Cost of Leadership

Part of leadership is finding the opportunity to lead. Some contexts crave and reward leadership, others do not. Leadership blossoms when it finds fertile ground. (A little spring analogy for you.)

(For the purposes of this post I'm defining leadership pretty broadly. It could be leadership in the context of business, community, technology, professional or academic areas. The sky's the limit.)

It's tempting to shoot for the biggest target; to attempt to establish leadership in the biggest market, in the most popular meme, or the latest craze. However there is a cost to leadership - it takes time, energy and skill (and sometimes money) to lead within a context. The more established that context is, the more of those resources it will require from a leader.

In the web world, for example, the leaders of the biggest segments get a lot of press. Amazon and Ebay are e-commerce leaders. Google is the search leader. Apple is definitely a leader of something, although we're not sure what to call it ("coolness?"...ew...). Notice, however, that these leaders are also giants. Because they operate in such large, well-established spaces, they need to have immense resources in order to maintain their leadership position.

I'd like to propose that the benefit of being a leader follows a kind of "S"-curve. If you look at the graphic, the straight black ascending line represents the amount of investment (time, energy, money) necessary to attain leadership within a context. The red line is the benefit to the leader to hold that position. Notice that there are two places on the graph where the red line exceeds the black line. Those are the sweet spots.

The first spot, on the far right, is the one that gets all the press. This is the geometric value afforded to Amazon, Google and so forth, because they hold a leadership position in a well-known established space. The benefits here are obviously huge. Unfortunately it requires an enormous investment, which is often not an option for smaller companies, or individuals, making it seem like it's an impossible task to get ahead through leadership.

However, there is a second, less noticed sweet spot just left of the middle of the graph. This represents a space in "early adopter" territory. A new idea that is beginning to get some traction, but hasn't yet entered the mainstream is an area where a modest investment in time, energy and perhaps money can yield a significant benefit. One can "hitch their wagon" to the new thing, and become recognized as a leader for doing significant things at a modest scale. For individuals, small companies and organizations this is the acheivable sweet spot.

When the space matures and moves along to the middle of the graph the return on investment of leadership evens out: the idea has entered the mainstream, and the benefits of displaying leadership are no longer attractive in proportion to the amount of investment that has to be made. At this point it's too easy to be accused of just "jumping on the bandwagon", in other words - not a leader.

To sum up, the opportunity for benefit from leadership comes in identifying an idea, meme, technology or whatever that has significant momentum behind it, but isn't quite ready for prime time for non-early adopters. Get involved, make things better somehow, contribute to any surrounding community. The benefit that comes back will exceed the cost of leadership.

Continuous Breakage

When I started working at Ai there were about 6 people. Now there is about 40. In speaking with a colleague yesterday, I stumbled upon the essential mechanism of a scaling company: breakage. A scaling company is one in which good, working processes break. Continuously.

The mechanism itself is simple: business processes put in place when there are 6 people stop working when there are 12. Processes that work at 12 people then strain under 24. Processes at 24 fail at 35. Failing processes are a normal part of a growing company. It's healthy. Painful, but healthy.

The role of good management is to be ready for process failures and respond actively: either by adjusting or replacing business processes to fit the needs of the company at its new size. Unfortunately, this can't be done prematurely - it can be just as destructive to roll out a process that is optimized "too large" than it is to cling to one that is optimized "too small". The balancing act is to wait until the appropriate time to adjust a business process, recognizing that occasionally it will feel like overkill when it is initially implemented.

The other factor that can be easy to overlook is that there are people involved. Processes shape people's jobs and thus their experience at work. If a person's job description changes as a consequence of a process adjustment, it can be interpreted as a change in their prestige or status. Great care needs to be taken in order to not unduly ruffle feathers in the pursuit of a working organization. The people have the same value they've always brought - its the organization that has changed.

What we have here is...

PayPal is dealing with some unintended fallout regarding a smart policy decision.

The online money folks made a smart decision last week and put out a press release. The original news: PayPal to Block Users With Old Browsers. All well and good; PayPal is a regular phishing target.

But the news items and press around the announcement were not clear enough. From the article above: "PayPal said a 'significant' group of people still use Microsoft's Internet Explorer 3, released in 1996, and IE 4, which debuted in 1997. Those browsers lack a phishing filter, which can block users from accessing a reported phishing Web site." The article later notes that "Apple's browser -- Safari -- does not" have a phishing filter.

Cue melodrama, and the follow-up news this morning: PayPal Denies Plan to Block Safari. Which, of course, was not the original news item. But PayPal neither a) provided a list of blocked browsers nor b) listed modern browsers like Safari as safe for use, at least nowhere I've looked.

The lack of clarity created a situation that ran far afield of the original intent. Instead of being heralded as encouraging safe ecommerce, PayPal found itself dispelling rumors that angered the Macintosh audience. A little more communication and transparency would have ended the excitement before it began.

Fenders and Benders

The tech team at Ai is split into two parts. Roughly two-thirds of our staff are developers, the behind-the-scenes programmers and creators of software and rich applications.

The other third are front-end engineers, handling the HTML, CSS, and scripting languages rendered by browsers. Both teams are tight-knit and collaborative, particularly the front-end team.

In this spirit the smaller crew coined itself a little ways back: they are the Fenders, short for "front-enders" (obviously). They take great pride in their work, compete for compliancy accuracy, and play some mean foosball. Most importantly, they work as a team. With a great name.

By extension, the developers are Benders, for back-end, although the term hasn't made the same impact. The Fenders, on the other hand--or "Fendas," as our Bronx-style lead Fender likes to say--are really making a name for themselves. Two of our clients have started using it regularly.

The next time you hear about web page creation, don't think simply in terms of client-side coding or web design. Think: fender.

Micro-Problems

Micro-payments.  Cool huh?  The term was thrown around for awhile as the solution to content providers looking to find a revenue stream.    People could show up on a website and buy some content for a tiny amount - insignificant to them.  But the tiny amounts would add up and the content provider would make some real money.

Unfortunately this is a case where the brick and mortar world has held the web back.  There are fundamental issues with accepting micro-payments that can threaten the very business model of companies that have planned on charging, say, $1.00 per transaction.  The problem is the cost of the transaction itself.

Before we go any farther though, let's first define what we mean by micro-payments:

• $3 to $5 The Starbucks Range:  It's arguable whether this range is really micro-payments.  It's more like mini-payments.  Equivalent to an espresso bar drink in terms of cost, this range has a relatively low resistance to sales for items that are perceived to have value.  Movie rentals on iTunes are in this range.
• $1 to $2:  The iTunes Range: Long been considered the range of acceptable pricing for music and TV shows ($1 and $2) respectively.  This range seems to be low to no resistance for downloadable goods - at least for those who are willing to pay for digital media at all.
• Less than $1:The Mythical Range:  The realm of the original micro-payments range.  A price point considered to be so low that no one could possibly object to it.  Not much in the real world lives at this tier, for reasons we'll see in a minute.

From a marketing perspective, the original idea of micro-payments was to set the price for digital goods low enough that paying for them wasn't a big deal.  There would be no appreciable pain to the consumer, and volume would create a revenue stream for content providers.  The "true micro-payment" range (less than $1) was often cited in the context of this usage.

However there is a hard-to-solve problem lying in the heart of micro-payments - and that's  the cost of the transaction itself.  It costs money for a merchant to take a transaction.  This money is generally trivial in a "regular" size transaction, but it becomes an unreasonably large part of gross revenue when micro-payments are involved.

The problem is middlemen.  When one takes money on a website there are at least two other parties involved besides the merchant and the customer.  The first is the transaction gateway, such as Payflow Pro (owned by PayPal, which is in turn owned by Ebay) or Authorize.net.  These are the  people that connect the banking system to the Internet, allowing only credit card processing to be possible.

The second group is the merchant bank.  In order to receive credit card payments, a company must hold a merchant bank account and sign up for merchant services, usually provided by the same bank that issued the account.

Both of these two parties levy fees on each incoming transaction.  And fees are always structured as a few cents minimum, plus a percentage of the transaction.  It's the minimum fee that's deadly to micro-payments.

About a year ago I went shopping for a bank that could set me up with a micro-payment deal to accommodate purchases of $1.  The best I could come up with, after speaking with almost a dozen banks, was a deal that added up to about 37 cents of transaction fees on the dollar (that's the gateway cost, plus the bank charges).  That's 37% of the gross revenue going to bank charges.

One strategy to address this is transaction aggregation.  This is (probably) being used by iTunes.  How it works is that when you purchase the first micro-payment item, your credit card is authorized for an amount beyond what you actually purchased.  Subsequent purchases that take your total to an amount below the authorized amount cause no further activity with the gateway.

Then at the end a a certain time period, all the transactions that you did in that period that fall  under the original authorization are run as a credit card capture, all at the same time.  This will usually be less than the amount that was originally authorized.  In the end there is only one completed credit card transaction performed by the gateway and the bank, which hopefully contains several micro-payment purchases by you.

The first catch is that credit cards limit the amount of time a merchant can hold an authorization on a credit card without capturing it.  It looks like the most restrictive version of this is about a week, which is why if you buy stuff on iTunes you'll see a charge go through at the end of the week.

The second catch is that aggregation only works if the customer buys more stuff during the aggregation period.  So it means that iTunes only gets the advantage when you buy more than that first song during a one week period.  If your purchases are spaced out over a longer time - iTunes is out of luck, they need to run a new transaction.

The problems with the micro-payment structure may be one of the driving reasons behind the enthusiasm for subscription models with content.  The obvious advantage (besides the "reliable revenue stream" thing) is that the entire content income is balled into one big monthly transaction,  making the relevant transaction costs pretty insignificant by comparison.  Unfortunately the big transaction also has a big price tag, which brings with it increased buying resistance with consumers, also known as "sticker shock".

I don't have a great solution packaged up for you, unfortunately.  However I would urge caution when evaluating any business plan or idea that has micro-payments at the center of it.   Often thrown around as an idea, they have some real brick and mortar problems attached to them.

Fun with focus groups

Ai is conducting informal usability testing for a client this week. We've had a small procession of strangers come to our office for 45-minute sessions, and in exchange, we're handing out American Express gift cards.

This is the first time we've done tests on-site, and it may be our last. The testing has gone great, but we've had one person double-air-kiss our moderator and another demand twice as much compensation as we offered in our ad.

Then there's the job candidate who stopped at our front desk on her way out. Our office manager, Katie, was in deep discussion on the phone, and handed the woman a gift card, inadvertently paying her $50 for her job interview.

Imagine Katie's surprise when she got off her call and discovered the usability tester still in her session.

(The interviewee kept the card. What would you have done?)

Wither Windows?

So quite recently, the Ruby on Rails open source web framework announced that they would be migrating from the Subversion code repository they had to a new one managed by Git.  Git is a version control system created by Linus Torvalds to manage the Linux kernel.  Linus had several requirements in mind when he made Git, requirements that involved specific sets of features, scaleability, stability etc.

As might be expected from the creator of the Linux kernel, none of these requirements included running well on Windows.

Git does technically run on Windows, but its kind of a hack, and Redmond's favorite platform is definitely treated like a second class citizen (ooh... irony...).  So naturally when Rails moved to Git, there was a number of Windows users who were concerned they were being left behind.  Interestingly, the Rails maintainers responded that amongst the core developers of Ruby on Rails, Windows users were a small minority.

So then, in this other piece I was reading (I need to see at least two things before I declare an Official Trend) John Dvorak rips on Dell, claiming they're stuck in a 90's mentality.  In the article, he says Dell isn't keeping up and startups in Silicon Valley these days tend to use laptops, and many many of these laptops are Macs.

Even Senator Schmelkin, a long time Windows guy, switched completely over to a Mac a couple of months ago (I tried to get him to blog it...sorry, no luck...).

Okay - I knew Apple was getting a boost from the whole  iPod thing, but I never expected to see quite this level of momentum (and yes, yes...I'm sure in the accounting and parking facility businesses Windows still has 18456% market share...).  There seems to be an accelerating trend, especially in the software and web world where not only is it more desirable to work on a Mac, but its beginning to look like people are beginning to take the position that Windows doesn't matter.  It's like it's deprecated.

(Disclosure - I was a Mac guy from before it was cool, except for a span of about 5 years that I spent trying to install Linux on a laptop).

The Rails guys do tend to be a bit religious at times - "my way or the highway".  But I do find the basis for their switch interesting.  The lack of first-class support for Windows was simply not a consideration.  Has the world finally changed?  Is the wicked witch finally dead?

Ai at the Circus

We took a little field trip yesterday. (The guy in the clown suit is our front-end tech lead.)

The new guy

Our newest developer is an affable California actor/musician named Mike. He came to Ai very deliberately: not just to take on a new job, but to have a new experience, shifting from freelance life on the west coast to a full-time gig at a boutique agency in Manhattan.

We thought it'd be interesting to hear Mike's take on joining Ai. Here is his story.

It's 80 degrees in California. The sun is shining, the surf is epic, and I'm enduring a bone-chilling winter in New York City; I've accepted a job here at Alexander Interactive, and these are my reflections on my first couple of months here.

Prior to taking this job, I've spent a long time freelancing, largely because I wanted the flexibility to pursue music and acting, but also because there's a certain stubborn pride in flying solo.

As a freelance developer you have opportunities to interact with so many different kinds of organizations. You see their strengths and weaknesses; the star players that make them great, and the mediocre-types that weigh them down. You bounce in for a while to launch a new web property or maybe to incubate a fledgling app idea with a prototype.

But then when it comes to evaluating these engagements as full-time employment opportunities, you start to sound like Goldilocks - this company's too big; that one's too small. This one's too structured or limiting; that one's too disorganized or perhaps underfunded for their expectations. Some companies define us too rigidly, while still others lack enough methodology and process for us to grow as individuals, team members, decision-makers, artists and engineers.

At the end of the day, the choice of employment is an exercise in personal branding ... and I was fundamentally unwilling to marry my personal brand to that of an organization, big or small. Was it a fear of commitment? Was it that I felt the other "hats" or interests would somehow be lost upon taking a "full-time" job as a web developer? Did I think that somehow an employer would dismiss my range of possibilities? Or had I simply not found an organization that I was going to be proud to be a part of?

Some people said I had the perfect LA life - 5-minute commute to my own office, flexible schedule to surf and rehearse with my band, coding through my twilight primetime as I pleased. I had complete flexibility, which was great, but it was a lonesome existence. Encounter a problem? Just me and The Google, baby. I was lacking community, challenge, and direction; and I knew it.

What makes this Ai place special, isn't that everyone here is excellent at some piece in the web development puzzle. It's that the people here are real people, bringing their talents as "individuals" to the team - and trying to excel in disciplines beyond those called upon at work.

A tech lead is leaving work with a violin amidst a 60-hour week, on his way to orchestra rehearsal. Another dude is reading Chekhov ... in Russian! Yet another has made a career change from teaching, and enjoys discussing philosophy. One of the javascript gurus plays bass like Jaco! The list goes on, of course, but already it's sounding contrived. My point is that people here are fascinated by a lot more than just elegant code and sleek design - they're drawn in by the patterns of the world at large.

And this drive to see order in the world and in our work pays off big for clients. People here kill themselves to build things the right way. Folks here groan when clients stubbornly choose less-than-usable solutions. Everyone here hang their hats on goodness, and it's not in a taking-credit or competitive sense - it's in the genuine appreciation of a solid product.

I'm really fortunate (and stoked, in the California vernacular) to have discovered a group of 40 men and woman that are doing solid work, and having fun while doing it. If my fooseball skills can improve half as much as my programming has, I'm going to be all set -- actually strike that -- my fooseball skills need a pretty severe overhaul.

When I came in for interviews in December, my final interviewer had googled me and found a goofy YouTube video of me dancing at a wedding a couple of years ago. I shook my head and thought "Oh man, that's it - there's no way I'm getting that job" as I left the interview. Upon recounting this episode now to one of the founders, he responded "Are you kidding me? That video's *why* we hired you." Amen to people with a sense of humor in an age with no *real* privacy.

There's great stuff going on here. We've just built a social network using Ruby-on-Rails, we're building beautifully-usable websites, and we're helping our clients extend their brands everywhere from Facebook to the iPhone. And you know what? It feels really good to say "we". And for my old colleagues and clients reading this - I'm happy to say, I'm still available to build to help build your digital idea. Because now I'm part of a killer team, doing just that. No longer a solo artist - I'm with the band, man.

And for all you maverick freelancers out there that could never imagine ever setting foot in an office again, consider that this is a golden time to be at this company of this size - a delicate balance of freedom and know-how accountability. And though I'm miles away from "home", it feels a bit like a homecoming.