Success, and Farming vs. Mining(blog.wilshipley.com)
blog.wilshipley.com
Success, and Farming vs. Mining
http://blog.wilshipley.com/2011/04/success-and-farming-vs-mining.html
21 comments
I don't think this writer has much opposition to the sale of a company itself, but the attitude with which many founders are creating their companies. I think he's using recent results to establish that usual pretense for many startup is not very pure or quality oriented. I think he'd acknowledge that selling a startup is often the right choice, but creating a startup with no care for quality or long term product stability is not.
I agree. I think the article speaks to the founder and his/her vision and intent rather than the product.
Sometimes the planted flag is much different from the fully implemented product.
Sometimes the planted flag is much different from the fully implemented product.
Also, I do not believe the knowledge of a specific need and the method of satisfying that need is what the startup sells. If that were the case, any big company could legally recreate what twitter or facebook does. Rather, I think the real value of startups is in the user affinity and traffic it experiences regularly. Google won't make twitter, because everyone already goes to twitter (this brings up an interesting point about making people feel like they have "things" on your site, which can help create a more secure user base, but that is a different point). Ad sales reflects traffic, sustainability reflects traffic, public influence reflects traffic. It all seems to break down to that, and that's what companies are betting on (or "mining") when they buy a start up. So, if a founder decides that he is interested in making a quick buck from the start, they won't work to establish a strong user affinity, or secure traffic levels, or significant public influence, and hence will be selling a low quality product. For an over rated opportunity-price, no less, because their pricing is based on the opportunity image created by older, successful, dedicated startups. This low quality atmosphere is what this writer warns against, for the benefit of buyers, sellers, and users. The markets have always secured demand for companies that create strong, stable foundations, and it was only a matter of time before the internet's companies started following the age old rules of capitalism too. So be warned, VCs and new founders alike. If you're not making a quality product, its only a matter of time before big companies figure out how to weed out the miners and it won't be as easy to make a quick buck with a low quality company.
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I come from Montana, and I hate this dichotomy.
The fundamental law of resources in this world is: if you can't farm it, you must mine it. They're a yin and yang. I come from Montana, a state which basically has only two industries: farming and mining. When you live that close to the land, it becomes very apparent who the actual producers are.
Everything else is wanking. Productive wanking, but wanking nonetheless. The welder is nothing without the miner. Without the farmer, he can't even eat. Me, as a software engineer, I'm so far removed from those who are actually producing things that what I do is as ephemeral as the wind. I change states on a magnetic disk all day. I lift weights, run, and have a stand-up desk so my body doesn't decay while I do this ludicrously minimal amount of work each day, but because I know how to shape those bits in a certain way, society values me much more than the guy who feeds me, or the guy who mines the rare earths that make my job possible.
The fundamental law of resources in this world is: if you can't farm it, you must mine it. They're a yin and yang. I come from Montana, a state which basically has only two industries: farming and mining. When you live that close to the land, it becomes very apparent who the actual producers are.
Everything else is wanking. Productive wanking, but wanking nonetheless. The welder is nothing without the miner. Without the farmer, he can't even eat. Me, as a software engineer, I'm so far removed from those who are actually producing things that what I do is as ephemeral as the wind. I change states on a magnetic disk all day. I lift weights, run, and have a stand-up desk so my body doesn't decay while I do this ludicrously minimal amount of work each day, but because I know how to shape those bits in a certain way, society values me much more than the guy who feeds me, or the guy who mines the rare earths that make my job possible.
Miners use software to find minerals to mine, farmers use Combines and harvesters run with software. The farmers plant seeds and use fertilizers and pesticides that were created with the help of software. Mining and farming equipment is designed and built using software. If a farmer or miner gets sick, a doctor might use software to display and interpret their MRI or ultrasound.
We have come a long way from subsistance farming, and computers, software, and the people who create them have helped make miners and farmers (and everyone else's) lives much easier and better than they would be if people only mined and farmed.
So, congratulations for doing important work!
We have come a long way from subsistance farming, and computers, software, and the people who create them have helped make miners and farmers (and everyone else's) lives much easier and better than they would be if people only mined and farmed.
So, congratulations for doing important work!
Tourism is very big in Montana too.
Wil's metaphor is brilliant and the values he describes are exactly what our industry needs to hear. I have been jumping from product to product for years, with the expectation of dump trucks arriving one day out front and unloading tons of money. I'm doing it again with my current company. We have a solid niche, strong traction and are leaders in our space, but rather than making what is good, really excellent, I'm considering jumping to the next shiny ball that may be the home run. This blog entry has caused me to reevaluate.
I once read a quote that goes something like: "If a book causes a reader to reevaluate their own life, it says more about the reader than the book".
That has happened to me a couple of times. Most recently was probably reading "Atlas Shrugged" by Ayn Rand. I had pigeonholed that book as something that banking types read and presupposed the book advocated "Mining" (to use Wil's analogy). However, the protagonists in the book are hard-working (in spite of family wealth) and innovative. In the book, the protagonists opt out of what the world at large deems as the "right" way to do things.
Ignore the mythology that glorifies "mining". It's nonsense. Find different people to look up to.
This interview with David Heinemeier Hansson reinforces Wil's point of view: http://mixergy.com/david-heinemeier-hansson-37signals-interv...
That has happened to me a couple of times. Most recently was probably reading "Atlas Shrugged" by Ayn Rand. I had pigeonholed that book as something that banking types read and presupposed the book advocated "Mining" (to use Wil's analogy). However, the protagonists in the book are hard-working (in spite of family wealth) and innovative. In the book, the protagonists opt out of what the world at large deems as the "right" way to do things.
Ignore the mythology that glorifies "mining". It's nonsense. Find different people to look up to.
This interview with David Heinemeier Hansson reinforces Wil's point of view: http://mixergy.com/david-heinemeier-hansson-37signals-interv...
On a slight tangent, modern farming techniques are more akin to the mining he describes than they are to farming. It's not just the software industry that is affected by this short-term thinking; it's the majority of human endeavour.
It's hard to tell whether the stock market is a cause or a symptom - our primary mode of 'investing in the future' is so prone to being short-circuited for short term gain.
It's hard to tell whether the stock market is a cause or a symptom - our primary mode of 'investing in the future' is so prone to being short-circuited for short term gain.
Large scale conventional farming is akin to mining. I guess it's always the little guy who gets enlightened first. There are a lot of small farms practicing sustainable agriculture. It feels like it's taking way too long to persuade conventional farmers to clean up their act (and to persuade consumers to make better food choices), but the number of acres involved in sustainable farming has grown quite a bit in the past decade. Human nature being what it is, I don't know if we'll ever get the majority of people to behave responsibly over the long-term. But, the current trends do look promising.
http://en.wikipedia.org/wiki/Organic_farming
http://en.wikipedia.org/wiki/Sustainable_agriculture
http://en.wikipedia.org/wiki/Organic_farming
http://en.wikipedia.org/wiki/Sustainable_agriculture
At first glance, it seems this guy is basically just describing the markets and calling traits problems. Obviously you need to invest in a company before its popular for it to be a good investment. A company with a fully stable profit won't even take your investment most of the time. "Mining" is just the process of investment! However, I do not think this is the point. The important point is not that "mining" and the markets are evil, but that founders shouldn't be investors. If you start a company, you should be interested in BUILDING A COMPANY, not selling a big company and making a boatload. Obviously, people want to make money, but for some reason the misconception that the cash in hand for a crappy company is worth more than the cash in stock for a great and growing company. Great companies start with people who want the company to succeed and investors who want to make a buck, not the other way around.
For those who don't know, Wil Shipley is the author of Delicious Library. <http://delicious-monster.com/>; A perennially popular MacOS app. It is a great way to catalog most everything you own.
It started off being only for books, but since has acquired the ability to keep track of just about anything.
It started off being only for books, but since has acquired the ability to keep track of just about anything.
He also founded the OMNI group.
Delicious Library: one of the apps that makes me wish I could afford a Mac. Genius stuff; shame there doesn't seem to be a Windows equivalent.
It's a nice app... and nicely gimmicky. But I just can't bring myself to use it for more than a few days then it gets all out of date.
I guess if you're OCD about books and other items it may have a great use for you, but I feel it's gimmicky and while it looks amazing it isn't as valuable as it may look.
I guess if you're OCD about books and other items it may have a great use for you, but I feel it's gimmicky and while it looks amazing it isn't as valuable as it may look.
Have you thought about buying one second hand or refurbished?
Oh, many a time. Spent a couple days just browsing eBay for Mac Minis.
Truth is, though, I really won't have the kind of money to drop on a system for quite some time. Hell, I wouldn't even have a laptop if I wasn't lucky to enough to receive a CR-48 :p
Some day, when I have money, I'll probably sell off the CR-48 (it's a nice little system, once you get the BIOS flashed and ChromeOS replaced) and put that towards a plastic Macbook. Until then, I'll just continue lusting over Delicious Library, TextMate, and everything Panic Software puts out...
Truth is, though, I really won't have the kind of money to drop on a system for quite some time. Hell, I wouldn't even have a laptop if I wasn't lucky to enough to receive a CR-48 :p
Some day, when I have money, I'll probably sell off the CR-48 (it's a nice little system, once you get the BIOS flashed and ChromeOS replaced) and put that towards a plastic Macbook. Until then, I'll just continue lusting over Delicious Library, TextMate, and everything Panic Software puts out...
How much [cw]ould you pay for a mac mini? I have one sitting across the room from me that I hardly use. It's an early intel model with 1gb.
I want to buy a new one to run OpenCyc (which requires 4gb) on but I can't bring myself to just scrap the old one.
I want to buy a new one to run OpenCyc (which requires 4gb) on but I can't bring myself to just scrap the old one.
Just give it to him already. Ask him to pay shipping, and bask in the good deed while you wait for your new machine. Rather than asking him to part with a small amount of money he probably can't really afford and you likely don't really need, tell him to pass the favor on to someone else someday.
Perhaps he's too proud to accept charity from a stranger.
Offering to sell it to him for whatever he can comfortably pay (no matter how small) is both generous and respectful.
If he cannot afford even a penny, I'm happy to pay shipping as well...
Offering to sell it to him for whatever he can comfortably pay (no matter how small) is both generous and respectful.
If he cannot afford even a penny, I'm happy to pay shipping as well...
Uh... wow.
This actually came at a crappy time for me, since right now I don't have a lot of disposable income - I'm 17 and jobless (no available transportation...). I would try to pay at least $100 or something, but right now I'm almost flat broke.
If you're okay with going total charity, you can email me at [email protected] so we can work it out, but if you're not, I understand.
This actually came at a crappy time for me, since right now I don't have a lot of disposable income - I'm 17 and jobless (no available transportation...). I would try to pay at least $100 or something, but right now I'm almost flat broke.
If you're okay with going total charity, you can email me at [email protected] so we can work it out, but if you're not, I understand.
It's a generous offer in either case, and I didn't mean to imply otherwise. I just wanted to point out that without some price guidance, it can awkward telling someone how much you can afford to pay for fear that they will consider the low number insulting. I think explicitly telling him that you will do it for free but asking for money if he can afford it is a great compromise. Good on you!
Taking a cue from the blog post, what if you worked your ass off and built one?
No when you're mining you use the capital you acquired to start more mines. There are lots of unprofitable mines, software is much more akin to mining in that your market is generally unknown, it requires a lot of capital cost and the the payoffs if you strike gold are enormous, however most will not strike gold. As we've discovered in Canada once you've dug that hole you can make decent coin by allowing cities to fill it with their trash.
Producing software is a capital intensive business with large pay offs that are irrespective of the amount of labour/capital inputted, consulting is a business in which one makes a slight profit over labour. Software that you own outright is a labour intensive capital good. If you're advocating the farming market of the software business then you're advocating consultancy which if done right can make you decent coin, the problem is that if you can actually make software that people want to use then you're generally better off moving towards the mining market.
What the OP is talking about is largely the difference between owning a mine and being a mining industry consultant / mine worker. Mining is an industry that is unpopular and his impression of farming is largely that of something that last existed in the 1920s.
Modern farming has nothing to do with returning the land to it's native state and has everything to do with pumping it full of nitrogen, spraying it with pesticides and hiring low wage workers, applying for gov't subsidies so that you can eek out 1-3% profit with enormous capital costs. The picture in the supermarket of a farmer is not reality.
Producing software is a capital intensive business with large pay offs that are irrespective of the amount of labour/capital inputted, consulting is a business in which one makes a slight profit over labour. Software that you own outright is a labour intensive capital good. If you're advocating the farming market of the software business then you're advocating consultancy which if done right can make you decent coin, the problem is that if you can actually make software that people want to use then you're generally better off moving towards the mining market.
What the OP is talking about is largely the difference between owning a mine and being a mining industry consultant / mine worker. Mining is an industry that is unpopular and his impression of farming is largely that of something that last existed in the 1920s.
Modern farming has nothing to do with returning the land to it's native state and has everything to do with pumping it full of nitrogen, spraying it with pesticides and hiring low wage workers, applying for gov't subsidies so that you can eek out 1-3% profit with enormous capital costs. The picture in the supermarket of a farmer is not reality.
"As we've discovered in Canada once you've dug that hole you can make decent coin by allowing cities to fill it with their trash."
Ah ha! The mining industries version of a "pivot" huh?
Seriously though, I assume that actually means "you can attempt to recover some tiny part of your existing loss" instead of "make decent coin".
Ah ha! The mining industries version of a "pivot" huh?
Seriously though, I assume that actually means "you can attempt to recover some tiny part of your existing loss" instead of "make decent coin".
It seems this guy is basically just describing the markets and calling traits problems. Obviously you need to invest in a company before its popular for it to be a good investment. A company with a fully stable profit won't even take your investment most of the time. "Mining" is just the process of investment! However, I do not think this is the point. The important point I think he's getting at is not that the markets are evil, but that founders shouldn't be investors. If you start a company, you should be interested in BUILDING A COMPANY, not selling a big company and making a boatload. Obviously, people want to make money, but for some reason the misconception that the cash in hand for a crappy company is worth more than the cash in stock for a great and growing company. And even further, the founder interested in building a great company is more likely to reach that amount of money faster, just because they are invested in making a good company, and will make efficient and secure progress toward his or her vision with every day of work. Great companies start with people who want the company to succeed and investors who wan to make a buck, not the other way around.
Ex-mining engineer here. Mining is very different to what Will describes. In fact, mining has very many similarities with the lifecycle of a software company.
Firstly there is the prospecting phase. This is akin to customer development. You look for where there might be traces of customers, and if you encounter them you drill a bit further to define the customers a bit better. Next, you do economic analysis to determine whether you are going to make a profit on this, or whether this is the right size/risk for your company. There is also a technical phase where you need to run trials to determine whether you will be able to successfully separate the minerals from the waste given whatever impurities that exist. You keep iterating, drilling, testing until you've hit the equivalent of product-market fit.
Then you have the expensive issue of scaling up. To build a mine takes great investment that will take years before it turns a profit. This is where the model diverges, because at this stage, the mining company has a defined asset but they do not build the mine themselves. These are done by a major contractor. It is like a giant civil engineering project and is managed as such.
When the mine is built (and roads, rails, port facilities are put in), the mining company then operates the mine. Operations is not anything like prospecting. It is dealing with daily issues and doing strategic planning, developing markets etc.. People live and work on a pretty steady basis, with rosters etc. In contrast, life as a prospector can be pretty rough. :)
Many startups function around the prospecting stages, since entry costs is lower but it is very risky. The rewards are high at this stage of course, but the prospectors have little ability to execute if they hit upon a mother load. Outside money will have to be brought in, or the prospector might sell up and get a nice exit.
Firstly there is the prospecting phase. This is akin to customer development. You look for where there might be traces of customers, and if you encounter them you drill a bit further to define the customers a bit better. Next, you do economic analysis to determine whether you are going to make a profit on this, or whether this is the right size/risk for your company. There is also a technical phase where you need to run trials to determine whether you will be able to successfully separate the minerals from the waste given whatever impurities that exist. You keep iterating, drilling, testing until you've hit the equivalent of product-market fit.
Then you have the expensive issue of scaling up. To build a mine takes great investment that will take years before it turns a profit. This is where the model diverges, because at this stage, the mining company has a defined asset but they do not build the mine themselves. These are done by a major contractor. It is like a giant civil engineering project and is managed as such.
When the mine is built (and roads, rails, port facilities are put in), the mining company then operates the mine. Operations is not anything like prospecting. It is dealing with daily issues and doing strategic planning, developing markets etc.. People live and work on a pretty steady basis, with rosters etc. In contrast, life as a prospector can be pretty rough. :)
Many startups function around the prospecting stages, since entry costs is lower but it is very risky. The rewards are high at this stage of course, but the prospectors have little ability to execute if they hit upon a mother load. Outside money will have to be brought in, or the prospector might sell up and get a nice exit.
> What’s upsetting is the number of people who have come to me with the idea of becoming miners: “I know nothing about software, but I can see there’s gold in them thar’ hills, and so I want to start up a company and make my million dollars! I’ve got an idea and everything, just tell me what magic incantation you did to get rich and I’ll be on my way.”
Reminds me of an interview I heard with Steve Martin (promoting his book Born Standing Up), where he talks about the advice he gives to aspiring comedians. When they ask him what the trick is to getting famous, he just says "hard work". He said they usually seem disappointed, because that's not what they wanted to hear.
Reminds me of an interview I heard with Steve Martin (promoting his book Born Standing Up), where he talks about the advice he gives to aspiring comedians. When they ask him what the trick is to getting famous, he just says "hard work". He said they usually seem disappointed, because that's not what they wanted to hear.
The miner in this reminds me of the movie Easy Rider, make a big score, then take the money and do what ever you want, which in the end turns out to not be what they thought it was.
I've never had the fortune of making it into the industry, so from an outsiders perspective. I wonder since it seems a lot of what internet start ups are based on, is having a following, as in, your app is useless unless its got users to go with it. If some of the mining is similar to creating a product and selling it to someone with the ability to manufacture it. Like if I thought of a cool toy, patented it, and then sold that to Mattel, because I don't have the resources to capitalize on it. In the start up internet world, to prove the worth of the design, you need users. So the mining concept is just the adjustment needed in the internet world, for inventors to sell their inventions. Seems kind of similar. For me at least, I would probably want out as soon as possible, the business side of it, isn't as interesting as the building side of it, I would loose money on a successful business for sure, but it would give me the lateral mobility to pursue my interests, which are not being a CEO of a company.
The stock market ... what’s important ... is the potential growth of your sales, not your current sales, since the point of buying stock is to sell the stock to someone else later on, at a higher price.
Or to receive dividends. Heard of blue chip investors? Buy-and-hold strategy?
"Mining" versus "farming" is disputed in the stock market as well. That's why people talk about P/E ratio.
Or to receive dividends. Heard of blue chip investors? Buy-and-hold strategy?
"Mining" versus "farming" is disputed in the stock market as well. That's why people talk about P/E ratio.
At first glance, it seems this guy is basically just describing the markets and calling traits problems. Obviously you need to invest in a company before its popular for it to be a good investment. A company with a fully stable profit won't even take your investment most of the time. "Mining" is just the process of investment! However, I do not think this is the point. The important point I think he's getting at is not that the markets are evil, but that founders shouldn't be investors. If you start a company, you should be interested in BUILDING A COMPANY, not selling a big company and making a boatload. Obviously, people want to make money, but for some reason the misconception that the cash in hand for a crappy company is worth more than the cash in stock for a great and growing company. Great companies start with people who want the company to succeed and investors who wan to make a buck, not the other way around.
One thread that is interwoven throughout the piece but surprisingly not called out explicitly is the role of the tech media in the glamorization of high-growth, high-exit-return startups and their investors. Nostrademons has some good points about the virtues of startups that Wil didn't touch upon (though I'm sure he's aware of them. His piece doesn't strike me as though he's blanket-bashing venture-capitalized startups).
The dollar amounts attached to these "lottery" startups (whether in investment or in exit) are awesome, but not outrageous, especially given who the investors are. The one thing that Wil said that did bother me was his assertion that a funded started is necessarily a "mining" startup, to use his metaphor. I see it his way, and it brought me down a little bit, even though I already knew it inside.
The dollar amounts attached to these "lottery" startups (whether in investment or in exit) are awesome, but not outrageous, especially given who the investors are. The one thing that Wil said that did bother me was his assertion that a funded started is necessarily a "mining" startup, to use his metaphor. I see it his way, and it brought me down a little bit, even though I already knew it inside.
The stories of Google, Facebook, and Twitter show that VC has values. We want more investments to start-ups, rather than the opposite. Let the market decide itself: the money will flow where the value is, eventually. I think success is hard either way: faming or mining, it is better than not trying.
Hmmm, to torture the idea even further... what about permaculture farming that minimizes the amount of back-breaking work you have to do while building up the soil to be richer than before (albeit at a slow pace)? What's the software company equivalent?
Testing. Put the hard yards in early and it'll look after you later. Build up the quality by starting slower.
As long as there are VCs that are willing to fund, companies that are willing to acquire (demand), there will be developers looking to 'mine' (supply).
If enough people who made 'loss' in this ecosystem were to exit this ecosystem then 'mining' will be obsoleted. However, there are always people/companies looking for a quick-buck/fix to inflate their bank balance or complement their product line, therefore perpetuating 'mining'.
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See also "built to last" by Jim Collins which covers the same ground from a different angle.
Wil is a great writer and worth reading. In this case, I'm going to raise objections to his thesis, but I have tremendous respect for his credentials. That said, I think the comparison to mining is a stretch, also farming, but lets start with mining.
Wil makes it sound like most mines blow up or explode at the first touch of a nugget of whatever you're trying to uncover. Or alternately that after taking investor money and building all the mine infrastructure, you sell it off as soon as you strike it rich. I would think the opposite is true, the last thing the mine owner would want to do is flog it off just when it starts making big money.
Eventually mines run out this is true, but sometimes they last for decades if not hundreds of years (the hundreds of years was probably more common before modern methods).
Secondly, with the mines if you read Jared Diamond's† book, I think it is called Collapse, he talks about this in great detail. And the biggest problem with mining is actually what happens when the mine closes. According to his research, nowadays the mining company is required to estimate the cleanup costs, and over the lifetime of the mine they contribute to a fund to cover the cleanup cost. Sounds good, right? The problem of course is that it is the company that estimates the costs, and they have an incentive to grossly underestimate the costs of cleanup. The usual discrepancy is something like two orders of magnitude. Ie assuming a large mine the company estimates costs of 10 million, hands the state govt a cheque for that as it closes shop. Then when the state govt discovers the actual cost is approx 1 Billion (maybe more) the company (which has long paid out all its funds as dividends to its shareholders) shrugs and declares bankruptcy.
I don't think that there is really any parallel in IT in terms of cleanup costs. You could argue that Y2K was similar, but I would point out that wasn't a uniquely mining only problem. All kinds of software was effected, from mining (startups on steroids), farming (slow and steady startups, the tortoise vs the hare), vendors, universities, consultants and even your big software retailers (Microsoft) all had this problem.
Okay, he admits he's stretching the metaphor (on the rack as it were). :D
What about farming? Personally I'm a fan of farming in the software sense, but farming in the real world is a nightmare. Assuming you don't manage to destroy the land, farmers I've talked to say that in good years they are making ~4% (return on capital), and in bad years they are losing 2-3%, and there are more bad years than good years. How do they survive? Typically by taking loans out against the (ever increasing) value of the property. But if the value of the property doesn't keep going up, or if the banks decide not to loan the farmers money, or if there is a particularly bad drought... then farming is much worse than mining and you get farmers walking away from their land, or just dying on it. Jared talks a little bit about how bad mining is, but the main thrust of his book is that improperly managed farming KILLS ENTIRE CIVILIZATIONS. In terms of cost/benefit, I think dirty water from mining >>> extinction. :D
He touches on another metaphor, the Lottery. Lotteries are usually regarded as a bad thing (a tax on people who are bad at math). The problem is that for every $1.00 you put in you get back out say $0.40 on average. In other words, all lotteries have a negative expectancy (with the notable exception of the UK Lottery, because even though you are unlikely to win, at the end of the day you can still get back all the money you spent on it (it is more similar to a savings account with pathetically low interest, and a miniscule chance of some excitement).
Okay, fine, lets take it as given that 'lotteries' with negative expectancy are bad....
If the 'software mining' (ie startup) industry was a lottery, would it have a negative expectancy? I suggest probably not. What if there was a lottery that for every $1 ticket there is a 1% chance of winning $200? That'd be a positive expectancy! I'd play that, you'd have to be bad at maths not to. Moreover, even if it was break even (ie for every millionaire ten people have to gamble and lose their house), as the mining example shows, sometimes there are hidden costs/benefits. I'm guessing that the startup 'lottery' has a positive expectancy (especially in silicon Valley, perhaps not everywhere else in the world), but if someone argued that the benefit to society of all the startups is negative I'd think they were crazy.
An example: I've heard it said that since the beginning of commercial flight in the US that the industry as a whole has barely (or not even) broken even. But to suggest that I personally don't benefit from the ability to fly round the world in 30 hours as compared to sailing round the world in six months is ludicrous. Even if the airline industry didn't make their average investor rich, it provided more than enough benefit to society to be able to justify its existence.
Lastly, and I suspect this is very wall of text so I apologise, there is a logical flaw underpinning Wil's entire thesis. He assumes that somehow the IT industry is special. He assumes if you launch a software company with an exit strategy that is somehow different (bad) compared to say launching a furniture company with an exit strategy.
I think that rather than just assuming that software is different in this regard, I think he should at least try to make an argument to that effect.
†If the name is familiar, he wrote Guns Germs and Steel as well, which is one of those books that lots of people have heard of, but few have read :D
Wil makes it sound like most mines blow up or explode at the first touch of a nugget of whatever you're trying to uncover. Or alternately that after taking investor money and building all the mine infrastructure, you sell it off as soon as you strike it rich. I would think the opposite is true, the last thing the mine owner would want to do is flog it off just when it starts making big money.
Eventually mines run out this is true, but sometimes they last for decades if not hundreds of years (the hundreds of years was probably more common before modern methods).
Secondly, with the mines if you read Jared Diamond's† book, I think it is called Collapse, he talks about this in great detail. And the biggest problem with mining is actually what happens when the mine closes. According to his research, nowadays the mining company is required to estimate the cleanup costs, and over the lifetime of the mine they contribute to a fund to cover the cleanup cost. Sounds good, right? The problem of course is that it is the company that estimates the costs, and they have an incentive to grossly underestimate the costs of cleanup. The usual discrepancy is something like two orders of magnitude. Ie assuming a large mine the company estimates costs of 10 million, hands the state govt a cheque for that as it closes shop. Then when the state govt discovers the actual cost is approx 1 Billion (maybe more) the company (which has long paid out all its funds as dividends to its shareholders) shrugs and declares bankruptcy.
I don't think that there is really any parallel in IT in terms of cleanup costs. You could argue that Y2K was similar, but I would point out that wasn't a uniquely mining only problem. All kinds of software was effected, from mining (startups on steroids), farming (slow and steady startups, the tortoise vs the hare), vendors, universities, consultants and even your big software retailers (Microsoft) all had this problem.
Okay, he admits he's stretching the metaphor (on the rack as it were). :D
What about farming? Personally I'm a fan of farming in the software sense, but farming in the real world is a nightmare. Assuming you don't manage to destroy the land, farmers I've talked to say that in good years they are making ~4% (return on capital), and in bad years they are losing 2-3%, and there are more bad years than good years. How do they survive? Typically by taking loans out against the (ever increasing) value of the property. But if the value of the property doesn't keep going up, or if the banks decide not to loan the farmers money, or if there is a particularly bad drought... then farming is much worse than mining and you get farmers walking away from their land, or just dying on it. Jared talks a little bit about how bad mining is, but the main thrust of his book is that improperly managed farming KILLS ENTIRE CIVILIZATIONS. In terms of cost/benefit, I think dirty water from mining >>> extinction. :D
He touches on another metaphor, the Lottery. Lotteries are usually regarded as a bad thing (a tax on people who are bad at math). The problem is that for every $1.00 you put in you get back out say $0.40 on average. In other words, all lotteries have a negative expectancy (with the notable exception of the UK Lottery, because even though you are unlikely to win, at the end of the day you can still get back all the money you spent on it (it is more similar to a savings account with pathetically low interest, and a miniscule chance of some excitement).
Okay, fine, lets take it as given that 'lotteries' with negative expectancy are bad....
If the 'software mining' (ie startup) industry was a lottery, would it have a negative expectancy? I suggest probably not. What if there was a lottery that for every $1 ticket there is a 1% chance of winning $200? That'd be a positive expectancy! I'd play that, you'd have to be bad at maths not to. Moreover, even if it was break even (ie for every millionaire ten people have to gamble and lose their house), as the mining example shows, sometimes there are hidden costs/benefits. I'm guessing that the startup 'lottery' has a positive expectancy (especially in silicon Valley, perhaps not everywhere else in the world), but if someone argued that the benefit to society of all the startups is negative I'd think they were crazy.
An example: I've heard it said that since the beginning of commercial flight in the US that the industry as a whole has barely (or not even) broken even. But to suggest that I personally don't benefit from the ability to fly round the world in 30 hours as compared to sailing round the world in six months is ludicrous. Even if the airline industry didn't make their average investor rich, it provided more than enough benefit to society to be able to justify its existence.
Lastly, and I suspect this is very wall of text so I apologise, there is a logical flaw underpinning Wil's entire thesis. He assumes that somehow the IT industry is special. He assumes if you launch a software company with an exit strategy that is somehow different (bad) compared to say launching a furniture company with an exit strategy.
I think that rather than just assuming that software is different in this regard, I think he should at least try to make an argument to that effect.
†If the name is familiar, he wrote Guns Germs and Steel as well, which is one of those books that lots of people have heard of, but few have read :D
For example, for many VC-funded and fast-growing startups, the product is not the website, software, whatever that they're showing users. It's the knowledge that users have a particular need, and that need can be satisfied in a certain way. Startups are effectively outsourced R&D for big companies here.
It's quite possible that the most economically efficient way to satisfy that need is to simply fold the startup into some big company's other products. If that happens, the code, most of the employees, cash, and even existing userbase are essentially disposable. They can all be replaced at a larger scale once the company's been acquired. The actual assets that the acquirer is paying millions for is the detailed knowledge of the problem domain - key employees, key algorithms, history of other ideas that tried and failed, and any patents or other intellectual property. That's why acquisitions usually are contingent upon certain employees coming on-board, yet the acquirer is often all too happy to fire other employees.