4 ms·

It’s easy to have a culture of taking risks when you have unlimited revenue. What’s amazing to me is how timid companies get when there’s limited resources. In

It’s easy to have a culture of taking risks when you have unlimited revenue. What’s amazing to me is how timid companies get when there’s limited resources. Instead of making another big bet to get back on the revenue train, they chase trends. Like Google getting caught off guard on AI and now chasing that instead of leading here or elsewhere. I don’t know the answer. Part of the problem is you went from company leadership focused on a domain (search) to generalist business types. The domain experts had a strong conviction about their domain. But the business types are good at executing an existing business model, but not the domain wherewithal to find another big market. Even if internally there exists someone with such a conviction or idea, if it threatens to take focus away from the current cash cow, and leadership doesn’t have the expertise to understand the idea, such innovation will be discouraged. You also tend to attract stability oriented careerists once people see how likely it is to make sustainable salary, with stock, by getting in. Once in I don’t think you’re incentivized to take risks or rock the boat of the existing business model. And thus, and forever, cycles of business will continue. It’s hard to create a big company that has both a stable business model and takes the right risks.

hn8305823 3y ago
> What’s amazing to me is how timid companies get when there’s limited resources. Instead of making another big bet to get back on the revenue train, they chase trends. A classic (and timely) counter-example to this is when Boeing bet the entire company on the success of the 747 in the late 1960's. It worked and it Boeing survived but it was an incredibly aggressive and risky bet for a big old company. Unfortunately the Boeing of today is the exact opposite (or worse). Instead of investing in a clean sheet redesign of the 737 they used the R+D budget to buy back their own stock - at the cost of 338 lives so far. So the leadership (CEO + Board) can make this go either way, regardless of how big and old the company is.
- N1H1L 3y ago
  True. Honestly they should have taken the second bet in the 2010s and come up with a clean sheet 737 successor. It would have been bold, but the company would have been in far better shape today
lawrenceyan 3y ago
> Like Google getting caught off guard on AI and now chasing that instead of leading here or elsewhere. ????
1vuio0pswjnm7 3y ago
"It's hard to create a big company that has both a stable business model and takes the right risks." And yet, for centuries people have done it. It's easy to create a big company without a stable business model that refuses to take the right risks when meaningful competition and regulation do not exist, and there are long periods of unconventional monetary policies (QE, ZIRP). Will the company last. Question for the reader to decide. For example, Big Company A has survived for 172 years by taking the "risk" of hiring journalists to produce news. Big Company B has survived for 25 years by not hiring journalists and instead using the product of Big Company A's employees as bait to lure in ad targets. What "risks" did Big Company B take, if any. Were they the "right" ones. Let the reader decide. Big Company B just seems like a giant leech. What happens when the blood supply from Big Company A is exhausted. Find another host? As for the folks Big Company B did hire to share in the immense bounty, as it happens they are just a non-essential expense that can be cut at any time. Some of them brag online about how they only work two hours a day. They loved the benefits. They saw no evil. But what risk was taken in hiring them. Question for the reader to decide.
zamfi 3y ago
Richard Thaler, the behavioral economist, is pretty sure this is because the incentive structure goes bad. An executive who goes for a new project with a 50/50 chance of either (a) making $3m or (b) losing $1m -- note the expected value of $2m -- expects a pat on the back, maybe a couple months' salary as bonus, in case (a), and to be fired in case (b). Naturally, the business would love to pursue all these opportunities, while any individual manager would almost never choose to pursue one. This is a variant of the principal-agent problem. Thaler's book is titled "Misbehaving" -- well worth listening to the audiobook if you have a commute!
- xtreme 3y ago
  I'm nitpicking, but the expected value for a project with a 50/50 chance of either (a) making $3m or (b) losing $1m is $1m. Not $2m.
  - zamfi 3y ago
    Ugh, you are totally right. I originally had making $5m but then changed it and not the EV :facepalm:
  - BossingAround 3y ago
    Just wondering, is it because 3 * 0.5 + (-1) * 0.5 = 1.5 - 0.5 = $1M?
    - zamfi 3y ago
      yes
hintymad 3y ago
> It’s easy to have a culture of taking risks when you have unlimited revenue. A company can manage to take risks with the right culture and the right business priority, even if it has limited profit. AWS, for instance, gives its services years of runway to prove themselves. The company places enormous demand on its leadership to show "technical boldness" and business initiatives. S3, EC2, Serverless, DDB, and etc, were initially considered risky bets. On the other hand, the same AWS culture does not necessarily encourage long-term applied research. As a result, AWS couldn't come up with breakthroughs like BERT and GPT. Case in point, AWS adopted a German's university's ASR solution so AWS could go to market quickly, even though the cost was that the engineers and scientists were bogged down by maintaining the model instead of coming up with models like Whisper.

hn8305823 3y ago

> What’s amazing to me is how timid companies get when there’s limited resources. Instead of making another big bet to get back on the revenue train, they chase trends. A classic (and timely) counter-example to this is when Boeing bet the entire company on the success of the 747 in the late 1960's. It worked and it Boeing survived but it was an incredibly aggressive and risky bet for a big old company. Unfortunately the Boeing of today is the exact opposite (or worse). Instead of investing in a clean sheet redesign of the 737 they used the R+D budget to buy back their own stock - at the cost of 338 lives so far. So the leadership (CEO + Board) can make this go either way, regardless of how big and old the company is.

N1H1L 3y ago
True. Honestly they should have taken the second bet in the 2010s and come up with a clean sheet 737 successor. It would have been bold, but the company would have been in far better shape today

lawrenceyan 3y ago

> Like Google getting caught off guard on AI and now chasing that instead of leading here or elsewhere. ????

1vuio0pswjnm7 3y ago

"It's hard to create a big company that has both a stable business model and takes the right risks." And yet, for centuries people have done it. It's easy to create a big company without a stable business model that refuses to take the right risks when meaningful competition and regulation do not exist, and there are long periods of unconventional monetary policies (QE, ZIRP). Will the company last. Question for the reader to decide. For example, Big Company A has survived for 172 years by taking the "risk" of hiring journalists to produce news. Big Company B has survived for 25 years by not hiring journalists and instead using the product of Big Company A's employees as bait to lure in ad targets. What "risks" did Big Company B take, if any. Were they the "right" ones. Let the reader decide. Big Company B just seems like a giant leech. What happens when the blood supply from Big Company A is exhausted. Find another host? As for the folks Big Company B did hire to share in the immense bounty, as it happens they are just a non-essential expense that can be cut at any time. Some of them brag online about how they only work two hours a day. They loved the benefits. They saw no evil. But what risk was taken in hiring them. Question for the reader to decide.

zamfi 3y ago

Richard Thaler, the behavioral economist, is pretty sure this is because the incentive structure goes bad. An executive who goes for a new project with a 50/50 chance of either (a) making $3m or (b) losing $1m -- note the expected value of $2m -- expects a pat on the back, maybe a couple months' salary as bonus, in case (a), and to be fired in case (b). Naturally, the business would love to pursue all these opportunities, while any individual manager would almost never choose to pursue one. This is a variant of the principal-agent problem. Thaler's book is titled "Misbehaving" -- well worth listening to the audiobook if you have a commute!

xtreme 3y ago
I'm nitpicking, but the expected value for a project with a 50/50 chance of either (a) making $3m or (b) losing $1m is $1m. Not $2m.
- zamfi 3y ago
  Ugh, you are totally right. I originally had making $5m but then changed it and not the EV :facepalm:
- BossingAround 3y ago
  Just wondering, is it because 3 * 0.5 + (-1) * 0.5 = 1.5 - 0.5 = $1M?
  - zamfi 3y ago
    yes

hintymad 3y ago

> It’s easy to have a culture of taking risks when you have unlimited revenue. A company can manage to take risks with the right culture and the right business priority, even if it has limited profit. AWS, for instance, gives its services years of runway to prove themselves. The company places enormous demand on its leadership to show "technical boldness" and business initiatives. S3, EC2, Serverless, DDB, and etc, were initially considered risky bets. On the other hand, the same AWS culture does not necessarily encourage long-term applied research. As a result, AWS couldn't come up with breakthroughs like BERT and GPT. Case in point, AWS adopted a German's university's ASR solution so AWS could go to market quickly, even though the cost was that the engineers and scientists were bogged down by maintaining the model instead of coming up with models like Whisper.