China.  Ignoring thousands of years of constant cultural development leads to gross misunderstanding, and is something that is all too easy to do from a Western perspective that’s driven by the acceptance of a Western order that is really only three centuries old.Jacques begins his book with the relevant facts of how China will most likely overtake the US as the largest economy in the world by 2027, and focuses on the central question of the book: What will a modern world dominated by China look like?  The prevailing thought of most attention paid to China is that capitalism, free markets, and Western style economies inevitably echo Western values of freedom, human rights, democracy, and culture.  In other words, free trade begets free societies.  Not necessarily so in China.This misguided belief that a swing towards Western style freedom and government is inevitable is a key miscalculation that negatively affects US foreign policy and undermines true understanding of China and the rest of East Asia.Reasons for China not following the Western model of modernism coalesce around different set of values.  In China, unity and stability is a key value that is reinforced by the strong, hierarchical family unit, the universal acceptance of Confucian thought, and the reality that China is a civilization-state, not a nation state.  The Chinese desire of unity explains the tolerance of the “one state, two systems” approach to Hong Kong, Macau, and Taiwan, and even within the numerous special economic zones found within the country.  This type of duality is almost inconceivable to the West.  Stability is valued highly due to China’s  experiences with turmoil during its history (estimations of 25 million dead during Manchu invasion, 50 million dead during Taiping rebellion, and as many as another 50 million dead during World War II and the ensuing Great Leap Forward and Cultural Revolution), and it’s long experience with a strong central government and its emphasis on a Confucian trained and tested government bureaucracy.  Stability, therefore, is enough of a priority that the Chinese are content with a system that values the group over the individual.History teaches us that the Chinese civilization has never wavered in it’s attitude of superiority towards outsiders.  Indeed, even when conquered by external invaders, which happened often throughout history, the invading groups (Mongols, Manchus) forsook their own identities and adopted Chinese customs, dress, and language while moving their capitals and governments to China.  Today there is an overwhelming sense among the Chinese that China is finally regaining it’s rightful place in the world as the Middle Kingdom.  Most forget that in the 1800s, the Chinese standard of living was slightly higher per capita than that of Europe.  England had a strong navy and easy access to coal close to its urban centers, China did not.  A crippled and weak end of the Qing dynasty, the Japanese invasion, World War II and the disastrous effects of Communism contributed to a net decrease in China’s GDP between 1820 and 1950.The idea that modernism must revolve around the Western model is rejected by the examination of how little modernity has affected Chinese politics.  China has always had a strong central government that was paternalistic in nature and was bound to the collective well being of society.  This is unlike Western governments, which have evolved to the point where they exist as a utilitarian entity in exchange for popular support.Jacques also spends significant time exploring the reasons behind the current Chinese policies towards trade, it’s own citizen’s freedom, and it’s long term goals.  In the light of the many historical and political contributing factors, it’s much easier to understand China’s currency peg (which hurts China more than it hurts the US), it’s continuing support for US debt, and it’s aggressive stance towards opening its own markets.  According to Deng Xiaoping, two things must remain for China to lift its population from poverty: domestic stability and international peace.  Seventy-five percent of China’s economy is accounted for by international trade of some sort, and while this may decrease as China continues to diversify, this is an unprecedented level for a country that is so large.  This precarious balance between its economy and the implicit social bargain (like all Confucian states have) to its citizenry for future standard of living improvement are the key drivers to China’s behavior.This book isn’t without its faults.  Jacques, like the good Marxist he is, glosses over the disastrous effects of Communism for China’s people and its economy.  Like many intelligentsia (Thomas Friedman and almost any other environmentalist) , he finds himself almost in awe of the incredible power that the Chinese Communist Party has to command policies that he wishes or wants to see implemented.  His exploration of China’s tributary system and it’s possible resurgence in the future is incomplete as it doesn’t resonate well with the Western reader.  Some of the book’s information is outdated or at least could have been updated, and some of the statistics feel as though they’ve been cherry picked.  There also doesn’t seem to be enough credit given to the remarkable lever of capitalism: lifting hundreds of millions of people out of poverty in just thirty years is nothing short of a miracle.While the overall message of the book is that China will not become the US or a prototypical Western nation-state, this doesn’t mean that the China of today will exactly mirror the China of tomorrow.  It does mean that we shouldn’t prescribe the Western template to China, and should remain mindful of the powerful historical currents that remain in full force for China.