Tuesday, August 12, 2008

What should companies build? (Steve Yegge)

Stevey's Blog Rants: Business Requirements are Bullshit

Some investing advice:

Warren Buffett and Peter Lynch, both famous and successful investors, say pretty much the same thing about investing. Peter Lynch's mantra sums it up: "invest in what you know."

If you actually take the time to read Lynch's books (which I have), you'll see that this pithy mantra is a placeholder for something a bit more subtle: you should invest in what you know and like. You should invest in companies that make products or services that you are personally excited about buying or using right now.

When you invest with this strategy, you're taking advantage of your local knowledge, which tends to be more accurate than complicated quantitative packets put together by analysts. And your local knowledge is definitely more accurate than the reports produced by the companies, who want to paint themselves in the nicest light.

Warren took a lot of heat in the 1990s for not investing in the tech sector. But hey, he didn't feel comfortable with tech, so he didn't invest in it. One way to look at this is: "ha ha, what a dinosaur, he sure missed out, and now he's, uh, only the richest person in the world by a small margin." But another, more accurate way to look at it is this: he's the richest person in the world, you asshole. When he gives you investment advice, take it!

Let's say, for instance, that you hear that Subway (the sandwich franchise) is going to do an IPO. They've been privately held all these years and now they're going public. Should you invest? Well, let's see... the decision now isn't quite as cut-and-dried as it was in their rapid-expansion phase, so, um, let me see, with current economic conditions, I expect their sales to, uh... let me see if I can find their earnings statement and maybe some analyst reports...

No! No, No, NO!!! Bad investor! That's the kind of thinking that loses your money. The only question you should be asking yourself is: how many Subway sandwiches have I eaten in the past six months? If the number is nontrivial — say, at least six of them — and the rate of sandwiches per month that you eat is either constant or increasing, then you can think about looking at their financials. If you don't eat their sandwiches, then you'd better have a LOT of friends who eat them every day, or you're breaking the cardinal rule of Buffett and Lynch.

The key message of the blog post (takes a while to get there):

You can look at any phenomenally successful company, and it's pretty obvious that their success was founded on building on something they personally wanted. The extent that any company begins to deviate from this course is the extent to which their ship starts taking on water.

And the key leading indicator that they're getting ready to head off course? You guessed it: it's when they start talking about gathering business requirements.

Because, dude, face it: if it's something you want, then you already know what the requirements are. You don't need to "gather" them. You think about it all the time. You can list the requirements from memory. And usually it's pretty simple.

And the most important part, if you want to start your own company (the example Steve uses is the Flip camcorder):

You don't need an original idea to be successful. You really don't. You just need to make something that people want. Even if someone else appears to be making something popular, it's usually possible to improve on the idea and grab market share. And it's painfully counterintuitive at times, but the best improvements often come from simplifying.

The easiest way to build a product that kicks ass is to start with someone else's great idea (camcorders, for instance), and take stuff away.

In any event, originality is overrated. Coming up with something completely original isn't just hard to do: it's also hard to sell, because investors (and possibly customers) will need to be educated on what this new thing is and why people would want it. And when it comes to buying stuff, nobody likes to be educated. If the product isn't immediately obvious, investors and customers will pass it up.

It's easy to come up with new product ideas if you start with the understanding that everything sucks. There are no completely solved problems. Just because someone appears to be dominating a market with an "ideal" offering doesn't mean you can't take market share from them by building a better one. Everything can stand improvement. Just think about what you'd change if you were doing it for yourself, and everything should start falling into place.

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