Seth Godin. “Are you afraid to truly make an impact? The opportunity for linchpin organizations and the people who run them.”
The Business of Software 2011 will be held in Boston, MA, October 24-26th2011. The Business of Software – for people growing sustainable, profitable, software businesses. Book by 22nd September & use code: BoSSep to save $450 on ticket price.
My notes from the day including some of the slides. Favourite moment was Seth explaining why he was wearing a suit and tie – the alternative was his other business attire – nakedness.
Transcript of Seth Godin’s Talk, ‘Are you a linchpin?’
Joel Spolsky: I will re-introduce him to those of you who don’t know who this is. He wrote a bunch of these books currently Linchpin on the New York Times bestseller list. He founded Yoyodyne, which he sold to Yahoo. So he’s an entrepreneur. His current company is called Squidoo where anyone can make a website on any topic. It is at 103 on Quantcast. Are you watching like every day to see if you’re on the top hundred sites? No, he doesn’t care about such things. He’s the best marketers in the world and a wonderful blogger please welcome Seth Godin.
Seth Godin: Thank you. Good morning-I carry Joel around. He does all my introductions for me. Thank you so much. I love this conference. I love you guys. I love Boston. It’s where I started in the software business. So I’m going to give you a couple riffs about that and then we’ll get going.
We did that. Mason product when I was in the game. And one of the highlights of my career was getting the music rights. First of all, and your halfway done the software we had to get the rights to Raymond Burr’s picture on the cover and I had a $500 budget to do that. The problem of course is, there was no alternative. I couldn’t say no. we can get you Raymond Burr will get Monty Markum or something…
Anyway, the other one. I did I guess Jeff Bezos stole the name, we did a product called Amazon with Michael Creighton. The thing to remember about software in the eighties and I don’t know if anyone of you were doing it and 84. It was really hard. I remember one day that the floppy drive from our Commodore 64, that we had started on fire. Literally started on fire.
So the shift that I want to talk about today is that there’s been a massive change in the way coding and software development works. It’s a little bit like what happened with buildings in the 1600s and 1700s it was a big deal if the building didn’t just fall down. Now if you want to do real estate development. The whole idea that the idea might fall down isn’t really on the agenda. The model now has to be that the business that just happens to be fueled by software.
I wanted first of all, explain why I’m wearing a suit. I got into the habit of wearing a suit because after I left spinnaker in Cambridge in 86 I became on self-employed, I was unemployed and self-employed at the same time. I was working from home to save money. I went to work naked mistakes because I never left the house. So I made a promise that whenever I did leave the house and was in public. I would wear a suit and it became a habit. So I knew I would be the only person wearing a suit today, and I apologize to you for that.
Anyway, the business part in note Joel said, do I watch it every day. And the answer is no, but I do watch it. What we discovered at squido is that we did the hard software heavy lifting for and half years ago. So what if we been doing for the last 4 1/2 years as we’ve been doing the business part.
What I want to help you think through here is that this mindset about what it means to be competent. Because few of you are brilliant programmers of few of you have brilliant programmers working for you. But if we look at whats a key for software being successful as a business. It’s rare that it succeeds because it was written by a brilliant programmer. There are certainly some exceptions to that. Look at Wolfram Alpha. That small group, but in general, somebody’s going to succeed not because it was created by a brilliant genius of a software programmer. It’s going to succeed because they’re some level of business brilliance behind it.
So I collect photos. I have a collection of cafeteria ladies photos for example, perhaps the world’s largest. [laughter] . The thing about them besides the outfits is what a miserable job it is to be the cafeteria lady. I think these are prison cafeteria ladies. You’re mistreated by your customers, your mistreated by her boss, you’re not paid enough, and this is the curse of depending on confidence. This is always going to be another competent person to take their place. So the minute they speak up and ask to get what they deserve. They will be disrespected and shown the door. Because there is no competent shortage anymore. There are more competent programmers than there ever were before. He will never be able to win because you have a few more competent programmers than your competition.
Part of the reason that this becomes the issue and part of the reason it’s so hard to run a software company, is because of Candyland. And I don’t know if any of you know the rules of Candyland. Do they have it in the UK? There’s probably another name for it. I’m pretty sure they have late shoots and sticks and ladders or something like that.
Here are the rules of Candyland. The rules of Candyland are, take a card, do what it says. Those are the rules of Candyland. Very simple algorithm. So we say to the two-year-old is bothering us. Go play Candyland.” We started at the age of two, you’ve got one year left. At the age of two, is indoctrinating our kids into this cycle of waiting for instructions for obedience. And the hard part about being brilliant at the business of software as opposed to competent in the business of software. Is there aren’t instructions.
If you do follow the instructions you will fail. Because the person who invented the instructions is already there. So we end up with this challenge. And the challenge is that a lot of you got into this because you were better than competent at programming. Because you understand way better than I ever under stood, what a computer can do and how to make different. That’s not enough
That is just the ticket to get in and lots and lots of people now have that ticket. So I want to spend some time talking about that. I have tons of time for questions. I really enjoyed that. The last time I was here. His two ways to think about what you do for a living. As a businessperson. When it comes to being in the software business and what those things entail. And I want to apologize because there are two moments in my presentation, where there are bullet points here. So forgive me, but I did this just for you and didn’t have have time to make as much art as I would.
One model, the model that I was busy doing with $15 million of Harvard’s venture money 25 years ago is, we make something. We sell something to the user. This is the pre-Internet model of building software. And it basically involves human spam. It basically involves sending out salespeople to bother folks who don’t want to hear from them, sending out ads, sending out messages, sending out FedEx is, answering RFPs, pushing your idea out to the world. This is a pre-revolution idea. The revolution that we are living with now. The Industrial Revolution ended, so I guess you brought in. What they would call the industrial, but that is ending.
This model does still exist, particularly as business products. They are marketed in this way, and sold in this way. And once you say is, I’ve invented something really cool, I need to push it to people who want to buy it. Now in 86. There were stores, where people would go to buy software. Including Lotus 1-2-3, that was where you bought Lotus 1-2-3. He went to Computerland with $500, and you bought a piece of software. A piece of software that had been built in a huge building with hundreds and hundreds of people working there. Now piece of software like that could be bought online for nothing or 20 bucks by one guy who builds it in his basement, right?
That model persists. But that model is endangered. And what is endangering it is clutter. Typical supermarket supermarket has 30,000 items to choose from the AppStore has I don’t know 4 billion items to choose from. There is more clutter than ever before, and your chances of having through the clutter are harder than ever. There used to be three TV networks or 10 computer magazines or six conferences,. Whatever industry you’re going after. Now, there’s an infant number. Now, there’s an infinite number of blocks infinite number of websites. So this model, what I’m going to do is find that guy hit him over and over and over again until he finally gives up and buys something is in danger. It’s in danger because this industry like every industry has branded itself to death.
So I guess to put one more fine point on it, the model in consumer goods is like this. The first step is coming up up with a talking edible mascot, right? Basically, someone who goes on TV and says please go by my brothers and sisters and eat them for lunch. The second model has. We’ve talked about is to just interrupt people. And now, the question you might be asking correctly is, what’s the third model? What am I going to do to get more of the right people, more of the aerospace companies that need my software and I can prove they need it. Right? What can I do to get more of the hospitals who need my stuff, I can prove they need my stuff, to buy it?
You could try again. And I’m just not sure that taking is exactly the way you want to build your business. But in fact that’s what many of you do because you spend so much time on infrastructure. You spend so much on the core business or the investors spent so much, but you have no choice but to do that. So let’s take a moment and accept the fact that those days are over.
What I’ve written about a lot in the past is that there is no alternative. The alternative is that what the Internet enables now in a very significant way, is something that human beings have done for a really long time. In I’m going to prove it to you. I’ve gotten experiment. This got a little competition involved. I’m going to time, you’d if you could follow the instructions on this slide. I’d appreciate it. Ready. Go.
Oh. Nevermind. That slide didn’t say what I thought. I’m going to shift gears. That’s my fault because I didn’t practice. So, here are the questions that I would then have you asked yourself. If you’re going to use this first model of marketing. The first question I would have you ask is who exactly is the person that’s going to decide to buy it and can I reach them? So that’s two questions in one. Meaning if you need this senior vice president of purchasing at Ford Motor Company to decide to buy your product, but you can’t reach her, you have a problem.
Number two. After I reach that person will they go ahead and talk about it with their peers? This is the point I was making a minute ago that I didn’t make. Which is that what happens now that never used to happen before, is that conversations between peers are much more I could to occur. So if I look at something like Stack overflow part of the reason it grows is that people use it tell other people.
The third question is, and it’s got a lot of words in it. After I can reach somebody can I keep talking to them? And this is critical. Because you will never ever build a real business, if you have to be acting like you’re in a singles bar. If you have to proposition someone to make a sale and proposition someone else to make a sale. There is never going to be enough margin for you to keep doing that.
Instead, it’s the dating process. Instead, what’s going to happen is that it’s about touching people again and again and again over time. Until you make a sale. So the thing about making a conference business, many of you have been to this conference before. If the people here were all first timers. The conference would be bus. It depends on people coming back.
So when I think about this hierarchy questions, I think about, well, I can probably interrupt a small number of people with my idea. Maybe some of those people will tell their friends about my idea. And then the third thing is now I need the permission, the privilege, the ability to talk to them again. To take them through a curriculum to understand why my thing is worth buying.
And then the last thing the last question is will they actually pay for it? After I’ve talked to someone over time, why this is worth it. Is there money? And if you can’t make it through these four questions. You do not have a business, not a business. It’s about pushing your product,to the market. This wasn’t true 30 years ago, 20 years ago, 10 years ago. You could buy your way through these questions. Now, I am arguing, you can’t buy your way to these questions anymore.You have to earn it by being able to work through this discussion.
What we have to embrace, however, is this idea that if your idea doesn’t spread. It’s nothing. It doesn’t matter that it doesn’t crash, it doesn’t matter matter that it has utility. If it’s not going to spread to the market that you’re trying to reach, you have no business. Uma Cloud put in a really profound way. He pointed out that what businesses want to buy and what consumers want to by now, is something different than what they used to buy. It used to be. How can I get this assembly line to work a little bit faster. The East to be. How can I entertain myself for 10 min. But now what we’re looking for is something to believe in.
We want to believe that your software is going to transform the way we do our jobs. Or transform the way we do our evenings or transform the way we interact with people. That transformation is what we’re paying attention to. It’s what we’re listening for. So the model of what used to happen, but we market it was this. You used words like targeting, targeting is a hunting term. We would target people and hunt them down.
What were seeing in a highly cluttered world is very different. What were seeing is conversations between people. Who’s the poster child? I didn’t just put him in for today. I talk about jolt every time I give the speech. Because what Joel did was, he found, and organized, and led you. Software engineers and people who cared about the quality of coding, and his blog and his books and the conference and all those things add up to somebody that we can believe. To someone who says, I have this new project want to see it? And all of you don’t say. Have your sales person call my secretary and see if he can get a meeting. No, you look for 1 min. and say wow that’s sort of interesting, or that sort of lame.
But you decide, and if it’s interesting you give permission and you find out more. And you find out more. This idea isn’t about tribes, tribes are groups of people like you who share a culture or a language or a up and approach or a goal. If you can find a tribe of people in any industry and connect them and beat them. You will be Bill Gates.
Because Microsoft is in one business and most everyone else is in another business. And the other business is this idea that there are people who desperately need to be connected for business reasons or for personal reasons. We used to have three tribes in our lives, a community tribe, I’m sorry, a religious tribe, a work tribe, and a community tribe. And these tribes, for thousands of years informed what we did all day. But now, because the Internet, because of wealth, because of spare time, there are all these other tribes. There are people with bad hats, their are people dancing, there are people who are outliers, there people who are insiders, and now I get to show you decided I was going to show you before. [laughter]
So here he go now, I’m going to time, you. Go.
[Slide says, please clap your hands, slowly, in unison, in rhythm. Don’t stop until I say,”stop.”]
Okay. Stop, 6 seconds, a new Boston record. One group took 27 seconds to do that, I was sweating bullets. But every group I’ve ever done it with has succeeded and every group claps at a different rhythm. And the question is what’s that about? Because I didn’t even make eye contact, how did you know which rhythm to clap? Did one of the stand up and say follow me? Human beings like doing what other human beings are doing. Everyone is using WordPerfect. One day, and then the next, the whole bunch of leaders are using something else, and all the followers are saying, well, we need to switch to Word. And they did.
People like doing that other people are doing. One of the main reasons that you can market anything in this world is that we look around and see what are the other people in my tribe doing what kind of hat are they wearing what they look like, what is going on in the circle. So we invent things like flags and other labels. So then we can say, oh, yeah, you’re in my tribe. Or you’re not in my tribe. And this model, is totally working in your favor. Because there’d are all these people who are waiting to be connected. In all these businesspeople who are waiting to be let in sync, because it’s so much more efficient.
So, you first have to start by making a choice. Are we going to invent the kind of person worth selling to? Or go with a different model? So Nike, one multibillion dollar prizes by inventing the long-distance Runner. Before Nike, there is almost no one who was super skinny and gaunt and looked like they needed a few extra meals, and ran 20-30 miles a day. And after Nike. There was a lot.
Nike was at the center of that tribe, they created it, where as the Beatles didn’t than teenagers, they just showed up to lead them. The teenagers were there already. The beetle showed up. Bob Marley didn’t invent Rastafarians, he showed up when they needed a leader.
Mitch Matthews is the VP of sales and marketing, at Microsoft. I was at a conference she ran where there were 2000 people in the conference room from all over the world to work for her. She had not met more than half of them. That’s almost 1000 people. That’s a lot of people. They were all the same. They’re just the same. They talk the same. They walked the same. They probably felt the same, because that’s how they got hired. They hired and built a tribe.
So, I would argue that marketing is really now, about tribal leadership. So what you’re going to do if you’re going to run a software company is you’re going to lead the tribe. CM oh. This not stand for chief marketing officer stands for chief movement officer. Yet, and if you can build a movement around your software, and it works from his list of businesses well. Look at AutoCAD, AutoCAD isn’t just a piece of software to help architects, it’s a movement. There are two kinds of architects in 1995. Architects that are using append and architects that are using AutoCAD. And there will be arguments, people will get fired over which tribe. They were in. And because AutoCAD led that tribe, they won.
Google analytics, and my friend Avanosh[sp] . His only job is to travel the world to teach people about the movement. Because if people join that movement and start measuring things Google wins. And so Google understands that they don’t need to make a profit on each user. They need to create a cultural shift. And software is just the enabler for that.
Now there’s a problem here. And the problem is, no one joins a boring tribe. No one says I’m going to stop doing that and start doing this because it’s really don’t. And so, as engineers, many of you. You have a problem. Because we want engineering, like bridges, to be sort of dull. You drive, you get to the other side, there’s no risk, there’s no hassle, there’s no excitement.
Software that’s boring will never turn into a movement. Boring, in the sense that it doesn’t connect with people. It doesn’t cost change to happen. At this point, some people will say what I don’t have enough money to start doing this thing.
So I want to take the story and I can’t remember if I told this to you before but it’s worth telling you the again. Nathan Wintergrad went to work, at the SPCA in San Francisco. When he got there, as the number two person, he discovered that every year the Humane Society’s in the United States killed more than 4 million dogs and cats. This is usually within 24 hours of taking them off the street that was their job. He didn’t want that to continue. He wanted that stop.
Well, there’s a lot of details to that the believe out. But basically, after being turned down at every front. He went straight to the 10,000 people in San Francisco who care deeply about this. And he didn’t have to say very much to get permission. If you didn’t have to say very much to get them on his side. And he didn’t have to do very much to raise up more money than he needed to change the way that they did business in San Francisco.
And in 16 months, San Francisco was a no kill city. Not one dog, not one of the Killed in San Francisco. Since that day. And you say, well, that’s he’s a San Francisco. [laughter] so Nathan left there, and went to Thompkins County, New York, a blue-collar County outside Ithaca. With no money or a Daugherty, he was the dogcatcher. He did it again. Then he went to Raleigh Durham, North Carolina, and did it again. And then he went to Reno, Nevada, and he did it again. He just went to Houston as a consultant.
He went from 20% adoption rate to 80% in three months. No money no authority. Because people were waiting to be let. This shift in mindset is the first thing that I’m trying to push and sell to you today. Which is, you have the ability to do this with the tools you make that no one else knows how to make.
The second thing is this. If you’re doing something that is easy to see back, I can’t find someone else to do it cheaper. You’ve heard of the free hugs movement. I’m sure you’ve seen the video. What about the poor guy who is in the and expensive of business. [Laughter]
the expensive hug guys whine and complain. But the fact is that the free of people don’t go away. That shift is key in software. You’re all busy looking at the iPad and saying what’s with all those free apps, that’s not fair. I have payroll to make. But there’s somebody who if it’s simple enough to do it in their basement, they will, For free. And you cannot compete with that.
If you’re going to try and charge money for the same thing. Competence is is going to drive the price of boring software, software that just does anything, that I can write down to zero. Because the marginal cost of that one more piece of software, delivered online is zero. So if you’re selling something. That’s the same as somebody else’s, and the market. It is informed, and it’s efficient, it’s going to goes to zero. Because were not going to buy from you because we like your outfit.
We’re just going to be selfish because we don’t know who you are, and it goes to zero. And any time you see a market where that’s going on, software, or anything else you know what the problem is. The problem is that people have been bowling. And bowling is a problem because, the best you can do is 300. That’s why not. A lot of people watch bowling. Because it’s an asymptotic function, seeking perfection. In watching someone getting that much closer, that much closer, that much closer is sort of dull.
You want to try and avoid anything that’s like bowling. You want to do stuff where you can be off the charts. Where you can do something remarkable. Where you can do something worth following. Where you can lead in a way that we want to go. What are the bottled water guys going to do? Make bottled water wetter? The problem with the bottled water, maybe they could do this, but in general, the problem with the bottled water business is that it’s boring. It’s an asymptotic function approaching zero.
Very soon. If bottled water doesn’t go away altogether in places where the water is safe. We’re just going to say what ever the cheapest one is. Because it’s all same. Well, if you’re making a piece of software and someone else is making a piece of software, delivered straight to one user. That’s inevitable.
There is a second thing River. The first one was going straight to the user. The second thing is new. It’s only five or 10 years old. This one is that we make software that connects users to one another. And that idea, of doing it, is a totally different business, then the first one. And we need to have two conferences next year. One for the people in the first business, one people for the people in the second business.
So here are my bullet points for the people in that business. Bullet point number one, does this connection between people create eight. The monster bull value? Not obviously true. If you look at the much ballyhooed heroes of the connected software business, 37 Signals. This is pretty obvious with something like base. The connections are cross people at the company who use it are clearly worth more than if the connections are made.
Number two. Is it easy and obvious for someone who is in to recruit someone else to be in? And we forget to do this one, but this one is really important. Because I can create circle with five people and their all into a but if it’s hard for them to get person number seven to join. It’s not in the scale.
Compare that Alcoholics Anonymous, everything about alcoholics anonymous is organized to make it easy for that to happen. No registration, no money paid, unlimited number of offices, 12 rules, that’s all you need to know, user you’re in or you’re out. And built into the very nature of Alcoholics Anonymous is that part of your moral obligation is to bring other people into need to join. That has to be part of it.
And the last one is a little subtle, which is this. There is a temptation among UNIX geeks to say, open open open, protocol protocol protocol. The problem with that is if you build it, so that it’s that easy to spread and join, then there’s no money in it for you. There is no business.
So let me use eBay as an example. P air could have said, here’s the protocol, for an auction system. Identity, interaction, some way of checking it. Then he could’ve let anyone put it on their platform. And the protocol would have been free for all, free to share. And it would have been in the spirit of the web movement. But there would have been no Meg Whitman, no governor of California race, none of that would have happened. Because what he did is he said yeah, there’s an openness, but it doesn’t work unless you’re on eBay.com.
That commendation of the two pieces together is what makes this list not just an important philosophical step forward. You need to think about really hard when you’re doing the knees connected things. For example, Twitter is probably a business, twitter new middleware is really hard to be a business.
Because if all twitter middleware did is take the API that anyone can get, do some CSS magic to it, and then put it in front of people, that I can switch to someone who’s doing the exact same thing tomorrow. If you try in charge me a nickel. There’s no reason to stay with you, because you haven’t made it easier to connect with other people, all you’ve done is play to someone else’s protocol.
Okay, that going to go away? So another question.
Seth you’ve laid out all this stuff, that I have to do to build a movement. All these very difficult connections that need to be made. So are you saying that I got to be some sort of genius? To do this last remark that there is no obvious a, B, C, D. Sort of thing. The problem with the word genius is that Einstein ruined it, because we’ll see genius. And we will think all all capital letters. When we say genius. We think about doing something that involves forgetting our home address, painting our door, red, and reinventing the laws of physics.
That’s not the kind of genius. I’m talking about. I’m talking about the genius of being a human being. The genius of deciding, to bring something else to the table. But when I get a word map of something I’ve been doing over the last few years, I’m just delighted to see the word marketing shows up almost not at all, and that the word people shows up a lot. What has happened is that the industrial has ended and the new age is building. It is not about building a factory either a factory farm or a factory factory. But about doing something else.
Henry Ford was the most important person of the 20th century person as far as I’m concerned. Henry Ford created, he didn’t really create it, but he perfected a revolution. It was one that changed everything, and made us all rich. It enables all sorts of things happen. It also perfected and changed the way that we think of everything.
And Henry Ford’s model was that he could hire some one for $.50, who used to get $.50 a day. Pay them five bucks a day. That’s a huge raise. But it’s worth it because he had other, he had a system that would make $30 a day, every time he added another person. At one point. Henry Ford had shepherds who are raising for sheep so that they could make Ford wool, so that they could be woven into Ford fabric, and put into Ford cars.
The whole process was so efficient. The process was very simple, there were a set of rules to follow. And you had to go faster and faster and faster. And the model of the factory was all about interchangeable parts, mass production, and yes, interchangeable people. Because if you’re going to have this factory. The trance stuff out, turn stuff out, if you have an emergency, you don’t have to be dependent on person number seven to work every day. So we shifted our mindset as a culture, and the mindset shifted to how can we get people to buy more stuff.
Right, right. Maria Carey has 1000 pairs of shoes. How can we get employees to do what they’re told? How can we instill obedience in the people who work force? So that there are no prizes, so that people will do exactly what we expect? And one of the ways that we did. That is, by inventing school. And the purpose of school, and you can do the research on this, it’s stunning and scary. We invented public school, which was created by industrialists and government officials to train people, to survive 12 hours in a cube. To train people to survive standing at the assembly line. The purpose of school is to get you to fit in. And the reason that we want people to fit in so that we can ignore them.
That was the mindset of the industrial revolution, whether you’re running an insurance company, a wire factory, or a farm. The mindset is the same. If we can mechanize this, we can scale it lower our costs. So we look at the history of humankind for 50 to 100,000 years. We were hunters. The way we got paid, the way, that we ate, was by hunting things down, killing and eating it. And then they developed farming, and farming was a huge shift. Farming involve planting seeds, watering, fertilizing, watching it grow, etc.
That only 200 years. It was superseded by the factory. In the year 1800 there were fewer than 400 corporations in the United States. Now everyone in the United States. Either works for a government agency or corporation. Now there’s millions and millions of things, of corporations. This is a fundamental shift in the way that we think.
And you grew up believing that you needed to start a factory or work for a factory. My argument is, those days are gone. Now we are artists. What we do for a living is sewing up our art. Not the art that you find in the Guggenheim, but the art of doing what hasn’t been done before. The art of creating something worth talking about. Bill Shakespeare was clearly an artist, right? But Michelle Duceamp [sp] put a urinal into her dadaist art, she was an artist too.
The second guy to install a urinal was a plumber. But the first guy was an artist. That’s what the market is rewarding. Now if you go to the Per Se restaurant in New York, it’s 300 bucks to have dinner. You’re not going for the calories. If you get the calories down the street for six dollars. You’re waiting in line for three months to get reservation, and you went because of the way the human interactions made you feel.
Or that receptionist. The one he haven’t replaced with an automated system. Why does she still work for you? It’s because while the automated system could function and could take the messages. That receptionist in her connection with the human beings who call more than pay for herself. In fact, we look at many businesses. It’s the reception is worth paying for. Altogether, because everything else about it is a commodity. It’s a race to the bottom.
And so you’re when you’re thinking about your scheme. I would have to think a bout who’s an artist. Now in artist isn’t necessarily doing a drawing. There’s a town called Achen where they paint one third of all the oil paintings in the world. It’s a factory town, and every morning, everyone runs out paints as fast as they possibly can. All day long. You can buy the Mona Lisa there for $29. Of course, it’s not the Mona Lisa, right? It’s just a copy of the Mona Lisa. So it’s worth nothing.
So when you think about what the mission of your company is. Is it to churn out yet another iteration of that sort of boring thing? Or is it to do what could easily be called art? And this is the challenge of our time. Because the number of people necessary to write software has dropped so much, and the number of people capable of writing it has gone up so much.
So a little social economics. Here are two guys, Carl Mark’s, and Adam Smith. They both saw the same device. A pin making machines, and they both wrote about it. And what they said is this. The pin making machine before it, it took a skilled, trained pin maker and a to make five pence. After four guys off the street with 20 min. of training could make 10,000 pins today. That’s a fundamental transformation.
Karl Marx looked at this and said workers of the world unite. We are in big trouble, because people in the world economic pin making machines, and they won’t have to pay us to do our craft. Adam Smith looked at it and said quick by making machine. [Laughter]
so the world divided right? Here’s the problem, everyone now has a pin making machine. It’s called a laptop. The problem, the opportunity, the wonder of where we are right at this minute, is this. If you want to be a coal miner. You don’t buy your own coal mine. Coal miners, coal mine owners are totally different classes of people. But if you wanted to recombinant DNA research. Now, you can spend 400 bucks online. Get a kit and do it in your kitchen.
The wall that has come down, is that the factory is now owned by anyone who has 600 bucks to buy a laptop. That 600 bucks, or access to a public library gives you all the tools, all the assembly line, everything that the best programmers in the world have access to. And if you’re not expecting that. That’s going to change everything, you’re nuts.
What the Internet is is a connection machine, and it connects you to the worldwide market. And every other person who came into that market. What it means is, if you were to have a TV network get one Thomas, if you want to publish a book, do it, if you have a radio station, go ahead. If you want to sell your candy go ahead. So what we did when we built the Internet is we change these rules to say, you know what obedience is almost worthless.
If you’re the king for your team to be more obedient, you’re wasting your time. That’s mostly for dogs. Obedience is not going to let you scale your business, or make an impact. What obedience is going to do is have you race to the bottom. Your cassette take us because were cheaper. And someone else is going to say, were cheaper still, and someone else’s can say we’re free, and then you lose. Because your marginal cost is zero.
The alternative is the opposite. The alternative is not to follow a map, but to make a map. If you are making the map, if you do the artistic map of connecting and bleeding, then people will can wait in line to make you money because they want to follow you. Because that’s, you fictional ones are in short supply. So the opportunity here, it seems to me, is to realize that you have the most plastic, easily formed, scalable, thing to so in the history of the world.
Just by accident of timing. You’re doing it. When the world dust really wants you to do stuff to connect them to other people. Software does that better than anything that’s ever been invented. So in the hierarchy of value, none of you are in the heavy lifting business. But you work your way up, and grinding out code is not at the top. This list. At the top of this list is the idea of creating and inventing interesting solutions.
So I’m on a tear about school lately. And I was sitting with five straight a students. A 13-year-old 14-year-old, a 15-year-old and another 15-year-old. And I said, guys. Here’s a drinking chicken. Bird from Taiwan. You all know this. With non-geeks I have to explain what this is.
I said okay, how’s it work? And they looked at it for about 10 seconds and then Rebecca said, I don’t know Seth, tell me. Then she got a pencil ready to write on my answer, because that’s what she had been trained to do. To be a human Wikipedia and write down the answer.
I said no, no, no. I know how it works, the interesting question is figuring it out. It was a painful, painful half hour of them, not even knowing what questions to ask to figure out how the bird work. Because what we’ve done is trained generation after generation after generation of kids, what year the war of 1812 was. But not how to embrace interesting problems. Now what we teach kids in school is how to get A’s, and all A’s prove is that you’re good at school.
The thing is, none of you are running school. You’re running an organization that solves interesting problems. And yet we don’t manage that, we hire for compliance, we hire for branding, we manage for compliance. We manage for reliability, and what we really need are people can get a different kind of work done. People who step forward and do work that’s interesting.
When I think about time spent work, Richard Branson works about 4 min. a day. He shows up a lot, because he enjoys it, but the value that he adds, happens in about 4 min. one day, he doesn’t own an airline. The next day, he does how long exactly did it take for that billion-dollar decision to be made? Where do you want to be on this chart, is all the way over on the right. It’s on the right of the chart where value is created. Because this stuff, if you can write it down. You can do it cheaper.
Now some of you look at this and say, well the economy is good in my business is in trouble. Blah,blah, blah. Now just because the tide is out, doesn’t mean there’s less water in the ocean, as my friend Melissa told me. That mantra is really important. Because of the tightest that your business where you’re at right now, it’s probably because it’s moving to this other place that I’m talking about. To this leadership place, to that connecting place.
If there are a lot of decisions in your industry, you’re more likely to win. Because that’s what you’re going get paid to do is make decisions. If on the other hand, you’re on a blind forward-looking path, then it’s going to be eventual erosion. Is it path will to imagine a future five years from now where PowerPoint share of the market goes up in the presentation, business? When there’s free alternatives, where there’s alternatives that are more connected? Blah blah blah.
It’s that way with every free piece of software you can think of. Because if it’s us tendered, once it’s not connected to a tribe. Once it’s not connected to people, then how on earth is it going to lead to more value created?
So there’s a bunch of slides and like to show you. But instead, I’m going to share with you one last thought, and then I’d rather take questions if that’s okay.
David Rackoff is a humorist and essayist, and I was reading an essay he wrote little while ago. And he’s in a theater, maybe a little bigger than this room, up at the front, and the theater is empty. Just before the movie starts, this woman comes right down the aisle, box, right up to where he is and says, “I’m sorry. Is this seat taken?” He’s looking around like what are you a loon? And then it caused a significant existential crisis for it.
Because what he realized, is he is taking a seat. He’s the guy that gets to write an essay in that magazine. He’s the guy that gets to live in that house he lives in, he’s got access to this extraordinarily powerful revolution, this moment in time, and there are millions or even billions of people who want his seat.
What he decided to do going forward is to realize that his job is a platform. It’s not a list of tasks. It’s a platform for doing art. It’s a platform for connecting. A platform for leading. And what I’m hoping that you’ll do for the rest of the conference, and especially when you get back to work is to realize that you have everything you need, to change everything. If you want to. There are other people who can’t wait to do it. But you have seat right now.
I’m hoping that you look in the mirror and ask yourself if the seat is taken, and maybe hopefully come up with the answer, yes. Thank you. Thank you for your attention. I appreciate it.
thank you. Thank you. So we got plenty of time for questions. On any topic that the metaphysical or tactical. Yes, sir.
[unheard question from the audience]
Thank you. Thank you. I appreciate that. Yes. Okay. Right. Sure. Let me tell you about free first in the Chris Anderson sense, and then tell you more about what I was talking about as far as a linchpin. Chris Anderson’s book free is largely misunderstood. He did not write that the work you do should be free. He’s not arguing that we should give away everything.
Free is the most powerful marketing tool ever. If what you make has additional cost of zero. Right, a marginal cost of zero. If your cost is free, then trial is more likely. If trial leads to someone becoming connected to a group, they don’t want to be disconnected from and they will start paying. Because that you has been proven. And people don’t mind paying for stuff that has value. They are really afraid to pay for stuff that has no value.
What we see in the software world is that free can become an insanely powerful tool for you. If it leads to connection. And if that connection leads to a person’s perception that it’s worth paying for. That’s the first riff.
The second riff comes from Lewis Ide [sp] and this idea of gifts, and art. You cannot do art. If you insist on charging for it. Because then there’s no generosity, there’s no connection, then there’s no closeness created. There was a ban on use referred thousands of years, you couldn’t charge interest on the loan. Why was that?
The reason is, there were about 150 people in every tribe. And if you loan something to people in your tribe. You got closer. I have a bushel of seed, I donated this season you planted, when they’re done, they give you the seat back. That is a connection, family, you wouldn’t charge interest on a loan to your sister. That’s what Prince people closer together.
When we became mercantilists in the 1500s and businesses were growing, we started charging interest , because business is business. And the started pushing people away. The bank that has a mortgage on your home is not family, there’s the other side. So what artists need to do is look people in the eye and say here, my goal is to change you. Here, my goal was to make things better. I am leading. Not because I expecting to have you throw money to the front of the parade, I’m bleeding because were all going somewhere. But then the magical thing that happens is that when you make art, when you make positive changes, people line up. Divide the souvenir addition, they line up to get you to do something custom, they line up because they want to be in front of the line. And that is a giant shift the changes things.
No, what we see is that once you are in the habit of reading. And creating these generous connections, the money always takes care of itself. Because people are so attracted to you and the art. So Picaso, you want to see a Picasso painting, free. You want to go to a museum and see up custom painting, free. If you want to own it, you want to canvas, you want to be in your house, that costs money.
Well the only way the value of a Picasso painting that goes up is when everyone sees them. So that’s the distinction. Right? The only way that you can charge a lot to use connecting software is if all lots of people are the connected. So it starts by saying I like connecting people. This movement is important, and this at this time were adding more levels for people who are finding it’s worth it to be even more connected. That’s what I was getting to about free. Thank you for the question.
Yes? Other questions. Yes, sir.
AutoCAD should, but doesn’t. So here is what I was using them as an example, not because they’re in their in the second kind of business, they’re in the first one. But they succeeded in the first one because it became a badge of the movement. It represented what a certain kind of architect was going for. I met them in 99, and I said, look, the Internet thing is coming.
What would happen if while I’m designing a building in AutoCAD, AutoCAD Was smart enough to hook me up with five people who make window. I just specced, and instantly can bid on it. Even better, what if AutoCAD got really good leading architects who never met each other, letting them swap and share pieces of things that they were building? So there could be this ever-growing cycle? Because if you create that community. Why on earth would anyone switch to another piece of software? And even better, not a $500 purchase at that point, it’s a $50,000 purchase at that point. Because AutoCAD starts owning part of the stream of value creation. As a good look down the road.
They, for understandable reasons made the decision that this business is going great were going to keep doing what we do. I knew, there’s a huge opportunity, to knockoff AutoCAD and lots of other people who are still in the first model. Because there are so many opportunities to set people up in the second. And that when you look back five years from now, about which you are thinking about this important software now compared to five years from now, the doors are at this much open. And they’re about to be wide open. About the need to be connected and why.
Here’s an example, it might art exist, but I can’t find. So many to build a piece of software that would let me or anyone else upload script over and audio, and then turned to 10 or 50 or hundred people in my company, or out in the outside world and say this needs illustrations. And they could each upload stuff to time coded sections. And as a group or crowd over time that Prince Tatian, that video, would get better and better and better and smarter and smarter and smarter. Because people could at the script, and it would end up with a product that was worth a lot. That I could never build on my own. A lot of people had training and lots of people in production could ever build that on their own.
And then I would certainly pay for. And what’s in it for the contributor is there not connected to other people who are on the same journey. They never would have been able to meet those people before. So the Harvard business review, 30 years ago was worth a fortune. If Harvard would’ve sold 30 years ago they could’ve sold for $150 million.
Today, and I contribute to them, it’s worth almost nothing. And the reason that some worth almost nothing it’s because they’re connecting. No one. They have this piece of paper that comes out a month and a half later than it should every time. Where people who are reading it. Don’t get to talk to the other people are reading it. What do you think it would be worth to be the ringleader of the Fortune 500 in the 500 leaders each of those companies. Those are the royalty of our age. And they’re all disconnected and Harvard had them.
They walked away. Because they thought what they did for living was chopped down trees and ship paper out. When really what they had the opportunity to do for living with connect, 25, or 250,000 people who had huge leverage. And they could have connected them in a way that they wanted to be connected.
Anyone any on over here? Yes, please.
[unhead question from the audience]
Yes. Well, all charts are not the same. For example, I used to co-run from a summer camp. There’s people who don’t send their kids to summer camp. They are not eligible. Then that we got different groups of people to syndicate the summer camp. We made the decision that the only difference between upper-middle-class people who send their kids to summer camp and for upper-middle-class people who send their it’s a summer camp is that the richer ones want to pay more.
The signal that it’s a camp for their kids, as opposed to the other kids it’s that. So we tripled our price. We got a different tribe of people to show up. The kids were any better or worse, they were just different. And we were you able to use the money to stay in business. And then we built a camp for underprivileged kids in June, so it’s all good, right?
But the point is that the first decision. If your business is, is this the business? Is this tribe of people willing to pay to be connected? And that’s why business-to-business software tribes are so much more valuable than sexy consumer tribes. Where the demand is entertained me. I’m not giving you a penny. And maybe I’ll click on it at once a month. Right? So that’s an important decision, it depends on what your objective is.
The second thing is, it’s really hard to lie to a tribe in the long haul. If you don’t respect them, if you don’t admire where they’re going to figure it out. That is, I haven’t mentioned Apple and like a really long time, like an hour. So when you think about something like Apple, I don’t think Steve is faking it. I don’t think he goes home and then boot up Windows. And then he uses a gnocchi of phone. Right?
20 years from now when someone else is running the place. It’s going to be really hard to run that tribe. If they hire a guy like the last three people that they hire to run Apple. Someone uses trying to make the stock go up. Because the tribal stiff on them. Then you run into trouble.
Then this goes all the way up like the Catholic Church. You can see, when you have a certain kind of hope versus a different kind of hope the tribe reacts differently. So your able to make a decision not just about who you want to spend time with, but how much do they care, how much money do they want to spend on your business and can they look you in the eye and tell you the truth?
Back there, please.
[Unheard question from the audience]
well, do you mean in terms of maximizing the amount of money that’s extracted? Or, I mean if you look at something like one. We’ve all seen Ted, Ted is not consumer thing. It cost $6000 to go, most people go and have their company pay. What exactly are they offering, every one of the videos is online for free. They don’t even serve food. What is it that they were going for?
And what they’re going for it is the story. What they can say about it. A week later. The meaning that they are finding there. And feeling like they belong like this insider. So the mistake that Ted could make this treating it like a business. Instead of treating it like a movement. And every time Chris gets more away, every time he acts like it’s more of movement, there in like 500 cities around the globe, they make zero from Ted.
So why do it? Because it makes the movement more clear. In the real business-to-business space. We see things like associations that have secret handshakes, and understandings, and newsletters. You’re either in them or not in them.
The chamber of commerce tried to be that 50 years ago. They’re clearly not that anymore, but in certain small niches were seeing that show up. So it might be that 40-year-old Masters of the universe that have breakfast at the Royalton, every day. And the Royalton makes a little bit of money selling them eggs, but in terms of its impact of seeing the other people in the room? That’s a tribe. And it’s a business to business connection.
Chambers Technology Partners my friend Thornton May did all their marketing for years. Thornton’s entire strategy that proved to be the biggest consulting firm, the world had ever known at the time was, he would go to breakfast in every city. He went to and he’d invite the CTO or the CIO of all the Fortune 500 companies in that count reckless.
They never, ever got a chance to meet each other, except then. So he be sitting at breakfast and here’s the guy from Texaco and the guy from this and the guy from that and they just be talking to each other. And every once in a while one would turn Thornton and say hey. Can your guy solve that problem? And Thornton would write down the question, and by the next day call would be made. That’s the entire marketing strategy of the whole multibillion billion-dollar company.
[unheard question from the audience]
well, so what we have at Squidoo, Squidoo has six employees. We’re pretty big. With only six employees. My last Internet company had 70 employees and we were much smaller. What we do is very simple, everyone who is on the payroll solve interesting problems all day long. We have no meetings, we live in six different states. We spend almost no time arguing with each other because everyone does what they do better than everyone else.
If there’s any job that could be written down, it gets done by freelancer. Because if we can write down exactly what we want, why on earth we need a brilliant person to do it? We get a competent person to do it. There are no competent people that work at our company.
Joe and I are in complete agreement. Hiring someone? Hire someone brilliant who will solve interesting problems, who do coding that cannot be done by someone that you’re not sitting next to, coding that cannot be done from a manual. Right?
But if you’re doing the back fill stuff, I’m looking at organizations that have hundreds and hundreds of programmers. I’m thinking what are hundreds and hundreds of programmers doing? Nine women you know, the whole rule. It doesn’t scale. So this is the split.
You know, I was in India in July. Erie it, and there are giant skyscrapers filled with people who can follow any spec that you would give them. For one 10th of what you’re paying your people. I’m not saying you should send him all your work, I’m just saying if that’s the competition sooner or later there’s going to be a fork. And the four years that matters is built the company filled with your replaceable people with linchpins, people. You can’t live without, people, you will then over backwards to keep, because it would really hurt if they were gone. No interchangeable people. Then, if there’s anything interchangeable, it does get done by someone who can do it way faster, cheaper, and better than you. That’s what I meant.
[Unheard question from the audience]
I disagree. No. Almost everyone on the team as a programmer. Almost everyone on the team is making stuff work. What we decided was to build a company where the kind of programming that would make us succeed is either done by a small group of truly focused people, or in the few instances where we can outsource it we do. Right?
If I was running Stack Overflow . I don’t know enough about the back stuff of Fog Creek, but looking at Stack Overflow from the outside, you need a brilliant person to build the architecture, you need a brilliant person to make sure it’s going to scale. But you don’t need 30 programmers in house to keep cloning the thing over and over and over again. The brilliant programmers should be doing something where the cloning takes care of itself. Right?
Because if you’re going to have 10,000 Stack Overflows, what are you going to do have to programmers on each one in a giant office building? So this shift is interesting.
So Groupon, Groupon from Chicago. Am I out of time? Groupon is filled with shiny smart, clever people. And there are way too many of them, way too many of them. Because it’s easier to solve a problem by hiring one more happy shiny person to do it, then to be brilliant about how this is actually scaling in the Internet age.
Because if Groupon thinks two months from now, there will be 100 Group on clones, who are taking a smaller percentage of each deal. They’re nuts. Groupon’s biggest asset, what is it? The building? No, the permission that for example in Chicago 800,000 people have signed up there to give their e-mail every day. That’s the asset.
That’s the thing that I can’t clone. I could write the software in a week. With three of you guys easy. We could just copy it. In a week, easy. What they have. It’s not copyable is they have 800,000 people in Chicago who want to get their newsletter and, they’re discovering this, the people who are offering them the deals.
So most of the hiring they’re doing a Group on that is smart is phone salespeople. Because what they do is that they give each salesperson a few zip codes, and so a pizzeria or a spot doesn’t keep hearing from the same human being. So Group on is moving as hard as they can, not to be a software company. They’re saying you know what we are we with the Yellow Pages, the Pennysaver, and friendly sales rep who you don’t want to give up to go switch to a cheaper competitor. That’s how they’re going to win. Not by hiring more programmers. That make sense?
Joel Spolsky: thank you very much.
Seth Godin: thank you.
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