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Digitally Transformed: Becoming a Technology Product Company

More and more established businesses are attempting to reinvent themselves as technology companies. At the heart of this is the digital transformation, a journey many organizations are undertaking in order to better compete and serve their customers. As a result, companies are pouring tons of cash into digital transformation strategies. For some, this means broader adoption of agile or DevOps practices. For others, it’s modernizing product offerings or moving to the cloud. Regardless of the changes, many are struggling to find success transforming themselves due to low throughput, quality issues, or failing to deliver the right thing at the right time. In a few cases, digital transformation has ended in outright disaster.

What is it that these companies are really after? To solve new problems in new ways through innovation? To more rapidly adapt to the changing market? To protect existing revenue? Any leader worth their salt will say all of these are important outcomes, so how do you even begin to make a “digital transformation” actionable? What are we transforming to? How do we know when we’ve arrived?

The reason so many digital transformations fail has to do with how IT is usually positioned within mature, established businesses. I believe what these companies are really after is not a digital transformation—whatever that might be—but rather an organizational one that radically changes the way the business operates. One that redefines what IT means in the context of building software. The technology is incidental to this cultural shift which involves the intersection of people, processes, and innovation. In order to be successful, these organizations need to become technology product companies.

The Genesis of IT

There is an inertia within organizations to overvalue tactics and undervalue strategy. This is true not just of mature, established businesses but really all businesses, startups included. In fact, it’s this exact reason most startups fail. A lack of clear strategy and guiding vision precludes even the best execution from delivering success outside of the odd unicorn (after all, someone has to win the Powerball). Established businesses, however, already have a reliable cash flow engine to fall back on. There is much more margin for error when it comes to both strategy and execution, but this peacetime mentality leads to disruption. Many leaders have begun to recognize this and act on it, falling right back to what they know best—tactics.

Why do companies and managers tend to bias towards tactics over strategy in software development? It comes back to the genesis of IT. Historically, IT was about managing computers, networks, email, phone systems, and other technical areas of the business. While this is still true today, the result of software eating the world has caused that scope to broaden significantly. But for mature, established businesses, IT has long been viewed as a cost center, and the mandate for an IT leader is cost minimization. This is in spite of the fact that the business has shifted away from humans, paper forms, and telephones to automation and software-based solutions. IT has always existed to support business operations, first by managing the technology the business depended on, now by building it. The only real change was IT transforming from a servant of the business to a partner of it.

Consequently, there are two key directives for a traditional IT organization: carry out the orders of the business and minimize cost. These goals inherently lead to a project mindset that is output- and task-oriented. Thus, IT has always been tactical and execution-minded in nature.

A Spotter’s Guide to Project-Minded IT

There are three ways to identify a project-minded IT organization. First, if both software engineers and more traditional IT roles like hardware support or help desk report up to a CIO, it’s likely a project-minded organization. In this case, it’s all just lumped into one group called “IT.”

This contrasts with product-minded companies which place IT responsibilities under a CIO, whose directive is still cost minimization, and product development responsibilities under a CTO and/or CPO (Chief Product Officer), whose directive is strategic investment. There are two distinct groups, IT and Product Development or R&D. It’s more common to see CTOs or CPOs at newer, technology-first companies than it is at mature, established businesses since this requires a major realignment. This alignment, however, is why we see many of the execution issues at companies attempting to “digitally transform” themselves.

Second, if there is a clear separation between IT or development and the business, there’s a good chance it’s a project-minded organization. This might be signaled by business partners, business analysts, or product owners who provide teams with implementation requirements and act as a backlog administrator. Developers might not have a good understanding of who their customers are or they view the business partner as the customer. This can also be signaled by frequently changing priorities, an ever-growing backlog of tasks, or unaddressed tech debt piling up. The team is typically not cross-functional, consisting only of developers and a business partner. Marty Cagan refers to these as delivery teams, and they are purely output-driven.

Alternatively, the team may be cross-functional with some form of designer (often oriented more towards UI than UX) and product manager, but it’s still governed by outputs. The product manager’s role is closer to that of a project manager armed with a product roadmap, and the closest thing developers have to product discovery is design and usability testing. Cagan refers to these as feature teams. Both delivery and feature teams exist to serve the business. These are the teams you’ll find at most companies building software.

At product-minded companies, teams are cross-functional with designers, UX, engineers, and product, and they are measured by outcomes, not outputs. This focus on outcomes means that the team is empowered to figure out the best way to solve the problems they’ve been asked to solve rather than being fed a list of features to build. These teams have an intimate understanding of their customers and interact with them regularly to perform product discovery and validate solutions. These are product teams in the truest sense but also quite rare.

The last way to spot a project-minded organization might be the most obvious. If the roadmap has a clear end point, it’s a project. Here, an IT organization treats building a software solution the same way it treats installing a new phone system. When the project is completed, teams or resources are reallocated to new projects and one of two things happen: it’s either dumped on another team to maintain and extend or no one sticks around to support it. The finished project languishes or former developers are told to context switch to it reactively and at the whims of the business. Engineers are treated as interchangeable and teams are not particularly durable or mission-driven but rather task-driven.

Product-minded companies instead embrace the virtues of minimum viable product, shipping incremental value, validating ideas, and iteration. The product manager provides a vision that unites the team in a common mission. Products are not “completed,” rather they grow and evolve. There is an emphasis on business outcomes over task outputs. Managers understand that teams are composed of people with diverse skills who are not easily fungible but who might be better suited to different phases of a product’s lifecycle. Members of a team might shift focus to other areas and priorities over time, but always in support of the team’s mission.

The Philosophical Dilemma of the Stoplight

A tactics-first mindset results in a propensity to treat software development like an assembly line. We can see this with the recent adoption of ideas from the Toyota Production System and lean manufacturing as it’s applied to software development. This emphasis on tactics causes managers to view product development as an optimization problem—if we just optimize the right set of tactics and practices, we can significantly improve throughput and quality at scale. This has led to the rise in packaged frameworks and processes like SAFe, LeSS, DAD, and Nexus as well as tactics like agile, pair programming, and test-driven development at large organizations.

The assembly-line mindset aims to take developers of arbitrary skill and background, run them through a prescribed process, and get high-quality, high-output results on the other end. I’ve never seen this deliver the desired outcomes in practice, at least not to the degree most leaders hope.

On the surface, mass production and software development share a lot of similarities. Both require quality standards, collaboration between groups of specialized workers, and repeatability. However, the reality is they are quite different from each other. A manufacturing assembly line is optimized to produce the exact same product over and over again, efficiently and reliably. Software products, especially Software as a Service, are heterogeneous. While we seek a process that produces consistent results, each product and situation is unique. Too prescriptive, and we end up with a rigid process that yields poor results and low-throughput. Too unstructured, and we end up with inconsistent and unreliable output.

Our Head of Client Experience Mike Taylor refers to this as the Stoplight Problem. To demonstrate, ask a roomful of people what to do at each phase of a stoplight. On green, everyone says “Go.” On red, “Stop.” And on yellow? The answers vary—even more so with the introduction of flashing yellow lights. How close are we to the light? How fast are we traveling? Are the roads icy? What are the cars in front or behind us doing? What happens at a yellow light is entirely context-dependent and situational. It comes down to making informed choices in the moment without an authoritative, black-and-white determination.

Execution and delivery issues invariably come down to one thing: the yellow light. The green and red lights are binary indicators. There are clear right and wrong actions to take. These are things that can be taught and learned—where tactics matter—but the yellow light comes down to making good decisions. This is something organizations struggle with at scale. How do you trust your teams to make good decisions? As a result, they end up making those decisions top-down in a command-and-control or assembly-line fashion. This is how organizations end up with delivery and feature teams. What’s needed is a sort of meta process or process for encouraging good decision making.

Empowered Product Teams

The emphasis on tactics isn’t limited to traditional project-minded IT organizations. Tactics are more visible and measurable. To a manager, tactics feel like work is happening, but they are rarely the difference maker for a company.

To illustrate, imagine handing out a bunch of axes to a group of people and telling them to go collect some wood. You might even teach them the proper technique for chopping down a tree. What happens next? Chaos. Confusion. A general sense of wandering in the woods. What kind of timber do we need? How much? What is it used for? How do we move it? Watching an army of people swinging axes is going to look like a lot of work is going on, but is it work that matters? You might follow people around, directing them where to go, which trees to cut down, and where to move them, but this won’t scale very well.

Without a guiding vision, we’re left with a bunch of people wandering in the woods swinging axes. Work happens, things get done—maybe even things that matter—but it’s haphazard and inefficient. More often than not, though, we’re always two weeks from completion because there isn’t clarity on where we’re trying to be. In agile terminology, we’re iterating to nowhere.

Our response might be to micromanage or implement the assembly-line process, turning our teams into feature factories. In my experience, this creates new challenges. In the first case, by grinding throughput to a halt, and in the second case, by failing to address the Stoplight Problem. The solution is a combination of vision, strategy, and execution.

A vision is a mental image of what the future could be like. It’s a grand and idealistic state, not something that can be achieved in a short amount of time. A shared vision empowers teams to make better decisions independently.

Strategy consists of a plan with decreasing fidelity. Some organizations attempt to plan 12 to 18 months out in a very waterfall-like fashion, and unless you’re sending a rocket into space, it just doesn’t work. A strategy is really a series of goals that get progressively fuzzier the further you go out. While a vision usually isn’t directly actionable, goals are both actionable and attainable in support of the overarching vision. We can break our strategy down into sets of three-month goals, which allows us to adjust course as needed. This is important since our goals are increasingly fuzzy. The key here is that strategy and goals are not dictated to teams. There needs to be give and take and dialog. OKRs can be a good tool for facilitating this.

At Real Kinetic, we hold quarterly leadership offsites to revisit our vision and strategy, course-correct, and ensure we have a general sense of alignment. We help our clients do the same within their product development organizations. The challenge with strategy is it looks like talking, while tactics look like working, even if it’s work that doesn’t truly move the needle. This is a cognitive bias leaders and managers should be aware of because it can trap us into focusing on tactics that aren’t framed by a clear vision and strategy.

Execution is all about hitting the goals we lay out in our strategy. This is where tactics come into play, but rather than providing teams with a list of features to implement or tasks to perform, we empower them to make good decisions. This is made possible by our guiding vision and cross-functional, mission-driven product teams. Our product manager is figuring out what lies ahead and helping plan the best course of action for realizing our vision. They are looking at value and business viability risks for the product. Our designer is looking at usability risks, and our tech lead is looking at feasibility, making estimations, and contributing to the strategy in order to avoid potential obstacles. You’ll notice that nowhere have we mentioned agile or scrum because these are specific tactics for managing execution. Together, the team is determining execution and discovering a solution that moves the business towards the ideal state set forth by its leadership.

Becoming a Technology Product Company

The struggle with digital transformation is it doesn’t get at the heart of the issue. It’s a tactical response to a tangible, yet ultimately inconsequential, part of the problem. The problem is not due to technology or innovation or particular tactics, it’s due to organizational alignment and execution deficiencies. Unfortunately, the former is more visible and more easily acted on than the latter.

The transformation that organizations are actually after is becoming a technology product company. This requires empowered product teams in combination with vision, strategy, and execution. Most companies focus on the execution because it’s easier, but it’s not sufficient. Empowered product teams require a shared vision that enables them to make good decisions without the need for an overly regimented or top-down process. This is the only effective way I’ve seen software companies scale throughput and quality. Don’t let your organization think it’s building a boulevard when it’s actually planting perennials next to potholes.

Real Kinetic helps clients build great product development organizations. Learn more about working with us.

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Planting Perennials Next to Potholes

Silos, bikesheds, and focusing on what matters

If you’ve ever flown into Des Moines then you’ve had the privilege of driving on what might be the most decrepit major road in the metro area. An important artery, Fleur Drive is the only way to get to and from the airport, and the pavement is marginally better than that of a dirt road. Cars weave back and forth to dodge potholes and massive cracks in the asphalt as people race to catch their flights. There always appears to be some kind of construction going on somewhere along the six mile stretch of road, and yet, it never seems to actually improve. The road is also located in a major floodplain, so sometimes the city just closes it when the nearby river rises too much. It’s basically what you’d get if you agiled your way through urban planning.

Typically, you’ll see the Public Works Department planting flowers or otherwise maintaining the landscaping of the medians. It goes down to one lane when they have to water the flowers. Over the past month, they tore up and poured new concrete to replace the medians altogether, again bringing the road down to one lane in the process. The tulips look nice though.

It’s interesting because a lot of companies build software this way. They quickly pave the road by iterating their way there, ignoring nearby flood hazards or the anticipated traffic that’s going to be traversing it. They plant some flowers along the way to make it look nice and then move on to the next thing. Over time, the road deteriorates. Fleur is a main thoroughfare, so you can’t just close it and repave. The city doesn’t have the budget to repave it all at once anyway. So you patch up a few potholes and plant some new flowers.

There are a few different facets to this depending on what vantage point you look at it from. As it turns out, however, they all dovetail into the same thing. At the individual level, what you often see is bikeshedding. That is, engineers focusing time and energy on technical minutiae that, in the grand scheme of things, don’t really matter. Often it’s fixating on aesthetics and what you can see rather than function or things that truly move the needle forward in a meaningful way. Sometimes we get caught up in the details and plant flowers. When you’re up to your neck in alligators, it’s hard to remember that your initial objective was to drain the swamp. This often comes from a lack of direction for the team, and it’s the manager’s job to ensure we’re focusing on what matters.

At the team level, we start to run into siloing issues. This happens when we have different functions of the business focusing on their little parts of the world, more or less neglecting the other parts. Development focuses on development. Operations focuses on operations. Security focuses on security. What you get is gridlock, an utter inability to make progress because everyone is uncompromisingly fastened to their silo. Worse yet, what does manage to get done is a patchwork of competing goals and agendas. It’s building new medians as the roads crumble. And silos are not limited to pure business functions like development, operations, and security. There are silos within silos—Product Team X and Product Team Y, for example. Silos are recursive. They are a natural team dynamic that occurs as organizations grow in accordance with Dunbar’s number, especially at companies that rigidly specialize by function. This is why a cohesive vision is critical.

At the organization level, we see large-scale strategy problems and what I call “WIP-lash”—lots of WIP (Work In Progress), lots of shifting priorities, and lots of “high-priority” items. Priorities change at the drop of a hat or everything is a priority all of the time or the work is planned 12 months in advance and by the time we execute, the goalposts have moved. Executives make knee-jerk mandates in absolute terms to respond to the newest fire. Tech debt piles up as things are added to the never-ending priority queue (that’s at least one thing that doesn’t get equal priority as everything else!), but the infrastructure is in a constant state of ruin and the potholes don’t stop. WIP-lash is just strategic bikeshedding. This is a prioritization and planning issue through and through. We can’t close the entire road and repave it. Instead, we do it in phases. Managing tech debt works the same way. We have to pay it down periodically, but not with constant band-aids and chewing gum and not by stopping the world. We have to prioritize the work like everything else we do, and sometimes that means saying no to other things we deem important.

OKRs can be a useful way to force those difficult decisions and provide teams a shared vision. Specifically, they are the strategy to balance out the iterative tactics of agile. If you don’t have some kind of mile markers you’re working towards, you’re just iterating your way to nowhere. OKRs are not intended to be a waterfall approach, they are about providing strategic guidance. That doesn’t mean companies don’t screw it up though, especially when consultants get their hooks into things. They don’t need to be a large, scary, expensive process with fancy tools—just a Word document and real discussions about what needs to happen and dialogues about what is actually possible. OKRs are hard to get right though and, like anything, require iteration. A key part of good OKR processes is using them to drive discussions and negotiations up and down the organization. It surfaces conflicts and alignment issues earlier in the process. It provides line managers a mechanism to push back and force hard decisions and open a dialogue between groups. The discussions on what really matters and the negotiation about what is really possible is the major value.

“Do you want this or that? I only have resources for this.”
“Oh, I actually have engineers I can lend this quarter. Maybe that will help?”
“Sure, but we can only accomplish part of that.”
“We can make that work.”

OKRs are a vehicle for strategic discussions, not tactical status updates, task lists, or waterfall plans. Without some sort of guiding vision that you’re working towards, you’re just doing stuff. That might look and feel productive but only on the surface. It must be a negotiation if you want results and not just activity.

It really comes down to prioritization and alignment. At the individual level, we have tactical bikeshedding—focusing on items that are largely inconsequential. This is a prioritization problem. It falls on managers to keep teams focused, but it also flows from broader organizational issues. It’s particularly insidious in companies that separate product management (“the business”) from product development (“engineering”). At the organization level, we have strategic bikeshedding—being unable to make hard decisions and focus in on what matters to the business right now, resulting in WIP-lash. This is also a prioritization problem, and it leads to the tactical bikeshedding mentioned earlier. In between, at the team level, we have siloing. This causes all sorts of issues ranging from gridlock and broken customer experiences to duplication of effort. It’s an alignment problem.

There is not a simple, quick solution to these problems, but it starts at the top. If management is not in alignment and unable to prioritize what matters, no one else will. Work will happen, and to a passerby that can look reassuring, but is it work that matters? OKRs are not a silver bullet, and they are difficult to do and take time to get right. But when executed well, they can be a powerful lens to focus on what matters and provide a shared vision. As Intel co-founder and former CEO Andy Grove said, the most powerful tool of all is the word “no.”

Real Kinetic is committed to helping clients develop great engineering organizations. Learn more about working with us.

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Multi-Cloud Is a Trap

It comes up in a lot of conversations with clients. We want to be cloud-agnostic. We need to avoid vendor lock-in. We want to be able to shift workloads seamlessly between cloud providers. Let me say it again: multi-cloud is a trap. Outside of appeasing a few major retailers who might not be too keen on stuff running in Amazon data centers, I can think of few reasons why multi-cloud should be a priority for organizations of any scale.

A multi-cloud strategy looks great on paper, but it creates unneeded constraints and results in a wild-goose chase. For most, it ends up being a distraction, creating more problems than it solves and costing more money than it’s worth. I’m going to caveat that claim in just a bit because it’s a bold blanket statement, but bear with me. For now, just know that when I say “multi-cloud,” I’m referring to the idea of running the same services across vendors or designing applications in a way that allows them to move between providers effortlessly. I’m not speaking to the notion of leveraging the best parts of each cloud provider or using higher-level, value-added services across vendors.

Multi-cloud rears its head for a number of reasons, but they can largely be grouped into the following points: disaster recovery (DR), vendor lock-in, and pricing. I’m going to speak to each of these and then discuss where multi-cloud actually does come into play.

Disaster Recovery

Multi-cloud gets pushed as a means to implement DR. When discussing DR, it’s important to have a clear understanding of how cloud providers work. Public cloud providers like AWS, GCP, and Azure have a concept of regions and availability zones (n.b. Azure only recently launched availability zones in select regions, which they’ve learned the hard way is a good idea). A region is a collection of data centers within a specific geographic area. An availability zone (AZ) is one or more data centers within a region. Each AZ is isolated with dedicated network connections and power backups, and AZs in a region are connected by low-latency links. AZs might be located in the same building (with independent compute, power, cooling, etc.) or completely separated, potentially by hundreds of miles.

Region-wide outages are highly unusual. When they happen, it’s a high-profile event since it usually means half the Internet is broken. Since AZs themselves are geographically isolated to an extent, a natural disaster taking down an entire region would basically be the equivalent of a meteorite wiping out the state of Virginia. The more common cause of region failures are misconfigurations and other operator mistakes. While rare, they do happen. However, regions are highly isolated, and providers perform maintenance on them in staggered windows to avoid multi-region failures.

That’s not to say a multi-region failure is out of the realm of possibility (any more than a meteorite wiping out half the continental United States or some bizarre cascading failure). Some backbone infrastructure services might span regions, which can lead to larger-scale incidents. But while having a presence in multiple cloud providers is obviously safer than a multi-region strategy within a single provider, there are significant costs to this. DR is an incredibly nuanced topic that I think goes underappreciated, and I think cloud portability does little to minimize those costs in practice. You don’t need to be multi-cloud to have a robust DR strategy—unless, perhaps, you’re operating at Google or Amazon scale. After all, Amazon.com is one of the world’s largest retailers, so if your DR strategy can match theirs, you’re probably in pretty good shape.

Vendor Lock-In

Vendor lock-in and the related fear, uncertainty, and doubt therein is another frequently cited reason for a multi-cloud strategy. Beau hits on this in Stop Wasting Your Beer Money:

The cloud. DevOps. Serverless. These are all movements and markets created to commoditize the common needs. They may not be the perfect solution. And yes, you may end up “locked in.” But I believe that’s a risk worth taking. It’s not as bad as it sounds. Tim O’Reilly has a quote that sums this up:

“Lock-in” comes because others depend on the benefit from your services, not because you’re completely in control.

We are locked-in because we benefit from this service. First off, this means that we’re leveraging the full value from this service. And, as a group of consumers, we have more leverage than we realize. Those providers are going to do what is necessary to continue to provide value that we benefit from. That is what drives their revenue. As O’Reilly points out, the provider actually has less control than you think. They’re going to build the system they believe benefits the largest portion of their market. They will focus on what we, a player in the market, value.

Competition is the other key piece of leverage. As strong as a provider like AWS is, there are plenty of competing cloud providers. And while competitors attempt to provide differentiated solutions to what they view as gaps in the market they also need to meet the basic needs. This is why we see so many common services across these providers. This is all for our benefit. We should take advantage of this leverage being provided to us. And yes, there will still be costs to move from one provider to another but I believe those costs are actually significantly less than the costs of going from on-premise to the cloud in the first place. Once you’re actually on the cloud you gain agility.

The mental gymnastics I see companies go through to avoid vendor lock-in and “reasons” for multi-cloud always astound me. It’s baffling the amount of money companies are willing to spend on things that do not differentiate them in any way whatsoever and, in fact, forces them to divert resources from business-differentiating things.

I think there are a couple reasons for this. First, as Beau points out, we have a tendency to overvalue our own abilities and undervalue our costs. This causes us to miscalculate the build versus buy decision. This is also closely related to the IKEA effect, in which consumers place a disproportionately high value on products they partially created. Second, as the power and influence in organizations has shifted from IT to the business—and especially with the adoption of product mindset—it strikes me as another attempt by IT operations to retain control and relevance.

Being cloud-agnostic should not be an important enough goal that it drives key decisions. If that’s your starting point, you’re severely limiting your ability to fully reap the benefits of cloud. You’re just renting compute. Platforms like Pivotal Cloud Foundry and Red Hat OpenShift tout the ability to run on every major private and public cloud, but doing so—by definition—necessitates an abstraction layer that abstracts away all the differentiating features of each cloud platform. When you abstract away the differentiating features to avoid lock-in, you also abstract away the value. You end up with vendor “lock-out,” which basically means you aren’t leveraging the full value of services. Either the abstraction reduces things to a common interface or it doesn’t. If it does, it’s unclear how it can leverage differentiated provider features and remain cloud-agnostic. If it doesn’t, it’s unclear what the value of it is or how it can be truly multi-cloud.

Not to pick on PCF or Red Hat too much, but as the major cloud providers continue to unbundle their own platforms and rebundle them in a more democratized way, the value proposition of these multi-cloud platforms begins to diminish. In the pre-Kubernetes and containers era—aka the heyday of Platform as a Service (PaaS)—there was a compelling story. Now, with the prevalence of containers, Kubernetes, and especially things like Google’s GKE and GKE On-Prem (and equivalents in other providers), that story is getting harder to tell. Interestingly, the recently announced Knative was built in close partnership with, among others, both Pivotal and Red Hat, which seems to be a play to capture some of the value from enterprise adoption of serverless computing using the momentum of Kubernetes.

But someone needs to run these multi-cloud platforms as a service, and therein lies the rub. That responsibility is usually dumped on an operations or shared-services team who now needs to run it in multiple clouds—and probably subscribe to a services contract with the vendor.

A multi-cloud deployment requires expertise for multiple cloud platforms. A PaaS might abstract that away from developers, but it’s pushed down onto operations staff. And we’re not even getting in to the security and compliance implications of certifying multiple platforms. For some companies who are just now looking to move to the cloud, this will seriously derail things. Once we get past the airy-fairy marketing speak, we really get into the hairy details of what it means to be multi-cloud.

There’s just less room today for running a PaaS that is not managed for you. It’s simply not strategic to any business. I also like to point out that revenues for companies like Pivotal and Red Hat are largely driven by services. These platforms act as a way to drive professional services revenue.

Generally speaking, the risk posed to businesses by vendor lock-in of non-strategic systems is low. For example, a database stores data. Whether it’s Amazon DynamoDB, Google Cloud Datastore, or Azure Cosmos DB—there might be technical differences like NoSQL, relational, ANSI-compliant SQL, proprietary, and so on—fundamentally, they just put data in and get data out. There may be engineering effort involved in moving between them, but it’s not insurmountable and that cost is often far outweighed by the benefits we get using them. Where vendor lock-in can become a problem is when relying on core strategic systems. These might be systems which perform actual business logic or are otherwise key enablers of a company’s business. As Joel Spolsky says, “If it’s a core business function—do it yourself, no matter what. Pick your core business competencies and goals, and do those in house.”

Pricing

Price competitiveness might be the weakest argument of all for multi-cloud. The reality is, as they commoditize more and more, all providers are in a race to the bottom when it comes to cost. Between providers, you will end up spending more in some areas and less in others. Multi-cloud price arbitrage is not a thing, it’s just something people pretend is a thing. For one, it’s wildly impractical. For another, it fails to account for volume discounts. As I mentioned in my comparison of AWS and GCP, it really comes down more to where you want to invest your resources when picking a cloud provider due to their differing philosophies.

And to Beau’s point earlier, the lock-in angle on pricing, i.e. a vendor locking you in and then driving up prices, just doesn’t make sense. First, that’s not how economies of scale work. And once you’re in the cloud, the cost of moving from one provider to another is dramatically less than when you were on-premise, so this simply would not be in providers’ best interest. They will do what’s necessary to capture the largest portion of the market and competitive forces will drive Infrastructure as a Service (IaaS) costs down. Because of the competitive environment and desire to capture market share, pricing is likely to converge.  For cloud providers to increase margins, they will need to move further up the stack toward Software as a Service (SaaS) and value-added services.

Additionally, most public cloud providers offer volume discounts. For instance, AWS offers Reserved Instances with significant discounts up to 75% for EC2. Other AWS services also have volume discounts, and Amazon uses consolidated billing to combine usage from all the accounts in an organization to give you a lower overall price when possible. GCP offers sustained use discounts, which are automatic discounts that get applied when running GCE instances for a significant portion of the billing month. They also implement what they call inferred instances, which is bin-packing partial instance usage into a single instance to prevent you from losing your discount if you replace instances. Finally, GCP likewise has an equivalent to Amazon’s Reserved Instances called committed use discounts. If resources are spread across multiple cloud providers, it becomes more difficult to qualify for many of these discounts.

Where Multi-Cloud Makes Sense

I said I would caveat my claim and here it is. Yes, multi-cloud can be—and usually is—a distraction for most organizations. If you are a company that is just now starting to look at cloud, it will serve no purpose but to divert you from what’s really important. It will slow things down and plant seeds of FUD.

Some companies try to do build-outs on multiple providers at the same time in an attempt to hedge the risk of going all in on one. I think this is counterproductive and actually increases the risk of an unsuccessful outcome. For smaller shops, pick a provider and focus efforts on productionizing it. Leverage managed services where you can, and don’t use multi-cloud as a reason not to. For larger companies, it’s not unreasonable to have build-outs on multiple providers, but it should be done through controlled experimentation. And that’s one of the benefits of cloud, we can make limited investments and experiment without big up-front expenditures—watch out for that with the multi-cloud PaaS offerings and service contracts.

But no, that doesn’t mean multi-cloud doesn’t have a place. Things are never that cut and dry. For large enterprises with multiple business units, multi-cloud is an inevitability. This can be a result of product teams at varying levels of maturity, corporate IT infrastructure, and certainly through mergers and acquisitions. The main value of multi-cloud, and I think one of the few arguments for it, is leveraging the strengths of each cloud where they make sense. This gets back to providers moving up the stack. As they attempt to differentiate with value-added services, multi-cloud starts to become a lot more meaningful. Secondarily, there might be a case for multi-cloud due to data-sovereignty reasons, but I think this is becoming less and less of a concern with the prevalence of regions and availability zones. However, some services, such as Google’s Cloud Spanner, might forgo AZ-granularity due to being “globally available” services, so this is something to be aware of when dealing with regulations like GDPR. Finally, for enterprises with colocation facilities, hybrid cloud will always be a reality, though this gets complicated when extending those out to multiple cloud providers.

If you’re just beginning to dip your toe into cloud, a multi-cloud strategy should not be at the forefront of your mind. It definitely should not be your guiding objective and something that drives core decisions or strategic items for the business. It has a time and place, but outside of that, it’s just a fool’s errand—a distraction from what’s truly important.

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Plant Trees Before You Need the Shade

Like humans, companies go through phases. There’s the early seed and development phase. Founders are so preoccupied with a problem they go crazy. They consider solutions and the feasibility of a business. There’s the startup phase, when a business is actually born, and it stumbles towards product/market fit. There’s the growth and scaling phase, as we try to close more and more deals while, at the same time, hiring the right people. If we’re lucky, we reach the later stages. There’s the expansion phase, as we attempt to land and expand or attack new verticals or geographies. This is when things get really interesting—and hard. Who are the right people to hire? What are the right products to build? The formula that got us here almost certainly won’t get us there. Lastly, there’s maturity, which is when the business has really hit its stride. Maybe there’s an exit, and very likely there’s new leadership involved.

Consistent in all of this are two things: culture and capabilities. Culture is the invisible hand inside your organization. It’s your company’s autopilot. Specifically, culture is the unique combination of processes and values within an organization. These processes and values are what enable us to replicate our success. They allow people to make decisions which are in alignment with the goals of the company without having to constantly coordinate with one another.

This also means your culture is derived from your capabilities, what your organization can and cannot do. Clayton Christensen groups these factors into three buckets: resources, processes, and values. Resources are the (mostly) tangible things a company has—people, capital, brands, intellectual property, relationships with customers, manufacturers, distributors, and so forth. Processes are what we do with resources to accomplish the organization’s goals, such as developing products, developing employees, hiring, firing, doing market research, and allocating resources. They take in resources and produce value. Processes help us protect and scale our values by providing a means of documenting and codifying them. These are predominantly intangible things. Finally, values define how a company makes decisions. What goes to the top of the list, and what gets ignored. What gets investment, and what doesn’t. These are our priorities that guide us.

There are a few problems with how leadership tends to view capabilities. There is typically an overemphasis on resources. This happens because in the startup phase, success is largely governed by resources. Notably, people. This is especially true of software startups. I quote this section from The Innovator’s Dilemma frequently:

In the start-up stages of an organization, much of what gets done is attributable to resources—people, in particular. The addition or departure of a few key people can profoundly influence its success. Over time, however, the locus of the organization’s capabilities shifts toward its processes and values. As people address recurrent tasks, processes become defined. And as the business model takes shape and it becomes clear which types of business need to be accorded highest priority, values coalesce. In fact, one reason that many soaring young companies flame out after an IPO based on a single hot product is that their initial success is grounded in resources—often the founding engineers—and they fail to develop processes that can create a sequence of hot products.

In the beginning stages, people drive success. Early engineers and founders (the two are not mutually exclusive) have an itch to scratch that they are so passionate about, they evangelize this crazy grand vision and people get excited. The company is small, focused, passionate, and everyone is working closely together to solve a customer problem they are obsessed with. And, sometimes, it pays off.

Next, leadership starts asking itself, “OK, we shipped this crazy successful product, now how do we grow?” This is where the wheels start to come off. There are three problems that occur.

First, the focus shifts away from solving a problem you’re obsessed with to finding the next big product. These companies fail to find a new product because they are searching for one without passion. They are seeking top-line revenue growth, not pursuing a vision. They are looking at markets through the lens of “here’s where we can make money” and not “here’s where we can solve problems,” and in doing so, they lose sight of the customer. At this stage, they basically have forgotten what got them here.

Second, their processes get in their own way. This seems contradictory given that processes, by their very nature, are meant to facilitate repeatability. If we have good processes in place, we should be able to apply them time and time again, even with different people, and end up with consistent results. But things break down when we apply the same processes to different problems. In essence, they try to find success using what brought them success to begin with, but with a warped perspective. You can look at every startup and they will all have wildly different stories about how they found success, but the one thing they will all have in common is that relentless itch. When we attack a new market, we need to do a reset on the processes and values, not a recycle. Christensen suggests if your company is so deeply entrenched in its processes that this isn’t viable, as is often the case with large enterprises, spin it out into a new venture. Processes are as dynamic as the company itself. They are not a one-size-fits-all deal. Christensen calls this the migration of capabilities.

The factors that define an organization’s capabilities and disabilities evolve over time—they start in resources; then move to visible, articulated processes and values; and migrate finally to culture. As long as the organization continues to face the same sorts of problems that its processes and values were designed to address, managing the organization can be straightforward. But because those factors also define what an organization cannot do, they constitute disabilities when the problems facing the company change fundamentally.

Third, they don’t fully appreciate the nature of dynamic priorities. Software startups in particular often mistakenly attribute their initial success to technology when, in reality, it’s because of people and timing. Aside from the passion, you need people early on who can ship and ship often. These might not be the most technically capable engineers, but they get things done when it matters. Later, you need people who can still ship but while cleaning things up. Lastly, you need maintainers—people who can refine without breaking anything. That’s not to say you have these archetypes exclusively at each stage—you want a balance of people—but it’s similar to how companies commonly need a different type of CTO at different phases or an Interim CTO.

While resources are an essential part of early success, it’s processes and values that will sustain you. However, we tend to overfit on resources because we become biased from that success—investing heavily in technology and innovation and grounding the company’s success in a few key individuals. We also overfit because resources are more visible and measurable. Being deliberate about establishing processes and values—which are derived from vision—helps to overcome this bias, but it needs to happen early and be continually reinforced. We also need to ensure our processes adapt to new problems. The larger and more complex an organization becomes, the harder this gets.

Moreover, we need to be conscientious about which processes matter to us the most. Often the most important capabilities aren’t reflected by the most visible processes—product development or customer service, for example—but in the less visible, background processes that support decisions about where to invest resources. These might include determining how market research is done, how financial and sales projections are drawn from this analysis, how products are conceived, how planning and budgets are negotiated, and so on. These processes are where many companies get their inability to cope with change.

And this is where the breakdown happens: a company has highly capable people—people who have helped shape its success as a startup—but arms them with the wrong processes and values. The result is often a boom followed by a bunch of fizzles as they try to catch lightning in a bottle once more. A compelling vision plants a seed. Strong processes and clear values help that seed to grow. But the shade produced by that seed—our capabilities—is stationary, so when we approach a new challenge, we need to recognize when to start tilling.

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The Sharing Economy: A Race to the Bottom

Last year, Airbnb hosted more than four million guests around the world. ((https://www.airbnb.com/annual)) A million rides were shared on Lyft just over a year after it launched in 2012 ((http://techcrunch.com/2013/08/08/lyft-1m-dc)). These data points alone seem impressive, but the growth of this phenomenon is staggering. The “sharing economy”—as it’s being called—enables just about anyone to become their own micro-entrepreneur. New companies like Uber, TaskRabbit, and Airbnb are popping up at a remarkable rate, and they’re disrupting traditional businesses in astonishing fashion. An entire conference dedicated to this new socio-economic system occurred just a few months ago, but the truth is the sharing economy is little more than marketing sleight of hand.

What Rhymes with Sharing?

A significant driving force purportedly behind the sharing economy is a social one—a notion of friendship, community, and trust. The rideshare service Lyft uses a tagline “your friend with a car.” Venture capitalist Scott Weiss of Andreessen Horowitz calls it “a real community—with both the drivers and riders being inherently social—making real friendships and saving money.” The two-day Share conference took place in May, organized by Natalie Foster, former New Media director to the Obama campaign. Foster claims that “we’re building a movement” with a guiding principle that access trumps ownership.

One of Airbnb’s founders, Nate Blecharczyk, suggests, “We couldn’t have existed ten years ago, before Facebook, because people weren’t really into sharing.” The paradoxical irony is that people have never been more disconnected and seemingly connected at the same time than any point in history. A Trulia survey ((http://info.trulia.com/neighbor-survey-2013)) last year indicated that almost half of all Americans don’t know their neighbors’ names. An Australian sociologist found relations in “a precarious balance” after investigating community responses to the 2011 flooding in Queensland, concluding that “we are less likely than ever to know” our neighbors. ((http://www.macleans.ca/society/the-end-of-neighbours)) Yet, Foster and others assert the sharing movement is “recreating the virtues of small-town America [by] rejecting the idea that stuff makes us happier, that ownership is better than access, that we should all live in isolation.”

It’s Not Voodoo (Economics)

Shockingly, the reality of the sharing economy isn’t a sociological one, it’s an economic one. The selling point of Lyft isn’t the fist bump passengers are greeted with. Technology has reduced the barrier for the peer-to-peer exchange of goods and services, but such an exchange is hardly new. The sharing economy is simply a euphemism for micro-subletting developed by marketers to allow companies to insert themselves as transaction brokers. That’s not to conflate the ideas of “sharing” and “free,” but to perceive these companies as community-first, business-second would be disingenuous. Union Square Ventures partner Brad Burnham made this clear at Share, diverging from some of the self-congratulatory talk. “What we’re talking about is the natural tendency of capitalism to consistently find a more efficient way of delivering something,” he says. “It’s information technology lowering transaction costs and revealing assets that can be utilized.”

The concept of for-profit sharing, specifically as a business model, isn’t alarming. In fact, it’s the nature of capitalism. However, the sharing economy isn’t what it is because people want or need a lifestyle of access-over-ownership, it’s because, for some, it’s all there is. On one hand, it’s a supplementary source of income for people rich in assets. On the other hand, it’s a livelihood for those who aren’t.

The Bottom is a Long Way Down, Let’s Split a Cab

Uber and Lyft have been engaged in a savage ground war, both in pricing ((http://fortune.com/2014/05/28/in-price-wars-some-uber-and-lyft-drivers-feel-the-crunch)) and business tactics. The same can be said of other such companies offering services for less under the guise of “community” and “sharing.” It’s a troubling race downward, but what’s more troubling is the reason many of these companies are able to disrupt incumbents so pervasively. Airbnb et al. bypass industry-specific taxation, insurance, and further regulations. They’ve felt it in fines and other legal difficulties. In some sense, “micro-entrepreneurs” are really just employees less a salary or wage, health insurance, paid-time off, and employer protection.

“We are enabling micro-entrepreneurs to build their own business, to set their own schedules, specify how much they want to get paid, say what they are good at, and then incorporate the work into their lifestyle,” says TaskRabbit founder Leah Busque. ((http://www.businessweek.com/articles/2012-09-13/my-life-as-a-taskrabbit)) Doing laundry covered in cat diarrhea or breaking down boxes probably isn’t the American Dream for most, but it’s becoming increasingly indicative that income inequality is a driving undercurrent of the sharing economy.

A Bloomberg national poll ((http://www.bloomberg.com/news/2013-12-11/americans-say-dream-fading-as-income-gap-hurts-chances.html)) conducted late last year revealed that nearly two-to-one Americans believe the U.S. no longer offers everyone an equal chance to get ahead. This is felt by many participating in the sharing economy. Burnham raises doubts about the long-term viability of companies like Airbnb, Uber, and Lyft, all of which have raised hundreds of millions of dollars in venture capital. His concern is that every dollar returned to investors is a dollar the users of the service don’t see, yet they created the value in the first place. “Those companies won’t be able to get out from under that structure,” Burnham says, suggesting that a new generation of “thin” share-economy companies will take their place. The tendency, he proposes, will be for competition to become “thinner and thinner to the point where you end up at decentralized autonomous corporation” along the lines of Bitcoin. ((http://www.forbes.com/sites/jeffbercovici/2014/05/13/why-uber-and-airbnb-might-be-in-big-trouble))

The Future of Sharing

While “sharing economy” is a misnomer, the businesses that participate in it are disrupting markets. What’s unclear is how this will shakeout in the long term. The likely outcome is that this new model will become assimilated into existing models and embraced by incumbents. Airbnb, Uber, and company may continue to exist in some capacity, but they face challenge from leaner “skinny platforms” using more innovative funding strategies. It’s improbable these disruptive newcomers will remain unfettered from regulation. In a sharing economy with no floor, a race to the bottom is without end.