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Monthly Reading, February 2022
Res Extensa #18 :: Product vs. customer-driven businesses, variability in construction processes, Factorio as a tool for systems thinking, Jacob Mchangama on free speech
There's this tendency in business to look at companies in a binary system of "product-driven" or "customer-driven". The first is generally defined by internal vision, strong, opinionated leadership, and "market-making": the ability to manufacture demand for a new product and create a market for it. The second is more outwardly-influenced, looks to existing customers to define the objectives, and is seen as weak in terms of vision of the future; it incrementally addresses needs of known, existing markets. Product-driven is inside-out, positive sum and gins up new solutions to unknown problems. Customer-driven is outside-in, zero sum, and can only expand by taking business away from others for known problems.
This long read from Venkatesh Rao is the go-to analysis on this topic. Is there a better or worse approach to company-building? He goes deep and adds the necessary detail on how these categories should be defined and understood. There's so much great stuff here.
Even though I agree with the Eric Ries Lean Startup approaches in general, I've had some discomforts with what it presents as the answers to proper product-driven thinking. Rao puts words to some of those abstract dissatisfactions. One in particular is the way Lean Startup attempts to merge outside-in, customer-driven tactics with an inside-out, vision-driven approach. Rao is skeptical that the extremes of the two broad categories of approach can coexist:
In the case of Lean Startups, the outside-in drive is to lower operating costs by lowering market risk. There is reason to suspect this may not actually work: it could be that processes that derisk front-end development costs simply create an adverse selection pressure. One that makes projects with the same _total_ risk, but with more of it back-loaded in later development stages, seem more attractive at early stages, when competing paper-napkin ideas are being considered for development. So the Lean Startup process picks those problems that allow the tin-can to be kicked as far down as possible. Or in terms of visioning-process debt, the process favors problems where the lurking demons will emerge as late as possible.
"Continuous flow" is a principle from manufacturing that's gotten strong toe hold in software over the past 20 years. With this type of workflow, you design a process that chains stages of a production line together in finite, discrete steps, optimizing for a non-stop flow through the system. Contrast this with processes where materials are produced in batches, where error can be harder to detect and more costly to optimize. Batch processing also makes for laggy feedback loops.
Brian Potter looks at the relative merits of batch vs. continuous processes in the construction industry. Flow-based production (see the Lean Manufacturing movement) saw a rise in popularity for a number of reasons — lower variability in process, errors can be caught sooner when noticed (batch production might mean an error caught is present in all 100 items batched, rather than 1 or 2 before caught before the continuous process could be modified, lower work-in-process, and lower inventories. But it's not so simple "everything should be continuous". There are other forces at play like economies of scale, setup costs, or input resource management, like spotty raw material inflows you can't control.
I love examples from the real world of construction that production processes aren’t so simple that you can optimize however you want, in this case, pre-cast concrete production:
To get a sense of what these tradeoffs look like in practice, let’s look at an example of a process with both batch and flow elements to it - precast concrete building construction. Briefly, precast concrete buildings (overwhelmingly parking garages in the US) are made from large pieces of concrete that are produced in a plant. The pieces (consisting of beams, walls, slabs, and other building elements) are then trucked to the jobsite, and craned into place.
A highly capable precast design-builder (like the one I used to work for) will aim for something pretty close to flow production for the actual erection of the garage. Precast concrete components are large, and there’s generally not much room to store them at the actual jobsite. And because crane time is so expensive (and charged by the hour), it’s important to keep the crane as busy as possible, and minimize the time it spends waiting for the next piece. So what you (ideally!) get is a carefully scheduled flow of pieces arriving at the site - a truck arrives, the crane immediately lifts the piece into place, the workers attach it, and they finish just as a new piece is arriving. No accumulated inventory on site, no wasted time with the crane, everything moves swiftly and smoothly into place.
🌎 Wordle's Successors
If you've been on the internet the past month, you've seen Wordle. I wanted to point you to 2 other games piggybacking on same idea.
The first is the geographer's variant, Worldle. with this one, it gives you the silhouette of a country's borders, and you have to guess it. A wrong guess hints you at how far away your guess was, so you have a shot at narrowing down the options. It's a fun map nerd's alternative. It shows how much context and proper scale aid us in identifying things. Some of them are surprisingly hard, even for someone who knows (at least the location of) every country.
The other is Dictionar.io, another word-based game. This one gives you two words, and you have to navigate from one to the other only using parts of the definitions of the words. It's much more challenging and brain-wracking than Wordle, but still an interesting experiment.
I've talked in the past about Factorio as a cultural linchpin at Shopify, where the company pays for employees to buy the game and play it. Factorio is a systems designer's playground, where you build increasingly-complex factories, with subsystems from mining and harvesting raw materials, powering machines, to creating ever-more-advanced automation schemes. A dozen hours in, you might have a rat's nest of complicated machinery producing goods, which requires you to dissect your systems from the inside out to look for ways to optimize your previous bad design decisions.
Founder Tobi Lutke sees Factorio (and games in general) as tools for teaching systems thinking in a hands-on way. The bit that I've played it, I can see where he's coming from. It certainly beats out reading yet another airport business book for insights into how to contribute to their company. Ultimately, it's a solid teaching tool for learning the importance of first principles, and for troubleshooting intricate webs of feedback loops.
Byrne Hobart has an interesting analysis of the game and its application to business optimization and scaling:
It's very valuable to cultivate this habit of seeking opportunities for scaling, even if the payoff is uneven; people who haggle about everything will end up getting moved to better seats on planes every so often, but if they also negotiate a 2% better raise or offer every single year, their lifetime earnings will be 55% higher, and if they fight for higher equity compensation at the right time the results can be very nice indeed. Continuous optimization is a good habit that the game loop of Factorio inculcates quite nicely; just as Tetris addicts used to talk about closing their eyes and seeing falling blocks, Factorio aficionados look up from their screen and see processes that could never need manual intervention again. And the game also encourages people to think about scale: why automate only part of your job when you could automate all of it?
Overcompensating behaviors can destroy progress you make with good, healthy behaviors. If you work out and burn 500 calories in a cardio effort, but then give yourself permission to eat more in the next meal, you're mostly destroying the gains you thought you made. If you get a raise but start spending more, nothing about your wealth position will change.
Morgan Housel reminds us that to make true progress, or build real wealth, we have to avoid the overcompensation:
You could say higher spending is the goal. But all new luxuries become necessities in due time as expectations reset. I suspect part of the reason people don’t feel better off is because financial progress is better measured by wealth, not income. And wealth is just the accumulation of income you haven’t spent. So a lot of people are the financial equivalent of the exerciser who burns 500 calories then immediately offsets it with dessert and is frustrated by the lack of progress despite working so hard.
Atolls are strange formations. The Mai'ao Atoll is part of French Polynesia, near Tahiti. I love the way the outer reef forms a boundary within which there's a microgeoraphy of lakes, rivers, and mountains, protected by the barrier from the raucous Pacific Ocean. This is a great shot of the island taken from the ISS last year. Read more about it here from NASA. Also go there on Google Earth.
After listening to this interview with Jacob, I've added his latest book to my reading list. It's a comprehensive history of the concept of free speech, as the subtitle suggests: "from Socrates to social media". This interview from the Fifth Column guys is an excellent deep dive discussion into free speech, why it’s important, and how it's in jeopardy in various ways in modern culture.